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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-27374
UNISON HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0684011
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
15300 N. 90TH STREET, SUITE 100
SCOTTSDALE, ARIZONA 85260-2768
(602) 423-1954
FORMER ADDRESS:
8800 NORTH GAINEY CENTER DRIVE, SUITE 245
SCOTTSDALE, ARIZONA 85258
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, Par Value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of October 22, 1998, there were 6,422,096 shares of Common Stock,
par value $0.001 per share, outstanding. The aggregate market value of the
shares of Common Stock held by nonaffiliates of the registrant on October 22,
1998 was approximately $62,000. For purposes of the foregoing calculation only,
all directors and executive officers of the registrant have been deemed
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [_] No [_]
The Company currently is involved in bankruptcy proceedings, and a plan of
reorganization and disclosure statement was submitted to the court. However, the
plan has not been confirmed, and at this time no securities have been
distributed under the plan.
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TABLE OF CONTENTS
1997 ANNUAL REPORT ON FORM 10-K
UNISON HEALTHCARE CORPORATION
<TABLE>
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PAGE
PART I
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Item 1. Business ............................................................................... 1
Item 2. Properties ............................................................................. 17
Item 3. Legal Proceedings ...................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders .................................... 22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 22
Item 6. Selected Financial Data ................................................................ 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................................... 24
Item 8. Financial Statements and Supplementary Data ............................................ 41
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................................ 42
PART III
Item 10. Directors and Executive Officers of the Registrant ..................................... 42
Item 11. Executive Compensation ................................................................. 44
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 50
Item 13. Certain Relationships and Related Transactions ......................................... 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 54
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PART I
Certain statements contained in this Annual Report, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects" and words of similar import, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). While the Company believes that the assumptions
underlying these statements are reasonable, such assumptions (and thus the
statements based upon them) could prove to be inaccurate. Important factors
which could cause results to vary include, among others: delays in or inability
to conclude transactions, including the contemplated restructuring; adverse
actions which may be taken by creditors; the outcome of various bankruptcy
proceedings; general economic and business conditions; competition; loss of
customers; changes in applicable laws and regulations; availability, terms and
deployment of capital in light of recent losses, cash flow shortfalls and the
Company's Chapter 11 bankruptcy filings; cancellation of leases or contracts;
demand fluctuations; adverse uninsured determinations in any existing or future
litigation or regulatory proceedings; health care statutory or regulatory
changes which disfavor the types of care delivered by the Company; reversal of
the current limitations in the supply of long-term care facilities; and Year
2000 issues. Important factors which could cause results to vary also include
the factors discussed in Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as factors discussed
elsewhere in this report or in any document incorporated herein by reference.
As has been reported by the Company, it continues to experience
financial difficulties and has not been successful in its efforts to reduce its
costs of capital and operating expenses and provide liquidity. Due to the
Company's cashflow shortfalls and due to its on-going efforts to complete the
restructuring of the Company, the preparation of this Form 10-K has been delayed
until this time.
ITEM 1. BUSINESS
INTRODUCTION
Unison provides comprehensive long-term and specialty healthcare
services. As of October 31, 1998, after giving effect to the Dispositions (as
defined below), Unison ranks as one of the 30 largest long-term care operators
in the United States, operating facilities in five states clustered in the
Midwest, Southwest and Southeast. These facilities include 32 long-term and
specialty care facilities with 3,284 licensed beds and three independent or
assisted living facilities with 214 units. Unison seeks to operate its
businesses as an interrelated network of services to provide a full continuum of
cost-effective long-term and specialty healthcare.
Unison's healthcare services include both traditional long-term care
services and higher margin specialized healthcare, such as rehabilitation,
infusion and respiratory therapy. Unison also provides, either directly or
through third-party contracts, pharmaceutical services, rehabilitation and
therapy services, medical supplies and laboratory testing, both to its
facilities and to nonaffiliated entities.
The Company was incorporated in Delaware as SunQuest HealthCare
Corporation in July 1992 and changed its name to Unison HealthCare Corporation
on November 14, 1995.
RECENT DEVELOPMENTS
As described in greater detail elsewhere herein, the operating results
and financial condition of the Company have been negatively impacted by a number
of factors, including cash flow difficulties, increased costs due to recent
acquisitions and rising litigation costs. See Item 7, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
The Company's cash flows from operations and its available capital have
been insufficient to meet its current operating expenses, lease obligations and
debt service requirements. Consequently, the Company currently is in breach and
in default of the terms of material operating leases and indebtedness. It is
expected that the Company
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will be unable to remedy the existing breaches and defaults. The Company's
operating leases are subject to termination in the event of default, and the
Company's indebtedness may be accelerated in the event of continuing default.
Certain leases may be terminated and certain lenders currently have the right to
foreclose on Company assets securing their indebtedness, which would include
substantially all of the Company's operating assets. However, the exercise of
these rights have been stayed as a result of the bankruptcy filing. As discussed
below, the Company is in the process of implementing a plan of reorganization in
an attempt to deal with these issues. See Item 2, "PROPERTIES" and Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Overview".
The risks associated with the Company's historic acquisition strategy
have negatively impacted Unison's financial performance. A key element of
Unison's business strategy during 1995 and 1996 was to expand through the
acquisition of new or existing long-term and specialty healthcare facilities and
the acquisition or development of ancillary health care businesses or services.
The acquisitions of BritWill, Signature, Sunbelt, RehabWest and Ampro and the
formation of Quest were in pursuit of this strategy. As a result of the
acquisitions, the Company was faced with unforeseen contingencies affecting its
new businesses including increased costs due to integrating the acquired
operations into the overall enterprise. For example, difficulties in integrating
the acquired facilities within Unison's financial reporting and management
information systems were a substantial factor contributing to the need to
restate Unison's financial statements for the nine months ended September 30,
1996. Its financial reporting and management information systems were not
adequate for the larger and more complex needs of the Company. Those system
difficulties then contributed to the operating inefficiencies that led to the
unexpected losses for that period and subsequent periods.
Additionally, the number of lawsuits initiated against the Company has
grown as its financial difficulties worsened, including suits with vendors,
landlords and several class action lawsuits (which also involved certain of the
Company's current and former directors and officers (among others) as named
defendants). Such class action complaints generally assert that the defendants
knew, or were reckless in not knowing, that Unison's results for the first nine
months of 1996 were materially overstated, or misrepresented the capability of
Unison's internal accounting system to reliably record and reflect its financial
condition, among other things. See Item 3, "LEGAL PROCEEDINGS".
On January 7, 1998, three of Unison's subsidiaries, BritWill
Investments - I, Inc., BritWill Investments - II, Inc. and BritWill Indiana
Partnership (the "BritWill Debtors"), with operations in Texas and Indiana,
filed for protection under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court"). The Chapter 11 filings were necessitated by
actions taken by Omega to terminate or otherwise enforce the terms of its lease
agreements with the Company. Unison, through its subsidiaries, leases 14
long-term care facilities from Omega under three master lease agreements. In
addition, Unison leases six facilities from BritWill Investments Texas, Ltd.
("BritWill Texas") which are subject to a mortgage in favor of Omega (the
"BritWill Texas Leases"). The BritWill Texas Leases contain cross-default
provisions with the Omega leases. Unison is currently in payment and covenant
default of the Omega leases and the BritWill Texas Leases. BritWill Texas is an
affiliate of Bruce H. Whitehead, a major shareholder and creditor of Unison and,
until May 29, 1998, Chairman of Unison's board of directors.
On May 28, 1998, Unison and 29 of its subsidiaries filed for
reorganization under Chapter 11 of the Bankruptcy Code. Unison had previously
initiated negotiations to reach a consensual restructuring of its debt and lease
obligations with Omega, representatives of certain of the holders of its $100.0
million 12 1/4% Senior Notes due 2006 (the "12 1/4% Senior Notes") and $20.0
million 13% Senior Notes due 1999 (the "13% Senior Notes") (the "Ad Hoc
Committee"), and certain entities related to Mr. Whitehead (the "Whitehead
Affiliates") and David A. Kremser (the "Kremser Affiliates"). Mr. Kremser is a
major stockholder and creditor of Unison and, until May 29, 1998, was a director
of Unison.
On June 15, 1998, Unison concluded an agreement in principle with
respect to a consensual restructuring with some, but not all, of its creditor
constituencies. The agreement in principle formed the basis of the plan of
reorganization filed with the Bankruptcy Court on August 10, 1998. On October
16, 1998, an amended plan of reorganization (the "Plan") was filed. The Plan has
the support of Omega and the Official Committee of Unsecured
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Creditors but not the support of the Ad Hoc Committee. The significant elements
of the Plan are described in Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview" and in the Disclosure
Statement and the Plan which are attached hereto as Exhibit 2.1. During the
Chapter 11 process, Unison and its subsidiaries are operating their businesses
and managing their properties as debtors-in-possession under authority of the
Bankruptcy Code.
DISPOSITIONS
In 1996, the Company initiated a plan to dispose of eight long-term
care facilities which failed to meet Unison's operational or financial criteria
due to inadequate Medicaid reimbursement, low occupancy rates or adverse local
market conditions. Four of these facilities, one of which was closed, were
disposed of via sublease in March 1997. The remaining four facilities continue
to be held for disposition.
As part of the Company's restructuring plans, the Company modified its
original disposition plan and identified additional long-term care facilities
for disposition, which the Company believes will facilitate the restructuring.
As part of these plans, the Company terminated the leases of eleven long-term
care facilities during the first eight months of 1998 (the "Dispositions"). As
of October 31, 1998, eight facilities representing 692 beds remain held for
disposition (the "Disposition Facilities"). Of the eight Disposition Facilities,
six are leased from Omega Healthcare Investors, Inc. ("Omega") and, as part of
the Plan, Omega will release the Company from its obligations related to these
facilities. Unison also plans to sell Sunbelt Therapy Management Services, Inc.
and its subsidiaries ("Sunbelt"). Sunbelt provides rehabilitation therapy
services to Unison facilities and to third parties. There can be no assurance
that the Company's disposition plan as implemented will prove to be successful
or that these dispositions have occurred or will occur on favorable terms to the
Company. See " - Recent Developments", "Acquisitions", and Item 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Overview".
ACQUISITIONS
On August 10, 1995, the Company acquired BritWill HealthCare Company
and subsidiaries ("BritWill") which, at the date of acquisition, operated 28
long-term care facilities in Indiana and Texas (the "BritWill Acquisition"). On
October 31, 1996, Unison acquired Signature Health Care Corporation and
affiliates ("Signature") which, at the date of acquisition, operated 13
facilities in Arizona and Colorado (the "Signature Acquisition"). Signature also
provided rehabilitation therapy services through its related company RehabWest,
Inc. ("RehabWest").
The Company also acquired and developed several other ancillary
businesses in recent years. In May 1995, Unison established Quest Pharmacies,
Inc. ("Quest") to develop an institutional pharmacy business. Quest has since
acquired institutional pharmacy operations in Indiana and Texas. As of September
30, 1998, Quest provided pharmacy services to 75 long-term care facilities,
including 38 Unison facilities and 37 facilities operated by others. Since March
1995, Unison has also operated a Medicare Part B billing and supply company that
specializes in wound care and enteral and parenteral feeding products. On
February 1, 1996, Unison acquired Sunbelt to provide rehabilitation therapy
services. At September 30, 1998, Sunbelt (including RehabWest) provided therapy
services through 145 contracts, including 34 Unison facilities and 111 other
contracts. As discussed above, Sunbelt is currently held for possible
disposition. On October 31, 1996, Unison acquired American Professional Holding,
Inc. and Memphis Clinical Laboratory, Inc. (together, "Ampro") in a pooling of
interests transaction. Ampro operates medical reference laboratories in Texas,
Missouri and Tennessee, which, at September 30, 1998 provided testing services
for approximately 250 nursing facilities as well as a number of other healthcare
providers.
Additionally, during the past three years, the Company has acquired
several individual facilities and the assets of smaller ancillary companies.
RECENT DEVELOPMENTS
As described in greater detail elsewhere herein, the operating results
and financial condition of the Company
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have been negatively impacted by a number of factors, including cash flow
difficulties, increased costs due to recent acquisitions and rising litigation
costs. See Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS".
The Company's cash flows from operations and its available capital have
been insufficient to meet its current operating expenses, lease obligations and
debt service requirements. Consequently, the Company currently is in breach and
in default of the terms of material operating leases and indebtedness. It is
expected that the Company will be unable to remedy the existing breaches and
defaults. The Company's operating leases are subject to termination in the event
of default, and the Company's indebtedness may be accelerated in the event of
continuing default. Certain leases may be terminated and certain lenders
currently have the right to foreclose on Company assets securing their
indebtedness, which would include substantially all of the Company's operating
assets. However, the exercise of these rights have been stayed as a result of
the bankruptcy filing. As discussed below, the Company is in the process of
implementing a plan of reorganization in an attempt to deal with these issues.
See Item 2, "PROPERTIES" and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview".
The risks associated with the Company's historic acquisition strategy
have negatively impacted Unison's financial performance. A key element of
Unison's business strategy during 1995 and 1996 was to expand through the
acquisition of new or existing long-term and specialty healthcare facilities and
the acquisition or development of ancillary health care businesses or services.
The acquisitions of BritWill, Signature, Sunbelt, RehabWest and Ampro and the
formation of Quest were in pursuit of this strategy. As a result of the
acquisitions, the Company was faced with unforeseen contingencies affecting its
new businesses including increased costs due to integrating the acquired
operations into the overall enterprise. For example, difficulties in integrating
the acquired facilities within Unison's financial reporting and management
information systems were a substantial factor contributing to the need to
restate Unison's financial statements for the nine months ended September 30,
1996. Its financial reporting and management information systems were not
adequate for the larger and more complex needs of the Company. Those system
difficulties then contributed to the operating inefficiencies that led to the
unexpected losses for that period and subsequent periods.
Additionally, the number of lawsuits initiated against the Company has
grown as its financial difficulties worsened, including suits with vendors,
landlords and several class action lawsuits (which also involved certain of the
Company's current and former directors and officers (among others) as named
defendants). Such class action complaints generally assert that the defendants
knew, or were reckless in not knowing, that Unison's results for the first nine
months of 1996 were materially overstated, or misrepresented the capability of
Unison's internal accounting system to reliably record and reflect its financial
condition, among other things. See Item 3, "LEGAL PROCEEDINGS".
On January 7, 1998, three of Unison's subsidiaries, BritWill
Investments - I, Inc., BritWill Investments - II, Inc. and BritWill Indiana
Partnership (the "BritWill Debtors"), with operations in Texas and Indiana,
filed for protection under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court"). The Chapter 11 filings were necessitated by
actions taken by Omega to terminate or otherwise enforce the terms of its lease
agreements with the Company. Unison, through its subsidiaries, leases 14
long-term care facilities from Omega under three master lease agreements. In
addition, Unison leases six facilities from BritWill Investments Texas, Ltd.
("BritWill Texas") which are subject to a mortgage in favor of Omega (the
"BritWill Texas Leases"). The BritWill Texas Leases contain cross-default
provisions with the Omega leases. Unison is currently in payment and covenant
default of the Omega leases and the BritWill Texas Leases. BritWill Texas is an
affiliate of Bruce H. Whitehead, a major shareholder and creditor of Unison and,
until May 29, 1998, Chairman of Unison's board of directors.
On May 28, 1998, Unison and 29 of its subsidiaries filed for
reorganization under Chapter 11 of the Bankruptcy Code. Unison had previously
initiated negotiations to reach a consensual restructuring of its debt and lease
obligations with Omega, representatives of certain of the holders of its $100.0
million 12 1/4% Senior Notes due 2006 (the "12 1/4% Senior Notes") and $20.0
million 13% Senior Notes due 1999 (the "13% Senior Notes") (the "Ad Hoc
Committee"), and certain entities related to Mr. Whitehead (the "Whitehead
Affiliates") and David A. Kremser
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(the "Kremser Affiliates"). Mr. Kremser is a major stockholder and creditor of
Unison and, until May 29, 1998, was a director of Unison.
On June 15, 1998, Unison concluded an agreement in principle with
respect to a consensual restructuring with some, but not all, of its creditor
constituencies. The agreement in principle formed the basis of the plan of
reorganization filed with the Bankruptcy Court on August 10, 1998. On October
16, 1998, an amended plan of reorganization (the "Plan") was filed. The Plan has
the support of Omega and the Official Committee of Unsecured Creditors but not
the support of the Ad Hoc Committee. The significant elements of the Plan are
described in Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Overview" and in the Disclosure Statement
and the Plan which are attached hereto as Exhibit 2.1. During the Chapter 11
process, Unison and its subsidiaries are operating their businesses and managing
their properties as debtors-in-possession under authority of the Bankruptcy
Code.
INDUSTRY OVERVIEW
Unison believes there will continue to be significant business
opportunities to provide healthcare services to long-term care residents in
non-hospital settings, including both long-term care facilities and assisted or
independent living facilities. Certain factors that contribute to this growth
potential are described below.
Industry Consolidation. The long-term care industry is highly
fragmented. There are approximately 17,000 long-term care facilities in the
United States which contain a total of approximately 1.8 million licensed beds.
The 50 largest long-term care providers operate approximately 5,000 facilities
comprising approximately 500,000 licensed beds, or 28% of the industry total.
Recently, the long-term care industry has been subject to competitive pressures
and uncertainty with regard to future changes in governmental regulations, which
have resulted in a trend toward consolidation, especially of smaller, local
operators into larger, more established regional or national providers. The
increasing complexity of medical services provided, growing regulatory and
compliance requirements and increasingly complicated and potentially volatile
reimbursement systems have resulted in the consolidation of operators who lack
sophisticated management information systems, operating efficiencies and
financial resources to compete effectively. Unison believes that this trend
toward consolidation will continue. See "- Business Strategy".
Aging Population. 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. According to the United States Bureau of the
Census, the number of people over the age of 65 in the United States has grown
from approximately 25.6 million in 1980, or 11.3% of the population, to
approximately 33.5 million in 1994, or 13% of the population, and is projected
to increase to approximately 62.2 million, or 18% of the population, by 2025.
The number of people age 85 and older is expected to double from 3.5 million in
1994 to 7 million in 2020, making this age group the fastest growing segment of
the population. As the United States population ages, the demand for the types
of services that Unison provides is expected to increase
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
healthcare services, such as those provided by Unison. The Balanced Budget Act
of 1997 (the "Balanced Budget Act") mandates that, beginning with cost reporting
periods on or after July 1, 1998, skilled nursing facilities will receive a
fixed payment for services to Medicare patients. Any subsequently adopted
healthcare reform proposals are expected to continue to emphasize the cost
containment efforts included in healthcare reform legislation. See "Government
Regulation".
Advances in Medical Technology. Innovations in medical equipment and
new treatment methodologies have lengthened life expectancies, increasing the
number of individuals requiring specialized care and supervision. The incidence
of chronic illness increases with age, particularly certain degenerative
conditions. 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 to patients less
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expensively than acute care hospitals.
Limitations in the Supply of Long-Term Care Facilities. In many areas
the number of available long-term care beds has not grown as quickly as demand
in recent years. Many states (but not all of the states in which Unison
operates) have enacted certificate of need or similar legislation which
generally limits 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. 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".
BUSINESS STRATEGY
Unison's immediate strategy is to successfully implement the Plan. As
discussed elsewhere herein, the Plan includes a restructuring of Unison's debt
and certain lease obligations, the disposition of underperforming business
operations and the settlement of significant lawsuits. Subsequent to
confirmation of the Plan, the Company will implement the business strategy set
forth below, while striving to regain the confidence of its employees,
regulators, vendors and investors by proving it is a viable and competitive
concern.
Unison's ongoing business strategy is to become a preferred provider of
long-term and specialty healthcare services in its markets by offering a full
range of high quality, cost competitive, long-term healthcare services. The key
components of the Company's strategy are as follows.
Provide a Continuum of Care. Unison operates both skilled nursing and
assisted living facilities and provides a wide variety of medical,
rehabilitative and pharmaceutical treatments. Unison seeks to offer these
services across the entire continuum of care from independent and assisted
living, to traditional long-term, specialty and subacute care. This strategy
provides an opportunity for entry at each point in the continuum of care. As
patients' needs change, they may be served by different elements of the care
continuum. The primary benefit of offering a continuum of care is that it offers
patients an appropriate level of cost-effective care which the Company believes
is attractive to third party payors.
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 was able to care 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 healthcare services and thus to improve its
occupancy levels and profitability.
Improve Payor Quality, Occupancy Levels and Operating Margins. Unison
is focused on improving its payor quality mix and occupancy levels. The
profitability of caring for private-pay and Medicare patients is generally
higher than that of Medicaid patients. 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 long-term care facilities and assisted or
independent living centers.
Unison seeks to improve its profitability by attempting to obtain an
increasing proportion of its revenue from specialized healthcare services which
typically generate higher profit margins than basic long-term nursing care.
Specialty healthcare services are developed in cooperation with, and in
accordance with, the needs of the local medical community. Specialty programs
are developed by the Company's marketing professionals and facility
administrators working directly with local hospital discharge planners and
physicians. Management believes that this approach generally has been well
received by local medical communities. See " - Government Regulation - The
Balanced Budget Act".
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Concentrate Healthcare Facilities in Geographic "Clusters." Although
Unison's acquisition program has been substantially curtailed for the indefinite
future, Unison has in the past sought to acquire facilities which fit within
existing geographic regions or "clusters," and to enter new markets through
clustered acquisitions. Clustering is intended to attempt to capture local
economies of scale by providing ancillary services, purchasing, marketing,
information systems, risk management, accounting, reimbursement and quality
control to geographically concentrated facilities. The cluster strategy is based
on the belief that clustering facilities will enable Unison to leverage
management across a larger base of client revenue and efficiently monitor
individual facilities, ensuring high quality patient care. The clustering
strategy was to enable Unison to leverage the addition of ancillary services
over a larger patient base. The acquisition of Signature in 1996, which included
the acquisition of five long-term care facilities in the Denver, Colorado area,
is an example of this strategy.
Provide High Quality Care on an Economic Basis. Unison seeks to
position each of its facilities as a high quality provider in its respective
market, but to do so on a cost-effective basis. Unison believes that it provides
quality patient care and is generally successful in maintaining regulatory
compliance. See " - Operations - Quality Management".
Contain 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. Monitoring the performance of these
budgets at the facility level is necessary to enable Unison to control operating
costs.
PATIENT SERVICES
Unison's objective is to provide long-term care services across the
continuum of care from independent living services to subacute care services,
all of which are provided primarily to the elderly. Independent living
facilities that offer assistance with activities of daily living are appropriate
for those among the elderly requiring limited healthcare services. Assisted
living facilities are appropriate for residents in need of greater assistance,
but who do not need the services of a skilled nursing facility. Assisted living
facilities provide nutritional, housekeeping, and limited medical services. For
the elderly and other patients in need of specialized support, rehabilitation,
nutrition, respiratory therapies and other treatments, skilled nursing care is
often required. The provision 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.
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 nursing and medical services than are provided at
Unison's long-term care facilities. Unison believes that the availability of
healthcare services and assistance with the activities of daily living are
significant reasons that residents move to an assisted or independent living
center.
Skilled Nursing Care Services. Unison's skilled nursing facilities
provide basic healthcare 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.
Subacute and Other Specialty Care Services. Unison's facilities
currently offer a wide variety of subacute and specialty healthcare 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) orthopedic
rehabilitation; and (vii) other specialized subacute services. Unison provides
care to certain types of patients with specialized needs through designated
units such as those for the treatment of Alzheimer's disease and other
conditions. These units are located in specially designed sections within
selected facilities and are staffed by specially trained personnel. In addition
to providing care tailored to the unique needs of
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<PAGE> 11
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 Unison's specialty services are
generally significantly less than the cost charged for similar services by acute
care hospitals. See " - Government Regulation - The Balanced Budget Act".
PAYOR MIX
Medicare, Medicaid, and other payor sources each pay at different
rates, which are customarily expressed as rates per patient day. 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. As the
following table indicates, Unison has achieved growth in its quality mix of
payor sources throughout the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------ PRO FORMA
SOURCE OF REVENUES 1994 1995 1996 1997 1997 (1)
- ------------------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Medicare ............ 9.1% 26.9% 29.5% 32.1% 34.2%
Private and other ... 32.4 17.2 17.0 16.2 16.0
------ ------ ------ ------ ------
Quality mix ... 41.5 44.1 46.5 48.3 50.2
Medicaid ........... 58.5 55.9 53.5 51.7 49.8
------ ------ ------ ------ ------
Total ........ 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
- -------------------
</TABLE>
(1) Adjusts for the completed and anticipated Dispositions as though such
transactions had occurred as of January 1, 1997.
OPERATION OF LONG-TERM CARE FACILITIES
Unison is responsible for the day-to-day operation of both owned and
leased 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, cash management, debt
management, quality assurance, risk management, legal services, and regulatory
compliance at each facility. Unison provides additional support by providing
liability, workers compensation, and casualty insurance for all of its
facilities and ancillary companies.
Organization. With respect to its long-term and specialty care
facilities, Unison maintains three regions, each of which is supervised by a
regional director. The regional director is supported by a clinical operations
specialist, a financial consultant and a regional director of marketing, all of
whom are employed by Unison. Daily operations of each facility are supervised by
an on-site licensed administrator. The 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. 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 nurse
aides. Other personnel include dietary staff, activities and social service
staff, housekeeping, laundry and maintenance staff and a business office staff.
Quality Management. Unison maintains a quality improvement program that
is focused on important aspects of care and critical key indicators that measure
the quality of care provided to its patients. The program is an internal
facility process focused on involvement by direct caregivers. Reporting is
monitored by Unison's Clinical Operations Specialists under the direction of the
Vice President of Clinical Services. Monthly reports are used to monitor
adherence to the standards of care established by Unison's quality improvement
program. On-site visits are conducted by specially trained healthcare
professionals. The quality improvement program is designed to provide
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<PAGE> 12
patients with better care, and thus a higher quality of life.
In recent years Unison entered into certain leases of facilities that
have had regulatory compliance or quality difficulties. Unison has generally
achieved improvements of such facilities. In August 1995, Unison acquired 28
operating facilities in the BritWill Acquisition. Regulatory records contained
244 total deficiencies cited at these facilities prior to acquisition. On the
first governmental review conducted after acquisition this number was reduced to
138 deficiencies, a 43% reduction in regulatory noncompliance. Based on
subsequent governmental review, as of October 1, 1996 the number of deficiencies
at these facilities was 61, reflecting a cumulative reduction of 75%. As of
October 9, 1998, the equivalent number of deficiencies was 34. Company-wide,
Unison's facilities had 179 surveys from government agencies during the period
from January 1, 1998 through October 9, 1998. The average number of deficiencies
cited during these reviews was 1.3, compared to a national average of 6.5 in the
states in which Unison operates. The Company has reduced substandard quality of
care deficiencies from 5.7% of total surveys in 1996 to 2.8% in 1998, compared
to a national average of 6.7 in the states in which Unison operates. As of
October 9, 1998, Unison had one outstanding deficiency for substandard quality
of care. The Company is in the process of correcting this deficiency and
believes that the facility will be in regulatory compliance upon follow-up
review.
Marketing. Unison's marketing efforts are designed to promote higher
occupancy levels and improved payor quality mix. Quality mix has improved from
approximately 41.5% in 1994 to approximately 48.3% in 1997. This increase in
quality mix is due in part to the Company's marketing efforts and the higher
quality mix from acquired operations. Average occupancy was 77.0% in 1996, 83.1%
in 1997 and 80.2% in the first eight months of 1998. The decrease in occupancy
in 1998 is due primarily to the negative perception of Unison as a result of the
bankruptcy filings. Management believes that Unison's average occupancy rate
will improve as it implements the Plan.
Unison believes that the long-term healthcare 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 admissions in marketing and
promoting the services offered by Unison facilities to each local community.
Unison's marketing program is focused on market analysis, competitive
services, sales training, and accountability and tracking systems. Quantitative
and systematic reporting and analysis is monitored by the regional directors 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. Unison seeks to use their input in
conjunction with demographic and medical data analysis to identify specific
market needs, and to introduce new services where appropriate. The facilities
also are involved in community affairs in order to maintain a public awareness
of their services.
ANCILLARY SERVICES
Unison provides ancillary services, either directly or through
third-party contracts, to the residents of 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. Additionally,
although Unison may sell Sunbelt, the Company will continue to provide
rehabilitation therapy services to its patients through third-party contracts.
Management of each of the ancillary companies reports to Unison's chief
executive officer. Unison's corporate management team provides oversight of
Ampro, Quest and Sunbelt in the areas of cash management, budgeting, accounting
controls, staffing and detailed review of financial results. Unison also (i)
directs the ancillary companies' growth and marketing strategies and accounts
receivable management and (ii) implements the integration of the companies and
oversees the quality of services to Unison facilities. Unison provides
additional
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<PAGE> 13
support to its ancillary companies in the areas of risk management, legal
services, regulatory compliance, government reimbursement, management
information systems and purchasing. A number of the ancillary companies' supply
contracts with major vendors are in the name of Unison. In addition, bank loans
and equipment leases provided to the ancillary companies are negotiated by
Unison's senior management, and general liability, workers compensation and
casualty insurance for all of Unison's subsidiaries is provided under Unison's
policy.
Laboratory. Ampro operates three medical reference laboratories located
in Dallas, Texas, Poplar Bluff, Missouri and Memphis, Tennessee, and three
satellite offices located in Austin, Texas and Fort Worth, Texas. As of
September 30, 1998, Ampro provided laboratory services to two Unison-affiliated
and 60 non-affiliated nursing facilities in Texas, 18 non-affiliated nursing
facilities in Tennessee, and 172 non-affiliated nursing facilities in 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 each test to the applicable facility for inclusion on
each patient's medical chart for review by the attending physician.
Pharmacy. Quest is a comprehensive, full-service long-term care
pharmacy and medical supply company that provides services through two
institutional pharmacies located in Longview, Texas and Bloomington, Indiana.
Quest has grown from a pharmacy servicing 15 long-term care facilities in
September 1995 to a highly diversified organization that services, as of
September 30, 1998, 11 Unison-affiliated and 27 non-affiliated skilled nursing
facilities in East Texas; 13 Unison-affiliated and ten non-affiliated skilled
nursing facilities in Indiana (including Disposition Facilities); and 14 other
Unison-affiliated nursing facilities in Alabama, Arizona and Colorado. Quest's
specialized services include pharmacy, wound care, medical supplies, enteral
therapies, infusion management, IV nurse consultants and Medicare Part B
services. Quest's clinical pharmacists provide consulting, medical records
services, educational seminars and continuing education programs. Quest seeks to
provide services that assist its clients in controlling costs and complying with
regulatory and medical standards.
Quest provides pharmaceutical dispensing services to approximately
4,000 patients and clients in various settings, including nursing facilities,
transitional care facilities, assisted living communities, rehabilitation
centers and correctional facilities. Additionally, Quest provides a variety of
pharmaceutical consulting services, including training of facility staff,
designed to assist nursing facilities in program administration.
Therapy. Sunbelt provides physical therapy, occupational therapy and
speech language pathology services through Unison-affiliated facilities and
non-affiliated health care providers, including long-term care facilities,
outpatient clinics, fitness centers, hospitals and home health agencies. Sunbelt
also provides rehabilitation and sports medicine services to school systems and
has implemented industrial and occupational medicine programs which are
delivered through outpatient clinics, hospitals and on-site industrial
environments. As of September 30, 1998, Sunbelt provided services through 145
contracts, which include 34 Unison-affiliated facilities.
Sunbelt develops programs for its long-term care clients, utilizing
teams of rehabilitation staff and nursing facility staff, which are tailored to
the needs of the individual facility. Specific programs in which Sunbelt works
in conjunction with facility staff include functional maintenance, would care,
restraint reduction, dementia training and continuous quality improvement.
Sunbelt also provides training in proper patient posture and positioning to aid
in feeding and prevention of pressure sores.
COMPETITION
Unison's facilities compete on a local and regional basis 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, especially
in light of the Company's current financial difficulties, have greater financial
and other resources than Unison and some are nonprofit or charitable
organizations. No assurance can be given that Unison will have the resources to
compete successfully with such
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<PAGE> 14
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. The Company
believes that significant competitive factors include the quality and spectrum
of care and services provided, the reputation of the medical personnel employed,
the physical appearance of the facilities and, in the case of private-pay
patients, the level of charges for services. Because the Company's facilities
compete primarily on a local and regional basis, rather than on a national
basis, the competitive position of the Company varies from facility to facility.
The Company seeks to meet competition in each locality by improving the quality
and types of services provided in and the appearance of its facilities, by
establishing a reputation within the local medical communities for providing
quality care, and by responding appropriately to regional variations in
demographics and preferences. There is no price competition with respect to
Medicare and Medicaid patients because revenues for services administered to
such patients are based on strictly controlled fixed rates and cost
reimbursement principles.
Unison's pharmacy and laboratory businesses compete with national,
regional and local pharmacies and medical reference laboratories, some of which
have significantly greater financial and other resources than Unison. No
assurance can be given that Unison will have the resources to compete
successfully with such companies. The Company's strategy for its pharmacy
services focuses on the expansion of services beyond dispensing tablet, capsule
and liquid medications to include more intensive and higher margin IV therapy
services, antibiotic and hydration therapies, pain management and chemotherapy.
Unison believes that the primary factors in competing for pharmacy business is
prompt service and the primary factor in competing for laboratory business is
prompt and accurate test results.
INSURANCE
Unison carries general liability, comprehensive property damage,
malpractice, workers' compensation, directors and officers and other insurance
coverage that management considers adequate for the protection of its assets and
operations. The Company is partially self-insured with respect to certain
healthcare benefits and workers' compensation benefits. 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.
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. The
Federal Social Security 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 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 Health Care Financing
Administration ("HCFA") and Medicaid state agencies as the basis for decisions
to execute, deny or terminate provider agreements with facilities.
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.
Unison's facilities also have contracts with private payors,
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<PAGE> 15
including health maintenance organizations and other managed care organizations,
to provide certain healthcare services to 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 current 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 Balanced Budget Act. The Balanced Budget Act, signed into law on
August 5, 1997, makes numerous changes to the Medicare and Medicaid programs,
which may impact Unison. The Balanced Budget Act mandates the establishment of a
prospective payment system ("PPS") for Medicare skilled nursing facility
services, under which facilities will be paid a fixed fee for virtually all
covered services. PPS will be phased in over a four-year period, effective for
Unison's facilities on January 1, 1999. During the first three years, payments
will be based on a blend of the facility's historical costs and federal costs.
Thereafter, the per diem rates will be based 100% on federal costs. Under PPS,
each patient's clinical status is evaluated and placed into a payment category.
The patient's payment category dictates the amount that the provider will
receive to care for the patient on a daily basis. The per diem rate will cover
(i) all routine inpatient costs currently paid under Medicare Part A, (ii)
certain ancillary and other items and services currently covered separately
under Medicare Part B on a "pass-through" basis, and (iii) certain capital
costs. The final rules and new per diem rates were published on May 22, 1998 and
were open for public comment until July 13, 1998. There can be no assurance that
PPS will not have a material adverse impact on Unison results of operations or
financial condition.
For Medicare patients receiving services on an outpatient basis under
Medicare Part B, effective July 1, 1998, reimbursement for ancillary services
such as rehabilitation therapy, drugs, medical supplies and other items, is
based on a yet-to-be-developed fee schedule. In addition, effective January 1,
1999, there will be an annual per-patient cap of $1,500 on reimbursement for
combined Part B and outpatient physical and speech therapy services and an
annual per-patient cap of $1,500 on reimbursement for combined Part B and
outpatient occupational therapy services. There can be no assurance that these
fee schedules or caps will not have a material adverse effect on the Company.
The Balanced Budget Act also contains changes to the Medicaid program,
the most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and services in compliance with applicable standards. Effective
October 1, 1997, states have more flexibility in establishing payment rates.
Indiana adopted a case-mix prospective payment system effective October 1, 1998
and Colorado is expected to follow in 1999. The Company does not believe that
the change in Indiana's reimbursement system will materially negatively impact
Unison's results of operations or financial condition, and Unison has not
determined the impact the change in Colorado's system will have on its results
of operations. Unison is unable to predict whether any other states will change
their reimbursement policies and, if so, what effect such changes would have on
the Company. There can be no assurance that any changes to the Medicaid program
will not have a material adverse impact on the Company.
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. 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.
Until the implementation of PPS, Medicare reimburses the skilled
nursing facility based on a reasonable cost standard. 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. Each facility is also subject to limits on reimbursement for
routine costs. Exceptions to these limits are available for, among other things,
the provision of atypical services. 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. Although Unison believes that it will recover these routine cost limit
exception requests, failure to recover excess costs or to obtain such exceptions
could adversely affect Unison's
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<PAGE> 16
results of operations.
Medicare covers and pays for rehabilitation therapy services furnished
in facilities in various ways. 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. Until April 1, 1998, Medicare paid 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 services reimbursed under the salary equivalency
guidelines are significantly less than services reimbursed under the "prudent
buyer" rule.
In January 1998, HCFA issued rules applying salary equivalency limits
to certain speech and occupational therapy services and revised existing
physical and respiratory therapy limits. The new limits are effective for
services provided on or after April 1, 1998. For the year ended December 31,
1997, Unison's revenues and contribution margin from speech and occupational
therapy services amounted to $31.2 million and $13.1 million, respectively. The
imposition of salary equivalency guidelines on speech language pathology and
occupational therapy services could significantly impact Unison's margins in
1998. The revised guidelines will be in effect until nursing facilities
transition to PPS. Under PPS, the reimbursement for these services provided to
nursing facility patients will be a component of the total reimbursement allowed
per patient and the salary equivalency guidelines will no longer be applicable.
Unison's client nursing facilities, both affiliated and nonaffiliated, will
transition to PPS on January 1, 1999. There can be no assurance that PPS will
not have a material adverse impact on Unison's results of operations or
financial condition.
Current Medicare regulations that apply to transactions between related
parties are relevant to the amount of Medicare reimbursement that the Company is
entitled to received for the rehabilitation and respiratory therapy and
pharmaceutical services that it provides to Unison facilities. These related
party regulations require that, among other things, (i) the Company's therapy
and pharmacy subsidiaries must each be a bona fide separate organization; (ii) a
substantial part of the services of each subsidiary is transacted with
nonaffiliated entities, and there is an open, competitive market for such
services; (iii) the services provided by such subsidiary commonly are obtained
by long-term and subacute care facilities from other organizations and are not a
basic element of patient care provided by such facilities; and (iv) the prices
charged to the Company's long-term and subacute care facilities by such
subsidiaries are in line with the charges for such services in the open market
and no more than the prices charged by its therapy and pharmacy subsidiaries
under comparable circumstances to nonaffiliated entities in order to satisfy the
"substantial part" requirement of such regulations. In instances where this
issue has been litigated by others, no consensus has emerged as to the
appropriate threshold necessary to satisfy the "substantial part" requirement.
In the fourth quarter of 1997, Unison was informed by its Medicare
fiscal intermediary that it is challenging the Company's reimbursement for
certain services provided at Unison facilities by Sunbelt, a Unison subsidiary
which provides physical, speech and occupation therapy services to both
affiliated and nonaffiliated long-term care facilities. Although the Company
intends to vigorously pursue reimbursement of the challenged items, in the
fourth quarter of 1997 it recorded a $4.6 million reduction in Medicare revenues
in connection with this related party issue. When PPS and the fee schedules are
implemented, the Medicare impact of the related party rule will be eliminated.
Sunbelt is currently held for possible disposition.
The Medicaid Program. All of Unison's 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 rates established by the state. 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,
except for Texas and Arizona, 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 retrospective basis. Reimbursable costs normally include
the costs of providing
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<PAGE> 17
healthcare 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.
Currently several states, including Texas and Indiana, utilize case-mix
payment systems, pursuant to which payment levels increase based on a patient's
acuity level and need for services. Colorado is expected to adopt a case-mix
prospective payment system in 1999. Arizona utilizes a managed care program for
its Medicaid beneficiaries, whereby subcontractors, usually county health
departments, receive negotiated capped rates from the state. The subcontractors
then negotiate contracts with nursing facilities to provide patient care. Unison
is unable to predict whether any other states will change their reimbursement
policies and, if so, what effect such changes would have on the Company. There
can be no assurance that any changes to the Medicaid program will not have a
material adverse impact on the Company.
Enforcement Proceedings and Sanctions; Certification Requirements.
Under the Omnibus Reconciliation Act of 1987 ("OBRA"), HCFA promulgated survey,
certification and enforcement rules governing skilled nursing facilities and
nursing facilities participating in the Medicare and Medicaid programs. Among
other things, the HCFA rules governing survey and certification of long-term
care facilities define a number of terms used in the survey and certification
process. The rules require states to enact state plans to incorporate the
provisions of the rules, including the full range of remedies for nursing
facilities subject to the jurisdiction of the state Medicaid agency.
Unannounced standard surveys must be conducted at least every 15 months
with a statewide 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 of
regulatory 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 to 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 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, available remedies include 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
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 HCFA certification, survey and enforcement regulations impose
significant burdens on long-term care facilities. The regulations may require
state survey agencies to take aggressive enforcement actions. The breadth of the
rules create uncertainty over how the rules will be implemented and the
standards of compliance.
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 regulatory
requirements. Unison reviews such notices and attempts to take corrective
action. Unison's facilities sometimes receive notices from state agencies that
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<PAGE> 18
result in fines and/or the agencies taking steps to decertify the facilities
from participation in Medicare and Medicaid programs. In 1996, the Company
received notices of monetary penalties related to two of its Texas facilities in
the aggregate amount of approximately $168,000. These fines are currently being
appealed. In February 1998, Unison closed its Oaks at Boise facility in Boise,
Idaho after voluntarily terminating its participation in the Medicare program
and relocating the patients. Unison had been negotiating with the owners to
dispose of the facility when it encountered regulatory problems. Negotiations
deteriorated and Unison closed the facility. Subsequently, Unison was assessed a
penalty amounting to $25,875 for alleged violations of Medicare regulations,
payment of which has not been demanded due to the bankruptcy filing.
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. Currently, the states with certificate
of need requirements in which the Company operates include Michigan and Alabama.
In addition, Colorado and Texas have placed moratoriums on bed additions.
Patient Referral Regulations. Unison is also subject to federal and
state laws that prohibit direct and indirect payments between healthcare
providers that are intended to induce or encourage the referral of patients to 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 qualify 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 healthcare programs.
Under Medicare conditions of participation and some state licensure
laws, Unison, because of its method of service delivery, is required to contract
with healthcare 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. The Health Insurance Portability and
Accountability Act ("HR 3103"), which was signed by President Clinton on August
21, 1996, has for the first time established a procedure requiring the Secretary
of the Department of Health and Human Services to issue advisory opinions
concerning some activity punishable under federal healthcare fraud statutes. To
the Company's knowledge, none of its patients were referred under practices that
are in violation of HR 3103. 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.
Other laws prohibit 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 target of focus by government
regulators seeking to discover and prosecute claims of healthcare fraud and from
time to time Unison has received inquiries related to such claims. 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
15
<PAGE> 19
federal and state effort designed to combat healthcare 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 originally focused on California, Florida, Illinois, New York and Texas.
It is now extended to all states and is concerned with detection of suspected
nursing facility fraud and abuse. This effort is 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 expects efforts
of this sort to continue.
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
practitioner. In order to implement these restrictions, regulations impose
strict record keeping 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 record keeping obligations upon Unison and its pharmacists. Unison
is subject to regular audits by governmental authorities to monitor compliance
with record keeping 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.
Laboratory. Companies providing laboratory services in the United
States are regulated by state statutes and the rules and regulations of the
Clinical Laboratory Improvement Act of 1998 ("CLIA"). All laboratories must have
a certificate of compliance or a certificate of accreditation for laboratory
testing. Laboratories that have certificates must permit HCFA or a HCFA agent to
conduct an inspection to assess the laboratory's compliance with the
requirements of CLIA. The most recent inspection of Ampro's three laboratories
revealed no deficiencies.
Health Care Reform. The Balanced Budget Act contains extensive changes
to the Medicare and Medicaid programs intended to reduce the projected amount of
increase in payments under those programs by $115 billion and $13 billion,
respectively, over the next five years. There also continue to be state
legislative proposals that would impose more limitations on government and
private payments to providers of healthcare services such as Unison. Many states
have enacted or are considering enacting measures that are designed to reduce
their Medicaid expenditures and to make certain changes to private healthcare
insurance. There are also a number of legislative proposals including cost caps
and the establishment of Medicaid prospective payment systems for nursing
facilities. Moreover, by repealing the Boren Amendment, the Balanced Budget Act
eases existing impediments on the states' ability to reduce their Medicaid
reimbursement levels. 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.
EMPLOYEES
As of October 31, 1998, Unison employed approximately 4,500 individuals
(including full-time and part-time employees), of which approximately 3,520
employees work at Unison's nursing facilities, 100 employees work at Unison's
corporate and regional offices, 70 employees work for Quest, 690 employees work
for Sunbelt and 120 employees work for Ampro. Among its clinical staff, Unison
employs approximately 280 registered nurses, 520 licensed practical nurses and
1,400 certified nursing assistants. Unison has two collective bargaining
agreements covering approximately 250 nursing facility employees. One of the
collective bargaining agreements is with 160 employees at Unison's Nightingale
West facility, which is currently held for disposition. Unison believes that its
overall relations with its employees have declined somewhat due to concerns
related to its bankruptcy proceedings.
16
<PAGE> 20
IMPACT OF THE YEAR 2000 ISSUE.
Some of Unison's information systems have time-sensitive software that
will not properly recognize the year 2000. The year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on an on-going assessment, the Company has determined that it
will be required to modify or replace significant portions of its hardware and
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that with
modifications to existing hardware and software and conversions to new hardware
and software, the year 2000 issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed in a timely manner, the year 2000 issue could have a
material adverse impact on the operations of the Company.
The Company has initiated formal communications with significant
suppliers and payors to determine the extent to which the Company's systems and
operations are vulnerable to those third parties' failure to remediate their own
year 2000 issues. Examples of such issues include, but are not limited to,
electronic interfaces with external agents such as payors, suppliers and banks,
in addition to patient service equipment that has microprocessors with date
functionality. The ability of third parties with which Unison transacts business
to adequately address their year 2000 issues is outside the Company's control.
There can be no assurance that the systems of other companies, as well as those
of the federal and state governments on which the Company's systems and
operations rely, will be timely converted and will not have an adverse effect on
the Company's systems and on-going operations.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the hardware and software for year 2000
modifications. Since assessments of the year 2000 issue currently remain
on-going, the Company has not yet been able to fully quantify the costs of its
year 2000 remediation.
The Company will continue to assess each of its systems and their year
2000 readiness. At this time, the Company believes that appropriate actions are
being taken and expects to complete its overall year 2000 remediation prior to
any anticipated impact on its operations. However, there can be no assurance
that these assumptions will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, third party modification plans and similar
uncertainties. See Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Risks and Uncertainties - Year 2000
Issue."
ITEM 2. PROPERTIES
The following table lists the nursing facilities and assisted and
independent living centers operated by the Company as of October 31, 1998.
Except as indicated all of the facilities are leased.
17
<PAGE> 21
<TABLE>
<CAPTION>
NUMBER OF
LICENSED
BEDS OR
FACILITY NAME LOCATION UNITS
------------- -------- -----
<S> <C> <C>
Marshall Manor................................... Guntersville, Alabama 91
Ridgewood Health Care Center..................... Jasper, Alabama 98
Terrace Lake Village (1)......................... Guntersville, Alabama 90
The Arbors Health Care Center (2)................ Camp Verde, Arizona 118
Douglas Manor.................................... Douglas, Arizona 64
Los Arcos Health Care Center (3)................. Flagstaff, Arizona 80
Peppertree Square (1)............................ Safford, Arizona 62
Pueblo Norte Nursing Center (3).................. Show Low, Arizona 100
Rio Verde Health Care Center (3)................. Cottonwood, Arizona 80
Safford Care Center.............................. Safford, Arizona 128
SunCrest Healthcare Center...................... Phoenix, Arizona 115
Village Catered Care (1)......................... Douglas, Arizona 62
Amberwood Court Care Center (3).................. Denver, Colorado 75
Arkansas Manor .................................. Denver, Colorado 116
Brookshire House (3)............................. Denver, Colorado 67
Christopher House (3)............................ Wheat Ridge, Colorado 78
Cornerstone Care Center.......................... Lakewood, Colorado 140
Boonville Convalescent Center.................... Boonville, Indiana 108
Capital Care Healthcare Center (4)............... Indianapolis, Indiana 60
Cloverleaf of Knightsville....................... Knightsville, Indiana 86
English Estates (4).............................. Lebanon, Indiana 130
English Senior Living (1)(4)..................... Lebanon, Indiana 19
Holiday Manor ................................... Princeton, Indiana 91
Kendallville Manor .............................. Kendallville, Indiana 60
Lockerbie Healthcare Center (4).................. Indianapolis, Indiana 79
Owensville Convalescent Center................... Owensville, Indiana 68
Parkview Manor (4)............................... Indianapolis, Indiana 39
Sunset Manor (4)................................. Greencastle, Indiana 79
Wellington Manor................................. Indianapolis, Indiana 132
Willow Manor Convalescent Center................. Vincennes, Indiana 142
Bonner Health Center (5)......................... Bonner Springs, Kansas 50
Nightingale West (5)............................. Westland, Michigan 236
Colonial Pines................................... San Augustine, Texas 107
Hemphill Care Center............................. Hemphill, Texas 90
Heritage Plaza................................... Texarkana, Texas 90
Homestead of McKinney............................ McKinney, Texas 138
Lake Village Nursing and Rehabilitation.......... Lewisville, Texas 120
Pine Grove Nursing Center........................ Center, Texas 120
Pine Haven Care Center........................... Texarkana, Texas 120
Pleasant Manor Living Center..................... Waxahachie, Texas 120
Reunion Plaza.................................... Texarkana, Texas 102
South Place Nursing Center....................... Athens, Texas 120
West Place Nursing Center........................ Athens, Texas 120
------
Total beds.................................. 4,190
=====
</TABLE>
(1) Assisted living and independent living facilities.
(2) This facility is currently leased. In connection with the Plan, Unison
will exercise its purchase option and enter into a sale/leaseback
transaction with Omega.
(3) The facility real estate is owned. Unison will sell these facilities to
Omega and lease them back under the terms of the Plan.
18
<PAGE> 22
(4) These facilities will be returned to Omega under the terms of the Plan.
(5) It is currently anticipated that these facilities will be disposed of.
Unison leases approximately 14,000 square feet of office space in
Scottsdale, Arizona. The Scottsdale office houses the executive offices of
Unison, and the lease for that space expires in the year 2003. Quest leases
approximately 3,600 square feet of commercial office space in Longview, Texas
for its pharmacy operations and approximately 2,000 feet of office space in
Bloomington, Indiana for its Indiana pharmacy. Sunbelt, through its four
subsidiaries, leases an aggregate of approximately 38,000 square feet of space
for outpatient clinics and fitness centers in Mississippi and Alabama. Ampro
leases an aggregate of approximately 8,000 square feet for office and laboratory
space in Texas, Tennessee and Missouri and owns one building with approximately
4,000 square feet of space in Missouri. Lease terms on most of the office,
pharmacy, laboratory and therapy 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.
Unison leases 37 long-term and specialty healthcare 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's leases typically
provide for automatic rent increases or repricing. Unison typically grants its
lessor a security interest in Unison's personal property at the leased facility.
Unison's leases are typically entered into by its subsidiaries and guaranteed by
Unison. Some of the leases 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 most significant lessors are Omega from which Unison leases 14
facilities, American Health Properties from which Unison leases six facilities
and BritWill Texas from which Unison leases six facilities. The BritWill Texas
leases are subject to a mortgage in favor of Omega. The leases typically include
cross default provisions. Covenants in the Omega leases require maintenance of
specified operating ratios, levels of working capital and net worth. The Company
was not, at December 31, 1997, in compliance with the Omega master lease
financial covenants and has not obtained a waiver of the covenant violations.
The Company continues to be out of compliance with these covenants as of the
date of this Report. The Company is in arrears with respect to its obligations
under these leases in the approximate amount of $1.5 million. Under the terms of
the Plan, Unison will, on the Effective Date, pay the past-due rent amount,
return six facilities located in Indiana to Omega, and enter into a new master
lease agreement with Omega related to: (i) the remaining eight facilities
currently leased from Omega; (ii) the six facilities leased from BritWill Texas;
and (iii) seven other Unison facilities pursuant to a sale/leaseback
transaction. See " - Recent Developments" and Item 7, "MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview."
ITEM 3. LEGAL PROCEEDINGS
Unison is, and may in the future be, party to litigation arising in the
ordinary course of its business. It is also routinely subject to surveys and
investigations by regulators and payors. There can be no assurance that Unison's
insurance coverage will be adequate to cover all liabilities occurring by reason
of such claims or investigations or that any such matters that are not covered
by insurance will not have an adverse effect on Unison's business.
On May 28, 1998, Unison, together with 29 of its subsidiaries, filed
petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy
Court for the District of Arizona (collectively, the "Unison Debtors"). On
January 7, 1998, the BritWill Debtors (together with the Unison Debtors, the
"Debtors") filed voluntary petitions for relief under Chapter 11 with the
Bankruptcy Court in the District of Arizona. All 33 cases were procedurally
consolidated for administrative purposes and have been jointly administered
under Case No. 98-06583-PHX-GBN. On August 10, 1998, Debtors filed with the
Bankruptcy Court "Debtors' Joint Plan of Reorganization Dated August
19
<PAGE> 23
10, 1998" and the "Supplement to Debtors' Joint Plan of Reorganization Dated
August 10, 1998". Unison subsequently filed "Debtors' First Amended Joint Plan
of Reorganization Dated October 15, 1998". The Plan provides for the
restructuring and reconstitution of Unison and all of its subsidiaries. Unison
also filed with the Bankruptcy Court its "Disclosure Statement in Support of
Debtors' Joint Plan of Reorganization Dated August 10, 1998" and "Disclosure
Statement In Support of Debtors' First Amended Joint Plan of Reorganization
Dated October 15, 1998" (the "Disclosure Statement"). On October 21, 1998, the
Bankruptcy Court approved the Disclosure Statement and the Plan and the Debtors
are proceeding with the solicitation of creditors regarding the Plan. The Plan
is subject to the acceptance or rejection by Unison's creditors. During the
Chapter 11 process, Debtors have operated their business and managed their
properties as debtors-in-possession under the authority of the Bankruptcy Code.
No motions seeking the appointment of a trustee have been filed.
On July 31, 1998, Unison and certain of its subsidiaries filed with the
Bankruptcy Court for the District of Arizona a "Complaint to Set Aside
Preferential Transfers". The defendants in this action are David A. Kremser and
Bruce H. Whitehead and certain of their affiliated entities. This action relates
to working capital loans advanced to Unison in 1997 by the Kremser Affiliates
and Whitehead Affiliates (the "1997 Loans") and the granting of security
interests in accounts receivable and stock of certain Unison subsidiaries to
secure the 1997 Loans and other obligations arising in connection with the
Signature Acquisition and the BritWill Acquisition.
Unison is a defendant in seven consolidated purported securities class
action lawsuits pending in the United States District Court in Phoenix, Arizona
(the "Federal Action"), and a purported securities class action lawsuit pending
in California Superior Court (the "State Action")(collectively, the "Actions").
The Actions arise from the Company's announcement on March 11, 1996 that it
would be restating its financial results for the nine-month period ended
September 30, 1996. A consolidated amended class action complaint in the Federal
Action was filed on January 6, 1998 under the caption Martin Grossman, et al. v.
Unison HealthCare Corporation, et al., USDC No. CIV 97-0583 PHX SMM. The State
Action is captioned Jeffrey D. VanDyke v. Cruttenden Roth, Inc., Wheat First
Butcher Singer, Individually and as Representatives of a Defendant Underwriter
Class, and Bruce H. Whitehead, Unison HealthCare Corp., John T. Lynch, Jr.,
Trouver Capital Partners, L.P., Jerry M. Walker, Phillip R. Rollins, Craig R.
Clark, and Paul J. Contris, Case No. 779111 (Orange County Sup. Ct.) (filed May
13, 1997). The Federal Action seeks damages for alleged violations of federal
and Arizona securities laws; the State Action seeks damages for alleged
violations of the California securities laws. The broadest class period is that
alleged in the Federal Action from December 18, 1995 (the date of the Company's
initial public offering) to May 30, 1997.
The parties in the Federal Action have reached a settlement in
principle that is expected to resolve both the Federal and State Actions in
their entirety, assuming appropriate court approval and acceptance by members of
the class. The settlement in principle calls for a cash payment by the Company's
primary insurer and newly issued shares of Unison common stock or the
post-bankruptcy equivalent value of such shares (i.e., under the Plan, existing
equity holders will have their interests converted into warrants; under the
proposed settlement, class members who receive Unison shares will receive the
same prorated treatment). The parties have executed a Stipulation of Settlement
that must be presented to the Bankruptcy Court and the District Court for
preliminary and then final approval. If the Company's equity holders do not vote
to accept the Plan, or if the warrants do not meet certain Bankruptcy Court or
Commission criteria, then all equity interest claims will be cancelled and
terminated.
The Company and certain of its current and former officers and/or
directors were named as defendants in an action styled John D. Filkoski, et al.
v. Unison Healthcare Corporation, et al., filed in Colorado Superior Court on
May 27, 1998 (the "Colorado Action"). The Colorado Action alleges causes of
action under Colorado common and statutory law in connection with the Signature
Acquisition. The plaintiffs are four former shareholders of Signature whose
Signature shares were acquired in exchange for cash, notes and Unison common
stock on October 31, 1996.
On June 18, 1998, plaintiffs in the Colorado Action filed an Amended
Complaint, naming the Company, current and former officers and/or directors, and
Ernst & Young, LLP (the Company's auditor) as defendants. Essentially,
plaintiffs allege that the Company's financial statements for the second and
third quarters of 1996 contained false and misleading statements that
fraudulently induced plaintiffs into entering into a merger agreement with the
Company. Plaintiffs further allege that the Company failed to perform on certain
promissory notes made in connection with the Signature Acquisition. Plaintiffs
seek damages of approximately $3.2 million in purported
20
<PAGE> 24
actual damages as well as punitive damages, interest and costs. Plaintiffs were
advised that all proceedings against the Company, including the Colorado Action,
were stayed as a result of the Chapter 11 filing. On June 24, 1998, plaintiffs
voluntarily dismissed the Company from the Colorado Action. Plaintiffs also
purported to dismiss the individual defendants, but purportedly only in their
capacities as current or former officers and/or directors of the Company, and
not in their capacities as individuals. The Company may be required to indemnify
and/or advance defense costs to the individual defendants, although it is
possible that these obligations may be discharged by the Bankruptcy Court.
On April 24, 1998, an action styled Franciscan Eldercare Corporation,
Inc. v. Sunquest SPC, Inc., Unison Healthcare Corporation, Inc. [sic], Jerry
Walker, Phillip Rollins and Paul Contris was filed in the Circuit Court of the
State of Oregon (County of Multnomah) (Case No. 9801-00050). This action relates
to four nursing facilities that the Company previously leased from Franciscan
Eldercare Corporation ("FEC"). These leases have been rejected by Unison in the
Bankruptcy Court. The action alleges breach of contract, conversion and breach
of promissory note against Unison and Sunquest SPC, Inc., a Unison subsidiary,
and breach of guaranty against Messrs. Walker, Rollins and Contris. FEC is
seeking damages from the Company in the amount of at least $1.2 million plus
attorney's fees, interest and costs. These proceedings are stayed as a result of
the Chapter 11 filing.
On May 4, 1998, an action styled Healthprime, Inc., HP/Healthcare
Acquirors, Inc., Markleysburg Healthcare Investors, L.P., Marshall Manor
Healthcare Services, Inc., and Lake City Nursing Homes, Inc. v. Unison
HealthCare Corporation and Sunquest SPC., Inc. was filed in the Superior Court
of Fulton County, Georgia (Case No. E.68081). The action alleges breach of
contract related to a nursing facility that the Company previously leased from
Markleysburg Healthcare Investors, Inc. and four nursing facilities that the
Company previously managed on behalf of the plaintiff. The facility lease has
been rejected by Unison in the Bankruptcy Court. Plaintiffs are seeking a
judgment holding that the Company is entitled to no additional management fees
relating to the managed facilities and other unspecified damages. Unison
believes that it is owed approximately $1.6 million in management fees from
plaintiffs. These proceedings are stayed as a result of the Chapter 11 filing.
On September 11, 1998, the Bankruptcy Court entered an order appointing
an examiner in the bankruptcy cases and limiting the scope of the examiner's
duties to an examination of the claims of related party creditors in these
cases. Subsequently, the United States Trustee appointed Keith J. Shapiro, an
attorney with the firm of Holleb & Coff in Chicago, as the examiner. As of the
date of this Report, no official report has been issued by the examiner.
During the course of the Debtors' Chapter 11 cases, with the assistance
of their court-approved professionals, Debtors continue to investigate causes of
action available to them under the Bankruptcy Code and applicable state law. The
Plan preserves all causes of action available to Debtors, including all
objections to Claims and all other causes of action arising under the Bankruptcy
Code, unless the Plan specifically provides otherwise. Specifically reserved and
preserved in the Plan are all claims, rights or causes of action arising out of
or related to: (1) the BritWill Acquisition; (2) the Signature Acquisition;
(iii) such further related transactions to (1) and (2) above, including, but not
limited to, the 1997 Loans by Elk Meadows and BritWill Investments; (4) the
business operation of Debtors for the period July 1, 1992 to May 28, 1998,
including as related to the foregoing but not limited to, any claims for breach
of contract, fraud, misrepresentation, negligence, misappropriation of business
opportunities or trade secrets, corporate waste, fraudulent conveyance,
constructive trust, breach of fiduciary duty, self-dealing or any claims for
indemnity, or any claims arising from an employment relationship with any
Debtors; (5) the Related Party Avoidance Actions; (6) the Avoidance Actions; (7)
the Related Party Creditor Defenses; and (8) all other Litigation Claims
(collectively, the "Preserved Claims") (all as defined in the Plan). Each Debtor
specifically reserves the Preserved Claims as to: (a) each and every member of
Kremser and Affiliates and Whitehead and Affiliates; (b) any officer or director
of any Debtor for the period July 1, 1992 to May 28, 1998; or (c) any entity or
individual who is determined to be (i) the alter-ego of the foregoing; (ii) any
entity the aforementioned might successfully claim are necessary parties for
purposes of joinder under the Federal Rules of Civil Procedure; or (iii) any
entity in whose hands the proceeds and benefit of any impermissable conduct has
flowed.
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<PAGE> 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At October 21, 1998, there were approximately 99 holders of record of
Unison's Common Stock. At the same date, the Company believes that approximately
1,300 additional stockholders held shares under beneficial ownership in nominee
name or within clearinghouse positions of brokerage firms and banks. The
Company's Common Stock was traded on The Nasdaq Stock Market's National Market
System under the symbol "UNHC" from December 19, 1995 to August 21, 1997.
Effective August 22, 1997, Nasdaq moved Unison's securities to The Nasdaq
SmallCap Market because the Company did not satisfy the minimum tangible net
asset requirement for the listing of its stock on the Nasdaq National Market
System.
On February 23, 1998, new, more stringent quantitative maintenance
requirements for continued listing on the Nasdaq Small Cap Market went into
effect. These new maintenance standards require, among other things, minimum
levels of either net tangible assets, market capitalization or net income. On
April 15, 1998, Nasdaq notified the Company that its securities were delisted.
Subsequently, Unison's Common Stock has traded on the over-the-counter ("OTC")
market.
The high and low sales prices as reported by Nasdaq are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------- ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
First quarter .... 11-3/4 8-7/8 14-1/2 2-5/8 3 0-9/32
Second quarter ... 15-1/2 10-1/4 4-1/8 1-5/16 0-15/32 0-1/16
Third quarter .... 15-1/8 10-1/4 3-1/8 2
Fourth quarter ... 13-1/4 8 3-15/16 0-31/32
</TABLE>
Unison has not paid a common dividend and does not anticipate declaring
a common dividend in the near future.
On December 1, 1997, Unison completed the private placement of $20.0
million of 13% Senior Notes due 1999. The underwriter and initial purchaser was
Jefferies & Company, Inc. The 13% Senior Notes were sold to (i) "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) and
(ii) a limited number of other institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act). The underwriter's
discount was 4.0% or $800,000. Jefferies & Company, Inc. also received a consent
solicitation fee amounting to $225,250. In addition, Woodhill Capital
Corporation received a $350,000 fee. See Item 13, "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
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<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from Unison's
audited financial statements. The selected financial data set forth below should
be read in conjunction with the Consolidated Financial Statements and notes
thereto and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
UNISON
(dollars in thousands, except per share)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1993 1994 1995(1) 1996(1) 1997(1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 7,011 $ 18,406 $ 68,488 $ 148,674 $ 224,366
Expenses:
Wages and related ................. 3,689 9,593 35,047 85,789 116,137
Other operating ................... 2,629 6,462 24,032 64,771 84,566
Rent .............................. 206 1,406 6,673 15,658 16,119
Interest .......................... 44 147 1,176 5,824 20,076
Depreciation and amortization ..... 157 286 1,311 4,561 9,974
Impairment losses and other charges -- -- -- 3,865 27,185
----------- ----------- ----------- ----------- -----------
Total expenses ................ 6,725 17,894 68,239 180,468 274,057
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ..... 286 512 249 (31,794) (49,691)
Income tax expense (benefit) .......... 177 172 132 (8,356) (2,480)
----------- ----------- ----------- ----------- -----------
Net income (loss) ..................... $ 109 $ 340 $ 117 $ (23,438) $ (47,211)
=========== =========== =========== =========== ===========
Net income (loss) per share ........... $ 0.06 $ 0.19 $ 0.05 $ (5.01) $ (7.41)
Shares used in per share calculation .. 1,806,164 1,806,164 2,280,213 4,676,037 6,370,834
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 199 $ 306 $ 6,169 $ 17,409 $ 5,295
Working capital (deficit) .... 298 1,691 (927) (13,955) (151,068)
Total assets ................. 1,862 7,468 81,301 230,921 192,167
Total debt ................... 259 2,623 26,737 157,138 172,797
Stockholders' equity (deficit) (47) 736 20,903 11,689 (34,034)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1993 1994 1995(1) 1996(1) 1997(1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Skilled nursing facilities(2):
Number of facilities ..... 6 16 45 54 49
Number of licensed beds .. 671 1,621 4,629 5,455 4,839
Patient days ............. 12,705 112,727 581,410 1,203,655 1,524,025
Assisted living facilities(2):
Number of facilities ..... 1 2 3 6 6
Number of units .......... 30 104 229 325 325
Sources of patient revenues:
Medicare ................. 3.4% 9.1% 26.9% 29.5% 32.1%
Private pay .............. 13.8 32.4 17.2 17.0 16.2
----------- ----------- ----------- ----------- -----------
Quality mix .......... 17.2 41.5 44.1 46.5 48.3
Medicaid ................. 82.8 58.5 55.9 53.5 51.7
----------- ----------- ----------- ----------- -----------
Total ................ 100.0% 100.0% 100.0% 100.0% 100.0%
=========== =========== =========== =========== ===========
</TABLE>
- --------------------------
(1) All acquisitions that occurred in 1995 and 1996, except for the merger
with Ampro, are reflected from the date of each acquisition in the
historical operating results of the Company.
(2) Number of facilities, beds and units are expressed at end of period.
23
<PAGE> 27
BRITWILL SEPARATE DATA
Separate financial statements of an acquired business ordinarily need
not be presented once the operating results of the acquired business have been
reflected in the audited financial statements of the acquiring company for a
complete fiscal year unless the acquired business is of such significance to the
registrant that omission of such financial statements would materially impair an
investor's ability to understand the historical results of the acquiring
company. At the date of acquisition (August 10, 1995), BritWill was of such
significance to Unison as to be considered a predecessor company. Accordingly,
BritWill's separate selected historical financial data is provided for the
periods from 1992 to the date of acquisition.
The selected historical financial data set forth for the years ended
December 31, 1993 and 1994 and the seven months ended July 31, 1995 are derived
from BritWill's audited financial statements. The audited financial statements
of BritWill for the one month ended July 31, 1995 and the six months ended June
30, 1995, together with the notes thereto, are included elsewhere herein. The
data for the seven months ended July 31, 1994 are derived from the unaudited
financial statements of BritWill which are not included herein. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
applicable to BritWill's separate historical results and other financial
information included herein.
<TABLE>
<CAPTION>
SEVEN MONTHS
YEARS ENDED ENDED
DECEMBER 31, JULY 31,
------------------- -------------------
1993 1994 1994 1995
------ ------ ------ ------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Net patient ................... $ 32,107 $ 53,801 $ 29,098 $ 38,378
Other ......................... 625 624 759 476
------ ------ ------ ------
Total revenues ........... 32,732 54,425 29,857 38,854
Expenses:
Operating ..................... 23,483 40,037 22,666 28,333
General and administrative .... 3,670 6,252 3,350 3,870
Rent .......................... 5,097 8,264 4,719 5,223
Interest ...................... 385 872 571 906
Depreciation and amortization . 704 987 487 591
------ ------ ------ ------
Total expenses ........... 33,339 56,412 31,793 38,923
------ ------ ------ ------
Income (loss) from operations ... (607) (1,987) (1,936) (69)
Other Income:
Interest income ............... 65 55 50 113
------ ------ ------ ------
Income (loss) before income taxes (542) (1,932) (1,886) 44
Income taxes .................... 52 53 26 31
------ ------ ------ ------
Net income (loss) .............. $ (594) $ (1,985) $ (1,912) $ 13
======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act, which are based on
assumptions set forth in this discussion that could prove to be inaccurate.
Important factors that could cause actual events to vary from the discussions
herein include the factors discussed in "BUSINESS", " - Overview" and " Risks
and Uncertainties".
The following material should be read in conjunction with Unison's
Consolidated Financial Statements and related notes thereto for the years ended
December 31, 1997, 1996 and 1995. All references in this discussion and analysis
to years are to fiscal years ended December 31 of such year.
24
<PAGE> 28
SIGNIFICANT EVENTS
- - In May 1997, Unison announced that its results of operations for the
nine-month period ended September 30, 1996 were restated from pretax
income of $328,000 to a pretax loss of approximately $15.0 million. See
"- Overview".
- - On December 1, 1997, Unison completed the private placement of its
$20.0 million 13% Senior Notes. See "- Liquidity and Cash Flows".
- - For the year ended December 31, 1997, Unison recorded a net loss of
$47.2 million compared to a net loss of $23.4 million in 1996 and net
income of $117,000 in 1995. See "- Results of Operations".
- - In 1998, Unison and its subsidiaries filed for reorganization under
Chapter 11 of the federal bankruptcy laws. See "- Overview".
OVERVIEW
Fiscal 1997 was a turbulent year for Unison. Prior to 1997, the Company
pursued an aggressive expansion program that, in time, overwhelmed the Company's
financial reporting and management information systems and personnel. As a
result, the Company announced that its results of operations for the nine-month
period ended September 30, 1996 were restated from pretax income of $328,000 to
a pretax loss of approximately $15.0 million. The Company took steps that it
believes has remedied these problems and will prevent them from recurring.
First, Unison curtailed its acquisition program in 1997. Second, in April 1997,
Unison accepted the resignations of several of its principal officers, including
its chief executive officer and chief financial officer. Third, several managers
in accounting and finance were replaced in 1997. Fourth, the Company hired a new
CEO in September 1997 and a new CFO in April 1998. Fifth, in the second quarter
of 1997, the Company completed the conversion to new accounts payable,
accounting and financial reporting computer systems.
In July 1997, Unison began work on a plan designed to: (i) reduce its
costs of capital and operating expenses in order to improve operating results
and cash flows; (ii) provide short-term and long-term liquidity; and (iii)
restructure its balance sheet. The Company sought to: (a) reduce controllable
costs; (b) refinance the mortgage on certain facilities purchased in the
Signature Acquisition (the "Mortgage Note"), the proceeds of which would be used
for debt service and working capital; and (c) obtain a new asset-backed
revolving line of credit. Unison also attempted to restructure its lease
agreements with Omega related to 26 nursing facilities operated by the Company
in Texas and Indiana. As a result of the Company's continuing losses, it was not
in compliance with certain financial covenants contained in the Omega leases.
In November 1997, Unison announced that it had been unable to complete
a refinancing of the Mortgage Note, and was therefore unable to make the
scheduled $6.7 million interest payment on its 12 1/4% Senior Notes. On December
1, 1997, Unison completed the private placement of its $20.0 million 13% Senior
Notes. The proceeds from the sale were used to make the interest payment on the
12 1/4% Senior Notes and for working capital.
Despite the sale of the 13% Senior Notes, the Company lacked sufficient
liquidity to meet all of its short-term and long-term debt service and capital
requirements. As of December 31, 1997, Unison was in covenant and payment
default in the terms of material debt and lease obligations. The Company was
also unable to reach an agreement with Omega with respect to a restructuring of
the terms of the Omega leases. On January 7, 1998, the BritWill Debtors, with
operations in Texas and Indiana, filed for protection under Chapter 11 of the
federal bankruptcy laws. The Chapter 11 filings were necessitated by actions
taken by Omega to terminate or otherwise enforce the terms of its lease
agreements with the Company.
In 1998, the Company continued to work to develop a plan to achieve a
viable capital structure, including a consensual restructuring of its debt and
lease obligations and the disposition of unprofitable facilities. Negotiations
with Omega and the Ad Hoc Committee with respect to a consensual restructuring
reached an impasse in May 1998.
25
<PAGE> 29
On May 28, 1998, Unison and 29 of its subsidiaries filed petitions for
reorganization under Chapter 11 of the federal bankruptcy laws.
In June 1998, Unison reached an agreement in principle (the "Term
Sheet") with respect to a restructuring of the Company's debt and equity with
Omega and the Ad Hoc Committee. The Company also obtained a continuation of its
accounts receivable-backed line of credit with HealthCare Financial Partners
("HCFP") in the amount of $11.0 million (the "HCFP DIP Loan") which is available
to Unison for working capital needs during the Chapter 11 process. Unison did
not reach an agreement with Messrs. Kremser and Whitehead, shareholders and
former directors to whom the Company has various debt obligations. The Term
Sheet formed the basis for the Company's Plan of Reorganization, which was filed
with the Bankruptcy Court on August 10, 1998. The Term Sheet expired on
September 30, 1998. On October 16, 1998, Unison filed an amended Plan of
Reorganization with the Bankruptcy Court. The Plan is supported by Omega and the
Official Committee of Unsecured Creditors but not the Ad Hoc Committee. The
significant provisions of the Plan are as follows. As used herein, "Reorganized
Unison" means, collectively, the Debtors, as reorganized and reconstituted,
pursuant to the Plan on the Effective Date.
- - Omega has agreed to purchase seven facilities owned and operated by
Unison for a purchase price of $38.2 million. Proceeds from the sale
will be used to (i) repay the Mortgage Note related to six of these
facilities amounting to approximately $19 million; (ii) pay off the
balance of the HCFP DIP Loan; and (iii) to settle certain bankruptcy
claims as provided for in the Plan and described below. The facilities
will then be leased back to Unison (the "Signature Sale Leaseback").
These facilities and ten other facilities currently leased from Omega
and BritWill Texas will be combined into a single master lease (the
"Master Lease"). Six leased facilities will be returned to Omega and
three facilities that Unison disposed of in March 1997 via a sublease
agreement will be excluded from the Master Lease. In consideration
thereof, Omega will receive $2.0 million in cash, a seven-year, $3.0
million promissory note bearing interest at 7.0% and a guarantee to be
executed by Unison and BritWill Investments - II, Inc. to supercede and
replace all existing guarantees of BritWill Texas obligations. In
addition, Omega will receive financing fees and reimbursement of
expenses in the amount of $1.0 million. Unison will pay, in cash, all
prepetition rent payments due to Omega in the amount of approximately
$1.5 million.
- - In settlement of approximately $12.6 million of obligations of Unison,
the Whitehead Affiliates will receive $541,000 in cash, an unsecured
promissory note amounting to approximately $1.5 million and
approximately 8.4% of the newly issued shares of common stock in
Reorganized Unison (the "New Common Stock"). The promissory note will
bear interest at 9.0%, payable quarterly, and the principal amount will
be due and payable at the end of five years. This treatment is
contingent upon the Whitehead Affiliates voting to accept the Plan. If
the Whitehead Affiliates elect not to vote, or vote not to accept the
Plan, Unison will continue its litigation regarding the validity of
purported security for these obligations. See Item 3, "LEGAL
PROCEEDINGS".
- - In settlement of approximately $5.6 million of obligations of Unison,
the Kremser Affiliates will receive $541,000 in cash and a promissory
note amounting to approximately $1.4 million. The promissory note will
bear interest at 9.0%, payable quarterly, and the principal amount will
be due and payable at the end of five years. This treatment is
contingent upon the Kremser Affiliates voting to accept the Plan. If
the Kremser Affiliates elect not to vote, or vote not to accept the
Plan, Unison will continue its litigation regarding the validity of
purported security for these obligations. See Item 3, "LEGAL
PROCEEDINGS".
- - Convenience Claims, defined in the Plan as payables due to general
unsecured creditors amounting to $1,000 or less (or $2,000 or less
whose holders elect to reduce their claims to $1,000), will be paid in
cash. The Company estimates that the aggregate amount of convenience
claims is approximately $692,000 and will pay up to $650,000 to satisfy
these claims. Essential Vendor Claims, defined in the Plan as payable
to vendors deemed essential to the continued operation of Unison's
business, will be paid in cash the lesser amount of the allowed claim
or a pro rata portion of $4.4 million. The Company estimates that there
will be approximately $2.1 million of Essential Vendor Claims on the
effective date of the Plan (the "Effective Date"). Trade Unsecured
Claims, defined in the Plan as payables to other trade vendors (with
certain exclusions) will receive (a) in cash the lesser of (i) 35% of
the allowed amount of the claim and (ii) a pro rata portion of $1.4
26
<PAGE> 30
million, plus (b) approximately 0.14% of the shares of New Common
Stock. The Company estimates that Trade Unsecured Claims will amount to
approximately $3.4 million. All other general unsecured creditors,
including the holders of the 12 1/4% Senior Notes and the 13% Senior
Notes, will share pro rata in (i) approximately 90.2% of the shares of
New Common Stock; and (ii) a new senior debt security (the "New Senior
Note") in the amount of approximately $24.4 million. The New Senior
Note will bear interest at 11.0% and will mature four years from the
Effective Date. As a result of a subordination agreement related to the
13% Senior Notes, the distribution of New Senior Notes and New Common
Stock will be reallocated as amongst the holders of the 13% Senior
Notes and those holders of the 12 1/4% Senior Notes who had consented
to the subordination agreement (the "Consenting Noteholders"). As a
result of this reallocation, the actual distribution to the general
unsecured creditors will be as follows: (a) the holders of the 13%
Senior Notes will receive New Senior Notes equal to 100% of their
allowed claims ($21.3 million); (b) the Consenting Noteholders will
receive only New Common Stock; and (c) all other holders of general
unsecured claims will be unaffected by this reallocation. The Company
estimates that the aggregate amount of general unsecured claims, other
than Convenience Claims, Essential Vendor Claims and Trade Unsecured
Claims, is approximately $139.8 million.
- - Secured claims, which include the Mortgage Note, the HCFP DIP Loan,
claims of Omega, property tax liabilities and other secured loans, will
receive one of the following treatments: (i) the claim may be paid in
cash on the Effective Date of the Plan; (ii) liabilities not in default
may continue in accordance with their original terms; (iii) liabilities
in default may continue in accordance with their original terms upon
the reinstatement or cure of the default (as defined); and (iv) the
collateral securing such liability may be returned to the creditor in
full satisfaction of the claim. The Company estimates that the
aggregate amount of secured claims is approximately $28.4 million.
- - Subject to certain conditions, Unison's stockholders will share pro
rata in the issuance of warrants to purchase approximately 378,000
shares of New Common Stock which, if exercised, will represent
approximately 5% of the equity of Reorganized Unison on a fully diluted
basis. Within three months of the Effective Date, the board of
Reorganized Unison will grant to the Company's five senior executives
options to purchase New Common Stock. Additional stock options will be
granted to these individuals if the Company achieves certain
performance goals. All of the stock options, if exercised, will
represent approximately 5% of the equity of Reorganized Unison on a
fully diluted basis.
- - Prior to the Effective Date, Unison must obtain a new line of credit
that is ready to fund. Unison is in the process of negotiating the
terms of a $12.0 million new line of credit with HCFP.
For the Plan to be confirmed by the Bankruptcy Court, it must meet a
number of tests including, among other things: (i) that the Plan has been
accepted by the requisite number of votes of creditors; (ii) that the Plan is
feasible and confirmation of the Plan is not likely to be followed by the
liquidation or the need for further reorganization of the Company; and (iii)
that the Plan provides all creditors and stockholders with distributions in an
amount not less than such parties would receive if Unison were liquidated under
Chapter 7. The Company believes that the Plan meets these tests. In the event
that the Plan does not receive the requisite number of votes for confirmation,
the Company will seek to confirm the Plan under the so-called "cram down"
provision of the Bankruptcy Code. The Bankruptcy Code provides that a plan can
be confirmed even if the plan is not accepted by all classes of impaired
creditors as long as at least one impaired class of claims has accepted it. The
Bankruptcy Court may confirm the Plan if the Plan "does not discriminate
unfairly" and is "fair and equitable" (as defined) to each impaired class that
has not accepted the Plan.
RISKS AND UNCERTAINTIES
The restructuring of Unison involves a degree of risk, and this
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainty. Reorganized Unison's actual results could differ materially from
those anticipated in such forward-looking statements as a result of a variety of
factors, including those set forth in the following risk factors and elsewhere
in this Annual Report.
27
<PAGE> 31
Reorganization Factors. There are risks inherent in any plan of
reorganization and all risk factors cannot be anticipated. Some events will
develop in ways that were not foreseen and many or all of the assumptions used
in the Plan will not be realized exactly as assumed. Some or all of the
variations may be material. Under the Plan some of the principal risks to be
aware of are as follows.
- - There is a risk that one or more of the required conditions or
obligations under the Plan will not occur, be satisfied or waived, as
the case may be, resulting in the inability to confirm the Plan.
- - Delays in achieving confirmation and effectiveness of the Plan could
adversely impact Unison's results of operations due to, among other
things, continuing declines in census, difficulty in hiring skilled
employees, decreased confidence of vendors and regulators, and
continued fees and expenses related to the bankruptcy and
reorganization.
- - The total amount of all claims filed with the Court may be materially
in excess of the estimated final amount of allowed claims assumed in
the development of the Plan and in the valuation estimates provided
therein. Accordingly, the amount and timing of the distributions that
will ultimately be received by any particular holder of an allowed
claim in any class may be materially and adversely affected should the
estimates be exceeded as to any class.
- - A number of other uncertainties may adversely impact Reorganized
Unison's future operations including, but not necessarily limited to,
economic recession, increased competition, adverse regulatory agency
actions, acts of God, or similar circumstances. Many of these factors
will be substantially beyond the control of Reorganized Unison, and a
change in any factor or combination of factors could have a material
adverse effect on Reorganized Unison's financial condition, cash flows
and results of operations.
- - There can be no assurance that Reorganized Unison will be able to
continue to generate sufficient funds to meet its obligations and
necessary capital expenditures. Although the Company projects that
Reorganized Unison will generate sufficient funds to meet its working
capital needs for the foreseeable future, its ability to gain access to
additional capital, if needed, cannot be assured, particularly in view
of possible competitive factors and industry conditions.
Limited Operating History; History of Losses and Accumulated Deficit.
Unison began operations in 1992. Since then, except for a small net profit in
the fourth quarter of 1995 (and the pooling affect of the Ampro Acquisition
completed in October 1996) it has reported net losses for every period,
culminating in losses of approximately $23.4 million for 1996, approximately
$47.2 million for 1997 and approximately $9.8 million for the six months ended
June 30, 1998. The Company's future profitability will depend on many factors,
including its ability to control costs, occupancy levels, government regulation
and reimbursement policies, competition, its ability to attract and retain
qualified personnel at competitive rates, success at implementing the Plan and
general economic conditions. While the Company has instituted revenue
enhancement and cost containment programs and has completed the integration of
recent acquisitions, there can be no assurance that the Company will be
profitable in the future.
Management Resignations and Dependence on Skilled Personnel. Three of
Unison's executive officers, including its Chief Executive Officer, Chief
Financial Officer and Executive Vice President of Acquisitions, resigned in
April of 1997 and its Chief Operating Officer resigned in October 1997. In
addition, the Company's prior General Counsel and several facility
administrators resigned during 1997. The Company hired a CEO in September 1997
and replaced its CFO and General Counsel in 1998. Although the pre-petition
resignations of senior managers is not expected to have a material adverse
impact on Unison's future result of operations, the loss of certain other key
personnel could adversely affect Unison's results of operations and its efforts
to rebuild its financial health. Unison's business strategy also depends 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 healthcare
providers for the services of physicians,
28
<PAGE> 32
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.
Reliance on Reimbursement from Government Sources. The Company is
reimbursed under the Medicare program for its actual allowable direct and
indirect costs of services based on the submission of an annual cost report.
Each facility is also subject to limits on reimbursement for routine costs.
Exceptions to these limits are available for, among other things, the provision
of atypical services. Due in part to the provision of subacute services,
Unison's costs for the care delivered to Medicare patients in certain of its
nursing facilities have exceeded the routine cost limits in the aggregate amount
of $1.8 million, $2.3 million and $2.7 million in 1995, 1996, and 1997,
respectively. The Company has filed 18 exception requests with HCFA with respect
to 1995, requesting reimbursement for excess costs. Unison was granted interim
(pending audit) routine cost limit exceptions for 16 of the 18 facilities in the
aggregate amount of approximately $1.5 million. However, in the fourth quarter
of 1997, the fiscal intermediary audited the Company's 1995 Medicare cost
reports and as a result, the Company recorded a provision for potential audit
adjustments of approximately $1.2 million. The Company is currently in the
process of filing exception requests related to 1996 and 1997. Although
management believes that the Company will recover these routine cost limit
exceptions, failure to obtain such exceptions could adversely affect the
Company's results of operations.
Governmental payors and their paying agencies and private third-party
payor sources have instituted cost containment measures of various kinds
designed to limit payments made for long-term care and ancillary services, and
there can be no assurance that future measures will not materially and adversely
affect reimbursement to the Company. Revenues received from the Medicare program
for services provided in Unison's facilities represented approximately 32.1% and
34.2% of Unison's 1997 actual and pro forma long-term care revenues. The
Medicare program is subject to statutory and regulatory changes, retroactive and
prospective rate adjustments, complex reimbursement audits, paying agency
discretion and interpretations, administrative rulings and funding restrictions,
all of which could have the effect of limiting or reducing reimbursement levels
for Unison's services. Any significant decrease in Medicare reimbursement
levels, or imposition of significant restrictions on participation in the
Medicare program, could have a material adverse effect on Unison. There can be
no assurance that the Company's facilities will continue to satisfy the
requirements for participation in the Medicare program.
Revenues received from state Medicaid programs for services provided in
the Company's facilities represented approximately 51.7% and 49.8% of Unison's
1997 actual and pro forma long-term care revenues. The Company's facilities are
subject to risks of changes in Medicaid reimbursement and payment delays
resulting from budgetary shortfalls of state Medicaid programs. Many states have
enacted or are considering enacting measures that are designed to reduce their
Medicaid expenditures and to make certain changes to private healthcare
insurance. There are also a number of legislative proposals including cost caps
and the establishment of Medicaid prospective payment systems for nursing
facilities. See " - Risks and Uncertainties - Health Care Reform".
Health Care Reform. The Balanced Budget Act, signed into law on August
5, 1997, is intended to reduce Medicare payments by $115 billion over the next
five years and makes numerous changes to Medicare and Medicaid programs. The
Balanced Budget Act mandates the establishment of PPS for Medicare skilled
nursing facility services, under which facilities will be paid a fixed fee for
virtually all covered services. PPS will be phased in over a four-year period,
effective for the Company's facilities on January 1, 1999. During the first
three years, payments will be based on a blend of the facility's historical
costs and calculated federal rates. Thereafter, the per diem rates will be based
100% on federal rates, adjusted for inflation and geographical data. In
addition, effective January 1, 1999, there will be an annual per-patient cap of
$1,500 on reimbursement for combined Part B and outpatient physical and speech
therapy services and an annual cap of $1,500 on reimbursement for combined Part
B and outpatient occupational therapy services. There can be no assurance that
PPS will not have a material adverse impact on the Company's results of
operations or financial condition.
The Balanced Budget Act also contains changes to the Medicaid program,
the most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and
29
<PAGE> 33
services in compliance with applicable standards. Effective October 1, 1997,
states have more flexibility in establishing payment rates. Indiana changed its
Medicaid program to a prospective payment system effective October 1, 1998 and
Colorado is expected to follow in 1999. The Company does not believe that the
change in Indiana's reimbursement system will materially negatively impact
Unison's results of operations or financial condition, and Unison has not
determined the impact the change in Colorado's system will have on its results
of operations. Unison is unable to predict whether any other states will change
their reimbursement policies and, if so, what effects such changes would have on
the Company. There can be no assurance that any changes to the Medicaid program
will not have a material adverse impact on the Company.
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 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 the Company's
business.
Extensive 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, as well as those
relating to other business, such as those mandating fair employment practices
and prohibiting damage to the environment. 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
the Company generally has been able to secure necessary approvals or licenses in
the past, it voluntarily closed one facility in 1996 and one in 1997 due to
violations of Medicare regulations. 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 or Medicare payments,
and to expand the scope of its operations, any of which could materially
adversely affect the Company's business. See "BUSINESS Operations - Quality
Management".
In May 1996, HCFA announced the first year results of its "Operation
Restore Trust" initiative, designed to combat Medicare and Medicaid fraud, waste
and abuse by home health agencies, nursing homes and durable medical equipment
suppliers. Operation Restore Trust originally focused on five states and is now
extended to all states and is focused on problems with claims for services not
rendered or not provided as claimed and claims falsified to circumvent coverage
limitations on medical supplies. In addition, HCFA certification, survey and
enforcement regulations impose significant 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. 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. There can be no assurance that these rules, or future rules or
legislation, will not have a material adverse affect on the Company.
Competition for Patients and Employees. The industries in which Unison
operates 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 provides, both for patients and for nurses and other key
personnel. Many of these companies have greater financial and other resources
than Unison. A number of states in which Unison operates do not have
"certificate of need" or similar laws restricting the construction of competing
facilities. No assurance can be given that Unison will have the resources to
compete successfully with such companies.
Impact of the Year 2000 Issue. Some of Unison's information systems
have time-sensitive software that will not properly recognize the year 2000. The
year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
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<PAGE> 34
Based on an on-going assessment, the Company has determined that it
will be required to modify or replace significant portions of its hardware and
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that with
modifications to existing hardware and software and conversions to new hardware
and software, the year 2000 issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed in a timely manner, the year 2000 issue could have a
material adverse impact on the operations of the company.
The Company has initiated formal communications with significant
suppliers and payors to determine the extent to which the Company's systems and
operations are vulnerable to those third parties' failure to remediate their own
year 2000 issues. Examples of such issues include, but are not limited to,
electronic interfaces with external agents such as payors, suppliers and banks,
in addition to patient service equipment that has microprocessors with date
functionality. The ability of third parties with which Unison transacts business
to adequately address their year 2000 issues is outside the Company's control.
There can be no assurance that the systems of other companies, as well as those
of the federal and state governments on which the Company's systems and
operations rely, will be timely converted and will not have an adverse effect on
the Company's systems and on-going operations.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the hardware and software for year 2000
modifications. Since assessments of the year 2000 issue currently remain
on-going, the Company has not yet been able to fully quantify the costs of its
year 2000 remediation.
The Company will continue to assess each of its systems and their year
2000 readiness. At this time, the Company believes that appropriate actions are
being taken and expects to complete its overall year 2000 remediation prior to
any anticipated impact on its operations. However, there can be no assurance
that these assumptions will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, third party modification plans and similar
uncertainties.
ACQUISITIONS AND DISPOSITIONS.
Prior to 1997, a key element of Unison's growth and business strategy
was the acquisition of long-term care facilities and the acquisition or
development of ancillary healthcare businesses or services, including pharmacy,
rehabilitation therapy and laboratory services. The most significant of Unison's
acquisitions are as follows.
In August 1995, Unison acquired BritWill, which operated 28 long-term
care facilities in Texas and Indiana. The consideration given by Unison in
connection with the BritWill Acquisition included: (i) a debenture that was
subsequently converted into 561,815 shares of Unison common stock; (ii) a
combination of promissory notes and lump sum contingent payment obligations
totaling approximately $25 million; (iii) a monthly contingent payment
obligation which subsequently became a fixed obligation (the "Additional Payment
Obligation"); and (iv) indemnifications and guarantees by Unison of certain
debts and obligations of BritWill (collectively, the "BritWill Acquisition
Obligations"). An affiliate of Mr. Whitehead was the majority shareholder of
BritWill. As of October 31, 1998, the remaining BritWill Acquisition Obligation
is the Additional Payment Obligation amounting to $9.6 million, which is in
default. See "- Overview".
In October 1996, Unison acquired Signature, which operated 13 long-term
care facilities in Colorado and Arizona. The initial purchase price amounted to
$50.7 million comprised of: (i) cash amounting to $37.0 million; (ii) promissory
notes placed in escrow amounting to $1.1 million (the "Escrow Notes"); and (iii)
1,509,434 shares of Unison common stock. Mr. Kremser was the majority
shareholder of Signature. In March 1997, in accordance with an equity adjustment
provision of the Signature merger agreements, the former Signature shareholders
received additional purchase consideration of $2.5 million, comprised of
convertible promissory notes amounting to $1.8 million (the "Equity Adjustment
Notes") and 238,052 shares of Unison common stock. In connection with the
Signature Acquisition, Unison also purchased RehabWest for $6.1 million in cash.
As of October 31, 1998, the
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<PAGE> 35
Escrow Notes and the Equity Adjustment Notes (together, the "Signature
Acquisition Obligations"), were outstanding and in default. See "- Overview".
In October 1996, Unison also acquired Ampro, a medical reference
laboratory company. Consideration for the merger consisted of 540,000 shares of
Unison common stock with a market value of $4.5 million plus cash and promissory
notes totaling $487,000. The merger with Ampro was accounted for as a pooling of
interests.
Effective February 1, 1996, Unison acquired 90% of the stock of
Sunbelt, which provides physical, occupational and speech therapy services to
Unison facilities and nonaffiliated entities. The purchase price of $3.6 million
was comprised of $800,000 in cash and promissory notes amounting to $2.8 million
(the "Sunbelt Notes"). The Sunbelt Notes were repaid in January 1997. In
November 1996 but effective February 1, 1996, Unison purchased the remaining 10%
of Sunbelt's stock. The purchase price of $2.1 million was comprised of
promissory notes and guaranteed payments (the "Sunbelt Obligations") amounting
to $1.9 million and 27,942 shares of Unison common stock. As of October 31,
1998, the balance of the Sunbelt Obligations was $1.6 million, which obligation
is in default and a general unsecured claim of Unison.
During the past three years the Company has also acquired several
individual facilities and acquired the assets of smaller ancillary companies.
In 1996, the Company initiated a plan to dispose of eight long-term
care facilities which failed to meet Unison's operational or financial criteria
due to inadequate Medicaid reimbursement, low occupancy rates or adverse local
market conditions. Four of these facilities, one of which was closed, were
disposed of via sublease in March 1997. The remaining four facilities continue
to be held for disposition.
As part of the Company's restructuring plans, the Company modified its
original disposition plan and identified additional long-term care facilities
for disposition, which the Company believes will facilitate the restructuring.
As part of these plans, the Company terminated the leases of eleven long-term
care facilities during the first eight months of 1998. As of October 31, 1998,
eight facilities representing 692 beds remain held for disposition. Of the eight
Disposition Facilities, six are leased from Omega and, as part of the Plan,
Omega will release the Company from its obligations related to these facilities.
See "- Overview". Unison also plans to sell Sunbelt. There can be no assurance
that the Company's disposition plans as implemented will prove to be successful
or that these dispositions have occurred or will occur on favorable terms to the
Company. See "BUSINESS - Recent Developments" and " Acquisitions", and "-
Overview". Unison recorded impairment losses and other charges related to the
Disposition Facilities in the amount of $27.2 million and $3.9 million in 1997
and 1996, respectively. See "- Results of Operations".
RESULTS OF OPERATIONS
UNISON HISTORICAL
The following table summarizes selected operating statistics.
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<PAGE> 36
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Leased/Owned Facilities:
Number of facilities ............. 42 57 54
Number of licensed beds:
Long-term care ................ 3,872 5,145 4,768
Assisted and independent living 112 325 325
Managed facilities:
Number of facilities ............. 8 3 1
Number of licensed beds .......... 874 310 71
Institutional Pharmacies:
Number of outlets ................ 1 2 2
Nonaffiliated entities served .... 17 42 58
Laboratory Services:
Number of laboratories ........... 3 3 3
Nonaffiliated entities served .... 260 295 275
Therapy Services:
Nonaffiliated entities served .... -- 55 115
</TABLE>
The following table identifies Unison's sources of revenues.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Percentage of total revenues:
Long-term care ....................... 67.4% 81.0% 77.0%
Therapy services ..................... -- 8.9 13.9
Pharmacy services .................... 1.0 4.6 5.5
Laboratory services .................. 10.5 4.4 2.8
Medicare Part B billing and supply ... 0.9 1.1 0.8
----- ----- -----
Total ............................. 100.0% 100.0% 100.0%
===== ===== =====
</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 the
Company'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 the Company
than governmental reimbursement sources. Unison generally derives a higher
profit margin from ancillary services than from basic nursing services.
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>
YEARS ENDED DECEMBER 31,
----------------------------- PRO FORMA
SOURCE OF REVENUES 1995 1996 1997 1997 (1)
- ------------------ ------ ------ ------ ---------
<S> <C> <C> <C> <C>
Medicare ............ 26.9% 29.5% 32.1% 34.2%
Private and other ... 17.2 17.0 16.2 16.0
------ ------ ------ ------
Quality mix .... 44.1 46.5 48.3 50.2
Medicaid ............ 55.9 53.5 51.7 49.8
------ ------ ------ ------
Total ......... 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
(1) Adjusts for the completed and anticipated Dispositions as though such
transactions had occurred as of January 1, 1997.
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<PAGE> 37
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, Unison recorded a net loss of
$47.2 million, or $7.41 per share, compared to a net loss of $23.4 million, or
$5.01 per share, for 1996. Loss before income taxes amounted to $49.7 million in
1997 compared to $31.8 million in 1996. In 1997, the Company recorded impairment
losses and other charges related to the planned disposition of facilities in the
amount of $27.2 million compared to $3.9 million in 1996. The increased loss in
1997 is also attributable to interest expense, which increased from $5.8 million
in 1996 to $20.1 million in 1997, and depreciation and amortization expense,
which increased from $4.6 million in 1996 to $10.0 million in 1997.
Revenues. Total operating revenues increased by 50.9% to $224.4 million
in 1997 from $148.7 million in 1996. The increase is primarily due to revenues
from patient services, which increased from $146.4 million in 1996 to $222.1
million in 1997. Patient days increased from 1.2 million in 1996 to 1.5 million
in 1997. Of the increase in net patient service revenues, approximately $44.9
million is attributable to 1996 long-term care facility acquisitions, including
the Signature Acquisition on October 31, 1996, net of a $5.9 million decrease
attributable to the disposition of three nursing facilities on March 1, 1997.
The growth of the pharmacy and therapy companies accounted for an increase in
revenues of approximately $23.3 million. The balance of the increase in revenues
was produced by nursing and assisted living facility operations. Unison's
quality mix increased to 48.3% in 1997 from 46.5% in 1996. Average occupancy
improved from 77.0% in 1996 to 83.1% in 1997.
In the 1997 fourth quarter, Unison was informed by its Medicare fiscal
intermediary that it is challenging Unison's reimbursement for certain therapy
services provided at Unison nursing facilities by Sunbelt. Although Unison
intends to vigorously pursue reimbursement of the challenged items, the Company
recorded a reduction of $4.6 million in revenues in the 1997 fourth quarter due
to this related-party issue. The Company also recorded other potential Medicare
audit adjustments of $1.2 million in the fourth quarter. See "BUSINESS -
Government Regulation - The Medicare Program" and " - Risks and Uncertainties -
Reliance on Reimbursement from Government Sources".
Wages and related. Wages and related expenses increased 35.3% from
$85.8 million in 1996 to $116.1 million in 1997. As a percentage of revenues,
wages and related expenses decreased from 57.7% in 1996 to 51.8% in 1997. The
dollar increase is due primarily to the increase in the number of facilities
operated and the growth of Unison's ancillary companies. The percentage decrease
is due primarily to cost controls in the nursing facilities.
Other operating. Other operating expenses increased 30.6% from $64.8
million in 1996 to $84.6 million in 1997. The increase is due primarily to an
increase in the number of facilities operated. Other operating expenses as a
percentage of revenues decreased to 37.7% in 1997 from 43.6% in 1996 due in part
to the Company's cost containment efforts. In addition, the 1996 period included
the following expenses which did not recur in 1997, resulting in decreases from
1996 to 1997 in: (i) legal and accounting fees, $1.1 million; (ii) fines and
penalties, $1.6 million; (iii) gross receipts taxes, $3.6 million; and (iv) loan
fees and bond issue costs, $840,000. Bad debt expense decreased by $703,000 in
1997. See " -- Year Ended December 31, 1996 Compared to Year Ended December 31,
1995".
Rent. Rent expense increased 2.9% from $15.7 million in 1996 to $16.1
million in 1997. Rent expense decreased as a percentage of revenues from 10.5%
in 1996 to 7.2% in 1997. The dollar increase is due primarily to the increase in
the number of leased facilities operated and rent escalations, offset in part by
the disposition of four facilities in March 1997. See " - Acquisitions and
Dispositions". The percentage decrease is due to (i) a higher percentage of
owned facilities to total facilities in 1997 than in 1996 and (ii) the revenue
growth of the Company's therapy, laboratory and pharmacy companies which, in the
aggregate, recorded rent expense amounting to less than 1% of revenues in the
1997 period.
Interest. Interest expense amounted to $20.1 million in 1997 compared
to $5.8 million in 1996. The increase is primarily the result of debt incurred
and assumed in connection with acquisitions, including the $100.0 million of
12 1/4% Senior Notes issued on October 31, 1996 and the $20.0 million of 13%
Senior Notes on December
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<PAGE> 38
1, 1997, as well as increases in borrowings for working capital. See " --
Liquidity and Cash Flows." Interest expense as a percentage of revenues
increased to 8.9% in 1997 from 3.9% in 1996.
Depreciation and amortization. Depreciation and amortization expense
increased from $4.6 million in 1996 to $10.0 million in 1997. These increases
are due primarily to the increase in goodwill and lease operating rights
associated with acquisitions and an increase in fixed assets resulting from
capital expenditures and ownership interests in six facilities acquired from
Signature on October 31, 1996. Depreciation and amortization expense as a
percentage of revenues was 3.1% in 1996 and 4.4% in 1997.
Impairment losses and other charges. In the third quarter of 1996,
Unison announced the planned disposition of eight nursing facilities. Of the
Disposition Facilities, one was closed in June 1996 and three others, which had
incurred operating losses since the Company had acquired them in August 1995,
were disposed of in March 1997. As of December 31, 1997, additional Disposition
Facilities were identified, and in 1998 the Company filed for bankruptcy.
Consequently, as of December 31, 1996 and 1997, Unison evaluated its long-lived
assets, including property and equipment, goodwill, lease operating rights and
other intangible assets, for impairment in accordance with 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 No. 121").
Unison estimated the undiscounted net cash flows from all business units and
determined that the carrying value of certain the Company's long-lived assets
exceeded such undiscounted cash flows. Accordingly, Unison then compared the
fair value of the assets based on the present value of the estimated future cash
flows for the facilities with the carrying value. The future cash flows were
estimated based on: (i) the remaining weighted average useful lives of the
assets; (ii) earnings history; (iii) a discount rate commensurate with the risks
involved and market conditions; and (iv) assumptions reflecting internal
operating plans and strategies. Unison determined that the fair value of certain
assets was less than the carrying value and, accordingly, recorded a provision
for impairment losses in the amount of $3.9 million in 1996 and $27.2 million in
1997.
Income tax benefit. Unison recorded income tax benefits of $2.5 million
in 1997 and $8.4 million in 1996. The effective rate of 5.0% in 1997 is the
result of a valuation allowance established against the Company's net operating
loss carryforward benefits. Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", requires that a valuation allowance be recorded
against tax assets that are not likely to be realized. The Company has
determined that its net operating loss carryforwards amounting to $46.5 million
are not likely to be realized in future periods. Specifically, the Internal
Revenue Service Code provides that, in a Chapter 11 bankruptcy case, income
normally arising from the discharge of indebtedness is excluded from taxable
income. However, to the extent that income from discharge of indebtedness is
excluded from income, taxpayers must reduce specified tax attributes, which
include net operating losses. The Company anticipates that, in connection with
the implementation of the Plan, its net operating losses will be eliminated as a
result of the restructuring of its debt obligations. Therefore, a valuation
allowance has been established against the full amount of the Company's net
operating loss carryforward benefits.
The effective tax rate of 26.3% in 1996 is lower than the statutory
federal income tax rate due primarily to (i) amortization of intangible assets
and other expenses which are not deductible for tax; (ii) taxable income of
certain subsidiaries which are not consolidated for tax purposes; and (iii) the
valuation allowance established against deferred tax assets. The Company
recorded a valuation allowance at December 31, 1996 amounting to $1.5 million
against tax benefits arising from net operating losses and depreciation of
certain of the Company's subsidiaries. The net operating losses of these
particular subsidiaries arose prior to the subsidiaries' acquisition by Unison,
and must be offset by taxable income of the same companies. The valuation
allowance was established due to the uncertainty of the ultimate realization of
these tax benefits based upon past performance and expiration dates.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Unison recorded a net loss of $23.4 million in 1996 and net income of
$117,000 in 1995. Loss before taxes amounted to $31.8 million in 1996 compared
to pretax income of $249,000 in 1995. The pretax loss in 1996 is primarily
attributable to: (i) provisions for doubtful accounts related to management fees
and patient and other receivables in the aggregate amount of $2.7 million; (ii)
a provision for impairment of long-lived assets and costs to
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<PAGE> 39
exit the Disposition Facilities amounting to $3.9 million; (iii) gross receipt
taxes, interest, and various penalties of approximately $3.6 million; (iv)
accrued accounting, legal and other professional fees relating to 1996 matters
of $1.3 million; (v) loan transaction costs and fees for debt which has been
paid off and acquisition costs of $1.8 million; (vi) an increase in corporate
salary costs from $2.8 million in 1995 to $5.3 million in 1996; (vii) a
litigation settlement amounting to $725,000; and (viii) losses from nursing home
operations of approximately $10.9 million, of which $3.2 million was
attributable to the Disposition Facilities. The majority of the charges to
income which resulted in the 1996 net loss were identified during the course of
the 1996 audit examination and were also included in the restated results of
operations for the nine months ended September 30, 1996. The losses from nursing
home operations in 1996 were due primarily to an average occupancy rate of 77.0%
and controllable costs that exceeded budgets.
Revenues. Revenues amounted to $148.7 million in 1996 compared to $68.5
million in 1995. The increase is due primarily to revenues from patient
services, which increased from $64.9 million in 1995 to $146.4 million in 1996.
Patient days increased from 613,000 in 1995 to 1.235 million in 1996. Of the
increase in net patient service revenues, (i) approximately $54.7 million is
attributable to the increase in the number of facilities operated, including a
full year of operations of the 28 facilities acquired in the BritWill
Acquisition on August 10, 1995 and two months of operations of the 13 facilities
acquired in the Signature Acquisition on October 31, 1996; (ii) approximately
$18.7 million is due to the acquisitions of institutional pharmacies and therapy
companies, and progress in providing ancillary products and services to patients
of Unison facilities and unrelated facilities; and (iii) the balance is due to
the increases in the Company's quality mix and census. Other operating revenues
decreased to $2.3 million in 1996 from $3.5 million in 1995 due primarily to the
decrease in the number of facilities managed for third parties from eight at
December 31, 1995 to three at December 31, 1996.
Wages and related. Wages and related expenses increased 144.8% from
$35.0 million in 1995 to $85.8 million in 1996 and as a percentage of revenues
from 51.2% in 1995 to 57.7% in 1996. The dollar increase is due primarily to the
increase in the number of leased facilities operated and an increase in
corporate salaries due to Unison's acquisition program during 1996 and
accounting and information system conversions. The percentage increase is due
primarily to the acquisition of therapy companies, which have an inherently
higher percentage of salaries to revenues than long-term care providers, and an
increase in corporate and regional overhead.
Other Operating. Other operating expenses increased 169.5% from $24.0
million in 1995 to $64.8 million in 1996, or 43.6% of revenues in 1996 compared
to 35.1% in 1995. The dollar and percentage increases are due primarily to (i)
an increase in the number of leased facilities operated; (ii) an increase in the
provision for doubtful accounts related to management fees and other accounts
receivable in the aggregate amount of $2.7 million; (iii) a litigation
settlement amounting to $725,000; (iv) gross receipt taxes, interest, and
various penalties of approximately $3.6 million; and (v) an increase in
corporate operating expenses in 1996, due in part to loan transaction costs and
fees for debt which has been paid off and professional fees associated with
litigation and the restatement of financial results for the nine months ended
September 30, 1996. The provision for doubtful accounts for 1996 relates to
patient accounts receivable, management fees receivable and other miscellaneous
receivables. The provision for doubtful patient accounts receivable was
determined by analyzing the aged accounts receivable detail by facility and
payor type and the collectibility of each account based on the facts and
circumstances of each category of receivable. The provision for doubtful
accounts related to management fees and other receivables was determined by
analyzing individual account balances for collectibility including a review of
subsequent collections. The majority of these receivables were outstanding in
excess of one year.
Unison's Indiana and Washington facilities are subject to a gross
receipts tax based on a percentage of each facility's gross revenues. In late
1996, the Company determined that gross receipts taxes had not been paid to the
state of Indiana related to facilities acquired from BritWill for fiscal years
1993 through 1995. Accordingly, the Company recorded a liability for these taxes
including estimated interest and penalties.
Rent. Rent expense increased 134.6% from $6.7 million in 1995 to $15.7
million in 1996. The increase is due primarily to the increase in the number of
leased facilities operated. Rent expense as a percentage of revenues increased
to 10.5% in 1996 from 9.7% in 1995.
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<PAGE> 40
Interest. Interest expense amounted to $5.8 million in 1996 compared to
$1.2 million in 1995. The increase is primarily the result of debt incurred and
assumed in connection with acquisitions, including the $100 million of 12 1/4%
Senior Notes issued on October 31, 1996, as well as increases in borrowings for
working capital. See " -- Liquidity and Capital Resources". Interest expense as
a percentage of revenues increased to 3.9% in 1996 from 1.7% in 1995.
Depreciation and amortization. Depreciation and amortization expense
increased from $1.3 million in 1995 to $4.6 million in 1996. The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions and an increase in fixed assets resulting from capital expenditures
and ownership interests in six facilities acquired in the Signature Acquisition.
Depreciation and amortization expense as a percentage of revenues was 3.1% in
1996 and 1.9% in 1995.
Impairment losses and other charges. In 1996, Unison incurred operating
losses and shortfalls of cash from operations. The Company also announced the
planned disposition of the eight Disposition Facilities. Of these Disposition
Facilities, one was closed in June 1996 and three others, which had incurred
operating losses since the Company had acquired them in August 1995, were
disposed of in March 1997. These events, as well as a history of operating
losses at certain facilities, raised the possibility of continuing losses
associated with the Company's income producing assets. Consequently, Unison
evaluated its long-lived assets including property and equipment, goodwill,
lease operating rights and other intangible assets for impairment in accordance
with SFAS No. 121. Unison estimated the undiscounted net cash flows from all
business units and determined that the carrying value of certain of Unison's
long-lived assets exceeded such undiscounted cash flows. Accordingly, Unison
then compared the fair value of the assets based on the present value of the
estimated future cash flows for the facilities with the carrying value. Future
cash flows were estimated based on: (i) the remaining weighted average useful
lives of the assets; (ii) earnings history; (iii) a discount rate commensurate
with the risks involved and market conditions; and (iv) assumptions reflecting
internal operating plans and strategies. Unison determined that the fair value
of certain assets was less than the carrying value and, accordingly, recorded a
provision for impairment losses in the amount of $3.9 million. Included in this
amount is the estimated cost to sublease and exit from the Disposition
Facilities.
Income tax expense (benefit). Unison recorded an income tax credit for
1996 amounting to $8.4 million, or 26.3% of pretax loss of $31.8 million. The
effective tax rate is lower than the statutory federal income tax rate due
primarily to (i) amortization of intangible assets and other expenses which are
not deductible for tax; (ii) taxable income of certain subsidiaries which are
not consolidated for tax; and (iii) the valuation allowance established against
deferred tax assets. The Company recorded a valuation allowance at December 31,
1996 amounting to $1.5 million against tax benefits arising from net operating
losses and depreciation of certain of the Company's subsidiaries. The valuation
allowance was established due to the uncertainty of the ultimate realization of
these tax benefits based upon past performance and expiration dates.
Unison recorded a tax provision in 1995 of $132,000, or 53.0% of pretax
income. The effective tax rate for 1995 is higher than the statutory federal tax
rate due primarily to amortization of intangible assets and other nondeductible
expenses.
BRITWILL HISTORICAL
Separate financial statements of an acquired business ordinarily need
not be presented once the operating results of the acquired business have been
reflected in the audited financial statements of the acquiring company for a
complete fiscal year unless the acquired business is of such significance to the
registrant that omission of such financial statements would materially impair an
investor's ability to understand the historical results of the acquiring
company. At the date of acquisition (August 10, 1995), BritWill was of such
significance to Unison as to be considered a predecessor company. Accordingly,
the following discussion of BritWill's historical results of operations is
provided on a comparative basis for the seven months ended July 31, 1995 and
1994.
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%.
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<PAGE> 41
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 two 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 expenses 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 three
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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 changes the manner in which earnings per common share ("EPS")
are calculated and presented. Under SFAS 128, two EPS amounts are required: (i)
basic EPS; and (ii) diluted EPS. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common shares
actually outstanding during the period. Diluted EPS represents the per share
allocation of income attributable to common stockholders based on the weighted
average number of common shares actually outstanding plus dilutive potential
common shares outstanding such as options, warrants and convertible securities.
Unison implemented SFAS 128 as of December 31, 1997. Had the Company implemented
SFAS 128 on January 1, 1995, the reported per share income for 1995 and losses
for 1996 and 1997 would remain unchanged, as the Company's options, warrants and
convertible notes are antidilutive.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), was issued in June 1997. This statement
establishes standards for reporting and displaying comprehensive income and its
components in financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), was also
issued in June 1997. This statement requires that public business
38
<PAGE> 42
enterprises report certain information about operating segments and related
disclosures about products and services, geographic areas and major customers.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132"),
was issued in February 1998. This statement standardizes disclosure requirements
for pension and other post retirement benefits, requires additional information
on changes in benefit obligations and fair values of plan assets, and eliminates
certain existing disclosure requirements.
SFAS Nos. 130, 131 and 132 will be effective for Unison's fiscal year
ending December 31, 1998. The adoption of these statements is not expected to
have an impact on the Company's consolidated results of operations, financial
position or cash flows and should not require any significant changes in current
disclosures.
LIQUIDITY AND CASH FLOWS
Liquidity
Unison traditionally has financed its working capital needs out of its
operating cash flows and under an accounts receivable-backed revolving credit
facility. Borrowings under this credit facility amounted to $7.1 million at
December 31, 1997, which was the maximum amount available based on the level of
collateral on that date, with interest at the prime rate plus 4.0% (12.5% at
December 31, 1997). There were no outstanding borrowings under this credit
facility at December 31, 1996. As approved by the Bankruptcy Court, this credit
facility was replaced in 1998 with the $11.0 million HCFP DIP Loan, which bears
interest at the prime rate plus 4.0% (11.25% at September 30, 1998). As of
September 30, 1998, borrowings under the HCFP DIP Loan amounted to $6.6 million.
At December 31, 1997, Unison had cash and cash equivalents amounting to
$5.3 million compared to $17.4 million at December 31, 1996. Unison's working
capital deficit at December 31, 1997 was $151.1 million compared to $14.0
million at December 31, 1996. The deficit at December 31, 1997 is due primarily
to current maturities of notes payable and long-term debt amounting to $164.8
million, most of which is classified as a current liability due to payment and
covenant defaults as discussed below.
Unison's cash flows from operations and draws under its existing line
of credit will not be sufficient to meet its short-term and long-term debt
service and capital requirements, absent a substantial restructuring of its debt
and lease obligations. Unison did not make the scheduled payments of interest in
1998 on the 12 1/4% Senior Notes and the 13% Senior Notes, as well as payments
on other debt obligations. If the Company is successful in implementing the
Plan, Unison's leverage will be substantially reduced and management believes
that the Company will have sufficient cash flow to meet its debt service
obligations and working capital requirements. If the Plan is not confirmed, the
alternatives include the liquidation of Unison under Chapter 7 of the Bankruptcy
Code or the confirmation of an alternative Chapter 11 plan of reorganization.
The Company believes that the Plan will result in a more timely and greater
ultimate recovery to its creditors and stockholders than would be the case under
Chapter 7. Based on a liquidation analysis provided to the Bankruptcy Court and
creditors, the Company believes that in a Chapter 7 proceeding, its general
unsecured creditors would receive, at best, a minimal distribution. Unison could
attempt to formulate a different plan of reorganization. The Company believes,
however, that significant additional costs, risks and delays would be incurred
in connection with an alternative plan. While there can be no assurance that the
current Plan will be confirmed, the Company believes that it is unlikely that
any alternative plan could be developed which would provide greater value or
certainty of closure.
Cash Flows
Net cash used in operating activities amounted to $18.3 million in 1997
as a result of operating losses and the net change in operating assets and
liabilities. Net cash used in operating activities amounted to $23.7 million in
1996 and $932,000 in 1995.
Gross accounts receivable increased by $8.3 million in 1997. The
increase is due primarily to collection issues resulting from changes in
Medicare intermediaries and high turnover in the business office and field
39
<PAGE> 43
accounting staffs who are primarily responsible for collection of accounts
receivable. Days outstanding in accounts receivable for the long-term care
facilities increased from 38 days at December 31, 1996 to 43 days at December
31, 1997. The Company anticipates that its allowance for doubtful accounts will
fluctuate in the future and will depend, in large part, on the mix of revenues,
as well as the timing of payments by private, third party and governmental
payors. While the Company believes that the allowance for doubtful accounts is
adequate at December 31, 1997, if the current trend in days outstanding
continues, the provision for bad debts will increase in future periods.
Net cash used in investing activities, which include acquisitions,
capital expenditures and increases in deposits and other assets, amounted to
$4.2 million in 1997 compared to $48.7 million in 1996 and $3.7 million in 1995.
Cash expended for acquisitions totaled $659,000, $41.2 million and $677,000 in
1997, 1996 and 1995, respectively. See "-- Acquisitions and Dispositions".
Routine capital expenditures amounted to $1.5 million in 1997 compared to $3.6
million in 1996 and $1.3 million in 1995.
Net cash provided by financing activities amounted to $10.4 million in
1997 compared to $83.6 million in 1996 and $10.5 million in 1995. In October
1996, Unison sold $100.0 million of its 12 1/4% Senior Notes, the net proceeds
of which were used for acquisitions, debt repayments and working capital. At
December 31, 1997, Unison had $172.8 million in total debt (124.5% of total
capitalization) compared to $157.1 million at December 31, 1996 (93.1% of total
capitalization). The Company also had aggregate minimum rent obligations of
approximately $145.7 million (subject to certain increases) during the remainder
of the initial terms and first renewal periods under its operating leases.
In January 1997, Unison repaid $9.75 million of the BritWill
Acquisition Obligations to the former BritWill shareholders with proceeds from
the 12 1/4% Senior Notes. Also in January 1997, Unison repaid $2.0 million of
the Sunbelt Notes and the remaining $800,000 principal amount was converted into
105,196 shares of Unison common stock. The conversion price ($7.61) was equal to
85% of the average closing price of Unison's common stock ($8.95) for the 20-day
trading period preceding notice of conversion on November 27, 1996.
In March 1997, Unison issued the Equity Adjustment Notes totaling $1.8
million to the former shareholders of Signature. The Equity Adjustment Notes are
convertible into shares of Unison common stock at a conversion price of $2.875
per share and bear interest at the rate of 12% per annum. The unpaid principal
balance and accrued interest was due on December 31, 1997.
A portion of the purchase consideration for Signature was comprised of
the Escrow Notes amounting to $1.1 million. Of this amount, $500,000 was due to
be paid to the former shareholders of Signature on October 31, 1997 and the
balance was due on October 31, 1998. These notes have not been paid.
On April 21, 1997, Unison obtained a $2.95 million loan (the "April
1997 Loan") for general working capital purposes from affiliates of Mr. Kremser
and Mr. Whitehead. On September 24, 1997, Unison entered into a modification
agreement with the lenders (the "Modification Agreement"), which amended the
April 1997 Loan to provide for a total of $1.0 million of new loans (the
"September 1997 Loans"). The interest rate on these loans is the prime rate plus
2.0%. Unison is currently in default on its obligations to repay these loans.
Pursuant to the Modification Agreement, collateral for the April 1997 Loan was
also deemed to be collateral for the September 1997 Loans. This collateral
includes certain accounts receivable and the stock of certain Unison
subsidiaries. In addition, the Modification Agreement provided that this
collateral would also secure repayment of the BritWill Acquisition Obligations
and the Signature Acquisition Obligations, which were previously unsecured. As
of October 31, 1998, the aggregate amount of obligations to the Kremser
Affiliates and the Whitehead Affiliates is approximately $17.7 million. The
secured status of these obligations is in dispute and subject to litigation. See
"- Overview".
On December 1, 1997, Unison sold $20.0 million of its 13% Senior Notes.
The net proceeds were used for debt service, including a $6.7 million interest
payment on the 12 1/4% Senior Notes, and for working capital.
The stated interest rates on the 12 1/4% Senior Notes and the 13%
Senior Notes are subject to periodic temporary increases until registration
statements for these securities are filed with and declared effective by the
40
<PAGE> 44
SEC. As of May 28, 1998, when Unison filed for bankruptcy, the interest rates on
the 12 1/4% Senior Notes and the 13% Senior Notes were 14 1/4% (the maximum
rate) and 13 1/4%, respectively. Unison did not make the interest payment due
May 1, 1998 on the 12 1/4% Senior Notes in the amount of $6.9 million or the
interest payments due May 1, 1998 and August 1, 1998 on the 13% Senior Notes
totaling $1.3 million. These securities are in default and are general unsecured
claims against Unison.
The terms of certain of Unison's indebtedness and lease obligations
require the Company to meet certain financial and reporting covenants including
current ratio and cash flow and maintenance of specified levels of net worth. At
December 31, 1997, Unison was not in compliance with many of these covenants.
The terms of the Mortgage Note incurred in connection with the Signature
Acquisition require Unison to maintain, among other things, a consolidated net
worth of at least $39.0 million. As of December 31, 1997, Unison was not in
compliance with this covenant and did not receive a waiver from the lender.
Unison is current on its payments on the Mortgage Note and the lender has not
indicated an intention to declare a default. In connection with the
implementation of the Plan, Unison intends to enter into a sale leaseback
transaction related to the properties securing the Mortgage Note. See "-
Overview".
Unison is obligated to Omega as a tenant under three master lease
agreements covering 14 facilities having an aggregate minimum rent of
approximately $32.0 million (subject to increase) during the remainder of their
initial terms. Unison was, as of December 31, 1997, in arrears of its rent
obligations under these leases (and the BritWill Texas Leases referred to below)
in the approximate amount of $1.5 million. The master leases require the Company
to maintain specified cash flow to rent ratios, cash flow to debt service
ratios, minimum cash, current ratios and tangible net worth ratios (each as
defined). Unison also leases six facilities located in Texas from BritWill Texas
for an initial term that expires in December 2005. The BritWill Texas Leases
contain cross default provisions with the Omega leases by which if Unison is in
default under any Omega indebtedness or lease obligation, the Company is also in
default under the BritWill Texas Leases. Unison was not in compliance with these
covenants at December 31, 1997 and did not obtain a waiver of the covenant
violations from Omega or BritWill Texas. The Company continues to be out of
compliance with these covenants after this date. The lease covenant violations
have had no impact on Unison's historical financial statements. In connection
with the implementation of the Plan, Unison and Omega are negotiating the terms
of a new master lease agreement. See "- Overview".
With the exception of the classification of the Mortgage Note as a
current liability, there was no financial statement impact as of and for the
year ended December 31, 1997 as a result of the Company's noncompliance with
these covenants.
Unison and certain of its current and former directors and officers are
named as defendants in several class action complaints seeking unspecified
damages following Unison's announcement in March 1997 that the Company expected
to restate its financial statements for the nine-month period ended September
30, 1996. The automatic stay provision of the Bankruptcy Code prohibits the
continuation of the class actions against Unison. In October 1998, Unison and
the plaintiffs in the Federal Action and the State Action entered into a
Settlement Agreement. The Settlement Agreement is subject to the approval of the
Bankruptcy Court and the District Court. See Item 3, "LEGAL PROCEEDINGS."
Inflation. Unison does not believe that inflation has adversely
affected the Company's business during the past three years, even though
Medicare and Medicaid reimbursement rates in some areas have not kept pace with
inflation. To the extent inflation occurs in the future, the Company may not be
able to pass on the increased costs associated with providing health care
services to patients if reimbursement from third-party payors lags behind such
increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are presented on pages F-1 through F-42 of this
Report and are incorporated herein by reference.
41
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As described more fully under Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", in March 1997 the Company
decided it was necessary to restate its operating results for the nine months
ended September 30, 1996. Unison's independent directors thereupon took steps to
reorganize the financial and executive leadership of the Company. In connection
with these changes, Messrs. Walker, Clark and Contris resigned as executive
officers, directors and employees of the Company. In October 1997, Mr. Rollins
resigned as an executive officer, director and employee of Unison.
In March 1997, Unison's board of directors created a three-person executive
committee (the "Executive Committee") comprised of Messrs. Whitehead, Lynch and
Kremser (acting as Chair of the Executive Committee). The Executive Committee
exercised all of the functions of the board of directors until February 1998, at
which time a Special Restructuring Committee of the board was created to deal
solely with restructuring issues facing Unison. The Special Restructuring
Committee consisted of Michael A. Jeffries, Clayton Kloehr and Nir E. Margalit
and was disbanded when Unison filed for bankruptcy in May 1998. Messrs.
Whitehead and Kremser remained as directors and members of the Executive
Committee until their resignations from all such positions on May 29, 1998. The
duties of the Executive Committee and the Special Restructuring Committee have
been assumed by the board of directors.
Tyrrell L. Garth was a director of Unison from August 1995 until his resignation
on August 6, 1998. John T. Casey was a director of Unison from August 1995 until
his resignation on August 8, 1998.
The following table sets forth certain information with respect to the directors
and executive officers of the Company as of October 31, 1998.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. Jeffries 48 President and Chief Executive Officer, Director
L. Robert Oberfield 60 President, Quest Pharmacies, Inc.
Paul G. Henderson 43 President, Sunbelt Therapy Management Services, Inc.
Jimmy L. Fields 48 Executive Vice President and Chief Financial Officer
Nir E. Margalit 40 Executive Vice President, General Counsel and Secretary,
Director
Terry Troxell 48 Executive Vice President-Operations
Clayton Kloehr 42 Senior Vice President and Treasurer, Director
John T. Lynch, Jr. (2) 50 Director
Mark W. White (1)(2) 58 Director
Jock Patton 52 Director
Donald D. Finney 51 Director
James A. Brown 50 Director
</TABLE>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Michael A. Jeffries has served as President and Chief Executive Officer of
Unison since September 8, 1997 and has been a director since October 1997. From
1989 to August 1997, Mr. Jeffries was Senior Vice President and a Director of
Horizon/CMS Healthcare, a publicly traded long-term care company. From 1983 to
1989, Mr. Jeffries was employed by Beverly Enterprises, the nation's largest
long-term care company, most recently as Senior Vice
42
<PAGE> 46
President, Operations. Prior thereto Mr. Jeffries was the Director of Operations
and Chief Financial Officer of Mid-America Nursing, a regional nursing home
system in Kansas.
L. Robert Oberfield has been President of Quest 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 has served as President of Sunbelt since the
acquisition of Sunbelt by Unison in February 1996. For the past eight years, Mr.
Henderson has been active in the founding and management of physical therapy
service providers (such as Sunbelt) and in providing patient care.
Jimmy L. Fields has served as Executive Vice President and Chief
Financial Officer since April 1, 1998. From 1995 to March 1998, he was the Chief
Financial Officer and Director of Health Care Operations for Fountains
Retirement Communities, Inc., a senior housing and long-term care company. From
1993 to 1995, Mr. Fields was the Chief Operating Officer of Retirement
Management Corporation, an operator of long-term care facilities. From 1983 to
1993, Mr. Fields was an executive with various long-term care companies
including The Multicare Companies, Inc., where he served as Chief Financial
Officer and Chief Operations Officer. Mr. Fields is a certified public
accountant.
Nir E. Margalit has served as Executive Vice President, General Counsel
and Secretary and a Director of Unison since February 15, 1998. From 1995 to
February 1998, when he joined Unison, Mr. Margalit was Vice President, General
Counsel and Secretary of Starwood Hotels and Resorts Worldwide, Inc., a publicly
traded hotel paired share real estate investment trust. From 1993 to 1995, Mr.
Margalit was Vice President, Development and Special Counsel of Capstar Hotels.
Prior thereto Mr. Margalit was an attorney in private practice.
Terry Troxell has served as Executive Vice President - Operations since
October 1, 1998. Ms. Troxell joined Unison when it commenced operations in July
1992, as Director of Professional Services. In November 1994, she became Vice
President of Clinical Operations and in September 1996 she became Senior Vice
President of Clinical Operations. From July 1991 until July 1992, Ms. Troxell
served as Director of Professional Services of Samaritan Senior Services, Inc.
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
healthcare facilities in Arizona. Ms. Troxell is a licensed Registered Nurse and
a Certified Gerontological Clinical Specialist. She sits on the American Health
Care Association's national Board as Regional Vice President and serves on its
Advocacy Panel 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.
Clayton Kloehr has served as Senior Vice President and Treasurer since
July 1, 1997 and a Director since February 1998. From August 1995 through June
30, 1997, Mr. Kloehr was an independent financial consultant. From February 1995
until August 1995, Mr. Kloehr was BritWill's Treasurer. During the 14 years
prior thereto Mr. Kloehr was employed by Placid Oil Company, a privately held
oil exploration and production company based in Dallas, Texas, most recently as
Manager of Treasury Operations.
John T. Lynch, Jr. has been a director of Unison since June 1992. Mr.
Lynch was also a director of BritWill between 1992 and its acquisition by Unison
in August 1995. In January 1990, he co-founded Trouver, 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 has served as a director of Unison since August 1995. Mr.
White has been an attorney in private practice since 1987 and also serves as the
President of GeoVox, Inc., a security systems company. From
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<PAGE> 47
1983 to 1987, Mr. White served as Governor of the State of Texas.
Jock Patton has served as a director of Unison since August 14, 1998.
Mr. Patton is a private investor and consultant. From 1982 to June 1997, Mr.
Patton was a director and co-owner of Stock Val, Inc., a SEC registered
investment advisor, serving as President from 1992 to June 1997. From 1972 to
1992, Mr. Patton was an attorney in private practice. Mr. Patton is currently a
trustee of eight funds of Pilgrim America, a publicly traded mutual fund
manager.
Donald D. Finney has served as a director of Unison since September 1,
1998. Mr. Finney is the Chief Executive Officer of HCMF Corporation, a privately
held provider of post-acute and assisted living services. He has an extensive
long-term healthcare background. From 1997 to 1998, Mr. Finney was the Chief
Operating Officer for Summerville Healthcare Group, Inc., a privately held
long-term care provider. From 1995 to 1997, Mr. Finney served as President
Facilities Division for GranCare, Inc., a publicly traded post-acute healthcare
provider. From 1992 to 1995, Mr. Finney was the Chief Operating Officer for
Evergreen Healthcare, Inc., a publicly held post-acute healthcare and pharmacy
provider. For 11 years prior thereto, Mr. Finney was an executive with ARA
Living Centers, most recently as Area Vice President. ARA Living Centers
operated extended care, retirement and intermediate care facilities. Mr. Finney
is an attorney.
James A. Brown has served as a director of Unison since September 25,
1998. Since 1987, Mr. Brown has provided private sector consulting in the health
care field in the areas of mergers and acquisitions. From 1987 to 1994, Mr.
Brown was the President and Chief Executive Officer of Acquisition Corporation
of America, providing consultation in the acquisition and disposition of
long-term health care companies. From 1982 to 1987, Mr. Brown served in various
capacities for Beverly Enterprises, the nation's largest long-term care company,
most recently as Vice President - Acquisitions.
Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, its executive officers, and any persons holding more than 10% of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Commission. Specific due dates for these reports have been established, and the
Company is required to disclose any failure to file by these dates. The Company
believes that all of these filing requirements were satisfied during the year
ended December 31, 1997, except that on March 12, 1998, Messrs. Whitehead,
Garth, Casey, Lynch and White each amended a Form 5 to report a repricing of
options on January 16, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, with respect to the years ended
December 31, 1997, 1996 and 1995, compensation awarded to, earned by or paid to:
(i) Unison's Chief Executive Officers throughout 1997; (ii) the four other most
highly compensated executive officers who were serving as executive officers at
December 31, 1997; and (iii) other individuals who were not serving as executive
officers at December 31, 1997 but for whom disclosures would otherwise have been
required.
44
<PAGE> 48
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ---------------
COMPENSATION SECURITIES
---------------------- UNDERLYING
SALARY BONUS OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) (2) COMPENSATION
--------------------------- ------ --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Michael A. Jeffries....................... 1997 $ 99,148 $ -- 320,000 $ --
President, Chief Executive Officer
David A. Kremser (3)...................... 1997 -- -- 70,000 172,500
1996 -- -- 15,000 --
Jerry M. Walker (4)....................... 1997 87,083 -- -- 75,249
1996 275,000 41,250 33,924 --
1995 200,000 37,500 33,924 --
Paul G. Henderson ........................ 1997 175,000 -- 4,000 --
President, Sunbelt Therapy Management 1996 160,417 -- 10,000 --
Services, Inc.
L. Robert Oberfield....................... 1997 136,800 20,550 24,046 --
President, Quest Pharmacies, Inc. 1996 136,800 -- 16,185 --
1995 64,000 -- 6,185 --
William G. Allen, Jr. (5) ................ 1997 140,000 4,000 20,671 --
Senior Vice President - Operations 1996 93,897 21,314 22,685 --
1995 73,000 3,879 6,185 --
Terry Troxell ............................ 1997 120,000 13,200 17,421 --
Executive Vice President - Operations 1996 108,401 25,000 13,685 --
1995 97,575 2,710 6,185
Phillip R. Rollins (6).................... 1997 183,333 -- 30,000 27,369
1996 220,000 33,000 73,924 --
1995 200,000 30,000 33,924 --
</TABLE>
(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) The amounts shown for 1996 include both new option grants and
outstanding options from prior years that were granted during 1995 and
"repriced" during 1996.
(3) Mr. Kremser served in the capacity of acting chief executive officer
from March 31, 1997 to September 8, 1997. As compensation for his
services to the Company in all capacities, Mr. Kremser received cash
compensation of $7,500 per week plus expenses as well as 50,000 stock
options. See Item 1, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
(4) Effective April 25, 1997, Mr. Walker resigned as President and Chief
Executive Officer and as a Director. In connection with his resignation
Mr. Walker received severance payments amounting to $75,249.
(5) Effective April 24, 1998, Mr. Allen resigned from Unison.
(6) Effective October 6, 1997, Mr. Rollins resigned as Executive Vice
President - Operations and Chief Operating Officer and as a Director.
In connection with his resignation, Mr. Rollins received severance
payments totaling $110,000, of which $27,369 was paid in 1997.
45
<PAGE> 49
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information about stock option grants during the
last fiscal year to the executive officers named in the Summary Compensation
Table.
INDIVIDUAL GRANTS
----------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO EXERCISE AT ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES OR BASE STOCK PRICE APPRECIATION FOR
GRANTED IN FISCAL PRICE EXPIRATION OPTION TERM(3)
NAME (#)(1) YEAR (2) ($/SH) DATE 5% 10%
---- ------- ----- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Jeffries (4) .... 320,000 35.03% $ 2.38 9/7/07 $ 478,966 $1,213,794
Jerry M. Walker ............ -- -- -- -- -- --
Paul G. Henderson (5) ...... 4,000 0.44 2.44 8/27/07 6,138 15,555
L. Robert Oberfield (5) .... 4,046(6) 0.44 2.44 8/27/07 6,209 15,734
20,000 2.19 2.44 12/31/07 30,690 77,775
William G. Allen, Jr. (5)(7) 15,671(6) 1.72 2.44 8/27/07 24,047 60,940
5,000 0.55 2.44 12/12/07 7,673 19,444
Terry Troxell (5) .......... 9,421(6) 1.03 2.44 8/27/07 14,457 36,636
8,000 0.88 2.44 12/12/07 12,276 31,110
Phillip R. Rollins (8) ..... 30,000(6) 3.28 2.44 8/27/07 46,035 116,662
</TABLE>
(1) Consists entirely of stock options.
(2) Based on total grants during the year of 913,466.
(3) 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.
(4) Options vest 40% on first anniversary of grant and 30% each year
thereafter.
(5) Options vest 40% on first anniversary of grant and 20% each year
thereafter.
(6) In September 1997, Messrs. Oberfield, Allen and Rollins and Ms. Troxell
surrendered their previously issued options in exchange for new options
with an exercise price of $2.44. See " -- 1995 Stock Option Plan." Mr.
Rollins' options expired 90 days after his resignation without being
exercised.
(7) Mr. Allen forfeited his options when he resigned in April 1998.
(8) In connection with Mr. Rollins' resignation, his options became fully
vested. The options expired 90 days thereafter without being exercised.
46
<PAGE> 50
LAST FISCAL YEAR-END OPTION 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
UNDERLYING
UNEXERCISED
OPTIONS AT FISCAL
YEAR-END (#)
EXERCISABLE/
NAME UNEXERCISABLE
- ---- -----------------
<S> <C>
Michael A. Jeffries.................................................... 0/320,000
David A. Kremser....................................................... 60,000/ 10,000
Paul G. Henderson...................................................... 4,000/ 10,000
L. Robert Oberfield.................................................... 0/ 24,046
William G. Allen, Jr................................................... 0/ 20,671
Terry Troxell.......................................................... 0/ 17,421
Phillip R. Rollins..................................................... 30,000/30,000
</TABLE>
(1) None of the options were in the money as of December 31, 1997, based
upon the closing bid price on that date of $1.313 as reported on the
Nasdaq National Market System. Mr. Rollins' options expired in January
1998 without being exercised. Mr. Allen forfeited his options when he
resigned in April 1998.
COMPENSATION OF DIRECTORS
The nonemployee directors of Unison receive an annual retainer of
$10,000, plus $1,000 for each Board and Committee meeting attended, and
reimbursement of expenses. In addition they are entitled to participate in the
1995 Stock Option Plan. Nonemployee directors are entitled to receive annual
option grants of 15,000 shares (17,500 shares in the case of the Chairman of the
Board) for 1996 and at the time of each subsequent annual meeting of
stockholders, at market value on that date. Each automatic grant becomes
exercisable 50% one year after the grant and 100% two years after the grant and
has a term of ten years, subject to earlier termination following the optionee's
removal from the Board of Directors for cause. Directors who are also employees
of Unison receive no additional compensation for serving on the Board of
Directors. Mr. Kremser received compensation through September 1997 pursuant to
a services agreement described in Item 13, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Mr. Kremser". As compensation for services on the Executive
Committee, Mr. Lynch received an additional $15,000 per month through February
1998.
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. The Board of Directors approved on September 6, 1996, and
Unison's stockholders approved at the Unison Special Meeting on October 28,
1996, an amendment to the Option Plan (the "Option Plan Amendment") which
increased the number of shares of Unison Common Stock authorized for issuance
under the Option Plan from 511,046 to 800,000. At Unison's Annual Meeting on
August 27, 1997, its stockholders approved another Option Plan Amendment that
increased the number of shares of Unison Common Stock authorized for issuance
under the Option Plan from 800,000 to 1,500,000.
In September 1996, the Compensation Committee recommended, and the full
Board approved, the issuance of options for 324,350 shares to Unison employees
at an exercise price of $13.75 per share, which were subsequently repriced in
December 1996 at $9.50 per share.
In August 1997, the Compensation Committee recommended and the Board
approved a further repricing of stock options under the 1995 Plan. The repricing
was prompted by the decline in Unison's stock price and the desire to reward and
retain selected employees. The Company's employees were provided the opportunity
to exchange stock options with exercise prices ranging from $9.00 to $10.00 for
stock options with an exercise price of $2.44, which was the market value of
Unison's stock at the date of grant. The number of shares issuable under the
replacement options is equal to 25% of the number of options exchanged. Messrs.
Oberfield and Allen and Ms.
47
<PAGE> 51
Troxell exchanged options for 16,185, 22,685 and 13,682 shares, respectively,
for options to purchase 4,046, 5,671 and 3,420 shares, respectively. The Board
also approved the grant to employees (excluding Mr. Rollins) of additional new
options to purchase 174,700 shares of Unison stock at an exercise price of $2.44
per share, including the following grants to executive officers: Mr. Allen,
10,000 shares; Ms. Troxell, 6,000 shares and Mr. Henderson, 4,000 shares. All of
the aforementioned options vest over a four-year period beginning August 27,
1997.
At the same time, Unison's Directors surrendered previously granted
options in the aggregate amount of 213,902 with exercise prices ranging from
$9.00 to $9.50. The Directors were granted options to purchase the following
number of shares at $2.44 per share: Mr. Rollins, 30,000 shares; Mr. Whitehead,
22,500 shares; and Messrs. Casey, Garth, Kremser, Lynch and White, 20,000 shares
each. These options vested 50% on September 6, 1997 and 100% on September 6,
1998. In connection with Mr. Rollins' resignation, all of his options became
immediately exercisable and subsequently expired. Mr. Allen forfeited his
options when he resigned in April 1998. See Item 12, "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
In connection with their resignations, in each case effective April 25,
1997, Messrs. Walker, Clark and Contris received severance payments in the
amounts of $75,249, $18,333 and $55,000, respectively, in full satisfaction of
the Company's monetary obligations to them under their (now terminated)
employment agreements. In connection with Mr. Rollins' resignation he received a
continuation of his base salary and benefits for a period of six months.
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 and $172,000 as of January 1998. Mr. Oberfield is
also entitled to incentive compensation, 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 pro-rated
incentive compensation. The employment agreement contains a one-year
nonsolicitation of employees and customers provision.
Unison entered into an employment agreement with Mr. Henderson for a
three-year term beginning April 2, 1996, subject to automatic renewal for
successive one-year terms unless either Unison or Mr. Henderson has given notice
of non-renewal 30 days prior to expiration. The employment agreement provides
for an initial base salary of $175,000. Mr. Henderson may also earn incentive
compensation of up to 50% of his base salary. The employment agreement contains
a one-year nonsolicitation of employees and customers provision.
In July 1997, Unison entered into an employment agreement with Mr.
Kloehr which will expire on June 30, 2000. The employment agreement provides for
an initial annual base salary of $140,000 and the right to earn annual incentive
compensation of up to 40% his base salary. Mr. Kloehr's annual salary was
increased to $154,000 in January 1998. The employment agreement provides that in
the event of termination by Unison other than for cause, Unison will pay Mr.
Kloehr his base salary for one year and a pro-rated performance bonus. The
agreement contains a one-year nonsolicitation of employees and customers
provision.
In September 1997, Unison entered into an employment agreement with Mr.
Jeffries which will expire on August 31, 2000. The employment agreement provides
for an initial annual base salary of $315,000 and the right to earn annual
incentive compensation of 30% to 50% of his base salary if Unison achieves
pretax income of at least 90% of budget. The employment agreement provides that
in the event of termination by Unison other than for cause, Unison will pay Mr.
Jeffries his base salary for one year and a pro-rated performance bonus. The
agreement contains a one-year nonsolicitation of employees and customers
provision.
In November 1997, Unison entered into an employment agreement with Ms.
Troxell which will expire on February 7, 1999. The employment agreement provides
for an initial annual base salary of $120,000. Ms. Troxell's annual salary was
increased to $135,000 in May 1998 and to $170,000 in October 1998. The
employment
48
<PAGE> 52
agreement provides that in the event of termination by Unison other than for
cause, Unison will pay Ms. Troxell her base salary for one year. The agreement
contains a one-year nonsolicitation of employees and customers provision.
In December 1997, Unison entered into an employment agreement with Mr.
Margalit which will expire on February 15, 2001. The employment agreement
provides for an initial annual base salary of $170,000 and the right to earn
annual incentive compensation of 30% to 50% of his base salary if Unison
achieves pretax income of at least 90% of budget. The employment agreement
provides that in the event of termination by Unison other than for cause, Unison
will pay Mr. Margalit his base salary for one year and a pro-rated performance
bonus. The agreement contains a one-year nonsolicitation of employees and
customers provision.
In April 1998, Unison entered into an employment agreement with Mr.
Fields which will expire on April 1, 2001. The employment agreement provides for
an initial annual base salary of $170,000 and the right to earn annual incentive
compensation of 30% to 50% of his base salary if Unison achieves pretax income
of at least 90% of budget. The employment agreement provides that in the event
of termination by Unison other than for cause, Unison will pay Mr. Fields his
base salary for one year and a pro-rated performance bonus. The agreement
contains a one-year nonsolicitation of employees and customers provision.
In October 1998, Unison obtained Bankruptcy Court approval to adopt and
implement severance benefit packages for its key management personnel. Under the
terms of the severance agreements, Messrs. Jeffries, Margalit, Fields, Kloehr
and Ms. Troxell (together, "Senior Management") may each receive, subject to the
conditions set forth below, a severance package comprised of one year's salary
payable in the event of an involuntary termination without cause on or before
three months after the effective date of the Plan (the "Senior Severance
Packages"). The Board of Directors of Unison will evaluate the Senior Management
within three months after the Effective Date to determine: (i) which members of
the Senior Management will be given employment contracts ("New Contracts") after
the Effective Date; (ii) the terms of those New Contracts; and (iii) the terms
of participation in post-Effective Date stock options and cash bonuses. The New
Contracts must be in substantially the same form as the existing employment
contracts between Unison and Senior Management, at substantially similar
compensation terms as currently existing, and contain not less than 18 months
severance. Unison intends that the existing employment contracts for Messrs.
Oberfield and Henderson will be assumed and remain in force. No severance
payments will be made, and any severance rights will expire for Mr. Oberfield,
in the event Unison purchases the 25% interest in Quest from Mr. Oberfield.
Under the term of the Plan, the Board of Directors of Unison, within
three months of the effective date of the Plan, will allocate to Senior
Management retained under New Contracts a five-year option to purchase New
Common Stock and a five-year option to purchase additional New Common Stock
subject to the Company achieving certain performance goals. These options, in
total, if exercised will represent approximately 5% of the equity of Unison
after the completion of the reorganization on a fully diluted basis. In
addition, within six months of the effective date of the Plan, Senior Management
will be paid an aggregate cash bonus of $250,000, with the terms and conditions
for such bonuses (such as performance criteria) to be set by the Board of
Directors of Unison. In addition to their Senior Severance Packages, Unison will
reimburse Mr. Jeffries and Mr. Fields the closing costs for their homes in
Albuquerque, New Mexico and Tucson, Arizona, respectively, not to exceed $25,000
for Mr. Jeffries and $30,000 for Mr. Fields (the "Closing Costs Reimbursement").
If any member of Senior Management declines to accept an offered New
Contract, that member may be terminated without a Severance Package. Each member
of Senior Management has waived and released all other claims for severance or
other termination payments as may have existed before May 28, 1998 other than
the Closing Costs Reimbursement, and the terms of the Senior Severance Packages
as set forth herein, supercede and replace, in their entirety, any
pre-banktuptcy severance or termination agreements or arrangements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
In August 1995, the Board of Directors created a Compensation Committee
consisting of Messrs. Garth, White and Casey. Mr. Garth and Mr. Casey resigned
as directors on August 6, 1998 and August 8, 1998, respectively. Subsequently,
the Board of Directors has assumed the responsibilities of the Compensation
49
<PAGE> 53
Committee. In 1997, Messrs. Garth and White were involved in certain
transactions with Unison. See "-- Directors and Executive Officers" and Item 13,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Unison Common Stock at September 1, 1998 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 Compensation Table set
forth herein and (iv) all directors and executive officers of Unison as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
-----------------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT
- -------------------------------- ---------- --------
<S> <C> <C>
David A. Kremser(2)
784 Yankee Creek Road
Evergreen, Colorado, 80439....................................... 1,918,061 28.00%
Bruce H. Whitehead(3)
8111 Preston Road
Dallas, Texas 75225.............................................. 480,589 7.46
U.S. Bancorp(4)
111 SW Fifth Avenue
Portland, Oregon 97204........................................... 369,100 5.75
Phillip R. Rollins................................................. 310,174 4.83
Jerry M. Walker(5)................................................. 144,000 2.24
John T. Lynch, Jr.(6).............................................. 217,585 3.35
Mark W. White(7)................................................... 23,042 *
Paul G. Henderson(8)............................................... 80,659 1.25
L. Robert Oberfield(9)............................................. 10,868 *
Terry Troxell(10).................................................. 7,856 *
Nir E. Margalit.................................................... --- *
William G. Allen, Jr............................................... --- *
All executive officers and directors as a group (9 persons) (11)... 2,890,661 40.49%
</TABLE>
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. In accordance with Commission 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 1,490,431 shares of Unison Common Stock issued to Mr. Kremser
in the Signature Acquisition, including: (i) additional shares issued
to him as part of the Equity Adjustment Amount; (ii) 357,630 shares
issuable upon conversion of a promissory note issued to Mr. Kremser as
part of the Equity Adjustment Amount; and (iii) 70,000 shares issuable
pursuant to vested options.
(3) Includes 458,089 shares of Unison Common Stock issued to Whitehead
Family Investments, Ltd. ("WFI") upon conversion of a debenture issued
to the former shareholders of BritWill as partial payment of the
purchase price for the BritWill Acquisition. Mr. Whitehead has sole
voting and investment power with respect to the shares held by WFI.
Includes 22,500 shares of Unison Common Stock issuable upon exercise
50
<PAGE> 54
of immediately exercisable options.
(4) In a report on Schedule 13G filed in February 1997, U.S. Bancorp stated
that holdings as of December 30, 1996 included 367,000 shares as to
which U.S. Bancorp has sole voting power, no shares for which voting
power is shared, 198,800 shares as to which U.S. Bancorp has sole
dispositive power and 11,700 shares as to which U.S. Bancorp has shared
dispositive power.
(5) These shares are pledged to secure payment of the deferred purchase
price for the BritWill Acquisition.
(6) Includes 10,140 shares of Unison Common Stock as to which he currently
shares investment power with Bruce H. Whitehead. Includes 70,000 shares
of Unison Common Stock issuable upon exercise of immediately
exercisable options.
(7) Includes 20,000 shares of Unison Common Stock issuable upon the
exercise of immediately exercisable options.
(8) Includes 7,600 shares of Unison Common Stock issuable upon the exercise
of immediately exercisable options. Does not include 6,400 shares
issuable upon exercise of options that will vest in August 1999 and
thereafter.
(9) Includes 9,618 shares of Unison Common Stock issuable upon exercise of
immediately exercisable options. Does not include 14,428 shares of
Unison Common Stock issuable upon the exercise of options that vest in
August 1999 and thereafter.
(10) Includes 6,968 shares of Unison Common Stock issuable upon exercise of
immediately exercisable options. Does not include 10,453 shares of
Unison Common Stock issuable upon the exercise of options that vest in
August 1999 and thereafter.
(11) Includes a total of 716,317 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options and convertible notes
(including those described in the preceding footnotes).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1995, Unison acquired BritWill from affiliates of Mr.
Whitehead. The consideration given by Unison in connection with the BritWill
Acquisition included: (a) a debenture that was converted into 561,815 shares of
Unison common stock; (b) a combination of promissory notes and lump sum
contingent payment obligations totaling $25.0 million, (collectively, the "Loan
Documents"), together with a monthly contingent payment obligation and an
additional payment obligation; and (c) indemnifications and guarantees by Unison
and certain of its subsidiaries and affiliates of certain debts and obligations
of BritWill.
The Loan Documents were issued to Mr. Whitehead as agent for 100% of
the former owners of BritWill, and to an affiliate of Mr. Whitehead. Mr.
Whitehead directly or indirectly held or controlled approximately 81.5% of
BritWill's common stock, and served as Chairman of BritWill's board of
directors. At the time of the BritWill Acquisition in August 1995, the BritWill
Acquisition Obligations were unsecured. As a result of the BritWill Acquisition,
Mr. Whitehead became, beneficially, one of Unison's largest shareholders and
largest creditors. At the time Unison acquired BritWill, Messrs. Garth, Lynch
and White were also BritWill shareholders and directors, and Mr. Garth served as
outside counsel. Messrs. Garth and White were not directors of Unison prior to
the BritWill Acquisition.
As former shareholders of BritWill, Messrs. Whitehead, Garth, Lynch and
White have participated in some or all of the BritWill Acquisition Obligations.
The BritWill Acquisition Obligations paid, in total, include $13.6 million of
principal, $853,000 of interest, $5.2 million of monthly contingent payments and
561,815 shares of Unison common stock. In January 1997, Unison paid $9.75
million of the proceeds from the 12 1/4% Senior Notes to Mr. Whitehead and his
affiliates as a payment on the BritWill Acquisition Obligations. Messrs. Garth
and Lynch
51
<PAGE> 55
have transferred their interests in the BritWill Acquisition Obligations to
their children, and Mr. White transferred his interest to Mr. Whitehead.
Mr. Whitehead. Mr. Whitehead has (or had) a direct or indirect material
interest in the following additional transactions with BritWill or Unison.
- - Prior to Unison's acquisition of BritWill, Mr. Whitehead sold certain
healthcare facilities or related interests to BritWill and acquired
certain other direct and indirect financial interests and obligations
related to BritWill's healthcare facilities, some of which have
continued thereafter. Through BritWill Texas, Mr. Whitehead is the
indirect owner and lessor of six of the long-term healthcare facilities
that Unison leases in Texas (including three facilities that were
subleased to an unrelated party effective March 1, 1997). The annual
base rent for these facilities amounts to $1.1 million, which is
approximately the amount of the annual payment obligations on the
related $10.2 million acquisition mortgage loan from Omega secured by
those facilities. Mr. Whitehead is also the guarantor of the Company's
obligations with respect to the facilities that are leased from Omega.
- - Mr. Whitehead directly or indirectly owned all of the interests, except
for Mr. Garth's $400,000 interest, in a $2.5 million promissory note
payable to BritWill (the "Participation Note"). The Participation Note
was refinanced by BritWill when it was acquired by Unison, and the
resulting $3.4 million refinancing note (the "Renewal Note") was
ultimately repaid from the proceeds of Unison's IPO in December 1995.
- - From time to time both before and after Unison's acquisition of
BritWill, Mr. Whitehead has made loans and other financial
accommodations to BritWill and Unison. In addition to the Renewal Note
and a portion of the BritWill Acquisition Obligations, $750,000 of
loans from Mr. Whitehead or his affiliates was repaid from the proceeds
of the IPO. A Unison subsidiary is obligated to repay to BritWill Texas
five unsecured promissory notes in the aggregate amount of $3.2 million
with interest at rates currently ranging from 9.0% to 10.75%. In
addition, in 1996 Mr. Whitehead loaned $1.0 million to Unison for
working capital purposes. The loan was repaid in 1996 with the proceeds
from a $7.5 million bank financing, which was in turn repaid from the
proceeds of the 12 1/4% Senior Notes.
Signature Acquisition. On October 31, 1996, Unison acquired Signature
for an initial purchase price of approximately $50.7 million comprised of cash
and promissory notes totaling approximately $38.2 million and 1,509,434 shares
of Unison common stock. Signature was founded in 1987 by Mr. Kremser, who served
as its Chairman, President, CEO and director until Signature was acquired by
Unison. Of the purchase consideration, promissory notes amounting to
approximately $1.1 million were placed in escrow and are still outstanding. In
March 1997, Mr. Kremser and the other former shareholders of Signature received
additional purchase consideration amounting to $2.5 million, comprised of $1.8
million of Equity Adjustment Notes and 238,052 shares of Unison common stock.
The Equity Adjustment Notes are convertible into shares of Unison common stock
and are still outstanding. The Signature Acquisition Obligations were unsecured
at the time they were incurred.
Mr. Kremser. The Board of Directors entered into a Services Agreement
with Mr. Kremser commencing on March 31, 1997. As compensation for his services
to the Company in all capacities, Mr. Kremser received cash compensation of
$7,500 per week plus expenses as well as options for 50,000 shares of Unison
common stock at an exercise price of $2.875 per share, fully vested. Cash
compensation ended in September 1997. Mr. Kremser and the Company are also
parties to an indemnification agreement and a tolling agreement in respect of
claims he may have against the Company.
The 1997 Loans. On April 21, 1997, the Company obtained a $2.95 million
unsecured for general working capital purposes from BritWill Investments Company
Ltd. ("BritWill Investments") and Elk Meadows Investments, L.L.C. ("Elk
Meadows"), entities owned and/or controlled by Messrs. Whitehead and Kremser,
respectively, as joint lenders. The Company paid a loan fee of $29,500 at the
closing of the April 1997 Loan, and also agreed to pay all of the lenders'
out-of-pocket expenses, including attorneys' fees and costs. As part of the
April 1997 Loan, Unison and certain of its subsidiaries (the "Unison
Affiliates") purportedly granted a lien and security interest in and to the
accounts receivable of the Unison Affiliates (the "April 1997 Lien").
52
<PAGE> 56
On September 24, 1997, the Company entered into a Modification
Agreement with Elk Meadows and BritWill Investments, which amended the April
1997 Loan to provide for a total of $1.0 million of new loans from Elk Meadows
and BritWill Investments, in the amount of $500,000 each. Pursuant to the
Modification Agreement, collateral for the April 1997 Loan was also deemed to be
collateral for the September 1997 Loan. The Modification Agreement also provided
that collateral for the April 1997 Loan and September 1997 Loan would also
secure repayment of the BritWill Acquisition Obligations and the Signature
Acquisition Obligations, which were theretofore unsecured obligations.
Mr. Lynch. In addition to his interest as a former director and
shareholder of BritWill, Mr. Lynch is a General Partner of Trouver. Trouver (a)
earned financial advisory fees of $675,00 in connection with the BritWill
Acquisition, (b) assisted Unison in securing lease or management agreements in
respect to four long-term care facilities for which it received fees of
approximately $179,000 (these facilities were disposed of in 1998), and (c)
earned financial advisory fees of approximately $84,000 from Unison in
connection with the Ampro Acquisition. On December 15, 1997, Trouver was
retained by Unison to perform certain financial advisory services in connection
with the Company's restructuring efforts. The Company also entered into an
agreement with Woodhill Capital Corporation ("Woodhill"), an entity of which Mr.
Lynch is president and sole shareholder, providing services of Mr. Lynch as a
financial advisor beginning March 1, 1997. Under the terms of the agreement,
Woodhill received $15,000 per month plus expenses until the agreement was
terminated in February 1998. Mr. Lynch was also granted options to purchase
50,000 shares of Common Stock at an exercise price of $3.125 per share, fully
vested. Woodhill received a fee amounting to $350,000 in connection with the
sale of the 13% Senior Notes in December 1997.
Mr. Garth. In addition to his aforementioned interests, Mr. Garth's
company, Cheyenne Capital, received consulting fees of $24,000 per year from
Unison in connection with the start-up and oversight of nine facilities acquired
in the BritWill Acquisition. Mr. Garth previously owned these facilities. The
consulting agreement was terminated on December 31, 1996.
Mr. Oberfield. Mr. Oberfield serves as the president and is the
minority shareholder of Unison's Quest subsidiary. The Shareholders Agreement
between Mr. Oberfield and the Company contains a put and call feature annually
whereby, beginning May 1, 1998 and each May thereafter (a "Trigger Date"),
Unison may require Mr. Oberfield to sell his stock in the subsidiary (the "Quest
Stock") to Unison or Mr. Oberfield may require Unison to purchase his Quest
Stock based on a defined formula.
Mr. Henderson. Effective February 1, 1996, Unison purchased 90% of the
outstanding common stock of Sunbelt from Mr. Henderson and Paige Plash. In
consideration for the stock of Sunbelt, Unison paid $800,000 in cash and issued
the Sunbelt Notes totaling $2.8 million. Approximately 56.2% of the purchase
price was payable to Mr. Henderson. Interest on the Sunbelt Notes accrued at
10.0%, payable quarterly. The Sunbelt Notes were converted in January 1997 into
105,196 shares of Unison Common Stock with the aggregate balance of $2.0 million
paid in cash. In November 1996, Unison purchased the remaining 10% of Sunbelt
stock effective as of February 1, 1996. The aggregate purchase price, payable
50% to each of Mr. Henderson and Mr. Plash, amounted to $1.4 million plus a
guaranteed payment of $709,000. Consideration for the purchase (excluding the
guaranteed payment) was comprised of promissory notes in the aggregate amount of
$1.2 million and 27,942 shares of Unison Common Stock. A principal reduction on
the promissory note in the amount of approximately $918,000 was due in January
1998. This payment has not been made and is a general unsecured claim of the
company.
53
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS
PAGE
<S> <C>
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors ................................................... F-2
Report of Independent Auditor .................................................... F-3
Report of Independent Auditor .................................................... F-4
Consolidated Balance Sheets as of December 31, 1997 and 1996 ..................... F-5
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995 .................................................................. F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1997, 1996 and 1995 ............................................... F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 .................................................................. F-8
Notes to Consolidated Financial Statements ....................................... F-9
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors ................................................... F-29
Report of Independent Accountants ................................................ F-30
Consolidated Balance Sheet as of June 30, 1995 ................................... F-31
Consolidated Statements of Operations for the six months ended June 30, 1995
and the one month ended July 31, 1995 .......................................... F-32
Consolidated Statements of Shareholders' Equity for the six months ended June
30, 1995 ....................................................................... F-33
Consolidated Statements of Cash Flows for the six months ended June 30, 1995
and the one month ended July 31, 1995 .......................................... F-34
Notes to Consolidated Financial Statements ....................................... F-35
2. FINANCIAL STATEMENT SCHEDULES
UNISON HEALTHCARE CORPORATION
Schedule II Valuation and Qualifying Accounts .................................... S-1
BRITWILL HEALTHCARE COMPANY
Schedule II Valuation and Qualifying Accounts .................................... S-2
</TABLE>
All other schedules are omitted because they are not applicable or
required.
3. EXHIBITS
2 Disclosure Statement in Support of Debtors' Joint Plan of
Reorganization Dated August 10, 1998 and Debtors' Joint
Plan of Reorganization Dated August 10 (incorporated by
reference to Exhibit 99.1 to Form 8-K filed on August 13,
1998)
2.1 Disclosure Statement in Support of Debtors' First Amended
Joint Plan of Reorganization Dated October 15, 1998 and
Debtors' First Amended Joint Plan of Reorganization Dated
October 15, 1998.
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)
54
<PAGE> 58
3.2 Amendment to Restated Certificate of Incorporation of
Unison HealthCare Corporation (incorporated by reference
to Exhibit 3.1.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
3.3 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 Specimen 12 1/4% Senior Note due 2006 (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996)
4.2 Securities Purchase Agreement dated as of October 28, 1996
between Unison HealthCare Corporation and the Initial
Purchasers of its 12 1/4% Senior Notes due 2006
(incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996)
4.3 Indenture dated as of October 31, 1996 among Unison
HealthCare Corporation, the Guarantors and First Bank
National Association, as Trustee (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
4.3.1 Supplement No. 1 dated as of February 1, 1997 to Indenture
dated as of October 28, 1996 (incorporated by reference to
Exhibit 4.3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
4.4 Senior Note Registration Rights Agreement dated as of
October 31, 1996 among Unison HealthCare Corporation, the
Guarantors and the Initial Purchasers of its 12 1/4%
Senior Notes due 2006 (incorporated by reference to
Exhibit 4.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
4.5 Securities Purchase Agreement dated as of November 24,
1997 between Unison HealthCare Corporation and the Initial
Purchasers of its 13% Senior Notes due 1999
4.6 Indenture dated as of December 1, 1997 among Unison
HealthCare Corporation, the Guarantors and IBJ Schroder
Bank & Trust Company, as Trustee
4.7 Senior Note Registration Rights Agreement dated as of
December 1, 1997 among Unison HealthCare Corporation, the
Guarantors and the Initial Purchasers of its 13% Senior
Notes due 1999
10 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)
10.1 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)
10.2 Modification Agreement dated August 28, 1996 among Unison
HealthCare Corporation, BritWill HealthCare Company and
Bruce H. Whitehead (incorporated by reference to Exhibit
2.1.1 to the Registration Statement on Form S-4 filed on
September 18, 1996, File No. 333-12263)
10.3 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)
10.4 Agreement for Purchase of Shares as of November 24, 1996,
among Unison HealthCare Corporation, Paul G. Henderson and
Paige B. Plash (incorporated by reference to Exhibit 2.2.1
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.5 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)
55
<PAGE> 59
10.6 Amendment to Agreement and Plan of Merger among Union
HealthCare Corporation, Signature Health Care Corporation,
David A. Kremser and John D. Filkoski (incorporated by
reference to Exhibit 2.3.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 Amendment to Agreements and Plans of Merger among Unison
HealthCare Corporation, Arkansas, Inc., Cornerstone Care,
Inc., Douglas Manor, Inc., Safford Care, Inc., David A.
Kremser and John D. Filkoski (incorporated by reference to
Exhibit 2.7.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.12 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)
10.13 First Amendment to 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 Exhibit 2.8.1 to Amendment
No. 1 to the Registration Statement on Form S-4 filed on
October 11, 1996, File No. 333-12263)
10.14 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)
10.15 Stock Purchase Agreement among Unison HealthCare
Corporation, Linda Redwine, David A. Kremser and John D.
Filkoski (incorporated by reference to the Company's
Current Report on Form 8-K dated October 10, 1996)
10.16 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)
10.17 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)
10.18 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)
10.19 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)
10.20 Unison HealthCare Corporation 1995 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
56
<PAGE> 60
10.21 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)
10.22 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)
10.23 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)
10.24 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)
10.25 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)
10.26 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)
10.27 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)
10.28 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)
10.29 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)
10.30 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)
10.31 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)
10.32 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)
10.33 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)
10.34 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)
10.35 Letter Agreement among Unison HealthCare Corporation,
Bruce H. Whitehead and Omega dated October 31, 1996
(incorporated by reference to Exhibit 10.32.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
57
<PAGE> 61
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 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)
10.40 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)
10.41 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)
10.42 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)
10.43 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)
10.44 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)
10.45 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)
10.46 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)
10.47 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)
10.48 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)
10.49 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)
10.50 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)
10.51 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)
58
<PAGE> 62
10.52 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)
10.53 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)
10.54 Lease for Homestead of McKinney dated as of July 1, 1996
between Westminister Healthcare, Inc. and BritWill
Investments-II, Inc. (incorporated by reference to Exhibit
10.92 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.55 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)
10.56 Letter Agreement dated October 4, 1996 between
HealthPartners Funding, L.P. and Unison HealthCare
Corporation (incorporated by reference to Exhibit 10.97.1
to Amendment No. 1 to the Registration Statement on Form
S-4 filed on October 11, 1996, File No. 333-12263)
10.57 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)
10.58 Master Lease Agreement dated June 4, 1996 between Unison
HealthCare Corporation and LINC Anthem Corporation
(incorporated by reference to Exhibit 10.111 to the
Registration Statement on Form S-4 filed on September 18,
1996, File No. 333-12263)
10.59 Form of Promissory Notes dated March 17, 1997, to former
Signature shareholders in partial payment of Equity
Adjustment Amount (incorporated by reference to Exhibit
10.112 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.60 Services Agreement dated as of March 31, 1997, between the
Registrant and David A. Kremser (incorporated by reference
to Exhibit 10.113 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
10.61 Indemnification Agreement dated as of March 31, 1997,
between the Registrant and David A. Kremser (incorporated
by reference to Exhibit 10.114 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.62 Tolling Agreement dated as of March 31, 1997, between the
Registrant and David A. Kremser (incorporated by reference
to Exhibit 10.115 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
10.63 Stock Option Agreement dated as of March 31, 1997, between
the Registrant and David A. Kremser (incorporated by
reference to Exhibit 10.116 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996)
10.64 Form of Loan and Security Agreement dated as of April 21,
1997 among the Registrant, Elk Meadows Investments, L.L.C.
and BritWill Investments Company, Ltd. (incorporated by
reference to Exhibit 10.117.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.65 Form of Stock Pledge Agreement dated as of April 21, 1997
among the Registrant, Elk Meadows Investments, L.L.C. and
BritWill Investments Company, Ltd. (incorporated by
reference to Exhibit 10.117.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.66 Promissory Note dated September 25, 1997 in the amount of
$500,000 between Elk Meadows Investments, L.L.C. and
Unison HealthCare Corporation.
59
<PAGE> 63
10.66.1 Promissory Note dated September 25, 1997 in the amount of
$500,000 between BritWill Investments Company, Ltd. and
Unison HealthCare Corporation.
10.67 Asset Purchase Agreement dated as of December 20, 1996,
among Sunbelt Therapy Management Services, Inc., Spine
Rehabilitation and Physical Therapy Center, Inc. and
Douglas L. Bates (incorporated by reference to Exhibit
10.118 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.68 Master Lease Agreement dated November 25, 1996, between
Unison HealthCare Corporation and Pacific Financial
Company, relating to computer equipment and software
(incorporated by reference to Exhibit 10.119 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.69 Form of sublease agreement dated as of March 1, 1997,
between BritWill Investments-II, Inc. and Hasmark East
Ltd., relating to Four States Care Center, Green Acres,
Heritage Oaks and Texarkana Nursing Center (incorporated
by reference to Exhibit 10.120 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.70 Lease dated as of June 13, 1995, between AHP of Colorado,
Inc. and Arkansas, Inc. (incorporated by reference to
Exhibit 10.121 to the Registration Statement on Form S-4
filed on July 3, 1997, File No. 333-30793)
10.71 Lease dated as of June 13, 1995, between AHP of Colorado,
Inc. and Cornerstone Care, Inc. (incorporated by
reference to Exhibit 10.122 to the Registration Statement
on Form S-4 filed on July 3, 1997, File No. 333-30793)
10.72 Lease dated as of July 28, 1995, between American Health
Properties of Arizona, Inc. and Safford Care, Inc.
(incorporated by reference to Exhibit 10.123 to the
Registration Statement on Form S-4 filed on July 3, 1997,
File No. 333-30793)
10.73 Lease dated as of July 28, 1995, between American Health
Properties of Arizona, Inc. and Douglas Manor, Inc.
(incorporated by reference to Exhibit 10.124 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.74 Promissory Note and related Mortgage dated March 30, 1994
in the original principal amount of $19.1 million between
Signature Health Care, Inc. and National Health Investors,
Inc. (incorporated by reference to Exhibit 10.125 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.75 Lease dated as of December 1, 1990 between Health Care
Reit, Inc. and The Arbors Health Care Center Inc.
(incorporated by reference to Exhibit 10.126 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.76 Employment agreement of Michael A. Jeffries (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30,
1997)
10.77 Employment agreement of Clayton Kloehr, dated July 1,
1997
10.78 Employment agreement of Terry Troxell, dated November 15,
1997
10.79 Employment agreement of Nir E. Margalit, dated December
31, 1997
10.80 Employment agreement of Jimmy L. Fields, dated April 1,
1998
11 Unison HealthCare Corporation Statement Re: Computation
of Per Share Earnings
21 List of subsidiaries (incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
27 Financial Data Schedule (included only in the EDGAR
filing)
- ----------
60
<PAGE> 64
(b) Reports on Form 8-K
Unison filed the following reports on Form 8-K during the nine months ended
September 30, 1998:
(1) Report dated January 7, 1998 including a news release announcing that
three of Unison's operating subsidiaries filed for protection from
creditors under Chapter 11.
(2) Report dated February 3, 1998 including a news release announcing that
the financial difficulties previously disclosed in Unison's Form 10-Q
for the quarter ended September 30, 1997 continue to persist despite
the placement of $20 million of its 13% Senior Notes in December 1997.
(3) Report dated May 28, 1998 which disclosed (i) that on May 28, 1998,
Unison and certain of its subsidiaries filed for reorganization under
Chapter 11 and (ii) the terms of an agreement in principle with Omega
HealthCare Investors, Inc. and representatives of the holders of
Unison's 12 1/4% Senior Notes and 13% Senior Notes regarding a
consensual restructuring of Unison. The Report also includes a news
release announcing that Bruce H. Whitehead and David A. Kremser
resigned from Unison's Board of Directors.
(4) Report dated August 10, 1998 including the plan of reorganization and
disclosure statement that Unison filed with the United States
Bankruptcy Court.
(5) Report dated September 24, 1998 announcing that the Company (i) revised
its projected results of operations included in the disclosure
statement filed with the United States Bankruptcy Court on August 10,
1998 and (ii) elected three new directors to fill vacancies on its
Board of Directors.
61
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Unison Healthcare Corporation
By: /s/ MICHAEL A. JEFFRIES
-------------------------------------
Michael A. Jeffries
President and Chief Executive Officer
Date: November 3, 1998
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant in the
capacities ann the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ MICHAEL A. JEFFRIES President and Chief Executive Officer, Director (principal November 3, 1998
- ----------------------------------- executive officer)
Michael A. Jeffries
/s/ JIMMY L. FIELDS Executive Vice President and Chief Financial Officer November 3, 1998
- ----------------------------------- (principal financial officer)
Jimmy L. Fields
/s/ WARREN K. JERREMS Vice President, Controller, Chief Accounting Officer November 3, 1998
- ----------------------------------- (principal accounting officer)
Warren K. Jerrems
/s/ NIR E. MARGALIT Executive Vice President, General Counsel and Secretary, November 3, 1998
- ----------------------------------- Director
Nir E. Margalit
/s/ CLAYTON KLOEHR Senior Vice President and Treasurer, Director November 3, 1998
- -----------------------------------
Clayton Kloehr
/s/ JOHN T. LYNCH, JR. Director November 3, 1998
- -----------------------------------
John T. Lynch, Jr.
/s/ MARK W. WHITE Director November 3, 1998
- -----------------------------------
Mark W. White
/s/ JOCK PATTON Director November 3, 1998
- -----------------------------------
Jock Patton
/s/ DONALD D. FINNEY Director November 3, 1998
- -----------------------------------
Donald D. Finney
/s/ JAMES A. BROWN Director November 3, 1998
- -----------------------------------
James A. Brown
</TABLE>
62
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. FINANCIAL STATEMENTS
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors ............................................................................... F-2
Report of Independent Auditor ................................................................................ F-3
Report of Independent Auditor ................................................................................ F-4
Consolidated Balance Sheets as of December 31, 1997 and 1996 ................................................. F-5
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
and 1995 .................................................................................................. F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1996
and 1995 .................................................................................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ................... F-8
Notes to Consolidated Financial Statements ................................................................... F-9
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors ............................................................................... F-29
Report of Independent Accountants ............................................................................ F-30
Consolidated Balance Sheet as of June 30, 1995 ............................................................... F-31
Consolidated Statements of Operations for six months ended June 30, 1995 and one month ended
July 31, 1995 ............................................................................................. F-32
Consolidated Statements of Shareholders' Equity for the six months ended June 30, 1995 ....................... F-33
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and one month ended
July 31, 1995 ............................................................................................. F-34
Notes to Consolidated Financial Statements ................................................................... F-35
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
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Unison HealthCare Corporation
We have audited the accompanying consolidated balance sheets of Unison
HealthCare Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the index at Item 14(a). These consolidated financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audits. We did not audit the consolidated financial statements of
American Professional Holding, Inc. (Ampro) and Memphis Clinical Laboratory,
Inc. (Memphis), which statements reflect net operating revenues constituting
approximately 11% and net income constituting approximately 123% of the
consolidated total revenues for the period ended December 31, 1995. Those
statements and the data relating to Ampro and Memphis included in the schedule
as they relate to the year ended December 31, 1995, listed in the index at Item
14(a) were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the data included for Ampro and Memphis,
is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1995, the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Unison HealthCare
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, based on our audits and,
for 1995, the report of other auditors, the related financial statement
schedule, as it relates to December 31, 1997 and 1996 and each of the three
years in the period ended December 31, 1997, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that Unison
HealthCare Corporation and subsidiaries will continue as a going concern. As
discussed in Note 2 of the consolidated financial statements, on May 28, 1998,
Unison HealthCare Corporation filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. This matter raises substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Phoenix, Arizona
July 14, 1998
F-2
<PAGE> 68
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 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-3
<PAGE> 69
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
Memphis Clinical Laboratory, Inc.
We have audited the accompanying consolidated 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 consolidated financial position of Memphis Clinical
Laboratory, Inc. at December 31, 1994 and 1995 and the results of its operations
and cash flows for each of 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-4
<PAGE> 70
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................................ $ 5,295 $ 17,409
Accounts receivable (Notes 2,3, 10 and 13) ....................................... 32,855 28,608
Prepaid expenses and other current assets (Note 6) ............................... 7,768 5,885
--------- ---------
Total current assets .......................................................... 45,918 51,902
Property and equipment, net (Notes 7 and 13) ....................................... 25,588 30,830
Lease operating rights and other intangible assets, net (Note 8) ................... 84,487 113,781
Goodwill, net (Note 3) ............................................................. 28,357 28,431
Security deposits and other assets (Note 9) ........................................ 7,817 5,977
--------- ---------
$ 192,167 $ 230,921
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable (Note 11) ....................................................... $ 7,592 $ 10,505
Accrued expenses (Note 12) ....................................................... 24,617 21,437
Current portion of notes payable and long-term debt due to
related parties (Notes 2, 13 and 17) .......................................... 20,500 12,312
Current portion of other notes payable and long-term debt (Notes 2, 10, 13 and 16) 144,277 21,603
--------- ---------
Total current liabilities ..................................................... 196,986 65,857
Notes payable and long-term debt due to related parties, less
current portion (Notes 2, 13 and 17) .......................................... -- 15,882
Other notes payable and long-term debt (Notes 2, 10, 13 and 16) .................... 8,020 107,341
Deferred taxes (Note 18) ........................................................... 16,013 24,791
Leasehold liability, net (Note 16) ................................................. 4,246 4,434
Other liabilities .................................................................. 936 927
--------- ---------
Total liabilities ............................................................. 226,201 219,232
Stockholders' equity (deficit) (Notes 14 and 15):
Preferred stock, $.001 par value; authorized 1,000,000 shares;
no shares issued or outstanding ............................................... -- --
Common stock, $.001 par value; authorized 25,000,000 shares;
6,422,096 and 6,078,498 shares issued and outstanding in 1997 and 1996 ......... 5 5
Additional paid-in capital ....................................................... 36,211 34,723
Accumulated deficit .............................................................. (70,250) (23,039)
--------- ---------
Net stockholders' equity (deficit) ............................................ (34,034) 11,689
--------- ---------
$ 192,167 $ 230,921
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 71
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT COMMON SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Operating revenues:
Net patient service revenues ................ $ 222,090 $ 146,379 $ 64,947
Other operating revenues .................... 2,276 2,295 3,541
----------- ----------- ----------
Total operating revenues ............ 224,366 148,674 68,488
Expenses:
Wages and related ........................... 116,137 85,789 35,047
Other operating ............................. 84,566 64,771 24,032
Rent ........................................ 16,119 15,658 6,673
Interest .................................... 20,076 5,824 1,176
Depreciation and amortization ............... 9,974 4,561 1,311
Impairment losses and other charges (Note 22) 27,185 3,865 --
----------- ----------- ----------
Total expenses ...................... 274,057 180,468 68,239
----------- ----------- ----------
Income (loss) before income taxes ............. (49,691) (31,794) 249
Income tax expense (benefit) .................. (2,480) (8,356) 132
----------- ----------- ----------
Net income (loss) ............................. $ (47,211) $ (23,438) $ 117
=========== =========== ==========
Net income (loss) per share ................... $ (7.41) $ (5.01) $ 0.05
Common shares used in per share calculation ... 6,370,834 4,676,037 2,280,213
</TABLE>
See accompanying notes.
F-6
<PAGE> 72
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Retained
------------------- Additional Earnings
Number of Paid-in (Accumulated
Shares Amount Capital Deficit) Total
--------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ............. 1,789,497 $ 1 $ 453 $ 282 $ 736
Sale of common stock in public offering,
net of stock issuance costs .......... 2,000,000 2 14,612 -- 14,614
Conversion of debenture ................ 424,251 -- 5,286 -- 5,286
Stock warrants issued .................. -- -- 150 -- 150
Net income ............................. -- -- -- 117 117
--------- --- -------- -------- --------
Balance at December 31, 1995 ........... 4,213,748 3 20,501 399 20,903
Costs of initial public offering ....... -- -- (93) -- (93)
Stock warrants exercised ............... 178,503 -- -- -- --
Conversion of debenture ................ 137,564 -- 1,714 -- 1,714
Common stock issued for acquisitions ... 1,537,376 2 12,701 -- 12,703
Stock options exercised ................ 11,307 -- 102 -- 102
Tax benefit associated with exercise of
stock options ........................ -- -- 11 -- 11
Repurchase of stock warrants ........... -- -- (213) -- (213)
Net loss ............................... -- -- -- (23,438) (23,438)
--------- --- -------- -------- --------
Balance at December 31, 1996 ........... 6,078,498 5 34,723 (23,039) 11,689
Common stock issued for acquisition .... 238,052 -- 685 -- 685
Conversion of Sunbelt notes payable .... 105,196 -- 800 -- 800
Stock options exercised ................ 350 -- 3 -- 3
Net loss ............................... -- -- -- (47,211) (47,211)
--------- --- -------- -------- --------
Balance at December 31, 1997 ........... 6,422,096 $ 5 $ 36,211 $(70,250) $(34,034)
========= === ======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 73
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (47,211) $ (23,438) $ 117
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Impairment losses and other charges ...................... 27,185 3,865 --
Depreciation and amortization ............................ 9,974 4,561 1,311
Provision for doubtful accounts .......................... 2,039 2,742 29
Change in deferred taxes ................................. (3,286) (9,238) (21)
Minority interest expense ................................ 299 138 21
Leasehold liability amortization ......................... (188) (188) (78)
Other charges and credits, net ........................... 41 (69) --
Changes in operating assets and liabilities, net of
acquisitions:
Increase in net accounts receivable .................... (8,263) (5,310) (8,694)
(Increase) decrease in prepaids and other .............. (136) 825 (607)
Increase in accounts payable and accrued expenses ...... 1,238 2,454 6,990
--------- --------- ---------
Net cash used in operating activities ...................... (18,308) (23,658) (932)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements ........... (1,535) (3,587) (1,333)
Increase in intangibles and other assets ................... (205) (2,707) (1,397)
Increase in lease and insurance deposits ................... (1,840) (1,204) (272)
Acquisitions, net of cash acquired ......................... (659) (41,225) (677)
--------- --------- ---------
Net cash used in investing activities ...................... (4,239) (48,723) (3,679)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit ........ 7,117 (789) (2,916)
Proceeds from sale of accounts receivable .................. -- -- 2,515
Proceeds from long-term borrowings ......................... 23,950 113,567 2,448
Payments on long-term borrowings ........................... (16,868) (24,808) (6,187)
Repayment of other long-term liabilities ................... -- (2,779) --
Proceeds from initial public stock offering ................ -- -- 14,614
Change in bank overdrafts .................................. (780) 3,043 --
Repurchase of stock warrants ............................... -- (213) --
Exercise of stock options .................................. 3 102 --
Increase in deferred financing costs ....................... (2,989) (4,502) --
--------- --------- ---------
Net cash provided by financing activities .................. 10,433 83,621 10,474
--------- --------- ---------
Net (decrease) increase in cash .......................... (12,114) 11,240 5,863
Cash and cash equivalents at beginning of period ........... 17,409 6,169 306
--------- --------- ---------
Cash and cash equivalents at end of period ................. $ 5,295 $ 17,409 $ 6,169
========= ========= =========
</TABLE>
See accompanying notes
F-8
<PAGE> 74
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(In thousands, except common share and per share amounts)
1. DESCRIPTION OF BUSINESS
Unison HealthCare Corporation, ("Unison" or "the Company") is a
provider of long-term and specialty healthcare services. At December 31, 1997,
Unison operated 55 facilities, including long-term care and specialty care and
independent/assisted living facilities. Unison's operations are located in 11
states, principally in the Midwest and southwest regions of the United States.
Unison changed its name from SunQuest HealthCare Corporation in
November 1995. In August 1995, Unison acquired all of the common stock of
BritWill HealthCare Company ("BritWill"). In March 1996, Unison acquired 90% of
the common stock of four rehabilitation therapy centers (collectively "Sunbelt
Therapy") and in November 1996 retroactively acquired the remaining 10%. In
October 1996, Unison acquired all of the common stock of Signature Health Care
Corporation and four affiliated companies ("Signature") (the "Signature
Acquisition"). In October 1996, Unison completed a merger with two clinical
laboratory companies, American Professional Holding, Inc. ("Ampro") and Memphis
Clinical Laboratory, Inc. ("Memphis") (Note 4). Unison also operates
institutional pharmacies and a Medicare Part B billing and supply company.
2. SUBSEQUENT EVENT
On January 7, 1998, three of Unison's subsidiaries with operations in
Texas and Indiana filed voluntary petitions for reorganization (the "Filings")
under Chapter 11 ("Chapter 11") of Title 11 of the United States Code in the
United States Bankruptcy Court. On May 28, 1998 Unison and all of its other
subsidiaries also filed for reorganization under Chapter 11. Under Chapter 11,
Unison will continue to manage its affairs and operate its business as a
debtor-in-possession while it develops a reorganization plan that will
restructure the Company and allow its emergence from Chapter 11. As a
debtor-in-possession in Chapter 11, the Company may not engage in transactions
outside of the ordinary course of business without approval, after notice and
hearing, of the Bankruptcy Court.
The Company is currently in default of substantially all of its debt
and lease agreements (Notes 13 and 16). Accordingly, all unpaid principal of,
and accrued prepetition interest on, such debt became immediately due and
payable and is classified as a current liability in the accompanying
consolidated balance sheet.
The accompanying consolidated financial statements have been prepared
on a going concern basis of accounting and do not reflect any adjustments that
might result should the Company be unable to continue as a going concern. The
recent losses from operations and the related Filings raise substantial doubt
about the Company's ability to continue as a going concern. The appropriateness
of using the going concern basis is dependent upon, among other things: (i) the
Company's ability to obtain and comply with debtor-in-possession financing
agreements; (ii) confirmation of a plan of reorganization under the Bankruptcy
Code; (iii) the Company's ability to achieve profitable operations after such
confirmation; and (iv) the Company's ability to generate sufficient cash from
operations to meet its obligations.
In accordance with the Bankruptcy Code, the Company can seek court
approval for the rejection of executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition unsecured claim for
breach of contract. In connection with the Chapter 11 proceedings, a review is
being undertaken of all obligations under executory contracts, including real
property leases. To date, the Company has received permission from the
Bankruptcy Court to reject the leases of 13 nursing facilities and two regional
offices.
As a result of the reorganization proceedings, Unison may sell or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the accompanying consolidated financial statements.
Further, a
F-9
<PAGE> 75
2. SUBSEQUENT EVENT (CONTINUED)
plan of reorganization could materially change the amounts currently recorded in
the financial statements. The financial statements do not give effect to any
adjustments to the carrying value of assets, or amounts and classification of
liabilities that might be necessary as a consequence of these matters.
Restructuring Plan (unaudited)
Unison has reached an agreement in principle (the "Term Sheet") with
respect to restructuring of the Company's debt and equity, with Omega HealthCare
Investors, Inc. ("Omega") and representatives of the 13% Senior Notes due 1999
(the "13% Senior Notes") and the 121/4% Senior Notes due 2006 (the "121/4%
Senior Notes"). The Company also has secured a continuation of its accounts
receivable line of credit with HealthCare Financial Partners ("Health Partners")
(Note 10) in the amount of $11,000, which will be available to the Company for
vendor payments and to meet working capital requirements during the Chapter 11
process. Unison has not reached an agreement in principle with Messrs. David A.
Kremser and Bruce H. Whitehead, former directors of the Company (Notes 4, 13 and
17).
Under the Term Sheet, the treatment of approximately $18,000 of
disputed claims of entities related to Messrs. Whitehead and Kremser would
depend upon the results of anticipated litigation over the possible disallowance
or equitable subordination of such claims. If such claims are not disallowed or
equitably subordinated to the claims of general unsecured creditors, the
Whitehead and Kremser related entities would receive in full satisfaction of
such claims 100% of the Class A Common Stock, representing approximately 11% of
the fully diluted equity, of the reorganized Company. The Class A Common Stock
would have rights identical to those of other common stockholders in the
reorganized Company except that the Class A Common Stock would have an $18,000
liquidation preference over the remaining common stock. If such claims are
disallowed or equitably subordinated, they would be canceled and receive nothing
in the reorganization. In either event, the holders of the 13% Senior Notes
would receive approximately $21,000 in new promissory notes of the Company in
full satisfaction of their claims, and the Company's trade creditors and holders
of the 121/4% Senior Notes would receive pro rata distributions of approximately
$4,600 in new promissory notes and all of the Class B Common Stock of the
reorganized Company. The Class B Common Stock will represent approximately 75%
of the fully diluted equity of the reorganized Company if the Class A Common
Stock is issued to the Whitehead and Kremser related entities, and approximately
86% of the fully diluted equity if the claims of the Whitehead and Kremser
related entities are disallowed or equitably subordinated and canceled. Up to 5%
of the fully diluted equity of the reorganized entity would be allocated to
management incentive options. The Company's currently outstanding equity would
be canceled and current stockholders would receive a pro rata distribution of
warrants to purchase up to 5% of the fully diluted equity of the reorganized
Company.
The Term Sheet also provides for resolution of all claims of Omega
against the Company under lease and mortgage arrangements affecting 20 of the
Company's healthcare facilities. Omega would purchase seven facilities owned and
operated by the Company for up to $40,000, yielding net cash proceeds to the
Company of up to $18,000 after payment in full of transaction costs and
indebtedness currently collateralized by such facilities. The facilities would
then be leased back to Union at an initial lease rate of 9%. These facilities
and 10 other facilities currently leased by Omega to the Company or subject to
mortgage loans in favor of Omega would be combined into a single master lease at
lease rates which are comparable to those currently in effect under the existing
facility leases. Six leased facilities would be returned to Omega, and three
additional facilities subleased by the Company to another operator would be
excluded from the master lease, for which Omega would receive $2,000 in cash and
a $3,000, seven-year promissory note as compensation. In addition, Omega would
purchase $3,000 of the Company's new 5% cumulative preferred stock, convertible
into 4% of the Company's fully diluted equity. All prepetition rent and mortgage
payments due to Omega would be paid. The agreements set forth in the Term Sheet
will be incorporated into an overall reorganization plan which will be subject
to approval by the Bankruptcy Court and the Company's creditors.
F-10
<PAGE> 76
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Unison and its subsidiaries. Significant intercompany transactions and
balances have been eliminated in consolidation.
Revenues and expenses related to the operations acquired from BritWill,
Sunbelt Therapy, Signature and other acquisitions (Note 4) are included in
Unison's results of operations for periods subsequent to the date of
acquisition. The merger with Ampro and Memphis has been accounted for as a
pooling of interests. Accordingly, the consolidated financial statements of
Unison include the accounts of Ampro and Memphis for all periods presented.
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. Estimates
are used when accounting for, among other things, the collectibility of
receivables and third party settlements, depreciation and amortization, employee
benefit plans, taxes, contingencies and evaluation of impairment of long-lived
assets.
Net Operating Revenues
Revenues are recognized when services are provided and products are
delivered. Unison's revenues are derived primarily from providing long-term
healthcare services. 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 service 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.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. Unison believes that it is substantially
in compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing which would have a material impact on Unison's consolidated financial
condition or results of operations. While no such regulatory inquiries have been
made, compliance with such laws and regulations can be subject to future
government review and interpretation as well as significant regulatory action
including fines, penalties and exclusion from the Medicare and Medicaid
programs.
The Company has submitted to the Health Care Financing Administration
("HCFA") various requests for exceptions to the Medicare established routine
cost limitations for reimbursement ("RCLs"). These exceptions are permitted
under the Medicare regulations to allow providers reimbursement for treating
higher acuity patients. For the years ended December 31, 1997 and 1996, Unison
recorded approximately $2,722 and $2,260, respectively, of Medicare RCL
exception revenues which are subject to audit and final approval by the fiscal
intermediary. Based on consultation with outside reimbursement specialists,
management believes that the ultimate resolution of third-party payor
settlements will not have a material adverse impact on the consolidated
financial position or results of operations of Unison.
Unison receives fees for the management of long-term care facilities on
behalf of the owners. Other operating revenues include management fees amounting
to $1,725, $1,200 and, $1,730 in 1997, 1996 and 1995 respectively.
Provision for doubtful accounts is made when the related revenue is
recorded and is included in other operating expense. The provisions totaled
$2,039, $2,742 and $29 in 1997, 1996 and 1995 respectively. Accounts, when
determined to be uncollectible, are charged against the allowance for doubtful
accounts. The allowance for doubtful accounts is determined by management using
estimates of potential losses based on an analysis of current and past
F-11
<PAGE> 77
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
due accounts, collection experience in relation to amounts billed, prior
settlements experience and other relevant information. The allowance for
doubtful accounts totaled $7,423 and $3,776 at December 31, 1997 and 1996,
respectively.
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.
Inventories
Inventories are comprised primarily of nursing facility supplies and
pharmaceutical products and are stated at the lower of cost (first-in,
first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Major renewals or
improvements are capitalized, whereas ordinary maintenance and repairs are
expensed as incurred. Depreciation and amortization is computed using the
straight-line method for the lesser of the lease term or the estimated useful
life of the respective asset.
Intangible Assets
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) have been recorded in connection with the acquisitions of BritWill
and Signature (Note 4) and represent the difference between the aggregate
consideration given for all of the acquired companies' assets, less the value of
those assets which were identified and discretely valued as defined by an
independent valuation. Lease operating rights are being amortized on a
straight-line basis over the respective initial lease term, including probable
renewal periods, not to exceed thirty years.
Management believes that goodwill related to nursing home acquisitions
has an unlimited useful life and, therefore, assigned a forty-year amortization
period to goodwill resulting from such acquisitions. 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.
Goodwill resulting from various acquisitions is summarized as follows:
<TABLE>
<CAPTION>
Amortization December 31,
Period (Years) 1997 1996
------------- ------- -------
<S> <C> <C> <C>
BritWill 40 $7,000 $7,000
Pharmacies 20 1,402 1,197
Gamma Labs 15 1,087 1,087
Sunbelt 20 5,425 5,425
Signature 40 9,300 9,300
RehabWest 20 5,029 5,029
Spine Rehab 20 845 --
------- -------
30,088 29,038
Amortization (1,731) (607)
------- -------
$28,357 $28,431
======= =======
</TABLE>
F-12
<PAGE> 78
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Costs incurred in obtaining long-term financing are amortized on a
straight-line basis over the terms of the related indebtedness. Unison
periodically 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 Company adopted
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"), on January 1, 1996. Under SFAS 121, an impairment loss is
recognized if the sum of the expected long-term cash flows is less than the
carrying amount of the goodwill and other assets being evaluated (Note 22).
Income Taxes
Unison accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Deferred income taxes represent the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common and dilutive equivalent shares
outstanding.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares actually outstanding during the period. Diluted earnings
per share include the dilutive effect of options, warrants and convertible
securities. The implementation of SFAS 128 has no impact on Unison's net income
(loss) per share for 1997 and prior years because the Company's options,
warrants and convertible notes are antidilutive.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform to the 1997 presentation.
Recently Issued Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), was issued in June 1997. This statement
establishes standards for reporting and displaying comprehensive income and its
components in financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), was also
issued in June 1997. This statement requires that public business enterprises
report certain information about operating segments and related disclosures
about products and services, geographic areas and major customers.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits" ("SFAS No. 132"),
was issued in February 1998. This statement standardizes disclosure requirements
for pension and other post retirement benefits, requires additional information
on changes in benefit obligations and fair values of plan assets, and eliminates
certain existing disclosure requirements.
F-13
<PAGE> 79
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS Nos. 130, 131 and 132 will be effective for Unison's fiscal year
ending December 31, 1998. The adoption of these statements is not expected to
have an impact on the Company's consolidated results of operations, financial
position or cash flows and should not require any significant changes in current
disclosures.
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS
In August 1995, Unison acquired all of the common stock of BritWill,
another long-term care company operating approximately 28 facilities located in
Texas and Indiana (the "BritWill Acquisition"). The terms of the BritWill
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 plus, to the extent applicable, monthly contingent
payments if Unison's monthly consolidated net patient revenues exceeded
specified monthly amounts ranging from $8,000 to $11,989 for the period from
September 9, 1995 through July 31, 2000. An additional lump sum contingent
payment was payable on the earlier of: (i) August 9, 2000 if Unison had
consolidated net patient revenues of not less than $150,000 for the twelve-month
period ended June 30, 2000 or (ii) the sale by Unison of debt or equity
securities exceeding $10,000. The purchase price was comprised of a $5,602 term
note, an $8,000 subordinated promissory note (the "Subordinated Note"), and a
$7,000 non-interest bearing convertible subordinated debenture (Note 13). The
majority shareholder of BritWill, Bruce H. Whitehead, was the Chairman of
Unison's Board of Directors from the time of the BritWill Acquisition until May
1998.
During August 1996, as a result of the proposed acquisition of the
common stock of Signature, the contingent payments became reasonably assured and
Unison accrued the present value of the remaining contingent payments related to
the BritWill Acquisition in an amount totaling $11,500 (the "Additional Payment
Obligation") (Note 13). As a result of the recent Filing, the Additional Payment
Obligation converted to a Converted Fixed Obligation. In connection with the
BritWill Acquisition, Unison paid a financial advisory fee to Trouver Capital
Partners, L.P. ("Trouver") amounting to $675. One of Unison's directors is a
partner in Trouver. The acquisition was accounted for as a purchase. The
contingent portions of the purchase price were initially added to lease
operating rights when paid, and then in August 1996 when accrued. At December
31, 1997 and 1996, contingent payments and accruals amounting to $19,523 had
been added to lease operating rights.
Effective February 1, 1996, Unison acquired 90% of the common stock of
Sunbelt Therapy, paying $800 in cash and issuing term notes aggregating $1,000
(the "Notes") and subordinated convertible debentures aggregating $1,800 (the
"Debentures"). The transaction was accounted for as a purchase. In November
1996, Unison purchased the remaining 10% of Sunbelt Therapy effective February
1, 1996. The aggregate purchase price amounted to $1,418 plus a guaranteed
payment amounting to $709. Consideration for the purchase was comprised of
promissory notes in the aggregate amount of $1,876 and 27,942 shares of Unison
common stock (Note 13).
On October 31, 1996, Unison simultaneously completed mergers with Ampro
and Memphis for aggregate consideration of $4,942. The outstanding shares of
Ampro common stock were converted into the right to receive 521,000 shares of
Unison common stock. Three shareholders who owned approximately 35% of the
outstanding shares of Memphis received pro rata portions of 19,000 shares of
Unison common stock and the holder of the remaining shares of Memphis received
cash in the amount of $237 and a promissory note in the amount of $250. The
total amount assigned to the 540,000 shares of Unison Common Stock issued was
$4,455, based on the closing market price on October 31, 1996 of $8.25. The
transaction has been recorded as a pooling of interests.
On October 31, 1996, Unison acquired Signature, which operates 13
long-term care facilities in Colorado and Arizona. The initial aggregate
purchase price of Signature amounted to approximately $50,653, comprised of cash
and promissory notes totaling approximately $38,200 and 1,509,434 shares of
Unison Common Stock. The amount assigned to the shares of Unison Common Stock
issued was $12,453, based on the closing market price on October 31, 1996 of
$8.25. In accordance with an adjustment provision of the Signature merger
agreements relating to stockholders' equity, in March 1997 the former
shareholders of Signature received additional consideration of $2,511, paid in
convertible promissory notes of $1,827 (the "Convertible Notes") and 238,052
shares of Unison Common Stock with a market value of $2.875 per share or $685
(Note 13). The adjustment was recorded as an addition to the purchase price of
Signature and added to lease operating rights. In connection with the Signature
F-14
<PAGE> 80
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)
acquisition, Unison also acquired all of the outstanding stock of RehabWest,
Inc. ("RehabWest"), a related rehabilitation services company, for a cash
purchase price of $6,100. These acquisitions were accounted for as purchases.
Mr. David A. Kremser, Signature's majority shareholder, was a director of Unison
from the time of the Signature acquisition until May 1998.
Effective January 1, 1997, Unison, through its Sunbelt Therapy subsidiary,
purchased the assets of a rehabilitation therapy services company located in
Mississippi. Consideration for the purchase was comprised of cash amounting to
$600 and a $300 promissory note. Interest on the note bears interest at 10.0%,
payable quarterly, and the principal balance is due January 2, 2002.
On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance. The original
plan included the disposition of seven nursing facilities and was subsequently
modified to include an aggregate of eight facilities (the "Disposition
Facilities"). On March 1, 1997, Unison subleased four of the Disposition
Facilities to an unrelated party. In 1998, Unison's disposition plan was
expanded in connection with its restructuring program to include an additional
13 facilities. The provision for losses on disposal of the Disposition
Facilities is included in impairment losses and other charges in the
consolidated statement of operations (Note 22). Revenues and expenses related to
the Disposition Facilities are included in the 1997 consolidated statement of
operations in the aggregate amount of $12,539 and $12,792, respectively. In the
first and second quarters of 1998, Unison disposed of nine facilities (leased or
managed) via management agreements or lease terminations. As of July 10, 1998,
eight facilities remain held for disposition.
5. STATEMENTS OF CASH FLOWS
Supplemental information related to the statements of cash flows is set
forth below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Cash paid during year ended December 31 for:
Interest .................................... $19,377 $ 3,014 $ 1,179
Income taxes ................................ 799 124 92
</TABLE>
The Company's acquisitions involved the following noncash activities for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired .. $ 1,100 $122,420 $ 59,421
Liabilities assumed and incurred 441 68,492 58,744
Common stock issued ............ -- 12,703 --
-------- -------- --------
$ 659 $ 41,225 $ 677
======== ======== ========
</TABLE>
Other noncash financing activities for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Conversion of debentures into shares of common stock $ 800 $1,174 $5,286
Property and equipment purchased under capital leases .. 729 7,205 --
Accounts payable converted to debt ..................... 3,206 -- --
Common stock warrants issued ........................... -- -- 150
</TABLE>
F-15
<PAGE> 81
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Prepaid expenses .................... $ 870 $ 938
Deferred taxes (Note 18)............. 5,079 3,332
Inventories ......................... 1,819 1,615
------ ------
$7,768 $5,885
====== ======
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
Life (Years) 1997 1996
------------ --------- ---------
<S> <C> <C> <C>
Land and building .................... 15-25 $ 17,863 $ 21,757
Equipment ............................ 5-15 11,652 11,806
Leasehold improvements ............... 12-15 3,066 2,386
-------- --------
32,581 35,949
Less accumulated depreciation ........ (6,993) (5,119)
-------- --------
$ 25,588 $ 30,830
======== ========
</TABLE>
Property and equipment includes assets acquired under capitalized leases of
approximately $4,477 and $7,965 at December 31, 1997 and 1996, respectively.
Accumulated depreciation related to capital leases amounted to $1,170 and $498
at December 31, 1997 and 1996, respectively.
8. LEASE OPERATING RIGHTS AND OTHER INTANGIBLE ASSETS
Lease operating rights and other intangible assets as of December 31 are
summarized as follows:
<TABLE>
<CAPTION>
Amortization
Period (Years) 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Lease operating rights ................ 25-30 $ 79,723 $ 108,050
Capitalized assembled workforce........ 3 1,845 1,845
Debt and bond issue costs ............. 3-10 7,882 5,200
Covenants not to compete .............. 2-5 850 850
Other ................................. 5-20 956 1,076
--------- ---------
91,256 117,021
Less amortization ..................... (6,769) (3,240)
--------- ---------
$ 84,487 $ 113,781
========= =========
</TABLE>
The increase in debt and bond issue costs from 1996 to 1997 is primarily
due to issue costs capitalized in connection with the 13% Senior Notes described
in Note 13.
The reduction in lease operating rights from 1996 to 1997 is primarily a
result of the Company's evaluation of its long-lived assets for impairment in
accordance with SFAS 121 (Note 22).
9. SECURITY DEPOSITS AND OTHER ASSETS
Security deposits and other assets as of December 31 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Security deposits ...................... $7,817 $5,077
Other .................................. -- 900
------ ------
$7,817 $5,977
====== ======
</TABLE>
F-16
<PAGE> 82
9. SECURITY DEPOSITS AND OTHER ASSETS (CONTINUED)
In connection with certain lease agreements with Omega, Unison is required
to maintain security deposits. Deposits held by Omega amounted to $3,739 at
December 31, 1997 and 1996.
10. LINE OF CREDIT
In March 1996, Unison's revolving lines of credit were replaced by a $10,000
revolving credit facility. Borrowings under this credit facility bear interest
at the prime rate plus 2.0%, mature in 1998 and are collateralized by Unison's
eligible accounts receivable. A commitment fee of .5% is payable on the unused
portion. The agreement requires Unison to comply with certain financial and
operational covenants including limitations on additional borrowings and sale of
assets and alteration of Unison's existing capital structure. At December 31,
1997, Unison was fully drawn on this line of credit based on the amount of
available collateral. In July 1998, as part of the restructuring plan (Note 2)
Unison obtained a continuation of its line of credit in the amount of $11,000
with interest at the prime rate plus 3%, which will be available to the Company
for working capital requirements during the Chapter 11 process. Although this
line of credit expires in 1998, management has the intent and ability to renew
or replace this line of credit and has therefore classified the outstanding
balance of $7,117 at December 31, 1997 as long-term.
11. ACCOUNTS PAYABLE
Accounts payable as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Trade payables ................................... $ 5,329 $ 7,462
Checks drawn in excess of bank balances .......... 2,263 3,043
------- -------
$ 7,592 $10,505
======= =======
</TABLE>
12. ACCRUED EXPENSES
Accrued expenses as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued compensation and benefits ...... $ 9,843 $ 8,487
Purchase accounting liabilities ........ -- 2,688
Accrued interest ....................... 3,603 2,879
Accrued professional fees .............. 1,585 1,090
Income and gross receipt taxes ......... 3,340 3,106
Reserve for dispositions ............... 2,023 --
Other .................................. 4,223 3,187
------- -------
$24,617 $21,437
======= =======
</TABLE>
The purchase accounting liabilities at December 31, 1996 represent
additional consideration payable to the former shareholders of Signature
amounting to $2,511 (Note 4) and an accrual of $177 for severance, exit and
lease terminations.
F-17
<PAGE> 83
13. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt due to related parties is summarized as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
Additional Payment Obligation .................. $ 9,588 $ 11,500
Subordinated Note .............................. -- 8,000
Working capital notes .......................... 3,950 --
Notes in escrow ................................ 1,146 1,146
Convertible Notes .............................. 1,826 --
Subordinated notes payable to a related party .. 2,320 2,767
Other notes .................................... 1,670 4,781
-------- --------
20,500 28,194
Less current portion ........................... (20,500) (12,312)
-------- --------
$ -- $ 15,882
======== ========
</TABLE>
In connection with the BritWill Acquisition (Note 4), Unison incurred the
Subordinated Note in the amount of $8,000 and the Additional Payment Obligation
of $11,500. The Subordinated Note was repaid in January 1997 with proceeds from
the 12 1/4% Senior Notes. The Additional Payment Obligation represents the
present value of the remaining monthly payments, ranging from $117 to $166 at
interest rates ranging from 12% to 14% through the term of the obligation with a
balloon payment of $8,146 due August 9, 2000. Unison is in arrears of monthly
payments on the Additional Payment Obligation and has, therefore, classified
this obligation as a current liability at December 31, 1997.
On April 21, 1997, Unison obtained a $2,950 loan for general working
capital purposes from affiliates of Messrs. Kremser and Whitehead. This loan
matured on August 1, 1997. On September 25, 1997, Unison borrowed an additional
$1,000 from Messrs. Whitehead and Kremser which was due on October 7, 1997. The
loans bear interest at prime plus 2.0% and are collateralized by a pledge of
certain accounts receivable and the stock of certain Unison subsidiaries. Unison
is currently in default on its obligations to repay these loans. In addition to
the foregoing, the loan documents state that the collateral pledged for the
working capital loans also collateralizes all other obligations which may be due
those individuals and/or entities which they control; and further that all such
obligations are in default due to cross default provisions in these loan and
security documents. These obligations are classified as current liabilities.
A portion of the purchase consideration for Signature was comprised of
promissory notes totaling $1,146, which were placed in escrow. Of this amount,
$500 was due to be paid to Mr. Kremser and the other former shareholders of
Signature on October 31, 1997. The remaining $646, subject to any outstanding
claims, is due and payable on October 31, 1998. The notes in escrow are
classified as current liabilities at December 31, 1997.
In accordance with an adjustment provision of the Signature merger
agreements related to stockholders' equity, in March 1997 the former
shareholders of Signature received additional consideration of $2,511, paid in
the form of the Convertible Notes amounting to $1,826 and 238,052 shares of
Unison common stock at a conversion price of $2.875 per share. The Convertible
Notes bear interest at 12.0% and were due on December 31, 1997. The Convertible
Notes are classified as current liabilities at December 31, 1997.
Subordinated notes payable to a related party are payable to BritWill
Investments Texas, Ltd. ("BritWill Texas"), an affiliate of Mr. Whitehead. The
notes are payable monthly with interest at 9% to 10% with the balance due in
October 2004. Unison had made all required payments on these notes as of
December 31, 1997 but is in arrears with respect to payments due subsequent to
this date in the aggregate amount of approximately $195 as of June 30, 1998. The
subordinated notes are classified as current liabilities as of December 31,
1997.
Other notes include obligations of $1,626 to the former owners of Sunbelt
Therapy. In connection with the purchase of Sunbelt Therapy (Note 4), Unison
issued the Notes and Debentures in the aggregate amount of $2,800. In accordance
with the terms of the Notes, the conversion price ($7.61) was equal to 85% of
the average closing
F-18
<PAGE> 84
13. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
price of Unison's common stock ($8.95) for the 20-day trading period preceding
notice of conversion on November 27, 1996. In January 1997, the Notes and
Debentures were converted into 105,196 shares of Unison common stock with the
balance of $2,000 paid in cash. Effective February 1, 1996, Unison purchased the
remaining 10% minority ownership in Sunbelt Therapy (Note 4). The purchase price
included notes payable in the aggregate amount of $1,876. Interest on the notes
is payable quarterly beginning January 1997 at a rate of 9.0% per year, with
scheduled principal reductions due annually through January 1999. Unison has not
made the principal payment due in January 1998 in the amount of $918 and has
therefore classified the entire obligation as a current liability at December
31, 1997.
Other notes payable and long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
12 1/4% Senior Notes ................... $ 100,000 $ 100,000
13% Senior Notes ....................... 20,000 --
Mortgage Note .......................... 18,422 18,640
Capital lease obligations (Note 16) .... 3,429 7,759
Notes payable to trade vendors ......... 1,100 52
11.5% notes payable to Omega ........... 283 283
Line of Credit (Note 10) ............... 7,117 --
Term loans and other ................... 1,946 2,210
--------- ---------
152,297 128,944
Less current portion ................... (144,277) (21,603)
--------- ---------
$ 8,020 $ 107,341
========= =========
</TABLE>
On October 31, 1996, Unison completed the private placement of $100,000 of
its 12 1/4% Senior Notes. The net proceeds of $94,550 were used to: (i) complete
the acquisitions of Signature and RehabWest (Note 4); (ii) repay certain debt
and contingent obligations; and (iii) for general corporate purposes. In January
1997, a portion of the proceeds from the 12 1/4% Senior Notes was used to repay
the Subordinated Note and prepay $1,750 of the Additional Payment Obligation.
Interest on the 12 1/4% Senior Notes is payable semiannually. The stated
interest rate of 12 1/4% per annum was subject to temporary increase if the
12 1/4% Senior Notes were not registered with the Securities and Exchange
Commission (the "SEC") within specified time periods. The interest rate on the
12 1/4% Senior Notes was 13.75% and 14 1/4% (the maximum rate) as of December
31, 1997 and June 30, 1998, respectively. The 12 1/4% Senior Notes indenture
contains certain covenants, including limitations on additional indebtedness,
investments, transactions with affiliates, asset sales, payment of dividends and
certain other transactions. The 12 1/4% Senior Notes are guaranteed by all of
the Company's current and future subsidiaries on a full, unconditional, joint
and several basis. All of Unison's subsidiaries are wholly owned with the
exception of Quest Pharmacies, Inc., of which Unison owns 75%. As of June 30,
1998, Unison had not made the scheduled payment of interest on the 12 1/4%
Senior Notes in the amount of $6,876 which was due May 1, 1998. The grace period
with respect to such payment expired on May 31, 1998. The 12 1/4% Senior Notes
are therefore in default and have been classified as a current liability as of
December 31, 1997.
On December 1, 1997, Unison completed the private placement of $20,000 of
its 13% Senior Notes. The net proceeds to Unison in the amount of $19,200 were
used for debt service and other working capital requirements. Commencing on
March 1, 1998, interest is payable quarterly in arrears. Commencing on June 1,
1998 and each September 1, December 1, March 1 and June 1 thereafter until the
maturity date of December 1, 1999, the rate of interest accruing on the 13%
Senior Notes will increase by 0.50%. The interest rate is subject to additional
temporary increases ("Additional Interest") if the 13% Senior Notes (or Exchange
Notes with the same terms) are not registered with the SEC within specified time
periods. On March 1, 1998, the interest rate increased to 13.25% and the rate of
Additional Interest is subject to further increases of 0.25% every 90 days
thereafter (up to a maximum rate of 15.0%) until such registration becomes
effective. As of July 1, 1998, the interest rate on the 13% Senior Notes was
14.0%. Other terms and conditions of the 13% Senior Notes are essentially the
same as those of the 12 1/4% Senior Notes. As of June 30, 1998, Unison had not
made scheduled payments of interest on the 13%
F-19
<PAGE> 85
13. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Senior Notes in the aggregate amount of $1,298. The grace periods with respect
to such payments have expired and the 13% Senior Notes are in default. The 13%
Senior Notes are classified as a current liability as of December 31, 1997.
In connection with the Signature acquisition (Note 4), Unison assumed a
10.5% mortgage loan (the "Mortgage Note") collateralized by property and
equipment of six of the Signature facilities. Principal and interest of $180 is
payable monthly with a balloon payment due in April 2004. The Mortgage Note
requires Unison to maintain consolidated net worth of at least $39,000 and a
specified minimum current ratio. The Company is not in compliance with the net
worth covenant. Unison did not receive a waiver of this covenant violation and,
accordingly, classified the entire obligation of $18,422 as of December 31, 1997
as a current liability.
In 1997, Unison converted the balances of certain of its trade accounts
payable to promissory notes. The notes bear interest at 8.5% to 11.0% and are
payable in monthly installments through September 1999. As of December 31, 1998,
Unison was in arrears of payments on these notes and has therefore classified
these obligations as current liabilities as of December 31, 1997.
In April 1996, Unison issued 11.5% promissory notes to Omega related to
capital improvements on two of its nursing facilities. The notes were due in
full on September 30, 1996 and have therefore been classified as current
liabilities as of December 31, 1997.
Future maturities of notes payable and long-term debt at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1998 ......................................... $164,777
1999 ......................................... 7,612
2000 ......................................... 44
2001 ......................................... 47
2002 ......................................... 317
--------
$172,797
========
</TABLE>
14. STOCKHOLDER'S EQUITY
In December 1995 and January 1996, Unison completed its initial public
offering (the "IPO") resulting in the issuance of 2,000,000 shares of common
stock at $9.00 per share. Proceeds from the IPO amounted to $14,614, net of
expenses, of which $9,727 was used to repay debt (Notes 13 and 17). In
connection with the IPO, Unison 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 (market value at the date of grant), which
approximates the fair value of consideration received at the date of issuance,
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 entitled HealthPartners to purchase shares of
Unison's common stock with an aggregate market value of $150, or approximately
16,667 shares based on the IPO price of $9.00 per share. The $150 was
capitalized as a deferred financing cost and amortized over two years. In
December 1996, HealthPartners exercised its option to require Unison to
repurchase the warrants for $213 in cash, which was recorded as a reduction of
additional paid-in capital.
Effective December 31, 1994, Unison completed a stock purchase warrant
agreement to satisfy amounts due to an individual who actively negotiated
several of Unison's management and operating lease agreements. The warrants were
exercised in 1996, whereby 178,000 shares of Unison common stock were purchased
for two hundred dollars. Since the warrants were granted at less than fair
market value, leasehold rights totaling $43 have been capitalized and are being
amortized over the respective initial lease term.
F-20
<PAGE> 86
14. STOCKHOLDER'S EQUITY (CONTINUED)
In August and October 1996, warrants to purchase an aggregate of 300,464
shares of common stock were issued to a commercial bank in connection with a
short-term loan agreement. The exercise prices of the warrants are $12.80 and
$13.00 (market value at the date of grant), which approximates the fair value
of consideration received at the date of issuance, and the warrants expire on
October 31, 2001.
Unison's common stock was traded on The Nasdaq Stock Market's National
Market System from December 19, 1995 to August 21, 1997. Effective August 22,
1997, Nasdaq moved Unison's securities to its SmallCap Market because the
Company did not satisfy the minimum tangible net asset requirement for the
listing of its stock on the National Market System. On February 23, 1998, new,
more stringent quantitative maintenance requirements for continued listing on
the Nasdaq SmallCap Market went into effect. Unison does not currently meet
these requirements, and on April 15, 1998, Nasdaq delisted the Company's
securities.
15. STOCK OPTIONS
In July 1995, the Board of Directors approved the 1995 Stock Option Plan
(the "1995 Plan"). The 1995 Plan offers two types of options: (i) a
discretionary option grant program (the "Discretionary Program") under 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 14). The 1995 Plan was further amended: (i) in
October 1996 to increase the number of shares of common stock authorized for
issuance under the 1995 Plan from 511,046 to 800,000, and (ii) in August 1997
to 1,500,000.
Unison has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
Unison's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Unison had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
5.0%, 5.0% and 5.0%; dividend yields of 0%, 0% and 0%; volatility factors of
the expected market price of the Company's common stock of 1.32, .64 and .64
and a weighted-average expected life of the option of eight years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Unison's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-21
<PAGE> 87
15. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Unison's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Pro forma net loss........................ $48,415 $24,157 $72
Pro forma net loss per share.............. $7.60 $5.16 $0.03
</TABLE>
Information regarding the 1995 Plan is as follows:
<TABLE>
<CAPTION>
DISCRETIONARY PROGRAM AUTOMATIC PROGRAM
---------------------------- ----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding at January 1, 1995 .........
Granted ................................ 261,520 $9.00 47,480 $9.00
Cancelled .............................. (8,684) 9.00 -- 9.00
------- -------
Outstanding at December 31, 1995 ....... 252,836 9.00 47,480 9.00
Granted ................................ 412,412 9.47 92,500 9.50
Canceled ............................... (40,664) 9.24 --
Exercised .............................. (11,307) 9.00 --
------- -------
Outstanding at December 31, 1996 ....... 613,277 9.30 139,980 9.33
Granted ................................ 913,466 2.63 122,500 2.44
Canceled ............................... (696,730) 8.06 (139,980) 9.33
Exercised .............................. (350) 9.00 --
------- -------
Outstanding at December 31, 1997 ....... 829,663 3.13 122,500 2.44
======= =======
Exercisable at December 31,
1995 ................................... -- --
1996 ................................... 127,998 9.00 23,740 9.00
1997 ................................... 198,138 3.79 61,250 2.44
Weighted-average fair value of options
granted:
1995 ................................... $6.18
1996 ................................... 6.39
1997 ................................... 2.38
</TABLE>
Exercise prices for options outstanding at December 31, 1997 ranged from
$2.44 to $9.50. The weighted-average remaining contractual life of those
options is 9.6 years.
At December 31, 1997, 536,180 shares of common stock were available under
the 1995 Plan for future awards.
16. LEASES
As of December 31, 1997, Unison operated 42 facilities under noncancelable
operating leases with lease terms ranging from five to twenty years plus
renewal options. The lease agreements provide for either scheduled rent
increases or contingent rent based on increases in the Consumer Price Index
("CPI"), 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, under three master lease agreements. Each of the
Omega leases expires in 2005 and allows Unison up to three five-year renewal
options. The Omega leases require Unison to pay stated rent, with annual
increases based upon the greater of 5% of incremental revenues or the CPI, but
limited to a maximum annual increase of 5%. The Omega leases grant Unison
F-22
<PAGE> 88
16. LEASES (CONTINUED)
the right, but not the obligation, to purchase the Omega facilities upon the
expiration of the initial lease term. At December 31, 1997, the aggregate
minimum rent under these master leases was approximately $30,900 (subject to
increase) during the remainder of their initial terms. The master leases require
the Company to maintain specified cash flow to rent ratios, cash flow to debt
service ratios, minimum cash, current ratio and tangible net worth. Unison also
leases six facilities located in Texas from BritWill Texas (the "BritWill Texas
Leases") for an initial term that expires in December 2005. The lease agreement
with BritWill Texas requires the Company to pay to Omega monthly amounts equal
to: (i) the amount of loan payments due to Omega from BritWill Texas pursuant to
a loan agreement between those parties, which provided the financing for
BritWill Texas' acquisition of the facilities, and (ii) lease payments on the
facilities that are subleased by BritWill Texas to Unison. The BritWill Texas
Leases contain cross default provisions with the Omega leases by which if Unison
is in default with any Omega indebtedness or lease obligation, the Company is
also in default under the BritWill Texas Leases. As of December 31, 1997 Unison
was not in compliance with these covenants and had not obtained waivers of the
covenant defaults from Omega or BritWill Texas.
The Company leases six facilities formerly affiliated with Signature with
monthly payments of $142 for an initial term that expires in 2005. The leases
allow Unison the option to renew for three additional 10-year terms and the
option to purchase the facilities through the end of the initial term or any
renewal periods. The leases provide for certain restrictions on the maintenance
and operation of the facilities and an annual 2.5% increase in rent.
In connection with the BritWill Acquisition (Note 4), Unison recorded a
leasehold liability in the amount of $4,700. This adjustment was based on an
independent appraisal that 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, 1997, by year and in the
aggregate, under noncancelable lease arrangements with initial or remaining
terms of one year or more consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL OPERATING
- ------------------------ ---------- ----------
<S> <C> <C>
1998......................................................... $1,203 $15,447
1999......................................................... 1,172 15,059
2000......................................................... 827 14,442
2001......................................................... 704 13,697
2002......................................................... 126 13,532
Thereafter................................................... 292 73,553
---------- ----------
Total minimum lease payments................................. 4,324 $145,730
==========
Less amount representing interest............................ (895)
----------
Present value of net minimum lease payments.................. 3,429
Less current portion......................................... (850)
----------
Long-term obligations........................................ $2,579
==========
</TABLE>
Unison's lease payments are senior to all unsecured debt.
17. RELATED PARTY TRANSACTIONS
The Term Note, Subordinated Note, Convertible Debenture and Additional
Payment Obligation issued as consideration for the BritWill Acquisition were
issued to the former shareholders of BritWill (Note 13). The majority
shareholder of BritWill was Whitehead Family Investments, Ltd. ("WFI"), which
owned 81.5% of the stock of BritWill prior to the BritWill Acquisition. Mr.
Whitehead 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 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 bearing interest at the rate of 12%. These notes were
repaid with the proceeds from the
F-23
<PAGE> 89
17. RELATED PARTY TRANSACTIONS (CONTINUED)
IPO. With the BritWill Acquisition, Unison also assumed unsecured subordinated
notes payable to BritWill Texas with an aggregate balance at December 31, 1997
of $2,320 (Note 13).
In connection with the acquisition of Signature, Unison incurred debt
obligations to Mr. Kremser and the other shareholders of Signature. A portion of
the purchase consideration for Signature was comprised of promissory notes
totaling $1,146 that were placed in escrow. In accordance with an adjustment
provision of the Signature merger agreements related to stockholders' equity, in
March 1997 the former shareholders of Signature received additional
consideration of $2,511, comprised of the Convertible Notes amounting to $1,827
and 238,052 shares of Unison common stock (Note 4). In 1997, Unison obtained
working capital loans in the aggregate amount of $3,950 from affiliates of Mr.
Kremser and Mr. Whitehead (Note 13).
As discussed in Note 13, Unison is in default with respect to its
obligations to Messrs. Whitehead and Kremser and their affiliates in the
aggregate amount of $17,327, as of December 31, 1997. Unison recorded interest
expense on obligations to Mr. Kremser and affiliates in the amount of $348 and
$15 in 1997 and 1996, respectively. Interest expense related to obligations to
Mr. Whitehead and affiliates amounted to $1,327 in 1997 and $1,215 in 1996.
In connection with the sale of the 13% Senior Notes, Unison paid an
advisory fee of $350,000 to Woodhill Capital. One of Unison's directors is a
partner of Woodhill Capital.
Unison's lease payments to Omega, the owner of 14 facilities that the
Company leases in Indiana and Texas, are personally guaranteed to $13,500 by
Mr. Whitehead as well as collateralized by substantially all of the personal
property of Unison. Unison also leases six facilities in Texas from BritWill
Texas. Lease expense on the BritWill Texas facilities for the year ended
December 31, 1997 and 1996 and the five months ended December 31, 1995 amounted
to $1,241, $2,661 and $505, respectively (Note 16).
18. INCOME TAXES
The components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Current:
Federal...................................... $ 596 $ 986 $ 153
State........................................ 210 61 --
Deferred:
Federal...................................... (2,828) (7,777) (28)
State........................................ (458) (1,338) 7
------- ------- ----
$(2,480) $(8,356) $132
======= ======= ====
</TABLE>
The difference between Unison's effective income tax rates and statutory
rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- ----
<S> <C> <C> <C>
Statutory federal income tax expense (benefit)........ $(16,895) $(10,810) $ 85
Increases (decreases) resulting from:
Change in effective tax rate......................... (495) --
Amortization of intangibles and
nondeductible expenses.............................. 413 1,060 91
State tax expense (benefit), net of federal benefit.. (1,873) (876) 5
Change in valuation allowance........................ 16,024 1,528 (56)
Current federal income taxes of subsidiaries
not consolidated for tax purposes................... 596 698 --
Adjustments to tax bases of acquired companies....... (539)
Other................................................ (206) 539 7
-------- -------- ----
Income tax expense (benefit).......................... $(2,480) $(8,356) $132
======== ======== ====
</TABLE>
<PAGE> 90
18. INCOME TAXES (CONTINUED)
Significant components of deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1997 1996
-------------------- --------------------
Current Long-Term Current Long-Term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Deferred liabilities:
Intangibles................................. $ -- $(15,547) $ -- $(31,165)
Accelerated depreciation.................... -- (466) -- 171
Cash to accrual adjustment.................. (224) -- (208) --
------ -------- ------ --------
Total liabilities............................. (224) (16,013) (208) (30,994)
------ -------- ------ --------
Deferred assets:
Allowance for doubtful accounts............. 2,796 -- 1,388 --
Reserve for loss on disposition of assets... 1,953 -- 1,460 --
Vacation accruals........................... 516 -- 692 --
Net operating loss carryforward............. -- 17,552 -- 7,604
Valuation allowance......................... -- (17,552) -- (1,528)
Other, net.................................. 38 -- -- 127
------ -------- ------ ---------
Total assets.................................. 5,303 -- 3,540 6,203
------ -------- ------ ---------
Total net asset (liability)................... $5,079 $(16,013) $3,332 $(24,791)
====== ======== ====== =========
</TABLE>
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets that are not likely to be realized. Management has determined that its
net operating loss carryforwards amounting to $46,470 are not likely to be
realized in future periods. Specifically, the Internal Revenue Service Code
provides that, in a Chapter 11 bankruptcy case, income normally arising from
the discharge of indebtedness is excluded from taxable income. However, to the
extent that income from discharge of indebtedness is excluded from income,
taxpayers must reduce specified tax attributes which include net operating
losses. The Company anticipates that, in connection with the implementation of
its restructuring plan (Note 2), its net operating losses will be eliminated as
a result of the restructuring of its debt obligations. Therefore, a valuation
allowance has been established against the full amount of the Company's net
operating loss carryforward benefits.
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The aggregate carrying amount and fair value of Unison's financial
instruments as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Notes payable and long-term debt, excluding
capital lease obligations.......................................... $169,369 $155,446
</TABLE>
The carrying amounts reported in the consolidated balance sheet for cash,
accounts receivable, lease deposits, accounts payable and accrued expenses
approximate their fair value. The fair value of Unison's 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
certain of these obligations, 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.
The fair value amount set forth above was calculated as of December 31,
1997. The Company has not attempted to quantify the impact of the Chapter 11
proceedings on the fair value of its financial instruments.
20. 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
F-25
<PAGE> 91
20. INSURANCE (CONTINUED)
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
coverage could have an adverse effect on Unison's business. However, based upon
the evaluation of Unison's historical asserted and unasserted claim experience,
management does not believe that the Company has a material, estimable and
probable liability, regardless of insurance coverage, at December 31, 1997.
In 1997, approximately 25% of employees enrolled in Company sponsored
health plans were covered under a self-insured plan. Unison's liability for
losses under this plan is capped at $25 per claim and $2,500 per person through
a contract with an insurance company. The Company is also insured for Workers'
Compensation. The Company's liability for losses is capped at $250 per claim
through a contract with an insurance company. Unison has a cash deposit of
$1,200 with this insurance company which is held as collateral.
Unison is insured for professional and general liability claims under a
claims made, retrospective insurance policy. The Company's liability for losses
is capped at $2,500, in aggregate. Unison is, from time to time, subject to
malpractice and related claims and lawsuits which arise in the normal course of
business and which could have a significant effect on Unison. Management
believes that adequate provision for these items has been made in the
accompanying consolidated financial statements and that their ultimate
resolution will not have a material effect on the consolidated financial
statements.
21. COMMITMENTS AND CONTINGENCIES
Impact of the Year 2000 Issue (unaudited)
Some of Unison's information systems have time-sensitive software that
will not properly recognize the year 2000. This could result in a system
failure or miscalculations causing disruption of the Company's operations.
Unison is currently completing an assessment and developing a plan to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
expects to incur internal staff costs, external consulting costs and other
expenses related to infrastructure and facility enhancement necessary to
prepare the systems for the year 2000. Although the total cost to the Company
of achieving year 2000 compliant systems is not expected to be material to the
Company's operations or financial condition, there can be no assurance that the
costs will be as expected or that the date change from 1999 to 2000 will not
materially adversely affect the Company's business, financial condition and the
results of operations. The ability of third parties with which Unison transacts
business to adequately address their year 2000 issues is outside the Company's
control. Although the Company will seek alternative vendors, where its current
vendors are unwilling or unable to become year 2000 compliant in a timely
manner, there can be no assurance that the Company's operations will not be
materially adversely affected by the ability of third parties dealing with the
Company, including Medicare and Medicaid, to also manage the effect of the
2000 date change.
Regulatory Environment
The health care industry is subject to numerous laws and regulations of
federal, state and local governments. Compliance with these laws and
regulations can be subject to future government review and interpretation as
well as regulatory actions unknown or unasserted at this time. Recently,
government activity has increased with respect to investigations and
allegations concerning possible violations by health care providers which
creates a possibility of significant repayments for reimbursement of patient
services previously billed. The Company believes that it is in substantial
compliance with the applicable laws and regulations. However, if the Company
is ever found to have engaged in improper practices, it could be subjected to
civil, administrative or criminal fines, penalties or restitutionary relief.
F-26
<PAGE> 92
21. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Healthcare Reform Legislation
The Balanced Budget Act enacted in August 1997 (the "Budget Act"), contains
extensive changes to the Medicare and Medicaid programs intended to reduce the
projected amount of increase in payments under those programs over the next five
years. The Budget Act also requires the establishment of a prospective payment
system for nursing centers for cost reporting periods beginning on or after July
1, 1998. During the first three years, the per diem rates for nursing facilities
will be based solely on Federal costs. The payments received under the new
prospective payment system will cover all services for Medicare patients,
including all ancillary services, such as respiratory therapy, physical therapy,
occupational therapy, speech pathology and certain covered drugs. Management has
not completed the analysis to determine the impact that the Budget Act will have
on future operations. However, the Company is actively implementing strategies
and operational modifications to address changes in the Federal reimbursement
system.
There also continues to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as Unison. Many states have enacted or are considering enacting
measures that are designed to reduce their Medicaid expenditures including cost
caps and the establishment of Medicaid prospective payment systems for nursing
facilities.
Approximately 84% in 1997 and 83% in 1996 and 1995 of Unison's long-term
care net patient service revenues were derived from reimbursement under Medicare
and Medicaid programs, and approximately 88% and 84% of Unison's patient
accounts receivable at December 31, 1997 and 1996, respectively, are due from
such programs.
There can be no assurance that the Budget Act or future healthcare
legislation will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
22. 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 1996, Unison incurred operating losses and shortfalls of cash from
operations. The Company also announced the planned disposition of eight nursing
facilities whose performance did not meet Unison's operational or financial
criteria (Note 4). Of these Disposition Facilities, one was closed in June 1996
and three others, which had incurred operating losses since the company had
acquired them in August 1995, were disposed of in March 1997. These events, as
well as a history of operating losses at certain facilities, raised the
possibility of continuing losses associated with the Company's income producing
assets. Consequently, Unison evaluated its long-lived assets, including property
and equipment, goodwill, lease operating rights and other intangible assets, for
impairment in accordance with SFAS No. 121. In 1997, the Company continued to
incur operating losses and cash shortfalls from operations and identified
additional facilities for disposition. In addition, in 1998, Unison filed for
reorganization under Chapter 11 (Note 2). Accordingly, the Company reevaluated
its long-lived assets for impairment.
To evaluate assets for impairment, Unison estimated the undiscounted net
cash flows from all business units and determined that the carrying value of
certain of Unison's long-lived assets exceeded such undiscounted cash flows.
Unison then compared the fair value of the assets based on the present value of
the estimated future cash flows for the facilities (which were estimated based
on the remaining weighted average useful lives of the assets, earnings history,
and a discount rate commensurate with the risks involved and market conditions
and assumptions reflecting internal operating plans and strategies) with the
carrying value. Unison determined that the fair value of certain facilities was
less than their carrying value and estimated the costs to sublease and exit from
the Disposition Facilities (Note 4). Accordingly, Unison recorded impairment
losses and other charges of $27,185 in 1997 and $3,865 in 1996 in the
accompanying consolidated statements of operations.
F-27
<PAGE> 93
23. LITIGATION
Various suits and claims arising in the ordinary course of business
are pending against the Company. Management believes that adequate provision
for these items has been made in the accompanying consolidated financial
statements and that their ultimate resolution will not have a material effect
on the consolidated financial statements.
Unison and certain of its current and former directors and officers
are named as defendants in seven consolidated securities class action lawsuits
in United States District Court in Phoenix, Arizona (the "Federal Action"), and
a securities class action lawsuit pending in California Superior Court (the
"State Action") (collectively, the "Actions"). The Actions arise following
Unison's announcement in March 1997 that it would be restating its financial
statements for the nine-month period ended September 30, 1996. A consolidated
amended class action complaint in the Federal Action was filed on January 6,
1998. While the purported class periods and named defendants vary, the broadest
class period is that alleged in the Federal Action from December 18, 1995 (the
date of the IPO) to May 30, 1997 (when Unison announced the amount of the
restatement for the first nine months of 1996). The Federal and State Actions
assert that Unison made material misrepresentations regarding its ability to
accurately report financial information and made material misstatements in
reporting such information. This proceeding is stayed as a result of the Chapter
11 proceedings. Management believes that the costs of the ultimate disposition
of these matters will be substantially covered by insurance.
F-28
<PAGE> 94
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.
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 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.
ERNST & YOUNG LLP
Phoenix, Arizona
April 10, 1996
F-29
<PAGE> 95
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 the
results of their operations and their cash flows for the six month period ended
June 30, 1995, 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-30
<PAGE> 96
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 858,606
Accounts receivable, less allowance for doubtful accounts of $790,867............ 7,599,464
Due from third party payors, net................................................. 2,290,066
Inventories...................................................................... 442,033
Due from affiliates.............................................................. 512,594
Prepaid expenses................................................................. 486,874
Other receivables................................................................ 31,151
Security deposits................................................................ 637,517
Restricted cash.................................................................. 45,000
-----------
Total current assets........................................................ 12,903,305
Furniture, fixtures and equipment, net................................................ 2,210,682
Other assets, net..................................................................... 6,827,126
Deferred charges, net................................................................. 537,321
Security deposits..................................................................... 2,237,944
-----------
Total assets................................................................ $24,716,378
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 5,133,964
Accrued expenses................................................................. 7,002,347
Notes payable due affiliates..................................................... 528,230
Income taxes payable............................................................. 92,126
-----------
Total current liabilities................................................... 12,756,667
Revolving line of credit.............................................................. 1,672,577
Subordinated long-term debt due affiliates............................................ 8,488,465
Other long-term debt.................................................................. 48,183
-----------
Total liabilities........................................................... 22,965,892
-----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value; authorized 1,000,000 shares; 424,050 issued and
outstanding................................................................. 424,050
Additional paid-in capital....................................................... 4,714,469
Treasury stock, 54,650 shares, at par............................................ (54,650)
Accumulated deficit.............................................................. (3,333,383)
-----------
Total shareholders' equity.................................................. 1,750,486
-----------
Total liabilities and shareholders' equity.................................. $24,716,378
===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-31
<PAGE> 97
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
One Month
Six Months Ended
Ended June 30, July 31,
1995 1995
_______________ ________________
Revenues:
Patient care services, net $32,723,297 $5,655,071
Management fee from related parties 40,430 __
Other income 228,426 207,270
___________ _______________
Total revenues 32,992,153 5,862,341
___________ __________
Expenses:
Salaries and contract labor 19,812,601 3,467,433
Rent 4,448,134 775,136
Supplies 4,134,207 716,037
General and administrative 3,255,917 614,191
Depreciation and amortization 500,682 90,803
Bad debt 21,442 48,631
Other 10,731 121,900
____________ __________
Total expenses 32,183,714 5,834,131
____________ __________
Income from operations 808,439 28,210
Interest income (expense):
Interest income 109,309 3,878
Interest expense (226,587) (105,127)
Related party interest expense (485,265) (88,977)
____________ ____________
Income (loss) before income taxes 205,896 (162,016)
Provision for income taxes 26,000 4,500
____________ ___________
Net income (loss) $179,896 $(166,516)
____________ ___________
____________ ___________
</TABLE>
See accompanying notes to the consolidated financial statements.
F-32
<PAGE> 98
BRITWELL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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, 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 statement
F-33
<PAGE> 99
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED ONE MONTH
JUNE 30, ENDED
1995 JULY 31, 1995
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................... $ 179,896 $ (166,516)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.............................................................. 574,065 90,803
Increase in accounts receivable............................................................ (743,748) (100,036)
(Increase) decrease in amounts due from third party payors................................. (1,140,747) 895,801
Increase in inventories.................................................................... (8,550) --
Increase in due from affiliates............................................................ (143,360) --
Increase in prepaid expenses............................................................... (86,567) (19,097)
Increase in other receivables.............................................................. (12,320) (1,047)
(Increase) decrease in other assets and deferred charges................................... (173,037) 67,370
(Increase) decrease in security deposits................................................... 883 (13,119)
Decrease in accounts payable............................................................... (1,115,972) (1,604,192)
Increase in accrued expenses............................................................... 3,506,897 90,725
Increase (decrease) in income taxes payable................................................ 39,230 (19,749)
----------- ------------
Net cash provided by (used in) operating activities........................................ 876,670 (779,057)
----------- ------------
Cash flows from investing activities:
Purchase of furniture and equipment............................................................. (485,009) (136,997)
Construction in progress........................................................................ (436,169) --
----------- -----------
Net cash used in investing activities...................................................... (921,178) (136,997)
----------- -----------
Cash flows from financing activities:
Proceeds from revolving line of credit.......................................................... 1,672,577 1,082,377
Payments on notes payable and long-term debt.................................................... (1,754,875) (117,894)
Receipt of restricted cash...................................................................... 600,000 --
Payment for debt issuance costs................................................................. (111,059) --
Repurchase of shares............................................................................ (64,408) --
----------- -----------
Net cash provided by financing activities.................................................. 342,235 964,483
----------- -----------
Net increase in cash and cash equivalents............................................................ 297,727 48,429
Cash and cash equivalents at beginning of period..................................................... 560,879 858,606
----------- -----------
Cash and cash equivalents at end of period........................................................... $ 858,606 $ 907,035
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................... $296,562 $82,069
Income taxes............................................................................... -- --
</TABLE>
See accompanying notes to the consolidated financial statements.
F-34
<PAGE> 100
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
LP (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. 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-35
<PAGE> 101
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
As of June 30, 1995, restricted cash consists of the $45,000
certificate of deposit assigned to a third party as security for payment of
insurance claims.
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>
Accounts
Net Revenue Receivable
------------ ----------
Six months One month
June 30, July 31, June 30,
1995 1995 1995
---------- --------- -------
<S> <C> <C> <C>
Medicaid................ 53.7% 53.9% 62.8%
Medicare................ 28.6 28.6 25.4
Private................. 16.0 15.9 7.9
Other................... 1.7 1.6 3.9
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</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-36
<PAGE> 102
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 $38,366 and $6,436 for 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,
--------------------------
1994 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Total revenues........................... $29,857,000 $38,854,000
Income (loss) from operations............ (1,365,000) 836,000
Income (loss) before income taxes........ (1,886,000) 44,000
Net income (loss)........................ (1,912,000) 13,000
</TABLE>
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
1995
----------
<S> <C>
Furniture and fixtures ................................ $1,476,780
Leasehold improvements................................ 504,952
Construction in progress............................... 649,765
Land................................................... 55,904
----------
$2,687,401
Less accumulated depreciation.......................... (476,719)
----------
$2,210,682
==========
</TABLE>
Depreciation expense was $109,712 and $23,468 for the six months ended
June 30, 1995 and the one month ended July 31, 1995, respectively.
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
June 30,
1995
-----------
<S> <C>
Leasehold rights -- BI-Indy ........................... $ 4,103,338
Leasehold rights -- BI-TX ............................. 3,331,547
Deferred financing costs ............................. 1,131,224
-----------
8,566,109
Less accumulated amortization.......................... (1,738,983)
-----------
$ 6,827,126
===========
</TABLE>
F-37
<PAGE> 103
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 $83,483
and $13,446 for the six months ended June 30, 1995 and the one month ended July
31, 1995, respectively.
Total amortization expense relating to these assets was $352,604 and
$60,934 for 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>
JUNE 30,
1995
----------
<S> <C>
Lease deposit -- BI-Indy ........................... $1,335,000
Liquidity deposit -- BI-TX ......................... 1,400,000
Other deposits ..................................... 140,461
----------
2,875,461
Less current portion ............................... (637,517)
----------
$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 5.5% on June 30, 1995. Accrued interest receivable on these funds
is $72,389 at June 30, 1995. 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 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:
F-38
<PAGE> 104
<TABLE>
<CAPTION>
June 30,
1995
----------
<S> <C>
Amounts due Medicaid--Indiana......................... $3,741,188
Accrued salaries and benefits......................... 1,205,922
Payroll withholding taxes............................. 481,522
Ancillary expense..................................... 620,142
Property taxes........................................ 396,700
Rent.................................................. 245,547
Other................................................. 311,326
-----------
$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.
7. NOTES PAYABLE AND LONG-TERM DEBT
Subordinated notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
June 30,
1995
----------
<S> <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.............................. $ 8,776,782
Note payable to bank, bearing interest at prime plus
2.0% payable monthly, due October 1998.............. 48,183
Subordinated notes payable to third party, bearing
interest at 10.0% payable monthly, due August 1998.. 239,913
Revolving line of credit advances bearing interest
at the commercial paper 30 day weighted average
rate plus 4.25% payable monthly..................... 1,672,577
-----------
10,737,455
Less current portion................................. . (528,230)
-----------
$10,209,225
===========
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
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 line of credit and note payable to bank bear interest at 2.0% over prime
(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-39
<PAGE> 105
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Six Months One Month
June 30, July 31,
1995 1995
---------- ---------
<S> <C> <C>
Current:
Federal................................. $ -- $ --
State and local......................... 26,000 4,500
------- ------
26,000 4,500
Deferred:
Federal................................. -- --
------- ------
$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
June 30, July 31,
1995 1995
---------- ---------
<S> <C> <C>
Income taxes computed at statutory U.S.
federal income tax rates................ $ 70,005 $(55,080)
Limitation on (utilization of) NOL........ (101,239) 50,080
State and local income taxes.............. 26,000 4,500
Permanent differences..................... 31,234 5,000
--------- --------
$ 26,000 $ 4,500
========= ========
</TABLE>
At June 30, 1995 and July 31, 1995, the Company has federal tax net
operating loss carry forwards of approximately $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.
The components of the Company's net deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
June 30,
1995
--------
<S> <C>
Deferred tax assets:
Vacation accrual...................................... $ (107,086)
Net operating loss carry forward...................... (1,034,568)
Capital leases........................................ (880,088)
Leasehold rights...................................... (55,191)
Allowance for bad debts............................... (292,621)
-----------
Gross deferred tax assets.......................... (2,369,554)
Valuation allowance..................................... 2,369,554
-----------
Net deferred tax assets................................. --
Deferred tax liabilities................................ --
-----------
Net deferred tax liabilities............................ $ --
===========
</TABLE>
F-40
<PAGE> 106
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 $4,448,134 and $750,636 during 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 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 $35,500,000 at
December 31, 1994.
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.
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 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 $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
F-41
<PAGE> 107
quarterly bonus. The expense for this bonus agreement totaled $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.
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 $2,901,782 at June 30, 1995. Interest
expense on this loan amounted to approximately $121,365 and $31,943 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 $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 $36,000 and $6,000
for the six months ended June 30, 1995 and the one month ended July 31, 1995,
respectively.
The Company manages nursing homes owned by an affiliate. Management fee
revenues charged the affiliate totaled $40,430 and $0 during the six months
ended June 30, 1995 and the one month ended July 31, 1995, respectively.
F-42
<PAGE> 108
SCHEDULE II
UNISON HEALTHCARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts........ $290 $29 $801(1) $(337)(2) $783
Year ended December 31, 1996
Allowance for doubtful accounts........ $783 $2,742 $672(3) $(420)(2) $3,776
Year ended December 31, 1997
Allowance for doubtful accounts........ $3,776 $2,039 $1,967(4) $(359)(2) $7,423
</TABLE>
- ------------------
(1) Represents the allowance for doubtful accounts recorded by BritWill at July
31, 1995.
(2) Uncollectible accounts written off, net of recoveries.
(3) Represents the allowance for doubtful accounts recorded by Signature at
October 31, 1996.
(4) Included in impairment losses and other charges in the consolidated
statement of operations.
S-1
<PAGE> 109
SCHEDULE II
BRITWILL HEALTHCARE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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> 110
Index to Exhibits
Exhibit no. Description
- ----------- -----------
2 Disclosure Statement in Support of Debtors' Joint Plan of
Reorganization Dated August 10, 1998 and Debtors' Joint Plan of
Reorganization Dated August 10 (incorporated by reference to Exhibit
99.1 to Form 8-K filed on August 13, 1998)
2.1 Disclosure Statement in Support of Debtors' First Amended Joint Plan
of Reorganization Dated October 15, 1998 and Debtors' First Amended
Joint Plan of Reorganization Dated October 15, 1998.
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)
<PAGE> 111
3.2 Amendment to Restated Certificate of Incorporation of Unison
HealthCare Corporation (incorporated by reference to Exhibit 3.1.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.3 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 Specimen 12-1/4% Senior Note due 2006 (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
4.2 Securities Purchase Agreement dated as of October 28, 1996 between
Unison HealthCare Corporation and the Initial Purchasers of its
12-1/4% Senior Notes due 2006 (incorporated by reference to Exhibit
4.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
4.3 Indenture dated as of October 31, 1996 among Unison HealthCare
Corporation, the Guarantors and First Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
4.3.1 Supplement No. 1 dated as of February 1, 1997 to Indenture dated as
of October 28, 1996 (incorporated by reference to Exhibit 4.3.1 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1996)
4.4 Senior Note Registration Rights Agreement dated as of October 31,
1996 among Unison HealthCare Corporation, the Guarantors and the
Initial Purchasers of its 12-1/4% Senior Notes due 2006
(incorporated by reference to Exhibit 4.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
4.5 Securities Purchase Agreement dated as of November 24, 1997 between
Unison HealthCare Corporation and the Initial Purchasers of its 13%
Senior Notes due 1999
4.6 Indenture dated as of December 1, 1997 among Unison HealthCare
Corporation, the Guarantors and IBJ Schroder Bank & Trust Company,
as Trustee
4.7 Senior Note Registration Rights Agreement dated as of December 1,
1997 among Unison HealthCare Corporation, the Guarantors and the
Initial Purchasers of its 13% Senior Notes due 1999
10 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)
10.1 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)
10.2 Modification Agreement dated August 28, 1996 among Unison HealthCare
Corporation, BritWill HealthCare Company and Bruce H. Whitehead
(incorporated by reference to Exhibit 2.1.1 to the Registration
Statement on Form S-4 filed on September 18, 1996, File No.
333-12263)
10.3 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)
10.4 Agreement for Purchase of Shares as of November 24, 1996, among
Unison HealthCare Corporation, Paul G. Henderson and Paige B. Plash
(incorporated by reference to Exhibit 2.2.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.5 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)
<PAGE> 112
10.6 Amendment to Agreement and Plan of Merger among Union HealthCare
Corporation, Signature Health Care Corporation, David A. Kremser and
John D. Filkoski (incorporated by reference to Exhibit 2.3.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 Amendment to Agreements and Plans of Merger among Unison HealthCare
Corporation, Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor,
Inc., Safford Care, Inc., David A. Kremser and John D. Filkoski
(incorporated by reference to Exhibit 2.7.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.12 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)
10.13 First Amendment to 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 Exhibit 2.8.1
to Amendment No. 1 to the Registration Statement on Form S-4 filed
on October 11, 1996, File No. 333-12263)
10.14 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)
10.15 Stock Purchase Agreement among Unison HealthCare Corporation, Linda
Redwine, David A. Kremser and John D. Filkoski (incorporated by
reference to the Company's Current Report on Form 8-K dated October
10, 1996)
10.16 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)
10.17 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)
10.18 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)
10.19 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)
10.20 Unison HealthCare Corporation 1995 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
<PAGE> 113
10.21 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)
10.22 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)
10.23 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)
10.24 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)
10.25 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)
10.26 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)
10.27 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)
10.28 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)
10.29 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)
10.30 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)
10.31 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)
10.32 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)
10.33 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)
10.34 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)
10.35 Letter Agreement among Unison HealthCare Corporation, Bruce H.
Whitehead and Omega dated October 31, 1996 (incorporated by
reference to Exhibit 10.32.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
<PAGE> 114
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 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)
10.40 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)
10.41 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)
10.42 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)
10.43 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)
10.44 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)
10.45 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)
10.46 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)
10.47 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)
10.48 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)
10.49 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)
10.50 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)
10.51 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)
<PAGE> 115
10.52 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)
10.53 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)
10.54 Lease for Homestead of McKinney dated as of July 1, 1996 between
Westminister Healthcare, Inc. and BritWill Investments-II, Inc.
(incorporated by reference to Exhibit 10.92 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.55 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)
10.56 Letter Agreement dated October 4, 1996 between HealthPartners
Funding, L.P. and Unison HealthCare Corporation (incorporated by
reference to Exhibit 10.97.1 to Amendment No. 1 to the Registration
Statement on Form S-4 filed on October 11, 1996, File No. 333-12263)
10.57 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)
10.58 Master Lease Agreement dated June 4, 1996 between Unison HealthCare
Corporation and LINC Anthem Corporation (incorporated by reference
to Exhibit 10.111 to the Registration Statement on Form S-4 filed on
September 18, 1996, File No. 333-12263)
10.59 Form of Promissory Notes dated March 17, 1997, to former Signature
shareholders in partial payment of Equity Adjustment Amount
(incorporated by reference to Exhibit 10.112 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.60 Services Agreement dated as of March 31, 1997, between the
Registrant and David A. Kremser (incorporated by reference to
Exhibit 10.113 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.61 Indemnification Agreement dated as of March 31, 1997, between the
Registrant and David A. Kremser (incorporated by reference to
Exhibit 10.114 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.62 Tolling Agreement dated as of March 31, 1997, between the Registrant
and David A. Kremser (incorporated by reference to Exhibit 10.115 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.63 Stock Option Agreement dated as of March 31, 1997, between the
Registrant and David A. Kremser (incorporated by reference to
Exhibit 10.116 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.64 Form of Loan and Security Agreement dated as of April 21, 1997 among
the Registrant, Elk Meadows Investments, L.L.C. and BritWill
Investments Company, Ltd. (incorporated by reference to Exhibit
10.117.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.65 Form of Stock Pledge Agreement dated as of April 21, 1997 among the
Registrant, Elk Meadows Investments, L.L.C. and BritWill Investments
Company, Ltd. (incorporated by reference to Exhibit 10.117.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996)
10.66 Promissory Note dated September 25, 1997 in the amount of $500,000
between Elk Meadows Investments, L.L.C. and Unison HealthCare
Corporation.
<PAGE> 116
10.66.1 Promissory Note dated September 25, 1997 in the amount of $500,000
between BritWill Investments Company, Ltd. and Unison HealthCare
Corporation.
10.67 Asset Purchase Agreement dated as of December 20, 1996, among
Sunbelt Therapy Management Services, Inc., Spine Rehabilitation and
Physical Therapy Center, Inc. and Douglas L. Bates (incorporated by
reference to Exhibit 10.118 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
10.68 Master Lease Agreement dated November 25, 1996, between Unison
HealthCare Corporation and Pacific Financial Company, relating to
computer equipment and software (incorporated by reference to
Exhibit 10.119 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.69 Form of sublease agreement dated as of March 1, 1997, between
BritWill Investments-II, Inc. and Hasmark East Ltd., relating to
Four States Care Center, Green Acres, Heritage Oaks and Texarkana
Nursing Center (incorporated by reference to Exhibit 10.120 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996)
10.70 Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and
Arkansas, Inc. (incorporated by reference to Exhibit 10.121 to the
Registration Statement on Form S-4 filed on July 3, 1997, File No.
333-30793)
10.71 Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and
Cornerstone Care, Inc. (incorporated by reference to Exhibit 10.122
to the Registration Statement on Form S-4 filed on July 3, 1997,
File No. 333-30793)
10.72 Lease dated as of July 28, 1995, between American Health Properties
of Arizona, Inc. and Safford Care, Inc. (incorporated by reference
to Exhibit 10.123 to the Registration Statement on Form S-4 filed on
July 3, 1997, File No. 333-30793)
10.73 Lease dated as of July 28, 1995, between American Health Properties
of Arizona, Inc. and Douglas Manor, Inc. (incorporated by reference
to Exhibit 10.124 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996)
10.74 Promissory Note and related Mortgage dated March 30, 1994 in the
original principal amount of $19.1 million between Signature Health
Care, Inc. and National Health Investors, Inc. (incorporated by
reference to Exhibit 10.125 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
10.75 Lease dated as of December 1, 1990 between Health Care Reit, Inc.
and The Arbors Health Care Center Inc. (incorporated by reference to
Exhibit 10.126 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.76 Employment agreement of Michael A. Jeffries (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997)
10.77 Employment agreement of Clayton Kloehr, dated July 1, 1997
10.78 Employment agreement of Terry Troxell, dated November 15, 1997
10.79 Employment agreement of Nir E. Margalit, dated December 31, 1997
10.80 Employment agreement of Jimmy L. Fields, dated April 1, 1998
11 Unison HealthCare Corporation Statement Re: Computation of Per Share
Earnings
21 List of subsidiaries (incorporated by reference to Exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996)
27 Financial Data Schedule (included only in the EDGAR filing)
- ----------
<PAGE> 1
Exhibit 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNISON HEALTHCARE CORPORATION, a Delaware )
corporation, and related proceedings, ) Case Nos. B-98-06583-PHX-GBN
) Through B-98-06612-PHX-GBN
)
Debtors. )
)
- --------------------------------------------)
)
In re: )
)
BRITWILL INVESTMENTS-I, INC., a Delaware )
Corporation, and related proceedings, ) Case Nos. B-98-0173-PHX-GBN
) Through B-98-0175-PHX-GBN
)
Debtors. ) (Jointly Administered)
)
)
SUPPLEMENT TO DEBTORS' FIRST AMENDED
JOINT PLAN OF REORGANIZATION
DATED OCTOBER 15, 1998
SQUIRE, SANDERS & DEMPSEY L.L.P. GALLAGHER & KENNEDY
Two Renaissance Square 2600 North Central Avenue
40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004-3020
Phoenix, Arizona 85004 (602) 530-8000
(602) 528-4000
Attorneys: Thomas J. Salerno Attorneys: Charles R. Sterbach
Craig D. Hansen Joseph E. Cotterman
Christopher D. Johnson
Kathleen T. Tobin
Counsel to Unison Debtors Counsel to BritWill Debtors
<PAGE> 2
APPLICABLE DEBTORS
UNISON HEALTHCARE CORPORATION /X/ ARKANSAS, INC. /X/
(Case No. 98-06583-PHX-RGM) (Case No. 98-06590-PHX-GBN)
BRITWILL INVESTMENTS-I, INC. /X/ DOUGLAS MANOR, INC. /X/
(Case No. 98-0173-PHX-GBN) (Case No. 98-06589-PHX-CGC)
BRITWILL INVESTMENTS-II, INC. /X/ SAFFORD CARE, INC. /X/
(Case No. 98-0174-PHX-GBN) (Case No. 98-06593-PHX-RTB)
BRITWILL INDIANA PARTNERSHIP /X/ REHABWEST, INC. /X/
(Case No. 98-0175-PHX-GBN) (Case No. 98-06594-PHX-CGC)
SUNQUEST SPC, INC. /X/ QUEST PHARMACIES, INC. /X/
(Case No. 98-06584-PHX-SSC) (Case No. 98-06586-PHX-RGM)
BRITWILL HEALTHCARE COMPANY /X/ SUNBELT THERAPY MANAGEMENT /X/
(Case No. 98-06585-PHX-SSC) SERVICES, INC. (ALABAMA)
(Case No. 98-06607-PHX-RTB)
BRITWILL FUNDING CORPORATION /X/ DECATUR SPORTS FIT & WELLNESS /X/
(Case No. 98-06602-PHX-CGC) CENTER, INC.
(Case No. 98-06601-PHX-SSC)
MEMPHIS CLINICAL LABORATORY, INC. /X/ THERAPY HEALTH SYSTEMS, INC. /X/
(Case No. 98-06588-PHX-CGC) (Case No. 98-06600-PHX-GBN)
AMERICAN PROFESSIONAL HOLDINGS, INC. /X/ HENDERSON & ASSOCIATES /X/
(Case No. 98-06587-PHX-GBN) REHABILITATION, INC.
(Case No. 98-06599-PHX-SSC)
AMPRO MEDICAL SERVICES, INC. /X/ SUNBELT THERAPY MANAGEMENT /X/
(Case No. 98-06609-PHX-GBN) SERVICES, INC. (ARIZONA)
(Case No. 98-06592-PHX-RGM)
GAMMA LABORATORIES, INC. /X/ CEDAR CARE, INC. /X/
(Case No. 98-06611-PHX-SSC) (Case No. 98-06612-PHX-GBN)
SIGNATURE HEALTH CARE CORPORATION /X/ SHERWOOD HEALTHCARE CORP. /X/
(Case No. 98-06591-PHX-SSC) (Case No. 98-06610-PHX-SSC)
BROOKSHIRE HOUSE INC. /X/
(Case No. 98-06608-PHX-RGM)
CHRISTOPHER NURSING CENTER, INC. /X/
(Case No. 98-06596-PHX-JMM)
AMBERWOOD COURT, INC. /X/
(Case No. 98-06597-PHX-RGM)
THE ARBORS HEALTH CARE CORPORATION /X/
(Case No. 98-06598-PHX-CGC)
LOS ARCOS, INC. /X/
(Case No. 98-06603-PHX-RGM)
PUEBLO NORTE, INC. /X/
(Case No. 98-06604-PHX-RTB)
RIO VERDE NURSING CENTER, INC. /X/
(Case No. 98-06606-PHX-CGC)
SIGNATURE MANAGEMENT GROUP, INC. /X/
(Case No. 98-06605-PHX-GBN)
CORNERSTONE CARE CENTER, INC. /X/
(Case No. 98-06595-PHX-RTB)
2
<PAGE> 3
This Supplement is filed in connection with the "Joint Plan Of
Reorganization Dated August 10, 1998" (the "Plan) filed by the Unison Debtors
and the BritWill Debtors (as defined therein), as that Plan may be supplemented
and modified.
This Plan Supplement will be supplemented as set forth in Article 1 of
the Plan.
RESPECTFULLY SUBMITTED this 16th day of October, 1998.
SQUIRE, SANDERS & DEMPSEY L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004-4441
and
GALLAGHER & KENNEDY
2600 North Central Avenue
Phoenix, Arizona 85004-3020
By /s/Thomas J. Salerno
---------------------------------
Thomas J. Salerno
Kathleen T. Tobin
One of the Attorneys for the Debtors
<PAGE> 4
PLAN SUPPLEMENT TABLE OF EXHIBITS
Exhibit "1" BritWill Acquisition Claims
Exhibit "2" Signature Acquisition Claims
Exhibit "3" Filkoski Claims
Exhibit "4" List Of Essential Vendors
Exhibit "5" New Senior Notes Security Documents [TO COME]
Exhibit "6" New Senior Notes Guarantee [TO COME]
Exhibit "7" New Senior Notes Indenture [TO COME]
Exhibit "8" New Senior Notes Allocation Schedule [TO COME]
Exhibit "9" Omega New Master Lease [TO COME]
Exhibit "10" Omega New Master Lease Guarantee [TO COME]
Exhibit "11" New Omega Guarantee And New Omega
Guarantee Security Documents [TO COME]
Exhibit "12" Indiana Returned Facility Note [TO COME]
Exhibit "13" Litigation Claims [TO COME]
Exhibit "14" Reorganized Unison Certificate [TO COME]
Exhibit "15" Reorganized Unison By-Laws [TO COME]
Exhibit "16" Assumed Executory Contracts/Unexpired Leases [TO COME]
Exhibit "17" Rejected Executory Contracts/Unexpired Leases [TO COME]
Exhibit "18" Identification Of Certain Facilities
Exhibit "19" New Common Stock Registration Agreement [TO COME]
Exhibit "20" Warrant Agreement [TO COME]
Exhibit "21" HCFP Term Sheet for New Line of Credit
<PAGE> 5
EXHIBIT "1"
BRITWILL ACQUISITION CLAIMS
<PAGE> 6
EXHIBIT "1"
BRITWILL ACQUISITION CLAIMS
<TABLE>
<CAPTION>
NO. ENTITY DATE AMOUNT
- --- ------ ---- ------
<S> <C> <C> <C>
1 Unison, f/k/a SunQuest 8/15/95 $9,588,394.00 as
HealthCare Corporation Converted Fixed
(Buyer); Obligation
Bruce Whitehead as agent
For former shareholders of
BritWill HealthCare Co.
(Seller)
2 Unison (Borrower); 4/21/97 $1,475,000.00
Elk Meadows Investment
And BritWill Investments
Company (Lender)
3 Unison (Borrower); 9/25/97 $500,000
BritWill Investments
Company, Ltd. (Lender)
4. BritWill Investments-II, Inc. 11/93 $1,400,000
(Maker);
BritWill Investments-TX,
Ltd. (Lender)
Seller Notes 93-94 $2,452,000
Unison (Maker)
BritWill Investments Texas, Ltd.
(Lender)
Deposit Loan Claim 93-94 $1,900,000
BritWill Investments
Company, Ltd.
5 Any and all indemnification claims relating to any of the foregoing
</TABLE>
<PAGE> 7
EXHIBIT "2"
SIGNATURE ACQUISITION CLAIMS
<PAGE> 8
EXHIBIT "2"
SIGNATURE ACQUISITION CLAIMS
<TABLE>
<CAPTION>
NO. ENTITY DATE AMOUNT
- --- ------ ---- ------
<S> <C> <C>
1 Unison (Borrower); 4/21/97 $1,475,000.00
Elk Meadows Investment
And BritWill Investments
Company (Lender)
2 Unison (Borrower); 9/25/97 $500,000.00
Elk Meadows Investments,
L.L.C. (Lender)
3 Unison (Maker); 10/31/96 Notes in General
(David Kremser & John Account in escrow
Filkoski (Payee)) totaling $500,000
Notes in Special
Account in escrow
Totaling $645,967
4 Unison (Borrower); 3/17/97 $1,028,188.07
David A. Kremser (Lender)
5 Unison (Borrower); 3/17/97 $131,626.25
Bernice E. Kremser (Lender)
6 Unison (Borrower); 3/17/97 $131,626.25
Michael P. Kremser (Lender)
7 Unison (Borrower); 3/17/97 $131,626.25
Stanley A. Kremser (Lender)
8 Unison (Borrower); 3/17/97 $131,626.25
Holly M. Kremser (Lender)
9 Any and all indemnification claims relating to any of the foregoing
</TABLE>
<PAGE> 9
EXHIBIT "3"
FILKOSKI CLAIMS
<PAGE> 10
EXHIBIT "3"
FILKOSKI CLAIMS
<TABLE>
<CAPTION>
CREDITOR DESCRIPTION BALANCE DISPUTED?
-------- ----------- ------- ---------
<S> <C> <C> <C>
John D. Filkoski Convertible promissory note related to the 154,835 Yes
Signature Acquisition
John D. Filkoski Severance Claim 105,000 Yes
Michael F. Filkoski Convertible promissory note related to the 38,961 Yes
Signature Acquisition
Lisa M. Filkoski Convertible promissory note related to the 38,961 Yes
Signature Acquisition
David D. Filkoski Convertible promissory note related to the 38,961 Yes
Signature Acquisition
</TABLE>
<PAGE> 11
EXHIBIT "4"
LIST OF ESSENTIAL VENDORS
<PAGE> 12
EXHIBIT "4"
LIST OF ESSENTIAL VENDORS
VENCOR HOSPITAL
SUNDANCE REHABILITATION CORP.
KINETIC CONCEPTS INC
REDLINE HEALTH CARE
COLUMBIA MEDICAL CENTER SHERMA
HEALTHCARE SERVICES GROUP
INTENSIVA HOSPITAL
HILL-ROM
HEALTHSOUTH SPECIALTY HOSPITAL
MARCUS J LAWRENCE MED CTR
INFUSION MANAGEMENT SYSTEMS
MEMORIAL HEALTH SYSTEM OF E TX
DAVIESS COUNTY HOSPITAL
AMERICAN PORTABLE MEDICAL
EAST TEXAS MEDICAL CENTER
DIRECT SUPPLY, INC
CERIDIAN
SYMPHONY MOBILEX
NMC HOMECARE PRESCOTT
PHARMACY CORP. OF AMERICA
SUBACUTE RESPIRATORY CARE
U S X-RAY
ECOLAB INC
QUEST TOTAL CARE PHARMACY
BAYLOR MEDICAL CENTER
RCS SUBACUTE, INC.
LUTHERAN MEDICAL CENTER
INDIANA PRESCRIPTION LAB
HOSPITAL THERAPY SERVICE
MELODY FARMS
CRANDALL, LINDA
TEMPORARY HEALTHCARE DENVER
APRIA HEALTHCARE
MEDICAL STAFFING OF METRO DNVR
COLUMBIA MEDICAL CENTER
EARTHGRAINS BAKING COMPANY
DIAGNOSTECHS OF TEXAS
TRI-MED INC
PRAIRIE FARMS DAIRY, INC
SALIBAS LTC PHARMACY
APS/LAHR PHARMACY
TRI-STATE RESPITORY CARE
C&S TEXTILES
FREEDOM MEDICAL
PRESCRIPTION AIR INC
AIRBORNE EXPRESS
BRIGGS HEALTHCARE CORPORATION
WALGREEN ADVANCE CARE
HEALTHSOUTH REHAB HOSPITAL
MEMORIAL HOSPITAL
US FOOD SERVICE
<PAGE> 13
SCHEPPS DAIRY
PROGRESSIVE NURSING STAFF
RIVERVIEW HOSPITAL
BARBER PURE MILK
BASHAS
LEDBETTER, THOMAS G. MD
SMITH MD, DALE J.
KLOSTERMAN BAKING CO
BARBER ICE CREAM COMPANY
GOODWIN STREET PHARMACY
FEDERAL EXPRESS CORP
IDEAL AMERICAN DAIRY
INLAND NW DAIRIES
HANDY'S MILK & ICE CREAM
EMERALD DISTRIBUTORS, INC
FLORES, MICHAEL J.
KREAMO BAKERS
PURE SEALED DAIRY
MAYO, RUSSELL M.D.
ROBINSONS DAIRY INC
RICHARD STRICKLAND, MD
LEBOW, ROBERT, DR.
HUDSON,DR. A.R.
GERIMED OF AMERICA, INC.
ECKERT, ROBERT
BLUE BELL CREAMERIES
BORDEN
BRIDGEPORT PHARMACY
FIKES DAIRY
FLOWERS BAKING
GAI'S SEATTLE FRENCH BAKING
MRS. BAIRD'S BAKERY
NORTHSIDE PHARMACY
OAK FARMS DAIRY
RYKOFF-SEXTON
VENCOR PHARMACY
JACOBS, ALEXANDER MD
FLOWER'S BAKING CO.
BLUE BELL CREAMERIES,LP
FIKE'S DAIRY
HARDINS BAKERY, INC
MRS. BAIRD'S BAKERIES
NORTHSIDE PHARMACY
GAI'S SEATTLE FRENCH BKNG
HOLSUM BAKERY INC
GORDON FOOD SERVICE
<PAGE> 14
EXHIBIT "18"
IDENTIFICATION OF CERTAIN FACILITIES
<PAGE> 15
EXHIBIT "18"
IDENTIFICATION OF CERTAIN FACILITIES
1. HASMARK FACILITIES
a. FOUR STATES CARE CENTER
# 8 East Midway Street
Texarkana, TX 75501
b. HERITAGE OAKS
210 North Kenwood Street
Texarkana, TX 75501
c. TEXARKANA NURSING CENTER
4920 North Elizabeth Street
Texarkana, TX 75001
2. INDIANA RETURNED FACILITIES
a. ENGLISH ESTATES
1585 Perryworth Road
Lebanon, IN 46052
b. ENGLISH SENIOR LIVING/ENGLISH ASSISTED LIVING
1015 North Lebanon Street
Lebanon, IN 46052
c. CAPITAL CARE HEALTHCARE CENTER
2115 North Central Avenue
Indianapolis, IN 46202
d. SUNSET MANOR
1109 South Indiana Street
Greencastle, IN 46135
e. LOCKERBIE HEALTHCARE CENTER
1626 North College Drive
Indianapolis, IN 46202
f. PARKVIEW MANOR
2424 East 46th Street
Indianapolis, IN 46205
3. OMEGA INDIANA FACILITIES
a. WELLINGTON MANOR
1924 Wellesley Boulevard
Indianapolis IN 46219
b. CLOVERLEAF OF KNIGHTSVILLE
700 South Crawford Street
Knightsville, IN 47857
<PAGE> 16
c. KENDALVILLE MANOR
1802 East Dowling Street
Kendalville, IN 46755
4. OMEGA INDIANA LEASEHOLD MORTGAGE FACILITIES
a. BOONVILLE CONVALESCENT
725 South 2nd Street
Boonville, IN 47601
b. HOLIDAY MANOR
305 North 6th Street
Princeton, IN 47670
c. OWENSVILLE CONVALESCENT
Highway 165 west
P.O. Box 369
Owensville, IN 47665
d. WILLOW MANOR CONVALESCENT
1321 Willow Street
Vincennes, IN 46591
5. OMEGA TEXAS FACILITIES
a. HERITAGE PLAZA
600 West 52nd
Texarkana, TX 75501
b. PINE HAVEN CARE CENTER
4808 North Elizabeth Street
Texarkana, TX 755501
c. REUNION PLAZA
1401 Hampton Drive
Texarkana, TX 75503
d. PINE GROVE NURSING CENTER
Rt. 1, Box 1965
Center, TX 75935
e. PLEASANT MANOR LIVING CENTER
3650 S Highway 35-E
Waxahachie, TX 75165
f. COLONIAL PINES HEALTHCARE
1203 FM 1277
San Augustine, TX 75972
g. WEST PLACE NURSING CENTER
Highway 31 W, Box 232
Athens, TX 75751
h. SOUTH PLACE NURSING CENTER
150 Gibson Road
Athens, TX 75751
<PAGE> 17
6. SIGNATURE FACILITIES
a. AMBERWOOD COURT CARE CENTER
4686 East Asbury Circle
Denver, CO 80222
b. THE ARBORS HEALTHCARE CENTER
15 East Highway 260
Camp Verde, AZ 86322
c. BROOKSHIRE HOUSE
4660 East Asbury Circle
Denver, CO 80222
d. LOS ARCOS HEALTHCARE CENTER
800 West University Avenue
Flagstaff, AZ 86001
e. PUEBLO NORTE NURSING CENTER
2401 East Hunt Street
Show Low, AZ 85901
f. RIO VERDE HEALTHCARE CENTER
197 South Willard Street
Cottonwood, AZ 86326
g. CHRISTOPHER HOUSE NURSING CENTER
6270 West 38th Avenue
Wheat Ridge, CO 80333
7. BRIT-TEXAS FACILITIES
a. COLONIAL PINES HEALTHCARE
(see 5(f), above)
b. FOUR STATES CARE CENTER
(see 1(a), above)
c. HERITAGE OAKS
(see 1(b), above)
d. TEXARKANA NURSING CENTER
(see 1(c), above)
e. SOUTH PLACE NURSING CENTER
(see 5(h), above)
f. WEST PLACE NURSING CENTER
(see 5(g), above)
<PAGE> 18
EXHIBIT "21"
HCFP TERM SHEET
<PAGE> 19
October 19, 1998
Clayton Kloehr
Unison Healthcare Corporation
8800 North Gaincy Center Drive
Ste. 245
Scottsdale, AZ 85258
Dear Gentlemen:
We are pleased to advise that HCFP Funding, Inc., a wholly owned subsidiary of
HealthCare Financial Partners, Inc. ("Lender"), will establish a master credit
facility ("Facility") with certain relevant entities of Unison Healthcare
Corporation (collectively "Borrower"), under terms and conditions set forth
below. This letter supercedes all previous correspondence on this matter.
A. TERMS AND CONDITIONS OF THE FACILITY.
The terms and conditions under which Lender proposes to extend
the Facility to Borrower are as follows:
1. AMOUNT
The maximum amount of advances available during the Term, as
defined by Subparagraph 3 shall be $12,000,000 (the "Facility
Cap"), any sublimits between non-Signature and Signature
operations may be adjusted in the definitive documents by
mutual agreement of the parties.
2. ELIGIBILITY
ACCOUNTS RECEIVABLE. The advance rates to Borrower will be up
to 85% of the Net Collectable Value of Borrower's accounts
receivable within the eligible period of 120 days. The "Net
Collectable Value" is the amount Borrower bills third party
payors less patient co-payment and deductible obligations and
contractual allowances established by Borrower and acceptable
to Lender in its reasonable credit judgment.
PRIVATE PAY RECEIVABLE. The advance rates to Borrower, will be
up to 85% of the Net Collectible Value of Borrower's private
pay accounts receivable within the eligible period of 30 days.
3. THE TERM
The term, ("Term") of the Facility shall, be three (3) years
from the Closing Date.
Upon at least thirty (30) days prior written notice to Lender,
Borrower may terminate the Agreement prior to the third annual
anniversary of the Closing Date, provided that, at the
effective date of such termination, Borrower shall pay to
Lender (in addition to the then outstanding principal, accrued
interest and other Obligations owing under the terms of this
Agreement and any other Loan Documents) as liquidated damages
for the loss of bargain and not as a penalty, an amount equal
to (i) two percent (2%) of the Maximum Loan Amount if the
effective date of such termination by Borrower is on or prior
to the first twelve month anniversary of the Closing date (ii)
one percent (1%) of the Maximum Loan Amount if the effective
date of such termination by Borrower is on or prior to the
second twelve month anniversary of the Closing date (iii)
percent (1%) of the Maximum Loan Amount if the effective date
of such termination by Borrower is on or prior to the third
twelve month anniversary of the Closing date.
This Term Sheet is for discussion purposes only. This is not a commitment to
extend credit in any form, and remains subject to
due diligence, credit approval, and documentation.
<PAGE> 20
4. REPAYMENT
The advances under the Facility shall be paid in full by
Borrower to Lender upon the earlier of (a) Lender's demand due
upon the occurrence of an uncured Event of Default or (b) the
termination of the Term.
5. INTEREST AND FEES
a. Interest and Fees on the outstanding balance of the
Facility shall remain the same except for a reduction
in the rate of interest payable, to the Prime Rate of
Interest as quoted from time to time by Fleet Bank,
N.A. plus one half percent (.5 %).
b. On the Closing Date, Borrower shall pay Lender a
Commitment Fee of 1% of the additional commitment
amount.
6. COLLATERAL
Lender shall receive a perfected first priority security
interest in all existing and future accounts receivable of
Borrower and the proceeds thereof (and all books and records
and computer and software related thereto).
B. PROPOSED CLOSING DATE.
The Facility shall close on a date mutually satisfactory to
Lender and borrower, but not later than November 30, 1998.
C. LOAN DOCUMENTS.
Borrower shall execute and deliver to Lender such loan and the
agreements, instruments, documents, certificates, opinions and
assurances (the "Loan Documents") as Lender may reasonably
require in connection with the Facility and its funding. The
Loan Documents will also contain warranties, covenants and
conditions normally contained in commercial loan documents.
D. ADDITIONAL CLOSING CONDITIONS.
1. NO MATERIAL ADVERSE CHANGE
Prior to the Closing Date, there shall be no material adverse
change in Borrower's business or financial condition.
2. NO DEFAULT
Borrower shall be in compliance with applicable laws.
3. OPINION OF BORROWERS COUNSEL
Lender receives an opinion from Borrower's counsel
satisfactory to Lender which acceptance of such opinion shall
not be unreasonably withheld.
4. LOCKBOX OR DOMINION ACCOUNT
Borrowers shall maintain and pay for a Lock Box and Dominion
Account mutually satisfactory to Borrower and Lender for the
collections of the Borrower's accounts receivable.
This Term Sheet is for discussion purposes only. This is not a commitment to
extend credit in any form, and remains subject to
due diligence, credit approval, and documentation.
<PAGE> 21
5. DUE DILIGENCE
Lender reserves the right to audit, upon reasonable notice, to
determine the liquidity of Borrower's accounts receivable and
the general financial and operational state of the Borrower,
the satisfaction of which shall be at Lender's sole and
absolute discretion.
6. BANKRUPTCY
Borrower shall exit their position in bankruptcy under terms
and conditions satisfactory to the Lender.
E. LETTER OF CREDIT.
Borrower agrees to enter into a Fee and Reimbursement
Agreement with Lender in order to establish a Standby Letter
of Credit Facility. Lender will agree to cause the issuance [
by Fleet Bank, NA ] irrevocable standby letter(s) of credit
for the purpose of credit enhancement. As consideration,
Borrower will agree to pay Lender a fee of four percent (4.0%)
per annum and any applicable bank charges.
F. INDEMNIFICATION.
By signing this letter, Borrower agrees to indemnify Lender,
its directors, officers, and principals and hold each of them
harmless against any and all losses, liabilities and claims
arising out of or by reason of any investigation, litigation,
or other proceeding brought or threatened relating to any loan
made or proposed to be made.
G. FACILITY COSTS.
All reasonable costs associated with the Facility, including,
but not limited to Lender's out-of-pocket expenses associated
with the transaction, professional fees, recording fees,
search fees and filing fees will be paid by Borrower.
If the terms and conditions of this letter are satisfactory, please
sign the enclosed copy of this letter and return it to my attention.
Sincerely yours,
/s/ Howard Widray
Howard Widray
Vice-President
THE FOREGOING IS ACCEPTED AND AGREED TO:
By: /s/ Clayton Kloehr
------------------------
Name: Clayton Kloehr
Title: Sr. VP Finance
This Term Sheet is for discussion purposes only. This is not a commitment to
extend credit in any form, and remains subject to
due diligence, credit approval, and documentation.
<PAGE> 22
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re: ) In Proceedings Under Chapter 11
)
UNISON HEALTHCARE CORPORATION, a ) Case Nos. B-98-06583-PHX-GBN
Delaware corporation, and related ) through B-98-06612-PHX-GBN
proceedings, )
)
Debtors. )
)
- -----------------------------------------)
)
In re: )
)
BRITWILL INVESTMENTS-I, INC., a )
Delaware corporation, and ) Case Nos. B-98-0173-PHX-GBN
related proceedings, ) through B-98-0175-PHX-GBN
)
Debtors. ) (Jointly Administered)
)
DISCLOSURE STATEMENT
IN SUPPORT OF DEBTORS' FIRST AMENDED
JOINT PLAN OF REORGANIZATION
DATED OCTOBER 15, 1998
SQUIRE, SANDERS & DEMPSEY L.L.P. GALLAGHER & KENNEDY
Two Renaissance Square 2600 North Central Avenue
40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004-3020
Phoenix, Arizona 85004 (602) 530-8000
(602) 528-4000
Attorneys: Thomas J. Salerno Attorneys: Charles R. Sterbach
Craig D. Hansen Joseph E. Cotterman
Christopher D. Johnson
Kathleen T. Tobin
Counsel to Unison Debtors Counsel to BritWill Debtors
<PAGE> 23
APPLICABLE DEBTORS
UNISON HEALTHCARE CORPORATION /X/ ARKANSAS, INC. /X/
(Case No. 98-06583-PHX-RGM) (Case No. 98-06590-PHX-GBN)
BRITWILL INVESTMENTS-I, INC. /X/ DOUGLAS MANOR, INC. /X/
(Case No. 98-0173-PHX-GBN) (Case No. 98-06589-PHX-CGC)
BRITWILL INVESTMENTS-II, INC. /X/ SAFFORD CARE, INC. /X/
(Case No. 98-0174-PHX-GBN) (Case No. 98-06593-PHX-RTB)
BRITWILL INDIANA PARTNERSHIP /X/ REHABWEST, INC. /X/
(Case No. 98-0175-PHX-GBN) (Case No. 98-06594-PHX-CGC)
SUNQUEST SPC, INC. /X/ QUEST PHARMACIES, INC. /X/
(Case No. 98-06584-PHX-SSC) (Case No. 98-06586-PHX-RGM)
BRITWILL HEALTHCARE COMPANY /X/ SUNBELT THERAPY MANAGEMENT /X/
(Case No. 98-06585-PHX-SSC) SERVICES, INC. (ALABAMA)
(Case No. 98-06607-PHX-RTB)
BRITWILL FUNDING CORPORATION /X/ DECATUR SPORTS FIT & WELLNESS /X/
(Case No. 98-06602-PHX-CGC) CENTER, INC.
(Case No. 98-06601-PHX-SSC)
MEMPHIS CLINICAL LABORATORY, INC. /X/ THERAPY HEALTH SYSTEMS, INC. /X/
(Case No. 98-06588-PHX-CGC) (Case No. 98-06600-PHX-GBN)
AMERICAN PROFESSIONAL HOLDINGS, INC. /X/ HENDERSON & ASSOCIATES /X/
(Case No. 98-06587-PHX-GBN) REHABILITATION, INC.
(Case No. 98-06599-PHX-SSC)
AMPRO MEDICAL SERVICES, INC. /X/ SUNBELT THERAPY MANAGEMENT /X/
(Case No. 98-06609-PHX-GBN) SERVICES, INC. (ARIZONA)
(Case No. 98-06592-PHX-RGM)
GAMMA LABORATORIES, INC. /X/ CEDAR CARE, INC. /X/
(Case No. 98-06611-PHX-SSC) (Case No. 98-06612-PHX-GBN)
SIGNATURE HEALTH CARE CORPORATION /X/ SHERWOOD HEALTHCARE CORP. /X/
(Case No. 98-06591-PHX-SSC) (Case No. 98-06610-PHX-SSC)
BROOKSHIRE HOUSE INC. /X/
(Case No. 98-06608-PHX-RGM)
CHRISTOPHER NURSING CENTER, INC. /X/
(Case No. 98-06596-PHX-JMM)
AMBERWOOD COURT, INC. /X/
(Case No. 98-06597-PHX-RGM)
THE ARBORS HEALTH CARE CORPORATION /X/
(Case No. 98-06598-PHX-CGC)
LOS ARCOS, INC. /X/
(Case No. 98-06603-PHX-RGM)
PUEBLO NORTE, INC. /X/
(Case No. 98-06604-PHX-RTB)
RIO VERDE NURSING CENTER, INC. /X/
(Case No. 98-06606-PHX-CGC)
SIGNATURE MANAGEMENT GROUP, INC. /X/
(Case No. 98-06605-PHX-GBN)
CORNERSTONE CARE CENTER, INC. /X/
(Case No. 98-06595-PHX-RTB)
<PAGE> 24
On May 28, 1998, UNISON HEALTHCARE CORPORATION, a Delaware corporation
("Unison Healthcare"), together with twenty-nine (29) of its subsidiaries, filed
petitions for relief under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Arizona (the "Bankruptcy Court") (collectively, the "Unison Debtors"). On
January 7, 1998, BRITWILL INVESTMENTS-I, INC., a Delaware corporation, BRITWILL
INVESTMENTS-II, INC., a Delaware corporation and BRITWILL INDIANA PARTNERSHIP,
an Arizona general partnership (collectively the "BritWill Debtors" and together
with the Unison Debtors, "Debtors," the "Company" or "Unison") filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code. On August 10,
1998, Debtors filed with the Bankruptcy Court "Debtor's Joint Plan of
Reorganization Dated August 10, 1998" and the "Supplement to Debtors' Joint Plan
of Reorganization Dated August 10, 1998" the "Plan"). On October 15, 1998,
Debtors filed with the Bankruptcy Court "Debtors' First Amended Joint Plan of
Reorganization Dated October 15, 1998" (together with the "Supplement to
Debtors' First Amended Joint Plan of Reorganization Dated October 15, 1998," the
"Plan"), which provide for the restructuring and reconstitution of Unison and
all of its subsidiaries.
The purpose of this Disclosure Statement is to provide the Creditors of
Debtors with adequate information to make an informed judgment about the Plan.
This information includes, among other matters, a brief history of Debtors, a
summary of their Chapter 11 Cases, a description of Debtors' assets and
liabilities, a description of the terms pursuant to which Debtors' business will
be reorganized and restructured pursuant to the Plan, and an explanation of how
the Plan will function.
It is important that Creditors of Debtors read and carefully consider
this Disclosure Statement and the Plan, and that such Creditors vote promptly on
the acceptance of the Plan. Debtors' current capital structure is over-leveraged
and as a result, Debtors have no ability to service or otherwise satisfy their
existing debt obligations. Debtors believe that the restructuring contemplated
by the Plan will yield a recovery to Creditors which is greater than the return
that could be achieved through other restructuring alternatives or a liquidation
under Chapter 7 of the Bankruptcy Code.
YOU SHOULD READ THIS DISCLOSURE STATEMENT IN ITS ENTIRETY BEFORE VOTING
ON THE PLAN. THIS DISCLOSURE STATEMENT SUMMARIZES CERTAIN TERMS OF THE PLAN, BUT
THE PLAN ITSELF WILL BE THE GOVERNING DOCUMENT. IF ANY INCONSISTENCY EXISTS
BETWEEN THE PLAN AND THE DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE
CONTROLLING.
IF YOU HAVE ANY QUESTIONS CONCERNING THE PROCEDURES FOR VOTING, PLEASE
CONTACT PRICEWATERHOUSECOOPERS (THE "CLAIMS AGENT"), 2901 NORTH CENTRAL AVENUE,
SUITE 1000, PHOENIX, ARIZONA, 85012-2755, TELEPHONE NUMBER (602) 280-1800,
FACSIMILE NUMBER (602) 280-1938, ATTENTION MICHAEL A. TUCKER, TED M. BURR.
IF YOU HAVE QUESTIONS CONCERNING YOUR TREATMENT UNDER THE PLAN, PLEASE
CONTACT LEGAL COUNSEL TO THE UNISON DEBTORS, THOMAS J. SALERNO, CRAIG D. HANSEN,
CHRISTOPHER D. JOHNSON, KATHLEEN T. TOBIN, SQUIRE, SANDERS & DEMPSEY L.L.P., TWO
RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 2700, PHOENIX, ARIZONA 85004,
TELEPHONE NUMBER (602) 528-4000, FACSIMILE NUMBER (602) 253-8129.
DEBTORS' BELIEVE THE PLAN PRESENTS THE GREATEST RECOVERY TO CREDITORS.
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS SUPPORTS THE PLAN AS PROPOSED. THE
AD HOC COMMITTEE OF NOTEHOLDERS DOES NOT SUPPORT THE PLAN AS PROPOSED.
A SUMMARY DESCRIPTION OF THE CLASSIFICATION OF YOUR CLAIM AND THE
TREATMENT PROPOSED UNDER THE PLAN ARE CONTAINED ON PAGE 4 HEREIN. FURTHERMORE, A
COMPARISON OF YOUR ESTIMATED DISTRIBUTIONS UNDER THE TERMS OF THE PLAN AND WHAT
YOU WOULD RECEIVE IF DEBTORS WERE LIQUIDATED IS CONTAINED ON PAGE 7 HEREIN. SEE
ANNEX 1 TO THIS DISCLOSURE STATEMENT FOR A COPY OF THE PLAN.
Debtors reserve the right to amend, modify or supplement the Plan at
any time prior to the confirmation of the Plan, provided that such amendments or
modifications do not materially alter the treatment of, or distributions to,
Creditors under the Plan.
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A NUMBER OF SECURITIES ARE TO BE ISSUED BY REORGANIZED UNISON PURSUANT
TO THE PLAN. IT IS THE COMPANY'S POSITION THAT SUCH SECURITIES ARE BEING OFFERED
AND ISSUED PURSUANT TO EXEMPTIONS PROVIDED IN SECTION 1145 OF THE BANKRUPTCY
CODE AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. WHILE THE
SECURITIES MAY BE TRANSFERRED AND RESOLD WITHOUT REGISTRATION UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, THE PLAN MAY IMPOSE CERTAIN
RESTRICTIONS ON THE TRANSFERABILITY OF SUCH SECURITIES. THE SECURITIES EXCHANGE
COMMISSION HAS NOT TAKEN A POSITION WITH RESPECT TO THE SECURITIES TO BE ISSUED
PURSUANT TO THE PLAN.
THE FINANCIAL PROJECTIONS CONTAINED IN THIS DISCLOSURE STATEMENT
REPRESENT ESTIMATES BY THE COMPANY'S MANAGEMENT OF FUTURE EVENTS BASED ON
CERTAIN ASSUMPTIONS MORE FULLY DESCRIBED HEREIN WHICH MAY NOT BE REALIZED. NONE
OF THE FINANCIAL ANALYSES CONTAINED HEREIN ARE CONSIDERED TO BE A "FORECAST" OR
"PROJECTION" AS TECHNICALLY DEFINED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS. THE USE OF THE WORDS "FORECAST," "PROJECT" OR "PROJECTION"
WITHIN THIS DOCUMENT RELATE TO THE BROAD EXPECTATIONS OF FUTURE EVENTS OR MARKET
CONDITIONS AND QUANTIFICATIONS OF THE POTENTIAL RESULTS OF OPERATIONS UNDER
THOSE CONDITIONS.
ALL FINANCIAL INFORMATION PRESENTED HEREIN WAS PREPARED BY DEBTORS.
REFERENCE IS MADE TO EXHIBIT A OF THE DISCLOSURE STATEMENT, WHICH IS DEBTORS'
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 ("FORM
10-K/A"). REFERENCE IS ALSO MADE TO DEBTORS' QUARTERLY REPORT ON FORM 10-Q FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 ("FORM 10-Q"), ATTACHED HERETO AS
EXHIBIT B. EACH CREDITOR IS URGED TO REVIEW THE PLAN IN FULL PRIOR TO VOTING ON
THE PLAN TO INSURE A COMPLETE UNDERSTANDING OF THE PLAN AND THIS DISCLOSURE
STATEMENT.
Certain statements, projections of future operating results, valuation
estimates and the like contained in this Disclosure Statement and elsewhere
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of Reorganized
Unison, or industry results, to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: general economic and business conditions; industry totals; competition;
loss of any significant customers; changes in business strategy or development
plans; availability, terms and deployment of capital; adverse uninsured
determinations in any existing or future litigation or regulatory proceedings
and any other factors referenced in this Disclosure Statement or otherwise. See
"RISK FACTORS." These forward-looking statements speak only as of the date of
this Disclosure Statement, and Debtors expressly disclaim any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Debtors' or Reorganized
Unison's expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
THIS DISCLOSURE STATEMENT IS INTENDED FOR THE SOLE USE OF CREDITORS AND
OTHER PARTIES IN INTEREST, AND FOR THE SOLE PURPOSE OF ASSISTING THEM IN MAKING
AN INFORMED DECISION ABOUT THE PLAN. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONJUNCTION WITH THE SOLICITATION OF
VOTES TO ACCEPT OR REJECT THE PLAN OTHER THAN THOSE CONTAINED HEREIN OR IN THE
BALLOTS. IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY DEBTORS.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT AS
CONTAINING ADEQUATE INFORMATION TO PERMIT A CREDITOR TO VOTE ON THE PLAN.
CAPITALIZED TERMS USED IN THIS DISCLOSURE STATEMENT AND NOT DEFINED
HEREIN SHALL HAVE THE MEANING SET FORTH IN THE PLAN.
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TABLE OF CONTENTS
Page
DISCLOSURE STATEMENT SUMMARY..................................................1
Unison Healthcare and Its Affiliates and Subsidiaries....................1
Important Features of the Plan...........................................2
New Management of Reorganized Unison.....................................2
Summary Description of the Restructuring.................................3
Classification of Claims.............................................3
Distributions to Unsecured Creditors.................................3
Summary Table........................................................4
Cram Down............................................................5
Comparison Table.....................................................6
Certain Considerations...............................................8
Voting on the Plan...................................................8
Income Tax Consequences..............................................8
THE DEBTORS...................................................................9
Introduction.............................................................9
Relationship of Debtors..................................................9
Acquisitions............................................................11
Properties..............................................................11
Nursing Facilities..................................................11
Office Facilities...................................................12
Patient Services........................................................12
Assisted and Independent Living Services............................13
Skilled Nursing Care Services.......................................13
Subacute and Other Specialty Care Services..........................13
Operation of Nursing Facilities.........................................13
Organization........................................................13
Quality Management..................................................14
Marketing...........................................................14
Payer Mix...........................................................14
Ancillary Services......................................................15
Laboratory..........................................................15
Pharmacy............................................................15
Therapy.............................................................16
Industry Overview.......................................................16
Industry Consolidation..............................................16
Aging Population....................................................17
Cost Containment Pressures..........................................17
Advances in Medical Technology......................................17
Limitations in the Supply of Long-Term Care Facilities..............17
Business Strategy.......................................................17
Provide a Continuum of Care.........................................17
Improve Payor Quality, Occupancy Levels and Operating Margins.......18
Concentrate Healthcare Facilities in Geographic "Clusters.".........18
Competition.............................................................18
Government Regulation...................................................19
Payment For Services................................................19
The Balanced Budget Act.............................................19
The Medicare Program................................................20
The Medicaid Program................................................21
Enforcement Proceedings and Sanctions; Certification Requirements...21
Certificates of Need................................................22
Patient Referral Regulations........................................22
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Pharmacy............................................................23
Laboratory..........................................................23
Employees...............................................................23
Current Executive Officers and Directors................................24
RELATED PARTY TRANSACTIONS...................................................26
BritWill Acquisition................................................26
Mr. Whitehead.......................................................27
Signature Acquisition...............................................27
Mr. Kremser.........................................................28
The 1997 Loans......................................................28
Mr. Lynch...........................................................28
Mr. Garth...........................................................29
Mr. Oberfield.......................................................29
Mr. Henderson.......................................................29
THE CLAIMS OF OMEGA..........................................................29
THE NOTES AND THE SENIOR NOTES...............................................30
Issuance of the Notes and the Senior Notes..............................30
Validity of the Upstream Guarantees.....................................30
The Guarantors Received Reasonably Equivalent Value. ...............30
The Guarantees are Limited.:........................................31
Summary.............................................................32
SELECTED FINANCIAL INFORMATION...............................................32
RESULTS OF OPERATIONS........................................................34
SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES...............................34
Commencement of the Chapter 11 Cases....................................34
The BritWill Debtors....................................................35
First Day Orders....................................................35
Postpetition Financing..............................................35
Omega's Lift Stay Motion............................................35
The Unison Debtors......................................................36
First Day Orders....................................................36
Cash Collateral.....................................................36
Postpetition Financing..............................................36
Matters Pertaining to All Debtors.......................................36
Motion to Appoint an Examiner.......................................36
Class Action Litigation.............................................37
Debtors' Preference Litigation......................................37
Retention of Professionals..........................................37
Debtors' Estimate of Professional Fees and Expenses.................38
Hourly Professionals....................................................38
Fixed Fee Professionals.................................................38
Wayland Investment Fund, LLC Objection to Disclosure Statement......39
Debtors' Schedules and Statements of Affairs........................39
The Bar Date for Filing Proofs of Claim.............................39
THE PLAN OF REORGANIZATION...................................................39
Brief Explanation of Chapter 11 Reorganization..........................39
Solicitation of Acceptances of the Plan.................................40
Voting on the Plan......................................................40
Unimpaired Classes......................................................41
Classification of Claims and Equity Interests...........................41
Summary of Treatment of and Distributions to Creditors Under the Plan...41
1. Unclassified Claims............................................41
A. Administrative Claims.....................................41
- Professional Fees...................................41
- Reclamation Claims..................................42
- Preserved Ordinary Course Administrative Claims.....42
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B. Treatment.................................................42
Generally..............................................42
Preserved Ordinary Course Administrative Claims........42
HCFP DIP Loan Claims...................................42
Allowed Priority Tax Claims............................42
Reclamation Claims.....................................42
2. Classified Claims..............................................42
A. Class 1 - Allowed Priority Wage Claim.....................43
B. Class 2 - Allowed Priority Benefit Plan Contribution
Claims.........................................43
C. Class 3 - Secured Tax Claims..............................43
D. Class 4 - Miscellaneous Secured Claims....................43
E. Class 5 - Omega Secured Claims............................43
1. Omega Mortgage Guarantee Claims.................43
2. Omega Indiana Rejection Claim...................44
3. Hasmark Facilities Rejection Claim..............44
4. Omega Miscellaneous Secured Claims..............46
5. Fees And Expenses Of Omega......................46
6. No Prejudice to Omega's Rights..................46
7. Adherence To Omega Subordination Agreements.....46
8. Execution Of Omega New Master Lease.............46
9. Treatment Of Omega Secured Claims Based On
Acceptance Of Each Omega Subclass..............46
F. Class 6 - BritWill Acquisition Claims.....................46
1. Allowance Of Claims.............................46
(a) Effect Of Non-Acceptance By Any Sub-Class...47
2. Treatment of Claims.............................47
(a) Allowed September 1997 Loan Claims..........47
(b) Allowed BritWill April 1997 Loan, Seller
Notes and BritWill Acquisition
Unsecured Claim............................47
(c) Foreclosure By Omega........................48
(d) Application Of Escrowed Rent................48
(e) Settlement Of The Related Party Avoidance
Action And Releases........................48
(f) Bankruptcy Rule 9019 Effect.................49
3. Claims Resolution Procedure.....................49
(a) Issuance Of New Common Stock................49
(b) No Prejudice To Omega Subordination Rights..49
G. Class 7 - Signature Acquisition Claims....................49
1. Allowance Of Claims.............................49
(a) Effect Of Non-Acceptance By Any Sub-Class...49
2. Treatment of Claims.............................50
(a) Signature Allowed Unsecured Claim...........50
(b) The Signature Claims Balance................50
(c) Settlement Of The Related Party Avoidance
Action And Releases........................50
(d) Bankruptcy Rule 9019 Effect.................50
3. Claims Resolution Procedure.....................50
(a) Issuance Of New Common Stock................51
H. Class 8 - Convenience Claims..............................51
I. Class 9 - Essential Vendor Claims.........................51
J. Class 10 - Trade Unsecured Claims.........................51
1. Cash On Effective Date..........................51
2. New Common Stock................................51
K. Class 11 - General Unsecured Claims.......................52
1. The New Senior Note; New Common Stock...........52
(a) Restrictions On Certain New Common Stock....53
(b) Disputes Regarding New Senior Notes
Allocation Schedule........................53
2. The New Senior Notes............................53
3. Disbursing Agent................................53
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4. Treatment of Rights Under Notes Subordination
Agreement and Forbearance Agreement............53
5. Assignment Of Subordination Rights..............53
6. Reservation Of Rights Under Forbearance
Agreement......................................54
L. Class 12 - Notes Securities Claims........................54
M. Class 13 - Subsidiary And Affiliate Equity Interests......54
N. Class 14 - Equity Interests And Equity Interests
Related Claims................................54
1. Securities Action Settlement Agreement..........54
2. Issuance Of New Warrants........................54
(a) Calculation Of Distribution.................54
3. Alternative Treatment...........................55
OTHER SIGNIFICANT PROVISIONS OF THE PLAN.....................................55
Substantive Consolidation...............................................55
Description of Reorganized Unison.......................................60
Management of Reorganized Unison....................................60
Executive Compensation..................................................61
Prospective Compensation of Management..............................61
Severance Packages..................................................61
Senior Severance Packages...........................................61
Mid-Level Severance Packages........................................62
Other Management....................................................62
Maintenance Of Status Quo...........................................62
Post Effective Date Options For Senior Management...................62
Cash Bonuses........................................................63
Provisions Governing Distributions......................................63
Generally...........................................................63
Distributions to Class 11...........................................63
Distributions to Class 14...........................................63
Objections to Claims................................................64
Settlement of Objections After Effective Date.......................64
Distributions to Disputed Claims....................................64
Means for Implementation of Plan........................................64
Signature Sale Leaseback Transaction................................64
1. Additional Contingent Payment.............................64
(a) Other Conditions................................65
2. Use of Proceeds...........................................65
Satisfaction Of NHI Secured Claims........................65
Exercise Of Option........................................65
Working Capital...........................................65
Rent For Signature Facilities Under Omega New Master
Lease....................................................65
Execution Of The Omega New Master Lease.............................65
Initial Term/Renewal Option...............................65
Security Deposits.........................................65
Covenants.................................................66
Rental Adjustment For Indiana Returned Facilities.........66
Obtaining New Line of Credit........................................66
Name Change.........................................................66
Counsel to Ad Hoc Committee.........................................66
Executory Contracts and Unexpired Leases............................66
Assumption Of Executory Contracts And Unexpired Leases..............66
Rejection Of Executory Contracts And Unexpired Leases...............66
Approval of Assumption or Rejection.................................66
Cure of Defaults....................................................67
Post-Petition Date Contracts and Leases.............................67
Bar Date............................................................67
Indemnification Obligations.........................................67
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Preservation and Prosecution of Litigation Claims.......................67
Prosecution of Litigation Claims....................................67
Distribution of Litigation Claims Proceeds..........................68
Specific Claims Preserved...........................................68
Securities To Be Issued In Connection With The Plan.....................68
Common Stock........................................................68
New Warrants........................................................69
New Senior Notes....................................................69
Section 1145 Exemption..............................................70
Title to Property; Discharge; Injunction................................70
Revesting of Assets.................................................70
Discharge...........................................................70
Injunction..........................................................71
Exculpation.........................................................71
FEASIBILITY..................................................................71
General Feasibility Analysis............................................71
Key Assumptions Underlying the Operating Plan and the Projections...72
RISK FACTORS.................................................................77
Reorganization Factors..................................................77
Limited Operating History; History of Losses and Accumulated Deficit....77
Management Resignations and Dependence on Skilled Personnel.............78
Reliance on Reimbursement from Government Sources.......................78
Health Care Reform......................................................79
Extensive Government Regulations........................................79
Competition for Patients and Employees..................................80
CERTAIN FEDERAL TAX CONSEQUENCES.............................................80
Consequences To Holders of Certain Claims...............................80
Importance of Whether Certain Debt Instruments Constitute
"Securities".......................................................80
Class 1 and Class 2 Priority Claims.................................81
Class 4 Miscellaneous Secured Claims................................81
Class 5 Omega Secured Claims........................................81
Class 6 and Class 7 Britwill and Signature Acquisition Claims;
Class 10 Trade Unsecured Claims, Class 11 General Unsecured Claims.82
Class 8 Convenience Claims..........................................82
Class 12 Notes Securities Claims....................................83
Class 14 Equity Interests and Equity Interest Related Claims........83
Character of Gain, Basis, and Holding Period........................83
Treatment of Accrued But Unpaid Interest............................83
Original Issue Discount.............................................84
Backup Withholding..................................................84
Consequences to Debtors.................................................84
Signature Sale Leaseback Transaction................................84
Discharge of Indebtedness and Reduction of Tax Attributes...........84
Limitation on Use of NOLs...........................................85
Alternative Minimum Tax.............................................85
CERTAIN SECURITIES LAWS MATTERS..............................................86
General Discussion......................................................86
Resale Considerations...................................................86
Trust Indenture Act.....................................................88
Delivery of Disclosure Statement........................................88
ALTERNATIVES TO THE PLAN.....................................................88
Liquidation Under Chapter 7.............................................88
Alternative Plans.......................................................88
LIQUIDATION ANALYSIS.........................................................89
VOTING AND CONFIRMATION......................................................89
Voting Procedures.......................................................89
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Generally...........................................................89
Submission of Ballots...............................................89
Confirmation............................................................90
Requirements For Confirmation.......................................90
The Cram Down Alternative...........................................90
Confirmation Hearing................................................90
Objections..........................................................91
CONCLUSION AND RECOMMENDATION................................................91
ANNEX 1 - First Amended Plan Of Reorganization And Plan Supplement
ANNEX 2 - Audited Financials
EXHIBITS:
EXHIBIT A - Form 10-K/A
EXHIBIT B - Form 10-Q
EXHIBIT C - Summary of Wayland Investment Fund, LLC Objection
EXHIBIT D - Reply of IBJ Schroder Bank & Trust Company, as Indenture
Trustee, to Objection to Disclosure Statement Filed by
Wayland Investment Fund, LLC
EXHIBIT E - Liquidation Analysis
EXHIBIT F - Proofs of Claim Summaries for Omega Healthcare
Investments, Inc.
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DISCLOSURE STATEMENT SUMMARY
The following is a summary of certain features of the Plan, the restructuring
and other matters, and all statements contained herein are qualified in their
entirety by reference to the more detailed information included elsewhere herein
or in the Annexes or Exhibits to this Disclosure Statement.
UNISON HEALTHCARE AND ITS AFFILIATES AND SUBSIDIARIES
Unison is a provider of comprehensive long-term and specialty
healthcare services. As of September 30, 1998, after giving effect to the
Dispositions,(1) Unison ranks as one of the 30 largest long-term care operators
in the United States, operating facilities in five states clustered in the
Midwest, Southwest and Southeast. These facilities include 32 long-term and
specialty care facilities with 3,284 licensed beds and three independent or
assisted living facilities with 214 units. Unison seeks to operate its
businesses as an interrelated network of services to provide a full continuum of
cost-effective long-term and specialty healthcare.
Unison's healthcare services include both traditional long-term care
and higher margin specialized healthcare services. Unison also provides, either
directly or through third-party providers, pharmaceutical services,
rehabilitation and respiratory therapy services, medical supplies and laboratory
testing both to its facilities and to non-affiliated facilities. Unison's range
of services includes the following:
- LONG-TERM CARE SERVICES. Unison's facilities provide residents
with routine long-term care services, including room and
board, daily dietary services, social and recreational
therapy, housekeeping, laundry and nursing services.
- ANCILLARY SERVICES. Unison provides ancillary services
including physical, speech, and occupational therapies,
pharmaceuticals, parenteral and enteral nutrition, infusion
and respiratory therapies and laboratory services. Unison has
expanded its healthcare expertise in ancillary services and
now provides (either directly or through third-party
providers) some of these services in substantially all of its
facilities.
- SUBACUTE AND SPECIALTY CARE SERVICES. Unison provides care to
patients with specialized healthcare needs, including those
suffering from Alzheimer's disease, wounds, post-surgical and
other ailments. Specialty units are located in designated
sections within selected facilities and are staffed by
specially trained personnel.
- ASSISTED AND INDEPENDENT LIVING SERVICES. Unison's independent
and assisted living centers provide central dining, limited
nursing services, recreational areas, social programs,
housekeeping, laundry and maintenance services. Such
facilities are designed to accommodate individuals with more
modest healthcare needs.
See "THE DEBTORS" and "SELECTED FINANCIAL INFORMATION."
As described in greater detail elsewhere herein, the operating results
and financial condition of the Company have been negatively impacted by a number
of factors, including cash flow difficulties, increased costs due to recent
acquisitions and rising litigation costs. See "THE DEBTORS -- Acquisitions" and
"SELECTED FINANCIAL INFORMATION."
The Company's cash flows from operations and its available capital have
been insufficient to meet its current operating expenses, lease obligations and
debt service requirements and the Company is currently in
- ----------
(1) As used herein, the "Dispositions" means the disposition of nine nursing
facilities and two assisted living facilities during the first eight months of
1998, and the planned disposition of seven additional nursing facilities and one
assisted living facility (the "Disposition Facilities").
1
<PAGE> 33
covenant and payment default in the terms of material operating leases and
indebtedness. In the absence of obtaining additional capital through
refinancing, asset sales, securing an increased revolving credit facility,
consensual restructuring of debt and lease terms and/or similar measures, the
Company will be unable to remedy the existing defaults and will experience
additional defaults in the future. The Company's operating leases are subject to
termination in the event of default, and the Company's indebtedness may be
accelerated in the event of continuing default. Certain lenders could foreclose
on Company assets securing their indebtedness, which would include substantially
all of the Company's operating assets.
The risks associated with the Company's historic acquisition strategy
has negatively impacted Unison's financial performance. A key element of
Unison's business strategy during 1995 and 1996 was to expand through the
leasing of new or existing long-term and specialty healthcare facilities and the
acquisition or development of ancillary health care businesses or services. The
acquisitions of BritWill, Signature, Sunbelt, RehabWest and Ampro and the
formation of Quest were in pursuit of this strategy. As a result of the
acquisitions, the Company was faced with unforeseen contingencies affecting its
new businesses including increased costs due to integrating the acquired
operations into the overall enterprise. For example, difficulties in integrating
acquired facilities within Unison's financial reporting and management
information systems were a substantial factor contributing to the need to
restate Unison's financial statements for the nine months ended September 30,
1996. Its financial reporting and management information systems were not
adequate for the larger and more complex needs of the Company. Those system
difficulties then contributed to the operating inefficiencies that led to the
unexpected losses for that period and subsequent periods.
Prior to the bankruptcy filing, Debtors felt the increasing burden of
costs associated with litigation. The number of lawsuits initiated against the
Company grew as its financial difficulties worsened, including suits with
vendors, landlords and several class action lawsuits (which also involved
certain of the Company's current and former directors and officers (among
others) as named defendants). Such class action complaints generally assert that
the defendants knew, or were reckless in not knowing, that Unison's results for
the first nine months of 1996 were materially overstated, or misrepresented the
capability of Unison's internal accounting system to reliably record and reflect
its financial condition, among other things.
IMPORTANT FEATURES OF THE PLAN
The Plan provides for the substantive consolidation of Debtors' assets
and liabilities. Substantive consolidation means that, for purposes of Claims
and distributions under the Plan, the assets and liabilities of all Debtors will
be treated as the assets and liabilities of one company. Unison Healthcare is
the parent company and directly or indirectly owns the other thirty-two Debtors.
See "THE DEBTORS -- Relationship of Debtors." The Plan provides for
distributions to the Creditors of the thirty-three (33) companies that are the
Debtors and debtors-in-possession in the above-captioned cases. The Plan will
satisfy a substantial portion of the allowed Class 11 General Unsecured Claims,
the Allowed Class 6 Claims, Allowed Class 7 Claims if Class 7 does not vote to
accept the Plan, and Allowed Class 14 Equity Interests and Equity Interest
Related Claims (subject to certain restrictions), pursuant to the issuance of
the New Common Stock and the New Warrants as described more fully in Articles 6
and 11 of the Plan.
NEW MANAGEMENT OF REORGANIZED UNISON
As of the Effective Date, Reorganized Unison will retain its existing
corporate structure. However, Reorganized Unison will have the ability to modify
its corporate structure (such as by consolidation of subsidiaries and
Affiliates, or otherwise), as long as such restructuring does not impair or
prejudice the rights of any holders of Allowed Claims as provided in the Plan.
On the Effective Date, the operation of Reorganized Unison will become the
general responsibility of the respective boards of directors, who will
thereafter have responsibility for the management, control and operation of
Reorganized Unison in accordance with the Plan, applicable law, the Reorganized
Unison Articles and the Reorganized Unison Bylaws. The names of the initial
members of the board of directors, and the senior management of Reorganized
Unison are set forth herein. See "THE PLAN OF REORGANIZATION -- Description of
Reorganized Unison."
2
<PAGE> 34
SUMMARY DESCRIPTION OF THE RESTRUCTURING
This Disclosure Statement is being furnished to the Creditors of
Debtors in order to provide Creditors with adequate information to make an
informed judgment about the Plan. Set forth below is a brief summary of the
principal components of the restructuring that will be implemented pursuant to
the Plan. This summary does not purport to be complete. See "PLAN OF
REORGANIZATION" attached hereto as Annex 1, for a more complete description of
the restructuring and the Plan.
CLASSIFICATION OF CLAIMS. The Plan divides the Claims of known
Creditors and Equity Interests into Classes and sets forth the treatment offered
each Class. The classification of Claims and the distribution to be made
pursuant thereto take into account the relative priorities of Claims and Equity
Interest Related Claims. Debtors believe that they have classified all Claims
and Equity Interests in compliance with the provisions of Section 1122 of the
Bankruptcy Code.
If the Plan is confirmed by the Bankruptcy Court, each holder of an
Allowed Claim will receive the same treatment as the holder of other Allowed
Claims in the same Class, regardless of whether such holder voted to accept the
Plan. Moreover, upon confirmation, the Plan will be binding on all Creditors and
Equity Interests regardless of whether such Creditors or Equity Interests voted
to accept the Plan.
DISTRIBUTIONS TO UNSECURED CREDITORS. The holders of Unsecured Claims
are classified in Classes 8, 9, 10 and 11 under the Plan. Class 8 - Convenience
Claims, includes those Creditors holding Allowed Unsecured Claims in an amount
of $1,000 or less, but in no event more than $2,000, who elect to reduce their
Claims to $1,000. Allowed Claims in Class 8 will be paid in Cash the lesser of:
(i) $1,000; or (ii) the amount of such Allowed Claim, provided, however, that
Debtors' obligations to pay Class 8 Claims shall be capped at the amount of
$650,000. Debtors believe that approximately $692,000 in claims will elect Class
8 treatment. The holders of Class 8 Claims are impaired under the Plan.
Class 9 - Essential Vendor Claims consists of Creditors holding Allowed
Essential Vendor Claims as used in the Plan Supplement (to the extent not paid
prior to Confirmation). Allowed Claims in Class 9 will be paid in Cash on the
Effective Date: (i) the full amount of the Allowed Claim; or (ii) the Pro Rata
portion of $4.4 million. The holders of Class 9 Claims are impaired under the
Plan.
Class 10 - Trade Unsecured Claims consists of Allowed Claims resulting
from the provision of goods or services to Debtors, but not including inter
alia: (i) Claims resulting from the rejection of unexpired leases or executory
contracts; (ii) the Related Party Creditor Claims; (iii) Reclamation Claims; and
(iv) the Essential Vendor Claims. Allowed Class 10 Claims will receive on the
Effective Date: (a) a Cash payment equal to the lesser of: (i) 35% of the
Allowed Trade Unsecured Claim; and (ii) the Pro Rata portion of $1.4 million;
and (b) New Common Stock on a Pro Rata basis with the Allowed Class 11 Claims,
provided, however, that for purposes of calculating such Pro Rata share the
Allowed Trade Unsecured Claims shall be limited to 5% of the total Allowed Trade
Unsecured Claims. The Company estimates that the aggregate amount of Allowed
Trade Unsecured Claims in Class 10 is approximately $3.4 million. The holders of
Class 10 Claims are impaired under the Plan.
All other General Unsecured Claims, including, but not limited to, the
Claims of the Consenting Noteholders, the Non-Consenting Noteholders, the
Filkoski Claims (other than Claims on which Filkoski is a co-payee as part of
the Signature Acquisition Claims as set forth in the Plan Supplement, and also
not including the Filkoski Securities Litigation Claims), the holders of Senior
Notes and the Allowed BritWill Claims are classified in Class 11 under the Plan.
The Company estimates that the aggregate amount of Allowed General Unsecured
Claims in Class 11 is approximately $139.2 million. Of this amount, Debtors
estimate that approximately $1 million is attributable to the Claims of
landlords under facility leases previously closed by the Company. The estimate
of the Claims arising out of the rejection of the closed facility leases has
been calculated subject to the limitations set forth in Section 502(b)(6) of the
Bankruptcy Code. With respect to Class 11, the Plan provides that such Creditors
will receive: (a) a Pro Rata distribution of approximately 2,000,000 shares of
the New Common Stock less such New Common Stock that is allocable to holders of
Classes 6 and 10 Claims; and (b) their Pro Rata Share of the New Senior Notes.
The New Senior Notes and New Common Stock distributed on a Pro Rata basis
pursuant to the preceding sentence shall be reallocated as amongst the holders
of the Senior Notes and the Consenting Noteholders as set forth in the New
Senior Notes Allocation Schedule. The reallocation set forth in the New Senior
Notes
3
<PAGE> 35
Allocation Schedule is the result of the enforcement of the Notes Subordination
Agreement. Such reallocation will result in all distributions that would
otherwise go to Consenting Noteholders to be distributed to the holders of the
Senior Notes until the Senior Notes are paid in full, including accrued but
unpaid interest. Specifically, the Pro Rata share of the New Senior Notes that
otherwise would be distributed to the Consenting Noteholders will be
redistributed to the holders of the Senior Notes in an amount equal to the
principal amount of the Senior Notes plus accrued interest. Thereafter, the
holders of the Senior Notes will reallocate to the Consenting Noteholders their
Pro Rata share of New Common Stock. As a result of the foregoing reallocations,
the actual distribution to the holders of Allowed Class 11 General Unsecured
Claims will be as follows: (a) the holders of the Senior Notes will receive New
Senior Notes equal to one-hundred percent (100%) of their Allowed Claims (i.e.,
$21.298 million); (b) the Consenting Noteholders will only receive New Common
Stock; and (c) all other holders of Allowed Class 11 General Unsecured Claims
will receive their Pro Rata share of both New Senior Notes and New Common
Stock.(2) In other words, the enforcement of the Notes Subordination Agreement
results in the holders of Senior Notes receiving a greater percentage
distribution of the New Senior Notes than the Consenting Noteholders. The
distribution to all other holders of Allowed Class 11 General Unsecured Claims
will be unaffected by the foregoing reallocation. Furthermore, and
notwithstanding the foregoing, the Plan does not impair other rights (if any) of
the Senior Notes under the Notes Subordination Agreement. As such, to the extent
other reallocation is required (if any), or if a dispute arises over the New
Senior Notes Allocation Schedule, the holders of either the Senior Notes, the
Consenting Noteholders and any other appropriate party shall have the right to
bring these disputes to the attention of the Bankruptcy Court for appropriate
adjudication.
For a complete description of the treatment of, and distributions to,
all Creditors under the Plan, see "THE PLAN OF REORGANIZATION -- Summary of
Treatment of and Distributions to Creditors Under the Plan."
SUMMARY TABLE. The Plan categorizes into 14 Classes the Claims against
and Equity Interests in the Company. The table below sets forth the specific
classification and treatment under the Plan of each of the Classes.
<TABLE>
<CAPTION>
ESTIMATED CLAIM
CLASS AMOUNT TREATMENT
----- ---------------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Class 1 - Priority Wage Claims $ -0- Paid in full
Class 2 - Priority Benefit Plan Contribution -0- Paid in full
Claims
Class 3 - Secured Tax Claims 125 Paid in full
Class 4 - Miscellaneous Secured Claims 19,512 Paid in full
(including the NHI Secured Claims)
</TABLE>
- ----------
(2) Based on the Debtors' estimates, the New Senior Notes received by all other
holders of Allowed Class 11 General Unsecured Claims should equal approximately
fifteen percent (15%) of their Allowed Claims, plus a Pro Rata portion of the
New Common Stock.
4
<PAGE> 36
<TABLE>
<S> <C> <C>
Class 5 - Omega Secured Claims 8,754 Execution of Omega New Master
Class 5A Omega Mortgage Lease and New Omega Guarantee;
Guarantee Claims Surrender of Indiana Returned
Facilities;
Class 5B Omega Indiana Rejection Cash distribution of Omega
Claims Effective Date Payment; and
Issuance of Indiana Returned
Class 5C Hasmark Facilities Facility Note
Rejection Claims
Class 5D Omega Miscellaneous
Secured Claim
Class 6 - BritWill Acquisition Claims 12,589 If vote to accept Plan - Cash,
promissory note, New Common Stock
and Senior Notes
Class 7 - Signature Acquisition Claims 5,598 If vote to accept Plan - Cash and
promissory note
Class 8 - Convenience Claims 692 Lesser of the amount of Allowed
Claim or $1,000 (subject to cap of
$650,000)
Class 9 - Essential Vendor Claims 2,116 Allowed Claim amount or Pro Rata
portion of $4.4 million
Class 10 - Trade Unsecured Claims 3,430 (a) Lesser of: (i) 35% of Allowed
amount of Claim; and (ii) Pro Rata
portion of $1.4 million, and (b)
New Common Stock
Class 11 - General Unsecured Claims 139,171 Pro Rata distribution of : (a)
2,000,000 shares of New Common
Stock; and (b) New Senior Notes(3)
Class 12 - Notes Securities Claims No distribution - claims discharged
Class 13 - Subsidiary and Affiliate Equity Unchanged
Interests
Class 14 - Equity Interests and Equity Pro Rata share of New Warrants or,
Interest Related Claims alternatively, cancelled and
terminated
</TABLE>
CRAM DOWN. For the Plan to be confirmed without the use of "cram down"
procedures available under the Bankruptcy Code, Debtors must receive acceptances
("Plan Acceptances") from the holders of claims constituting at least two-thirds
of the dollar amount of the allowed claims and more than one-half in number of
the allowed claims in each impaired class that has actually voted on the Plan
(the "Requisite Plan Acceptance"). ONLY VOTES ACTUALLY CAST WILL BE COUNTED IN
DETERMINING WHETHER THE REQUISITE PLAN ACCEPTANCES HAVE BEEN OBTAINED. Under the
Plan, the only impaired classes of claims that are being
- ----------
(3) The New Senior Notes and the New Common Stock will be reallocated among the
holders of the Senior Notes and the Consenting Noteholders as a result of the
enforcement of the Notes Subordination Agreement. For a more complete
description of such reallocation, see "THE PLAN OF REORGANIZATION -- Summary of
Treatment of and Distributions to Creditors Under the Plan -- Classified Claims
- -- Class 11 (General Unsecured Claims) -- The New Senior Notes; New Common
Stock."
5
<PAGE> 37
solicited are Classes 5, 6, 7, 8, 9, 10, 11 and 14, see "THE PLAN OF
REORGANIZATION--Brief Explanation of Chapter 11 Reorganization." Except for
Classes 5, 6, 7, 8, 9, 10, 11 and 14 all other Creditors under the Plan are
either unimpaired and deemed to have accepted the Plan, or receive nothing under
the Plan and, therefore, are deemed to have rejected the Plan. If Debtors do not
receive the Requisite Plan Acceptances from the holders of Claims and Interests
in Classes 5, 6, 7, 8, 9, 10, 11 and 14, Debtors reserve the right to use the
"cram down" procedures with respect to such class of Claims and Interests. For a
discussion of "cram down" procedures and the effects thereof. See "VOTING AND
CONFIRMATION." If the Plan is confirmed by the Bankruptcy Court, all holders of
Claims against Debtors (including those who reject the Plan) and Equity
Interests will be bound by the Plan and the restructuring contemplated thereby.
COMPARISON TABLE. The following table sets forth a comparison of the
treatment received by each Class of Creditors under a liquidation scenario and
the Plan.
6
<PAGE> 38
<TABLE>
<CAPTION>
COMPARISON TABLE
(ASSUMES ALL CLASSES ACCEPT PLAN)
PLAN TREATMENT
---------------------------------------------------------------------
%STOCK IN
REORGANIZED ESTIMATED
UNISON NUMBER OF
ESTIMATED CLAIM (ESCROWED OR STOCK LIQUIDATION
CLASS AMOUNT (1) CASH DEBT ISSUED) SHARES WARRANTS RECOVERY
----- --------------- ---------------------------------------------------------------------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Class 1 - Priority Wage Claims $ --- $ $ --- --- --- $
--- --- (D)
Class 2 - Priority Benefit Plan --- --- --- --- --- --- (D)
Contribution Claims
Class 3 - Secured Tax Claims 125 125 --- --- --- --- (D)
Class 4 - Miscellaneous Secured Claims 19,512 19,318 194(B) --- --- --- (D)
Class 5 - Omega Secured Claims 8,754 5,408 3,000 --- --- --- (D)
Class 6 - BritWill Acquisition Claims 12,589 541 1,530 8.43% 168,695 --- (D)
Class 7 - Signature Acquisition Claims 5,598 541 1,354 --- --- (D)
Class 8 - Convenience Claims 692 600 --- --- --- --- (D)
Class 9 - Essential Vendor Claims 2,116 2,116 --- --- --- --- (D)
Class 10 - Trade Unsecured Claims 3,430 1,200 --- 0.14% 2,750 --- (D)
Class 11 - General Unsecured Claims 139,171 24,408 91.43% 1,828,554 --- (D)
Class 12 - Notes Securities Claims --- --- --- --- --- --- (D)
Class 13 - Subsidiary and Affiliate Equity --- --- --- --- --- --- (D)
Interests
Class 14 - Equity Interests and Equity --- --- --- --- --- 377,907 (D)
Interest Related Claims
</TABLE>
Notes:
- ----------
(A) Estimated Claim Amounts as of December 31, 1998.
(B) Vehicle security agreements will be reinstated.
(C) Certain Filkoski-related claims are included in Class 11.
(D) See Exhibit "E"
7
<PAGE> 39
CERTAIN CONSIDERATIONS. Prior to deciding whether to vote to accept the
Plan, each Creditor should carefully consider all of the information set forth
in this Disclosure Statement, including the factors set forth under the captions
"FEASIBILITY" and "RISK FACTORS."
VOTING ON THE PLAN. This Disclosure Statement is accompanied by (i) a
copy of the Plan and (ii) a Ballot to accept or reject the Plan. Creditors must
return the Ballots to the Claims Agent by 4:00 p.m., Arizona time, on NOVEMBER
30, 1998, unless such date is extended prior to such time (the "Expiration
Date").
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED IN
ACCORDANCE WITH THE VOTING INSTRUCTIONS ON THE BALLOT AND RECEIVED NO LATER THAN
THE EXPIRATION DATE BY THE CLAIMS AGENT.
BALLOTS MAY BE RETURNED VIA FACSIMILE.
If you have any question about the procedure for voting your Claim,
questions about the amount of your Claim, or with respect to the packet of
materials that you have received, please contact the Claims Agent at:
PricewaterhouseCoopers
2901 North Central Avenue
Suite 1000
Phoenix, Arizona 85012-2755
Attn: Michael A. Tucker
Ted M. Burr
Telephone: (602) 280-1800
Facsimile: (602) 280-1938
If you have any questions concerning the restructuring or the Plan, please
contact:
Legal Counsel to the Unison Debtors
Thomas J. Salerno
Craig D. Hansen
Christopher D. Johnson
Kathleen T. Tobin
SQUIRE, SANDERS & DEMPSEY L.L.P.
Two Renaissance Square
40 North Central, Suite 2700
Phoenix, Arizona 85004
Telephone: (602) 528-4000
Facsimile: (602) 253-8129
INCOME TAX CONSEQUENCES. For a discussion of certain United States
Federal Income Tax consequences of consummation of the transactions contemplated
by the Plan, see "CERTAIN FEDERAL TAX CONSEQUENCES." The description of certain
federal tax consequences contained in this Disclosure Statement is intended
merely as an aid to Creditors in understanding the Plan and merely represents
Debtors' interpretation of the Internal Revenue Code of 1986, as amended, the
Treasury regulations thereunder, and administrative and judicial interpretations
thereof. There can be no assurance that the Internal Revenue Service will not
take a contrary view. Creditors are urged to consult with their own tax advisors
as to particular tax consequences associated with the Plan.
8
<PAGE> 40
THE DEBTORS
INTRODUCTION.
Unison is a provider of comprehensive long-term and specialty
healthcare services. As of September 30, 1998, after giving effect to the
Dispositions, Unison ranks as one of the 30 largest long-term care operators in
the United States, operating facilities in five states clustered in the Midwest,
Southwest and Southeast. These facilities include 32 long-term and specialty
care facilities with 3,284 licensed beds and three independent or assisted
living facilities with 214 units. Unison seeks to operate its businesses as an
interrelated network of services to provide a full continuum of cost-effective
long-term and specialty healthcare.
Unison's healthcare services include both traditional long-term care
services and higher margin specialized healthcare. Unison also provides, either
directly or through third-party providers, pharmaceutical services,
rehabilitation and respiratory therapy services, medical supplies and laboratory
testing both to its facilities and to non-affiliated facilities.
Unison Healthcare was incorporated in Delaware as SunQuest HealthCare
Corporation in July 1992 and changed its name to Unison HealthCare Corporation
on November 14, 1995. Unison Healthcare completed its initial public offering on
December 18, 1995. Its common stock traded on the Nasdaq Stock Market's National
Market System under the symbol "UNHC" from December 19, 1995 to August 21, 1997.
Effective August 22, 1997, Nasdaq moved the stock to the SmallCap Market because
Unison Healthcare did not satisfy the minimum tangible net asset requirement for
the listing of its common stock on the National Market System. On February 23,
1998, new, more stringent quantitative maintenance requirements for continued
listing on the Nasdaq Small Cap Market went into effect. These new maintenance
standards require, among other things, minimum levels of either net tangible
assets, market capitalization or net income. On April 15, 1998, Nasdaq notified
Unison Healthcare that its securities were delisted. Subsequently, Unison
HealthCare's Common Stock has traded on the over-the-counter ("OTC") market.
RELATIONSHIP OF DEBTORS.
Debtors' are comprised of a parent corporation, Unison Healthcare, and
thirty-two (32) subsidiaries. Under the Unison umbrella, Debtors' operations are
concentrated in four business areas. These include: (1) a nursing home segment;
(2) a pharmacy segment; (3) a therapy/rehabilitation segment; and (4) a
laboratory segment. The chart on the following page sets forth the Debtors'
corporate organizational structure. As reflected by the chart, each Debtor is
directly or indirectly owned by Unison Healthcare.
9
<PAGE> 41
[UNISON HEALTHCARE CORPORATION ORGANIZATION CHART]
10
<PAGE> 42
ACQUISITIONS.
On August 10, 1995, Unison Healthcare acquired BritWill HealthCare
Company and its subsidiaries ("BritWill") which, at the date of acquisition,
operated 28 long-term care facilities in Indiana and Texas (the "BritWill
Acquisition"). On October 31, 1996, Unison Healthcare acquired Signature Health
Care Company and its affiliates ("Signature") which, at the date of acquisition,
operated 13 facilities in Arizona and Colorado (the "Signature Acquisition").
Signature also provided rehabilitation therapy services through its related
company RehabWest, Inc. ("RehabWest").
Unison Healthcare has also acquired and developed several other
ancillary businesses in recent years. In May 1995, Unison Healthcare established
Quest Pharmacies, Inc. ("Quest") to develop an institutional pharmacy business.
Quest has since acquired institutional pharmacy operations in Indiana and Texas.
As of August 31, 1998, Quest provided pharmacy services to 75 long-term care
facilities, including 38 Unison facilities and 37 facilities operated by others.
Since March 1995, Unison Healthcare has also operated a Medicare Part B billing
and supply company that specializes in wound care and enteral and parenteral
feeding products. On February 1, 1996, Unison Healthcare acquired Sunbelt
Therapy Management Services, Inc. and its subsidiaries ("Sunbelt") to provide
rehabilitation therapy services. At August 31, 1998, Sunbelt (including
RehabWest) provided therapy services through 160 contracts, including 33 Unison
facilities and 127 other contracts. Sunbelt is currently held for possible
disposition. On October 31, 1996, Unison Healthcare acquired American
Professional Holding, Inc. and Memphis Clinical Laboratory, Inc. (together,
"Ampro") in a pooling of interests transaction. Ampro operates medical reference
laboratories in Texas, Missouri and Tennessee which, at August 31, 1998,
provided testing services for approximately 250 nursing facilities, as well as a
number of other healthcare providers.
PROPERTIES.
NURSING FACILITIES. The following table lists the nursing facilities
and assisted and independent living centers operated by the Company as of
September 30, 1998. Except as indicated, all of the facilities are leased.
<TABLE>
<CAPTION>
NUMBER OF
LICENSED BEDS
FACILITY NAME LOCATION OR UNITS
- ------------- -------- -------------
<S> <C> <C>
Marshall Manor Guntersville, Alabama 91
Ridgewood Health Care Center Jasper, Alabama 98
Terrace Lake Village (1) Guntersville, Alabama 90
The Arbors Health Care Center(2) Camp Verde, Arizona 118
Douglas Manor Douglas, Arizona 64
Los Arcos Health Care Center (3) Flagstaff, Arizona 80
Peppertree Square (1) Safford, Arizona 62
Pueblo Norte Nursing Center (3) Show Low, Arizona 100
Rio Verde Health Care Center (3) Cottonwood, Arizona 80
Safford Care Center Safford, Arizona 128
SunCrest Healthcare Center Phoenix, Arizona 115
Village Catered Care (1) Douglas, Arizona 62
Amberwood Court Care Center (3) Denver, Colorado 75
Arkansas Manor Denver, Colorado 116
Brookshire House (3) Denver, Colorado 67
Christopher House (3) Wheat Ridge, Colorado 78
Cornerstone Care Center Lakewood, Colorado 140
Boonville Convalescent Center Boonville, Indiana 108
Capital Care Healthcare Center (4) Indianapolis, Indiana 60
Cloverleaf of Knightsville Knightsville, Indiana 86
English Estates (4) Lebanon, Indiana 130
English Senior Living (1)(4) Lebanon, Indiana 19
Holiday Manor Princeton, Indiana 91
</TABLE>
11
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF
LICENSED BEDS
FACILITY NAME LOCATION OR UNITS
- ------------- -------- -------------
<S> <C> <C>
Kendalville Manor Kendalville, Indiana 60
Lockerbie Healthcare Center(4) Indianapolis, Indiana 79
Owensville Convalescent Center Owensville, Indiana 68
Parkview Manor (4) Indianapolis, Indiana 39
Sunset Manor (4) Greencastle, Indiana 79
Wellington Manor Indianapolis, Indiana 132
Willow Manor Convalescent Center Vincennes, Indiana 142
Bonner Health Center(5) Bonner Springs, Kansas 50
Nightingale West(5) Westland, Michigan 236
Colonial Pines San Augustine, Texas 107
Hemphill Care Center Hemphill, Texas 90
Heritage Plaza Texarkana, Texas 90
Homestead of McKinney McKinney, Texas 138
Lake Village Nursing and Rehabilitation Lewisville, Texas 120
Pine Grove Nursing Center Center, Texas 120
Pine Haven Care Center Texarkana, Texas 120
Pleasant Manor Living Center Waxahachie, Texas 120
Reunion Plaza Texarkana, Texas 102
South Place Nursing Center Athens, Texas 120
West Place Nursing Center Athens, Texas 120
-----
Total beds 4,190
=====
</TABLE>
- ---------------
(1) Assisted living and independent living facilities.
(2) This facility is currently leased. In connection with the Plan, Unison
will exercise its purchase option and enter into a sale/leaseback
transaction with Omega.
(3) The facility real estate is owned. Unison will sell these facilities to
Omega and lease them back under the terms of the Plan.
(4) These facilities will be returned to Omega under the terms of the Plan.
(5) These facilities are currently held for disposition.
OFFICE FACILITIES. Unison Healthcare leases approximately 14,000 square
feet of office space located at 15300 North 90th Street, Suite 100, Scottsdale,
Arizona 85260. The Scottsdale office houses the executive offices of Unison
Healthcare, and the lease for that space expires in the year 2003. Quest leases
approximately 3,600 square feet of commercial office space in Longview, Texas
for its pharmacy operations and approximately 2,000 feet of office space in
Bloomington, Indiana for its Indiana pharmacy. Sunbelt, 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. Ampro leases
an aggregate of approximately 8,000 square feet for office and laboratory space
in Texas, Tennessee and Missouri and owns one building with approximately 4,000
square feet of space in Missouri. Lease terms on most of the office, pharmacy,
laboratory and therapy 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.
PATIENT SERVICES.
Unison's objective is to provide long-term care services across the
continuum of care from independent living services to subacute care services,
all of which are provided primarily to the elderly. Independent living
facilities that offer assistance with activities of daily living are appropriate
for those among the elderly requiring limited healthcare services. Assisted
living facilities are appropriate for residents in need of greater assistance,
but who do not need the services of a skilled nursing facility. Assisted living
facilities provide nutritional, housekeeping, and only limited medical services.
For the elderly and other patients in need of specialized support,
rehabilitation, nutrition, respiratory therapies and other treatments, skilled
nursing care is often required. The provision of
12
<PAGE> 44
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.
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 nursing and medical services than are provided at
Unison's long-term care facilities. Unison believes that the availability of
healthcare services and assistance with the activities of daily living are
significant reasons that residents move to an assisted or independent living
center.
SKILLED NURSING CARE SERVICES. Unison's skilled nursing facilities
provide basic healthcare 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 treatment 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.
SUBACUTE AND OTHER SPECIALTY CARE SERVICES. Unison's facilities
currently offer a wide variety of subacute and specialty healthcare 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) orthopedic
rehabilitation; and (vii) other specialized subacute services. Subacute and
other specialty care is a major component of Unison's strategy. Unison provides
care to certain types of patients with specialized needs through designated
units such as those for the treatment of Alzheimer's disease and other
conditions. These units are located in specially designed sections within
selected facilities and are staffed by specially trained personnel. 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 Unison's specialty services are generally significantly less than
the cost charged for similar services by acute care hospitals. See "THE DEBTORS
- - Government Regulation - The Balance Budget Act."
OPERATION OF NURSING FACILITIES.
Unison Healthcare is responsible for the day-to-day operation of the
Company's nursing 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, cash management, debt
management, quality assurance, risk management, legal services and regulatory
compliance at each facility. Unison Healthcare provides additional support by
providing liability, workers compensation and casualty insurance for all
Debtors.
ORGANIZATION. With respect to its long-term and specialty care
facilities, Unison Healthcare maintains three regions, each of which is
supervised by a regional director. The regional director is supported by a
clinical operations specialist, a financial consultant and a regional director
of marketing, all of whom are employed by Unison Healthcare. Daily operations of
each facility are supervised by an on-site licensed administrator. The
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. 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.
13
<PAGE> 45
QUALITY MANAGEMENT. The Company maintains a quality improvement program
that is focused on important aspects of care and critical key indicators that
measure the quality of care provided to its patients. The program is an internal
facility process focused on involvement by direct care givers. Reporting is
monitored by Unison HealthCare's clinical operations specialists under the
direction of the Vice President of Clinical Services. Monthly reports are used
to monitor adherence to the standards of care established by the Company's
quality improvement program. On-site visits are conducted by specially trained
healthcare professionals. The quality improvement program is designed to provide
patients with better care, and thus a higher quality of life.
In recent years, Unison entered into certain leases of facilities that
have had regulatory compliance or quality difficulties. Unison has generally
achieved improvements of such facilities. In August 1995, Unison acquired 28
operating facilities in the BritWill Acquisition. Regulatory records contained
244 total deficiencies cited at these facilities prior to acquisition. On the
first governmental review conducted after acquisition this number was reduced to
138 deficiencies, a 43% reduction in regulatory noncompliance. Based on
subsequent governmental review, as of October 1, 1996 the number of deficiencies
at these facilities was 61, reflecting a cumulative reduction of 75%. As of
October 8, 1998, the equivalent number of deficiencies was 34. Company-wide,
Unison's facilities had 178 surveys from government agencies during the period
from January 1, 1998 through October 9, 1998. The average number of deficiencies
cited during these reviews was 1.3, compared to a national average of 6.5 in the
states in which Unison operates. The Company has reduced substandard quality of
care deficiencies from 5.7% of total surveys in 1996 to 2.8% in 1998, compared
to a national average of 6.7% in the states in which Unison operates. As of
October 9, 1998, Unison had one outstanding deficiency for substandard quality
of care. The Company has taken steps to correct this deficiency and believes
that the facility will be in regulatory compliance upon follow-up review.
MARKETING. Unison's marketing efforts are designed to promote higher
occupancy levels and improved payer quality mix. Quality mix has improved from
approximately 41.5% in 1994 to approximately 48.3% in 1997. This increase in
quality mix is due in part to the Company's marketing efforts and the higher
quality mix from acquired operations. Average occupancy was 77.0% in 1996, 83.1%
in 1997 and 80.2% in the first eight months of 1998. The decrease in occupancy
in 1998 is due primarily to the negative perception of Unison as a result of the
bankruptcy filing in its Texas and Indiana markets. Management believes that
Unison's average occupancy rate will improve as it implements its restructuring
plan.
Unison believes that the long-term healthcare 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 admissions in marketing and
promoting the services offered by Unison facilities to each local community.
Unison's marketing program is focused on market analysis, competitive
services, sales training, and accountability and tracking systems. Quantitative
and systematic reporting and analysis is monitored by the regional directors 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. Unison seeks to use their input in
conjunction with demographic and medical data analysis to identify specific
market needs, and to introduce new services where appropriate. The facilities
also are involved in community affairs in order to maintain a public awareness
of their services.
PAYER MIX. Medicare, Medicaid, and other payor sources each pay at
different rates, which are customarily expressed as rates per patient day.
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. As the following table indicates, Unison has achieved growth in its
quality mix of payor sources throughout the periods presented.
14
<PAGE> 46
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRO
----------------------------------------- FORMA
SOURCE OF REVENUES 1994 1995 1996 1997 1997 (1)
- ------------------ ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Medicare 9.1% 26.9% 29.5% 32.1% 34.2%
Private and other 32.4 17.2 17.0 16.2 16.0
----- ----- ----- ----- -----
Quality mix 41.5 44.1 46.5 48.3 50.2
Medicaid 58.5 55.9 53.5 51.7 49.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
(1) Adjusts for the Dispositions as though such transactions had occurred
as of January 1, 1997.
ANCILLARY SERVICES.
Unison Healthcare provides ancillary services, either directly or
through third-party contracts, 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. Although
Unison Healthcare anticipates that it will sell Sunbelt, the Company will
continue to provide rehabilitation therapy services to its patients through
third-party contracts.
Management of each of the ancillary companies reports to Unison
HealthCare's chief executive officer. Unison HealthCare's corporate management
team provides oversight of Ampro, Quest and Sunbelt in the areas of cash
management, budgeting, accounting controls, staffing and detailed review of
financial results. Unison Healthcare also directs the ancillary companies'
growth and marketing strategies, accounts receivable management and integration
and quality of services to Unison facilities. Unison Healthcare provides
additional support in the areas of risk management, legal services, regulatory
compliance, government reimbursement, management information systems and
purchasing. A number of the ancillary companies' supply contracts with major
vendors are in the name of Unison Healthcare. In addition, bank loans and
equipment leases provided to the ancillary companies are negotiated by Unison
HealthCare's senior management. General liability, workers compensation and
casualty insurance for all Debtors is provided under Unison HealthCare's policy.
LABORATORY. Ampro operates three medical reference laboratories located
in Dallas, Texas, Poplar Bluff, Missouri and Memphis, Tennessee, and three
satellite offices located in Austin, Tyler and Fort Worth, Texas. These
laboratories provide clinical laboratory services to approximately 250 nursing
facilities, as well as to other health care facilities such as hospice
providers, home health agencies, physicians and medical clinics.
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 each test to the applicable facility for inclusion on
each patient's medical chart for review by the attending physician.
In connection with the management of the laboratories, Ampro hires
and trains 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
markets.
PHARMACY. Quest is a comprehensive, full-service long-term care
pharmacy and medical supply company that provides services through two
institutional pharmacies located in Longview, Texas and Bloomington, Indiana.
Quest has grown from a pharmacy servicing 15 long-term care facilities in
September 1995 to a highly diversified organization that services, as of August
31, 1998, 38 facilities in Texas and 37 facilities in Alabama, Arizona,
Colorado, Idaho and Indiana. Quest's specialized services include pharmacy,
wound care, medical supplies and enteral therapies. Additionally, Quest provides
infusion management, IV nurse consultants and Medicare Part B services. Quest's
clinical pharmacists provide consulting, medical records services, educational
seminars and
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continuing education programs. Quest seeks to provide services that assist its
clients in controlling costs and complying with regulatory and medical
standards.
Quest provides pharmaceutical dispensing services to approximately
4,000 patients and clients in various settings, including nursing facilities,
transitional care facilities, assisted living communities, rehabilitation
centers and correctional facilities. Quest provides a variety of pharmaceutical
consulting services, including training of facility staff, designed to assist
nursing facilities in program administration.
Quest management trains all necessary personnel and directs all other
activities associated with operating an institutional pharmacy, including
billing, collection and other accounting functions. Quality assurance is
provided by licensed clinical pharmacists who manage the pharmacy outlets. The
consultant pharmacy staff act as account managers, responsible for marketing,
promoting higher occupancy levels and market penetration. To respond to the
needs of its client facilities, Quest has assembled a team of information
specialists who are prepared to consult about the managed care market, new
products and applications, health care trends and new business opportunities.
THERAPY. Sunbelt provides physical therapy, occupational therapy and
speech language pathology services through Unison facilities and nonaffiliated
health care providers, including long-term care facilities, outpatient clinics,
fitness centers, hospitals and home health agencies. Sunbelt also provides
rehabilitation and sports medicine services to school systems and has
implemented industrial and occupational medicine programs which are delivered
through outpatient clinics, hospitals and on-site industrial environments. As of
August 31, 1998, Sunbelt provided services through 160 contracts, which include
33 Unison facilities.
Sunbelt develops programs for its long-term care clients, utilizing
teams of rehabilitation staff and nursing facility staff, which are tailored to
the needs of the individual facility. Specific programs in which Sunbelt works
in conjunction with facility staff include functional maintenance, wound care,
restraint reduction, dementia training and continuous quality improvement.
Sunbelt also provides training in proper patient posture and positioning to aid
in feeding and prevention of pressure sores.
Sunbelt management is responsible for the hiring and training of its
licensed therapists and other staff, and maintains billing, collections and
accounting functions for Sunbelt. Sunbelt's marketing staff works to increase
penetration in its markets and to increase occupancy in its nursing facilities.
INDUSTRY OVERVIEW.
Unison believes there will continue to be significant business
opportunities to provide healthcare services to long-term care residents in
non-hospital settings, including both long-term care facilities and assisted or
independent living facilities. Certain factors that contribute to this growth
potential are described below.
INDUSTRY CONSOLIDATION. The long-term care industry is highly
fragmented. There are approximately 17,000 long-term care facilities in the
United States which contain a total of approximately 1.8 million licensed beds.
The 50 largest long-term care providers operate approximately 5,000 facilities
comprising approximately 500,000 licensed beds, or 28% of the industry total.
Recently, the long-term care industry has been subject to competitive pressures
and uncertainty with regard to future changes in governmental regulations, which
have resulted in a trend toward consolidation, especially of smaller, local
operators into larger, more established regional or national providers. The
increasing complexity of medical services provided, growing regulatory and
compliance requirements and increasingly complicated and potentially volatile
reimbursement systems have resulted in the consolidation of operators who lack
sophisticated management information systems, operating efficiencies and
financial resources to compete effectively. Unison believes that this trend
toward consolidation will continue.
AGING POPULATION. 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. According to the United States Bureau of the
Census, the number of people over the age of 65 in the United States has grown
from approximately 25.6 million in 1980, or 11.3% of the population, to
approximately 33.5 million in 1994, or 13% of the population, and is projected
to increase to approximately 62.2 million, or 18% of the population, by 2025.
The number of people age 85 and older is expected to double from 3.5 million in
1994 to 7 million in 2020, making this age group the fastest growing
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segment of the population. As the United States population ages, the demand for
the types of services Unison provides is expected to increase. According to
published reports, one in three Americans currently 65 years old can be expected
to enter a nursing home, for an average of two to three years.
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
healthcare services, such as those provided by Unison. The Balanced Budget Act
of 1997 (the "Balanced Budget Act") mandates that, for cost reporting periods
beginning on or after July 1, 1998, skilled nursing facilities will receive a
fixed payment for services to Medicare patients. Any subsequently adopted
healthcare reform proposals are expected to continue to emphasize the cost
containment efforts included in healthcare reform legislation. See "THE DEBTORS
- -- Government Regulation."
ADVANCES IN MEDICAL TECHNOLOGY. Innovations in medical equipment and
new treatment methodologies have lengthened life expectancies, increasing the
number of individuals requiring specialized care and supervision. The incidence
of chronic illness increases with age, particularly certain degenerative
conditions. 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 to patients less expensively
than acute care hospitals.
LIMITATIONS IN THE SUPPLY OF LONG-TERM CARE FACILITIES. In many areas
the number of available long-term care beds has not grown as quickly as demand
in recent years. 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. 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
"THE DEBTORS -- Government Regulation - Certificates of Need."
BUSINESS STRATEGY.
Unison's immediate strategy is to implement the Plan and become a
financially viable company. As discussed elsewhere herein, the reorganization of
Unison includes a restructuring of its debt and certain lease obligations, the
disposition of underperforming business operations and the settlement of
significant lawsuits. Subsequent to confirmation of the Plan, Unison will seek
to reassure its employees and regulators and regain the confidence of its
vendors and the investment community. Unison's ongoing business strategy is to
become a preferred provider of long-term and specialty healthcare services in
its markets by offering a full range of high quality, cost competitive,
long-term healthcare services. The key components of the Company's strategy are:
PROVIDE A CONTINUUM OF CARE. Unison operates both skilled nursing and
assisted living facilities and provides a wide variety of medical,
rehabilitative and pharmaceutical treatments. Unison seeks to offer these
services across the entire continuum of care from independent and assisted
living, to traditional long-term, specialty and subacute care. This strategy
provides an opportunity for entry at each point in the continuum of care. As
patients' needs change, they may be served by different elements of the care
continuum. The primary benefit of offering a continuum of care is that it offers
patients an appropriate level of cost-effective care which the Company believes
is attractive to third party payors.
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 was able to care 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 healthcare services and thus to improve its
occupancy levels and profitability.
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IMPROVE PAYOR QUALITY, OCCUPANCY LEVELS AND OPERATING MARGINS. Unison
is focused on improving its payor quality mix and occupancy levels. The
profitability of caring for private-pay and Medicare patients is generally
higher than that of Medicaid patients. 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 long-term care facilities and assisted or
independent living centers.
Unison seeks to improve its profitability by attempting to obtain an
increasing proportion of its revenue from specialized healthcare services which
typically generate higher profit margins than basic long-term nursing care.
Specialty healthcare services are developed in cooperation with, and in
accordance with, the needs of the local medical community. Specialty programs
are developed by the Company's clinical specialists, marketing professionals and
facility administrators working directly with local hospital discharge planners
and physicians. Management believes that this approach generally has been well
received by local medical communities
CONCENTRATE HEALTHCARE FACILITIES IN GEOGRAPHIC "CLUSTERS." Unison has
in the past sought to acquire facilities which fit within existing geographic
regions or "clusters," and to enter new markets through clustered acquisitions.
Clustering is intended to attempt to capture local economies of scale by
providing ancillary services, purchasing, marketing, information systems, risk
management, accounting, reimbursement and quality control to geographically
concentrated facilities. The cluster strategy is based on the belief that
clustering facilities will enable Unison to leverage management across a larger
base of client revenue and efficiently monitor individual facilities, ensuring
high quality patient care. Clustering facilities should also enable Unison to
leverage the addition of ancillary services over a larger patient base. The
Signature Acquisition in 1996, which included the acquisition of five long-term
care facilities in the Denver, Colorado area, is an example of this strategy.
COMPETITION.
Unison's facilities compete on a local and regional basis 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 and some are nonprofit or
charitable organizations. 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. The Company believes that significant
competitive factors include the quality and spectrum of care and services
provided, the reputation of the medical personnel employed, the physical
appearance of the facilities and, in the case of private-pay patients, the level
of charges for services. Because the Company's facilities compete primarily on a
local and regional basis, rather than on a national basis, the competitive
position of the Company varies from facility to facility. The Company seeks to
meet competition in each locality by improving the quality and types of services
provided in and the appearance of its facilities, by establishing a reputation
within the local medical communities for providing quality care, and by
responding appropriately to regional variations in demographics and preferences.
There is no price competition with respect to Medicare and Medicaid patients
because revenues for services administered to such patients are based on
strictly controlled fixed rates and cost reimbursement principles.
Unison's pharmacy and laboratory businesses compete with national,
regional and local pharmacies and medical reference laboratories, some of which
have significantly greater financial and other resources than Unison. The
Company's strategy for its pharmacy services focuses on the expansion of
services beyond dispensing tablet, capsule and liquid medications to include
more intensive and higher margin IV therapy services, antibiotic and hydration
therapies, pain management and chemotherapy. No assurance can be given that
Unison will have the resources to compete successfully with such companies.
Unison believes that the primary factor in competing for pharmacy business is
prompt service and that the primary factor in competing for laboratory business
is prompt and accurate test results.
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GOVERNMENT REGULATION.
The federal government and all states in which Unison operates regulate
various aspects of Unison's business. All of the Company'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. 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 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 Health Care Financing Administration ("HCFA") and Medicaid state agencies as
the basis for decisions to execute, deny or terminate provider agreements with
facilities.
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
Company's facilities also have contracts with private payors, including health
maintenance organizations and other managed care organizations, to provide
certain healthcare 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 current 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 BALANCED BUDGET ACT. The Balanced Budget Act, signed into law on
August 5, 1997, makes numerous changes to the Medicare and Medicaid programs,
which may impact Unison. The Balanced Budget Act mandates the establishment of a
prospective payment system ("PPS") for Medicare skilled nursing facility
services, under which facilities will be paid a fixed fee for virtually all
covered services based upon their patients' assessed acuity. PPS will be phased
in over a four-year period, effective for Unison's facilities on January 1,
1999. During the first three years, payments will be based on a blend of the
facility's historical costs and calculated federal rates. Thereafter, the per
diem rates will be based 100% on federal rates, adjusted for inflation and
geographical data. Under PPS, each patient's clinical status is evaluated and
placed into one of 44 payment categories. The patient's payment category
dictates the amount that the provider will receive to care for the patient on a
daily basis. The per diem rate will cover (i) all routine inpatient costs
currently paid under Medicare Part A, (ii) certain ancillary and other items and
services currently covered separately under Medicare Part B on a "pass-through"
basis, and (iii) certain capital costs. The final rules and new per diem rates
were published on May 22, 1998 and were open for public comment until July 13,
1998. There can be no assurance that PPS will not have a material adverse impact
on Unison's liquidity, results of operations or financial condition.
For Medicare patients receiving services on an outpatient basis under
Medicare Part B, effective July 1, 1998, reimbursement for ancillary services
such as rehabilitation therapy, drugs, medical supplies and other items, will be
based on a fee schedule. In addition, effective January 1, 1999, there will be
an annual per-patient cap of $1,500 on reimbursement for Part B and outpatient
physical and speech therapy services and an annual per-patient cap of $1,500 or
reimbursement for Part B and outpatient occupational therapy services. There can
be no assurance that these fee schedules will not have a material adverse effect
on the Company.
The Balanced Budget Act also contains changes to the Medicaid program,
the most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and services in compliance with applicable standards. Effective
October 1, 1997, states have more flexibility in establishing payment rates.
Indiana has adopted a case-mix prospective payment systems effective October 1,
1998 and Colorado is expected to follow in 1999. Unison is unable to predict
whether any other states will change their reimbursement policies and, if so,
what effect such changes would have on the Company. There can be no assurance
that any changes to the Medicaid program will not have a material adverse impact
on the Company.
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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. The Medicare Program
covers patients requiring daily skilled nursing and other rehabilitation care
following a minimum three-day stay in a general or acute care hospital, but does
not cover patients requiring only intermediate or custodial levels of care.
Until the implementation of PPS, Medicare reimburses the skilled
nursing facility based on a reasonable cost standard. With certain exceptions,
payment for skilled nursing facility services is made retrospectively 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. Each facility is also subject to limits on reimbursement for
routine costs. Exceptions to these limits are available for, among other things,
the provision of atypical services. 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. Although management believes that Unison will recover these routine cost
limit exception requests, failure to obtain such exceptions could adversely
affect Unison's results of operations.
Medicare covers and pays for rehabilitation therapy services furnished
in facilities in various ways. 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. Until April 1, 1998, Medicare paid 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 services reimbursed under the salary equivalency
guidelines are significantly less than services reimbursed under the "prudent
buyer" rule.
In January 1998, HCFA issued rules applying salary equivalency limits
to certain speech and occupational therapy services and revised existing
physical and respiratory therapy limits. The new limits are effective for
services provided on or after April 1, 1998. For the year ended December 31,
1997, Unison's revenues and contribution margin from speech and occupational
therapy services amounted to $31.2 million and $13.1 million, respectively. The
imposition of salary equivalency guidelines on speech language pathology and
occupational therapy services could significantly impact Unison's margins in
1998. The revised guidelines will be in effect until nursing facilities
transition to PPS. Under PPS, the reimbursement for these services provided to
nursing facility patients will be a component of the total reimbursement allowed
per patient and the salary equivalency guidelines will no longer be applicable.
Unison's client nursing facilities, both affiliated and nonaffiliated, will
transition to PPS on January 1, 1999.
Current Medicare regulations that apply to transactions between related
parties are relevant to the amount of Medicare reimbursement that the Company is
entitled to receive for the rehabilitation and respiratory therapy and
pharmaceutical services that it provides to Unison facilities. These related
party regulations require that, among other things, (i) the Company's therapy
and pharmacy subsidiaries must each be a bona fide separate organization; (ii) a
substantial part of the services of each subsidiary is transacted with
nonaffiliated entities, and there is an open, competitive market for such
services; (iii) the services provided by such subsidiary commonly are obtained
by long-term and subacute care facilities from other organizations and are not a
basic element of patient care provided by such facilities; and (iv) the prices
charged to the Company's long-term and subacute care facilities by such
subsidiaries are in line with the charges for such services in the open market
and no more than the prices charged by its therapy and pharmacy subsidiaries
under comparable circumstances to nonaffiliated entities in order to satisfy the
"substantial part" requirement of such regulations. In instances where this
issue has been litigated by others, no consensus has emerged as to the
appropriate threshold necessary to satisfy the "substantial part" requirement.
In the fourth quarter of 1997, Unison Healthcare was informed by its
Medicare fiscal intermediary that it is challenging reimbursement for certain
services provided at Unison facilities by Sunbelt, a Unison Healthcare
subsidiary which provides physical, speech and occupational therapy services to
both affiliated and nonaffiliated long-term care facilities. Although the
Company intends to vigorously pursue reimbursement of the challenged
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items, in the fourth quarter of 1997 it recorded a reduction in Medicare
revenues in connection with this related party issue. When PPS and the fee
schedules are implemented, the Medicare impact of the related party rule will be
eliminated. Sunbelt is currently held for possible disposition.
THE MEDICAID PROGRAM. All of Unison's 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
the state and federal regulations and to enter into contracts with the state
agency to provide services at rates established by the state. 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, except for Texas and Arizona, 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 retrospective basis. Reimbursable costs
normally include the costs of providing healthcare 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.
Currently, several states, including Texas and Indiana, utilize
case-mix prospective payment systems, pursuant to which payment levels increase
based on a patient's acuity level and need for services. Colorado is expected to
adopt a case-mix prospective payment system in 1999. Arizona has developed a
managed care program for its Medicaid beneficiaries, whereby subcontractors,
usually county health departments, receive negotiated capped rates from the
state. The subcontractors then negotiate contracts with nursing facilities to
provide patient care.
ENFORCEMENT PROCEEDINGS AND SANCTIONS; CERTIFICATION REQUIREMENTS.
Under the Omnibus Reconciliation Act of 1987 ("OBRA"), HCFA has promulgated
survey, certification and enforcement rules governing skilled nursing facilities
and nursing facilities participating in the Medicare and Medicaid programs.
Among other things, the HCFA rules governing survey and certification of
long-term care facilities define a number of terms used in the survey and
certification process. The rules require states to enact state plans to
incorporate the provisions of the 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 of
regulatory 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 to 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 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. Available remedies include 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 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.
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The HCFA certification, survey and enforcement regulations impose
significant burdens on long-term care facilities. The regulations may require
state survey agencies to take aggressive enforcement actions. The breadth of the
rules create uncertainty over how the rules will be implemented and the
standards of compliance.
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 regulatory
requirements. Unison reviews such notices and attempts to take corrective
action. Unison's facilities sometimes receive notices from state agencies which
result in fines and/or the agencies taking steps to decertify the facilities
from participation in Medicare and Medicaid programs. In 1996 the Company
received notices of monetary penalties related to two of its Texas facilities in
the aggregate amount of approximately $168,000. These fines are currently being
appealed. In February 1998, Unison closed its Oaks at Boise facility in Boise,
Idaho, after voluntarily terminating its participation in the Medicare program
and relocating the patients. Unison had been in negotiations with the owners for
disposition of the facility when it encountered regulatory problems.
Negotiations broke down and Unison closed the facility. Unison was assessed a
penalty amounting to $25,875 for violations of Medicare regulations, payment of
which has not been demanded due to the bankruptcy filing.
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. Currently, the states with certificate
of need requirements in which the Company operates include Michigan and Alabama.
In addition, Colorado and Texas have placed moratoriums on bed additions.
PATIENT REFERRAL REGULATIONS. Unison is also subject to federal and
state laws that prohibit direct and indirect payments between healthcare
providers that are intended to induce or encourage the referral of patients to 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 qualify 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 healthcare programs.
Under Medicare conditions of participation and some state licensure
laws, Unison, because of its method of service delivery, is required to contract
with healthcare 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. The Health Insurance Portability and
Accountability Act ("HR 3103"), which was signed by President Clinton on August
21, 1996, has for the first time established a procedure requiring the Secretary
of the Department of Health and Human Services to issue advisory opinions
concerning some activity punishable under federal healthcare fraud statutes. To
the Company's knowledge, none of its patients were referred under practices
which are in violation of HR 3103. 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.
Other laws prohibit 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
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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 target of focus by government
regulators seeking to discover and prosecute claims of healthcare fraud and from
time to time Unison has received inquiries related to such claims. 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
healthcare 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 originally focused on California,
Florida, Illinois, New York and Texas. It is now extended to all states and is
concerned with detection of suspected nursing facility fraud and abuse. This
effort is 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 expects efforts of this sort to continue.
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
practitioner. 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. As of August 31, 1998, Unison provided pharmacy
services to 11 Company-affiliated and 27 non-affiliated skilled nursing
facilities in East Texas, and 13 Unison-affiliated and 10 non-affiliated skilled
nursing facilities in Indiana (including the Disposition Facilities), and 14
other Unison-affiliated skilled nursing facilities in Alabama, Arizona and
Colorado.
LABORATORY. Laboratories providing laboratory services in the United
States are regulated by state statutes and the rules and regulations of the
Clinical Laboratory Improvement Act of 1988 ("CLIA"). All laboratories must have
a certificate of compliance or a certificate of accreditation for laboratory
testing. Laboratories which have certificates must permit HCFA or a HCFA agent
to conduct an inspection to assess the laboratory's compliance with the
requirements of CLIA. The most recent inspection of Ampro's three laboratories
revealed no deficiencies. Currently, Ampro operates laboratories in Missouri,
Texas and Tennessee. As of August 31, 1998, Ampro provided laboratory services
to two Company affiliated and 60 non-affiliated skilled nursing facilities in
Texas, 18 non-affiliated skilled nursing facilities in Tennessee, and 170
non-affiliated skilled nursing facilities in Missouri.
EMPLOYEES.
As of August 31, 1998, Unison employs approximately 4,500 individuals
(including full-time and part-time employees), of which approximately 3,520
employees work at Unison's nursing facilities, 100 employees work at Unison
HealthCare's corporate and regional offices, 70 employees work in Unison's
pharmacy operations, 690 employees work for Sunbelt and 120 employees work in
the Company's medical reference laboratories. Among its clinical staff, Unison
employs approximately 280 registered nurses, 520 licensed practical nurses and
1,400 certified nursing assistants. Unison has two collective bargaining
agreements covering approximately 250 nursing facility employees. One of the
collective bargaining agreements is with the 160 employees at Unison's
Nightingale West facility, which is currently held for disposition.
Unison's employee benefits include medical, long-term disability and
life insurance. The Company also offers a 401-K retirement plan to all eligible
employees.
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CURRENT EXECUTIVE OFFICERS AND DIRECTORS.
The following table sets forth certain information with respect to the
directors and executive officers of Debtors as of October 1, 1998.
UNISON HEALTHCARE
- -----------------
Name Age Position(4)
- ---- --- ---------
Michael A. Jeffries 48 President, Chief Executive Officer, Director
Clayton Kloehr 41 Senior Vice President-Finance, Treasurer,
Director
Nir E. Margalit 40 Executive Vice President, General Counsel,
Secretary, Director
Jimmy L. Fields 48 Executive Vice President and Chief Financial
Officer
Terry Troxell 48 Executive Vice President-Operations
John T. Lynch, Jr. 50 Director
Mark W. White 58 Director
James A. Brown 50 Director
Donald D. Finney 51 Director
Jock Patton 51 Director
QUEST
Name Age Position
- ---- --- --------
L. Robert Oberfield 60 President
Michael A. Jeffries 48 Chief Executive Officer, Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer, Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
SUNBELT THERAPY (ALABAMA)
- -------------------------
Name Age Position
- ---- --- --------
Paul G. Henderson 43 President
Michael A. Jeffries 48 Chief Executive Officer, Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer, Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
ALL OTHER DEBTORS
- -----------------
Name Age Position
- ---- --- --------
Michael A. Jeffries 48 President, Chief Executive Officer, Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer, Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
MICHAEL A. JEFFRIES has served as President, Chief Executive Officer
and Director of Unison Healthcare since September 8, 1997. Mr. Jeffries is also
the Chief Executive Officer and a Director of Quest and Sunbelt and the
President, Chief Executive Officer and a Director of Unison HealthCare's other
subsidiaries. From 1989 to August 1997, Mr. Jeffries was Senior Vice President
and a Director of Horizon/CMS Healthcare, a publicly traded long-term care
company. From 1983 to 1989, Mr. Jeffries was employed by Beverly Enterprises,
the nation's largest long-term care company, most recently as Senior Vice
President, Operations. Prior thereto Mr. Jeffries was the
- ----------
(4) Mr. Bruce Whitehead was a Director from August 1995, until his
resignation from the Board of Directors on May 29, 1998. Similarly, Mr. David
Kremser served as a Director from November 1, 1996, until his resignation from
the Board of Directors on May 29, 1998. Mr. Tyrrell Garth was a Director from
August 1995, until his resignation from the Board of Directors on August 6,
1998. Mr. John Casey was a Director from August 1995, until his resignation from
the Board of Directors on August 8, 1998.
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Director of Operations and Chief Financial Officer of Mid-America Nursing, a
regional nursing home system in Kansas.
L. ROBERT OBERFIELD has been President of Quest 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 has served as President of Sunbelt 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 (such as Sunbelt) and in providing patient care.
JIMMY L. FIELDS has served as Executive Vice President and Chief
Financial Officer since April 1, 1998. From 1995 to March 1998 he was the Chief
Financial Officer and Director of Health Care Operations for Fountains
Retirement Communities, Inc., a senior housing and long-term care company. From
1993 to 1995 Mr. Fields was the Chief Operating Officer of Retirement Management
Corporation, an operator of long-term care facilities. From 1983 to 1993 Mr.
Fields was an executive with various long-term care companies including The
Multicare Companies, Inc., where he served as Chief Financial Officer and Chief
Operations Officer. Mr. Fields is a certified public accountant.
NIR E. MARGALIT has served as Executive Vice President, General
Counsel, Secretary and a Director of Unison Healthcare and Secretary of all
other Debtors since February 15, 1998. From 1995 to February 1998, when he
joined Unison, Mr. Margalit was Vice President, General Counsel and Secretary of
Starwood Hotels and Resorts Worldwide, Inc., a publicly traded hotel paired
share real estate investment trust. From 1993 to 1995, Mr. Margalit was Vice
President, Development and Special Counsel of Capstar Hotels. Prior thereto, Mr.
Margalit was an attorney in private practice.
TERRY TROXELL has served as Executive Vice President-Operations since
October 1, 1998. Ms. Troxell joined Unison Healthcare when it commenced
operations in July 1992 as Director of Professional Services. In November 1994,
she became Vice President of Clinical Operations of Unison Healthcare and in
September 1996 she became Senior Vice President of Clinical Operations. From
July 1991 until July 1992, Ms. Troxell served as Director of Professional
Services of Samaritan Senior Services, Inc. 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 healthcare facilities in Arizona.
Ms. Troxell is a licensed Registered Nurse and a Certified Gerontologist
Clinical Specialist. She sits on the American Health Care Association's national
board as Regional Vice president and serves on its Advocacy Panel 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.
CLAYTON KLOEHR has served as Senior Vice President-Finance and
Treasurer of Unison Healthcare since July 1, 1997. Mr. Kloehr is also the Chief
Financial Officer, Treasurer and a Director of each of the other Debtors. From
August 1995 through June 30, 1997, Mr. Kloehr was an independent financial
consultant. From February 1995 until August 1995, Mr. Kloehr was BritWill's
Treasurer. During the 14 years prior thereto Mr. Kloehr was employed by Placid
Oil Company, a privately held oil exploration and production company based in
Dallas, Texas, most recently as Manager of Treasury Operations.
JOHN T. LYNCH, JR. has been a director of Unison Healthcare since June
1992. Mr. Lynch was also a director of BritWill between 1992 and its acquisition
by Unison Healthcare in August 1995. In January 1990, he co-founded Trouver
Capital Partners, L.P. ("Trouver"), 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.
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MARK W. WHITE has served as a Director of Unison Healthcare since
August 1995. Mr. White has been an attorney in private practice since 1987 and
also serves as the President of GeoVox, Inc., a security systems company. From
1983 to 1987, Mr. White served as Governor of the State of Texas.
DONALD D. FINNEY has been a director of Unison HealthCare since
September 1, 1998. Mr. Finney is Chief Executive Officer of HCMF Corporation, a
privately held post-acute and assisted living service provider with nursing
facilities and assisted living residences in Virginia and North Carolina. From
1997 to 1998, Mr. Finney was Chief Operating Officer of Summerville Healthcare
Group, Inc., a healthcare service company. From 1995 to 1997, Mr. Finney held
the position of President-Facilities Division of GranCare, Inc., the nation's
sixth largest publicly traded post-acute provider with 137 facilities in 15
states. From 1992 to 1995, Mr. Finney was Chief Operating Officer of Evergreen
Healthcare, Inc. From 1981 to 1992, Mr. Finney held a variety of positions with
ARA Living Centers.
JAMES A. BROWN has been a director of Unison HealthCare since September
25, 1998. Since 1987, Mr. Brown has provided private sector consulting in the
healthcare field in the areas of mergers and acquisitions. Specifically, from
1987 to 1994, Mr. Brown was President and Chief Executive Officer of Acquisition
Corporation of America providing consultation services in the acquisition and
disposition of long-term healthcare companies. From 1982 to 1987, Mr. Brown was
with Beverly Enterprises, an international leader in long-term healthcare, most
recently as Vice President of Acquisitions.
JOCK PATTON has been a director of Unison HealthCare since August 14,
1998. From 1982 to 1987, Mr. Patton was associated with StockVal, Inc., a SEC
registered investment advisor. Mr. Patton held the position of President of
StockVal from 1992 to 1997. From 1972 to 1992, Mr. Patton was a Partner and
Director of the law firm of Streich Lang in Phoenix, Arizona.
RELATED PARTY TRANSACTIONS
BRITWILL ACQUISITION. In August 1995, Unison HealthCare's predecessor,
SunQuest, acquired BritWill from Whitehead Family Investments, Ltd., a Texas
limited partnership, and other BritWill shareholders in a stock purchase
transaction. The General Partner of Whitehead Family Investments, Ltd. ("WFIL")
at the time of the BritWill Acquisition was BritWill Texas Investments Company
("BritWill Texas Investments"), a Delaware corporation. The President of
BritWill Investments at the time of the BritWill Acquisition was Mr. Whitehead.
The consideration given by Unison Healthcare in connection with the
BritWill Acquisition in August 1995 included: (a) a debenture that was
subsequently converted into 561,815 shares of Unison's common stock; (b) a
combination of promissory notes and lump sum contingent payment obligations
totaling $25 million (collectively the "Loan Documents"), together with a
monthly contingent payment obligation and an Additional Payment Obligation (as
defined in the Loan Documents); and (c) indemnifications and guarantees by
Unison Healthcare and certain of its subsidiaries and affiliates of certain
debts and obligations of BritWill.
The Loan Documents issued as consideration for the BritWill
Acquisition were issued to Mr. Whitehead as agent for 100% of the former
shareholders of BritWill, and to WFIL, by its general partner, BritWill Texas
Investments. Mr. Whitehead directly or indirectly held or controlled
approximately 81.5% of BritWill's outstanding stock, and served as BritWill's
Chairman of the board of directors. At the time of the BritWill Acquisition in
August 1995, the BritWill Acquisition Obligations were unsecured. As a result of
the BritWill Acquisition, Mr. Whitehead became, beneficially, one of Unison
HealthCare's largest shareholders and, at the same time, one of Debtor's largest
creditors. At the time Unison Healthcare acquired BritWill, Messrs. Garth, Lynch
and White were also BritWill shareholders and directors, and Mr. Garth served as
outside counsel. Messrs. Garth and White were not directors of Unison Healthcare
prior to the BritWill Acquisition.
As former shareholders of BritWill, Messrs. Whitehead, Garth, Lynch
and White have participated pro rata in some or all acquisition payments made
and acquisition obligations incurred by Unison in connection with the BritWill
Acquisition (the "BritWill Acquisition Obligations"). The BritWill Acquisition
Obligations paid, in total, include $13.6 million of principal, $853,000 of
interest, $5.2 million of payments on monthly contingent payment obligations and
561,815 shares of Unison Healthcare Common Stock. On or about January 9, 1997,
Unison Healthcare paid $9.75 million of the Notes proceeds to Mr. Whitehead and
his affiliated entities as and for a
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payment on the unsecured BritWill Acquisition Obligations. Messrs. Garth and
Lynch have transferred their interests in the BritWill Acquisition Obligations
to their children, and Mr. White transferred his interest to Mr. Whitehead.
MR. WHITEHEAD.(5) Mr. Whitehead has (or had) a direct or indirect
material interest in the following additional transactions with BritWill or
Unison.
- - Prior to Unison HealthCare's acquisition of BritWill, Mr. Whitehead
sold certain healthcare facilities or related interests to BritWill and
acquired certain other direct and indirect financial interests and
obligations related to BritWill's healthcare facilities, some of which
have continued thereafter. Through BritWill Investments-Texas, Ltd.
("Brit-Texas"), Mr. Whitehead is the indirect owner and lessor of six
of the nursing facilities that the Company leases in Texas (including
three facilities that were subleased to an unrelated party effective
March 1, 1997). The annual base rent for these facilities amounts to
$1.1 million, which is approximately the amount of the annual payment
obligations on the related $10.2 million acquisition mortgage loan
secured by those facilities from Omega. Mr. Whitehead is also the
guarantor of the Company's obligations with respect to the facilities
that are leased from Omega.
- - Mr. Whitehead directly or indirectly owned all of the interests, except
for Mr. Garth's $400,000 interest, in a $2.5 million promissory note
payable to BritWill (the "Participation Note"). The Participation Note
was refinanced by BritWill when it was acquired by Unison Healthcare,
and the resulting $3.4 million refinancing note (the "Renewal Note")
was ultimately repaid from the proceeds of Unison HealthCare's initial
public offering (the "IPO") in December 1995.
- - From time to time both before and after the BritWill Acquisition, Mr.
Whitehead has made loans and other financial accommodations to BritWill
and Unison. In addition to the Renewal Note and a portion of the
BritWill Acquisition Obligations, $750,000 of loans from Mr. Whitehead
or his affiliates was repaid from the proceeds of the IPO. A Unison
Healthcare subsidiary is obligated to repay to Brit-Texas five
unsecured promissory notes in the aggregate amount of $2.3 million with
interest at rates ranging from 9.0% to 10.75%. In addition, in 1996 Mr.
Whitehead loaned $1.0 million to Unison Healthcare for working capital
purposes. This loan was repaid in 1996 with the proceeds from a $7.5
million bank financing, which was in turn repaid from the proceeds of
the Notes.
SIGNATURE ACQUISITION. On October 31, 1996 Unison Healthcare acquired
Signature (the "Signature Acquisition") for an initial aggregate purchase price
of approximately $50.7 million comprised of cash and promissory notes totaling
approximately $38.2 million and 1,509,434 shares of Unison HealthCare's common
stock. Signature was founded in 1987 by Mr. Kremser, who served as its Chairman,
President, Chief Executive Officer and Director until Signature was acquired by
Unison Healthcare.
In October 1996, Unison Healthcare paid Mr. Kremser and other
related parties in cash the sum of approximately $37 million from the Notes
proceeds. Even after this cash payment was made, approximately $1.1 million in
notes (placed in escrow) was still payable to Mr. Kremser and others
representing the balance of the obligations resulting from the Signature
Acquisition. In March 1997, Mr. Kremser and the Kremser related parties, as
former shareholders of Signature, received an additional $2.5 million in
convertible promissory notes (amounting to approximately $1.8 million) and
shares of Unison Healthcare common stock as further consideration for the
Signature Acquisition. The Signature Acquisition Obligations were unsecured at
the time they were incurred.
- ----------
(5) In August 1995, subsequent to the BritWill Acquisition, Mr. Whitehead became
a director of Unison Healthcare, and on August 10, 1995, became Chairman of the
Board of Directors of Unison Healthcare. Moreover, in March, 1997, the Board of
Unison created a three (3) person "executive committee" (the "Executive
Committee") comprised of Messrs. Whitehead, Kremser (acting as Chair of the
Executive Committee), and Lynch, which Executive Committee exercised all of the
functions of the Board from its creation until February 1998, at which time a
Special Restructuring Committee of the Unison Healthcare Board was created to
deal solely with restructuring issues facing Unison Healthcare and its
subsidiaries and affiliates. Mr. Whitehead remained as Chairman of the Unison
Healthcare Board and a member of the Executive Committee until he resigned from
all such positions on May 29, 1998.
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MR. KREMSER.(6) Mr. Kremser has (or had) a direct or indirect material
interest in the following additional transactions with Unison:
- - The Board of Directors of Unison Healthcare entered into a Services
Agreement with Mr. Kremser commencing March 31, 1997. As compensation
for his services to the Company in all capacities, Mr. Kremser received
cash compensation of $7,500 per week plus expenses as well as options
for 50,000 shares of Unison Healthcare Common Stock at an exercise
price of $2.875 per share, fully vested. Cash compensation ended in
September 1997. Mr. Kremser and the Company are also parties to an
indemnification agreement and a tolling agreement in respect of claims
he may have against the Company.
THE 1997 LOANS. On April 21, 1997, the Company obtained a $2.95 million
unsecured loan (the "April 1997 Loan") for general working capital purposes from
BritWill Investments Company Ltd. ("BritWill Investments") and Elk Meadows
Investments, L.L.C. ("Elk Meadows"), entities owned and/or controlled by Messrs.
Whitehead and Kremser, respectively, as joint lenders. The Company paid a loan
fee of $29,500 at the closing of the April 1997 Loan, and also agreed to pay all
of the lenders' out-of-pocket expenses, including attorneys' fees and costs.(7)
As part of the April 1997 Loan, Unison Healthcare and Memphis, Ampro, Arkansas,
Cornerstone, Decatur, Douglas Manor, Gamma, Henderson, Memphis, Quest, Rehab,
Safford, Sunbelt (Arizona), Sunbelt (Alabama), and Therapy Health (collectively
the "Unison Affiliates") purportedly granted a lien and security interest in and
to the accounts receivable of the Unison Affiliates (the "April 1997 Lien").
On September 24, 1997, the Company entered into a Modification
Agreement with Elk Meadows and BritWill Investments (the "Modification
Agreement"), which amended the April 1997 Loan to provide for a total of $1
million of new loans from Elk Meadows and BritWill Investments, in the amount of
$500,000 each (collectively, the "September 1997 Loan" and together with the
April 1997 Loan, the "1997 Loans"). Pursuant to the Modification Agreement,
collateral for the April 1997 Loan was also deemed to be collateral for the
September 1997 Loan. The Modification Agreement also provided that collateral
for the April 1997 Loan and September 1997 Loan would also secure repayment of
the BritWill Acquisition Obligations and the Signature Acquisition Obligations,
which were theretofore unsecured obligations.(8)
MR. LYNCH. In addition to his interests as a former director and
shareholder of BritWill, Mr. Lynch is a General Partner of Trouver. Trouver (a)
earned financial advisory fees of $675,000 in connection with the BritWill
Acquisition, (b) assisted Unison in securing lease or management agreements in
respect of four long-term care facilities for which it received fees of
approximately $179,000 (these facilities were disposed of in 1998), and (c)
earned financial advisory fees of approximately $84,000 from Unison Healthcare
in connection with the Ampro Acquisition. On December 15, 1997, Trouver was
retained by Unison to perform certain financial advisory services in connection
with the Company's restructuring efforts. The Company also entered into an
agreement with Woodhill Capital Corporation ("Woodhill"), an entity of which Mr.
Lynch is president and sole shareholder, providing for the services of Mr. Lynch
as a financial advisor beginning March 1, 1997. Under the terms of the
agreement, Woodhill received $15,000 per month plus expenses until the agreement
was terminated in February 1998. Mr. Lynch was also granted options to purchase
50,000 shares of Common Stock at an exercise price of $3.125 per share, fully
vested. Woodhill received a fee amounting to $350,000 in connection with the
sale of the $20 million of Senior Notes in November 1997.
MR. GARTH. In addition to his aforementioned interests, Mr. Garth's
company, Cheyenne Capital, received consulting fees of $24,000 per year from
Unison Healthcare in connection with the start-up and oversight of nine
facilities acquired in the BritWill Acquisition. These facilities were
previously owned by Mr. Garth. The consulting agreement was terminated on
December 31, 1996.
MR. OBERFIELD. Mr. Oberfield serves as the president and is the
minority shareholder of Unison HealthCare's Quest Pharmacies subsidiary. The
Shareholders Agreement between Mr. Oberfield and Unison
- ----------
(6) From November 1, 1996 on, Mr. Kremser served as a director of Unison,
and from March, 1997 on served as Chairman (and one of three members)
of the Executive Committee until his resignation from the board on May
29, 1998.
(7) Mr. Kremser disputes whether the $29,500 loan fee was paid and asserts
that the Elk Meadow's attorneys' fees and costs associated with the
April 1997 Loan remain unpaid to date.
(8) Mr. Kremser asserts that collateral was pledged in April 1997 to secure
the Signature Acquisition Obligations.
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Healthcare contains a put and call feature annually, whereby, beginning February
1, 1998 and effective May 1, 1998, Unison Healthcare may require Mr. Oberfield
to sell his stock in the subsidiary (the "Quest Stock") to Unison Healthcare or
Mr. Oberfield may require Unison Healthcare to purchase his Quest Stock at a
price based on a defined formula.
MR. HENDERSON. Effective February 1, 1996, Unison Healthcare purchased
90% of the outstanding stock of Sunbelt from Mr. Henderson and Paige Plash. In
consideration for the stock of Sunbelt, Unison Healthcare paid $800,000 in cash,
issued term notes for $1.0 million in the aggregate (the "Sunbelt Notes"), and
issued subordinated convertible debentures in the aggregate amount of $1.8
million (the "Debentures"). Approximately 56.2% of the purchase price was paid
to Mr. Henderson. Interest on the Sunbelt Notes and Debentures accrued at 10.0%,
payable quarterly. The Sunbelt Notes and Debentures were converted in January
1997 into 105,196 shares of Unison Healthcare Common Stock with the aggregate
balance of $2.0 million paid in cash. In November 1996, Unison Healthcare
purchased the remaining 10% of Sunbelt stock effective as of February 1, 1996.
The purchase price, payable 50% to each of Mr. Henderson and Mr. Plash, amounted
to $1.4 million plus a guaranteed payment of $709,000. Consideration for the
purchase (excluding the guaranteed payments) was comprised of promissory notes
in the aggregate amount of $1.2 million and 27,942 shares of Unison Healthcare
Common Stock. A principal reduction on the promissory note in the amount of
approximately $918,000 was due in January 1998. This payment has not been made
and is a general unsecured claim of the Company.
THE CLAIMS OF OMEGA
Omega Healthcare Investors, Inc. ("Omega") is a real estate investment
trust, providing long-term financing and capital for the health care industry,
with particular focus on the skilled nursing home segment. Omega is the Lessor
on three (3) Master Leases, including a Master Lease dated November 1, 1992 with
BritWill I (and assigned to BritWill Indiana), a Master Lease dated November 30,
1993 with BritWill II, and a Master Lease dated December 31, 1994 with BritWill
II (collectively, the "Master Leases"). The Master Leases were entered into in
connection with the lease of approximately 14 nursing homes operated by BritWill
Indiana and BritWill II in Indiana and Texas.(9) Omega is also the mortgagee of
six (6) nursing home facilities that are operated and leased by BritWill II.
In addition to claims arising under the Master Leases, Omega asserts
that one or more of the Debtors including BritWill I, BritWill II, BritWill
Indiana, Unison Healthcare and BritWill Healthcare Company, are liable to Omega
under various subordination agreements, guarantees and promissory notes. The
claims of Omega are secured by various security agreements, pledges of stock and
security deposits. The summaries of claims filed by Omega as part of its Proofs
of Claim are attached hereto as Exhibit "F."
THE NOTES AND THE SENIOR NOTES
ISSUANCE OF THE NOTES AND THE SENIOR NOTES.
In October 1996, Unison Healthcare raised $100,000,000 by issuing
$100,000,000 principal amount of 12-1/4 % Senior Notes due 2006 (the "Notes").
The proceeds of the Notes were used: (i) to pay approximately $23.7 million of
trade debt and existing mortgage and revolving credit obligations of the
Debtors: (ii) to pay approximately $43.1 million to Mr. Kremser and certain
other related entities in connection with the Signature Acquisition, (iii) to
pay $9.75 million to Mr. Whitehead and certain other related entities in
connection with the BritWill acquisition; and (iv) to pay approximately $2.5
million of acquisition debt related to Ampro and the Sunbelt companies.
In December 1997, Unison Healthcare raised an additional $20,000,000 by
issuing $20,000,000 principal amount of Senior Notes, bearing interest at 13%
and due in 1999 (the "Senior Notes"). Approximately $12 million of the proceeds
were used to pay trade obligations of the various Debtors and other working
capital obligations. Approximately $6.7 million of the proceeds were used to pay
interest on the Notes.
- ----------
(9) Omega has sought to have the automatic stay lifted, asserting that the
Master Leases were terminated pre-petition. The Debtors vigorously
oppose the relief sought by Omega. See "SIGNIFICANT EVENTS DURING THE
CHAPTER 11 CASES - The BritWill Debtors - Omega's Lift Stay Motion."
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IBJ Schroder Bank & Trust Company is the Indenture trustee for the
Senior Notes and U.S. Bank National Association f/k/a First Bank National
Association is the Indenture for the Notes. Certain of the holders of the Notes
have formed an ad hoc committee (the "Ad Hoc Committee"), which is represented
by the law firm of Wachtel, Lipton, Rosen & Katz (the "Wachtel Firm"). The Ad
Hoc Committee does not support the Plan as proposed.
The Notes and the Senior Notes are both supported by guarantees (each a
"Guarantee", collectively, the "Guarantees") executed by all of Unison
HealthCare's subsidiaries. Specifically, the Guarantees provide that each of the
subsidiaries (each a "Guarantor") jointly and severally guarantee all amounts
that become due under the Notes Indenture and the Senior Notes Indenture.
VALIDITY OF THE UPSTREAM GUARANTEES.
As "upstream guarantees" - one where a subsidiary guarantees the debt
of its parent - the Guarantees provided by the subsidiary Debtors are subject to
scrutiny as possible fraudulent transfers. Debtors take the position that the
Guarantees are valid and would withstand an attack that they constitute
fraudulent conveyances. Generally, a guarantee by a corporation of another's
indebtedness may be a fraudulent transfer if the corporation does not receive
reasonably equivalent value and is insolvent or rendered insolvent by the
guarantee. See 11 U.S.C. Section 548. Because a subsidiary guarantor may not
receive direct and cognizable value in return for obligating itself for the
benefit of the parent, such guarantees are closely examined in any subsequent
bankruptcy of the guarantor. Debtors submit that the Guarantees in the instant
case would not be subject to fraudulent conveyance attack because: (1) the
subsidiary Debtors each received reasonably equivalent value in exchange for
providing the Guarantees; and (2) regardless of the value given to the
subsidiary Debtors, the Indentures limit each Guarantee so that it will not
render the guarantor insolvent for fraudulent conveyance purposes.
THE GUARANTORS RECEIVED REASONABLY EQUIVALENT VALUE. The question of
whether an upstream guarantee constitutes a fraudulent conveyance is most often
raised because the guarantor/subsidiary is usually not the direct beneficiary of
the loan for which it has issued a guarantee. The issue then becomes whether the
guarantor received an indirect benefit from the loan made to its parent. The
weight of recent authority acknowledges that indirect benefits received by a
guarantor may constitute reasonably equivalent value. This conclusion is reached
utilizing two related doctrines -- the indirect benefits and the identity of
interests doctrines. See Rubin V. Manufacturers Hanover Trust Co., 661 F.2d 979
(2d Cir. 1981).
Under the indirect benefits doctrine, it is not necessary for the
guarantor to receive the actual proceeds from the loan to receive benefit. Such
value may be conferred indirectly, via the original recipient of the loan.
Alternatively, fair consideration may be found where the consideration given to
one party in return for the guarantee of another, redounds sufficiently to the
benefit of the guarantor as to constitute reasonably equivalent value for
fraudulent conveyance purposes. See Mellon Bank, N.A. v. Metro Communications,
Inc., 945 F.2d 635 (3rd Cir. 1991), cert. denied sub nom. Committee of Unsecured
Creditors v. Mellon Bank, N.A. 503 U.S. 937, 112 S.Ct. 1476 (1992); Rubin, 661
F.2d 979; In re Rodriguez, 895 F.2d 725 (11th Cir. 1990); Telefast, Inc. v.
VU-TV, 591 F. Supp. 1368 (D.N.J. 1984)(lack of perceptible direct benefit to a
subsidiary guaranteeing the loan of its parent should not be viewed as
tantamount to a lack of fair consideration).
In the parent/subsidiary context, indirect benefits can be found in a
variety of circumstances. In one of the most common scenarios, the subsidiary
receives an indirect benefit where its upstream guarantee enables its parent to
procure a loan and the proceeds of such loan are then passed to the subsidiary.
See Rubin, 661 F.2d at 991. Courts have also found other economic benefits to
qualify as indirect benefits by applying the "identity of interests" doctrine.
See In re Tryit Enterprises, 121 B.R. 217 (Bank. S.D. Tex. 1990).
Under this doctrine, where the parties hold themselves out as a single
business enterprise, and avail themselves of the financial benefits derived from
their consolidated financial condition, fair consideration is given to the
business enterprise as a whole in exchange for the guarantees of one of the
parties. Telefest, 591 F. Supp. at 1380-81 (substantial indirect benefits may
result from the general relationship between affiliates); Tryit, 121 B.R. 217;
In re Augie/Restivo Baking Co., 87 B.R. 242 (Bankr. E.D.N.Y. 1988). For example,
in Mellon Bank, N.A. v. Metro Communications, Inc. 945 F.2d 635, 646-48 (3d Cir.
1991), the court found reasonably equivalent value for a debtor corporation's
guarantee of an affiliate's debt when the loan strengthened the corporate group
as a whole, so
30
<PAGE> 62
that the guarantor corporation would benefit from "synergy" within the corporate
group. The Mellon court stated that indirect benefits included intangibles such
as goodwill and an increased ability to borrow working capital. Id. at 647-48.
Similarly, in In re Xonics Photochemical, Inc., 841 F.2d 198 (7th Cir. 1988),
the court recognized the ability of a smaller company to use the distribution
system of a larger affiliate as an indirect benefit as well. See also Telefest,
591 F. Supp. at 1380-81 (indirect benefits to a guarantor exist when "the
transaction of which the guaranty is a part may safeguard an important source of
supply, or an important customer for the guarantor").
Debtors submit that under the facts of the instant case, a court would
find that the subsidiary Guarantors received fair consideration in exchange for
the Guarantees. Proceeds from the Notes and the Senior notes flowed directly
through to satisfy obligations of a number of the subsidiaries providing
Guarantees. As reflected in the liquidation analysis attached hereto as Exhibit
"E," Debtors have allocated the proceeds of the Notes to individual subsidiary
Debtors. The proceeds were used to acquire assets and/or for working capital
purposes. See "LIQUIDATION ANALYSIS." Moreover, Debtors assert that there exists
a unity of interest among Unison Healthcare and its subsidiaries such that they
should be viewed as a single business enterprise. As a result, in addition to
the actual proceeds received, there is substantial evidence that the Guarantors
received significant indirect benefits as well. See "OTHER SIGNIFICANT
PROVISIONS OF THE PLAN - Substantive Consolidation."
All of the subsidiary Debtors, except Quest, are wholly-owned by Unison
Healthcare. All operations and corporate business strategies are formulated on a
consolidated basis such that the interests of the unified enterprise are
paramount and are the key to the success of all of the individual entities that
make it up. Without the Guarantees provided by its subsidiaries, Unison
Healthcare would not have been able to successfully issue the Notes and the
Senior Notes and obtain the proceeds therefrom. The proceeds of the Notes
allowed Unison to complete the acquisition of businesses that it believed would
positively contribute to the synergy of the overall business enterprise. As
noted above, it also allowed Unison Healthcare and its subsidiaries to satisfy
obligations incurred at the subsidiary level. The consideration received from
the issuance of the Notes and the Senior Notes to Unison Healthcare was, in
reality, consideration given to all of the Debtor subsidiaries. Completing the
note offerings helped to financially strengthen not only Unison Healthcare, but
the entire Unison business enterprise. Consequently, under the indirect benefit
test, the subsidiary Debtors received reasonably equivalent value for the
Guarantees.
THE GUARANTEES ARE LIMITED. Alternatively, assuming arguendo, that the
subsidiary Debtors did not receive reasonably equivalent value for the
Guarantees, the Guarantees would still withstand a fraudulent transfer attack.
Both the Notes Indenture and the Senior Notes Indenture provide the following
limitation to the Guarantees:
The obligation of each Guarantor will be limited to the
maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after
giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations
of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the
obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to
a contribution from each other Guarantor in a pro rata amount
based on the Adjusted Net Assets of each Guarantor.
A finding that a transaction constitutes a fraudulent conveyance where
no actual fraud is alleged requires that two elements be shown. The first
element, as discussed above, requires that the debtor receive less than
reasonably equivalent value in exchange for the transfer or obligation. Second
the debtor must, on the date of the transfer, be insolvent or rendered insolvent
by the transaction. See 11 U.S.C. Section 548(a)(2). The limiting language used
in the instant case prevents the second element from occurring. The Indentures
provide that the obligation of each Guarantor is limited to an amount that will,
after giving effect to all liabilities of such Guarantor, including those
arising in connection with Guarantees, result in obligations of such Guarantor
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Thus, a Guarantor can not be rendered insolvent as a result of
providing a Guarantee.
31
<PAGE> 63
SUMMARY. Debtors take the position that the Guarantees are valid and would
be upheld if attacked on fraudulent conveyance grounds. The limiting language in
the Indentures limits the effectiveness of each Guarantee so that it would not
render the Guarantor insolvent for fraudulent conveyance purposes. Moreover,
under existing case law, the subsidiary Debtors providing the Guarantees
received reasonably equivalent value in exchange for the Guarantees. The
subsidiary Debtors received both direct and indirect benefits from the issuance
of the Notes and the Senior Notes. Proceeds from the issuance were used to
satisfy subsidiary obligations. Alternatively, given the unity of interest
between Unison Healthcare and its subsidiaries, the Guarantors, as part of the
Unison family, shared in the overall benefit conferred by the Notes and Senior
Notes transactions.
SELECTED FINANCIAL INFORMATION
The selected financial data presented below are derived from Unison's
audited financial statements for the years ended December 31, 1995, 1996 and
1997. The audited financial statement for the year ended December 31, 1997 and
notes thereto is attached as Annex 2 hereto.
32
<PAGE> 64
UNISON
(dollars in thousands, except per share)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995(1) 1996(1) 1997(1)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $ 68,488 $ 148,674 $ 224,366
Expenses:
Wages and related 35,047 85,789 116,137
Other operating 24,032 64,771 84,566
Rent 6,673 15,658 16,119
Interest 1,176 5,824 20,076
Depreciation and 1,311 4,561 9,974
amortization
Impairment losses and
Other charges -- 3,865 27,185
----------- ----------- -----------
Total expenses 68,239 180,468 274,057
----------- ----------- -----------
Income (loss) before income taxes 249 (31,794) (49,691)
Income tax expense (benefit) 132 (8,356) (2,480)
----------- ----------- -----------
Net income (loss) $ 117 $ (23,438) $ (47,211)
=========== =========== ===========
Net income (loss) per share $ 0.05 $ (5.01) $ (7.41)
Shares used in per share
calculation 2,280,213 4,676,037 6,370,834
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 6,169 $ 17,409 $ 5,295
Working capital (deficiency) (927) (13,955) (151,068)
Total assets 81,301 230,921 192,167
Total debt 26,737 157,138 172,797
Stockholders' equity (deficit) 20,903 11,689 (34,034)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995(1) 1996(1) 1997(1)
<S> <C> <C> <C>
OTHER DATA:
Skilled nursing facilities(2):
Number of facilities 45 54 49
Number of licensed beds 4,629 5,455 4,839
Patient days 581,410 1,203,655 1,524,025
Assisted living facilities(2):
Number of facilities 3 6 6
Number of units 229 325 325
Sources of patient revenues:
Medicare 26.9% 29.5% 32.1%
Private pay 17.2 17.0 16.2
----------- ----------- -----------
Quality mix 44.1 46.5 48.3
Medicaid 55.9 53.5 51.7
----------- ----------- -----------
Total 100.0% 100.0% 100.0%
=========== =========== ===========
</TABLE>
33
<PAGE> 65
(1) All acquisitions which occurred in 1995 and 1996, except for the merger
with Ampro, are reflected from the date of each acquisition in the
historical operating results of the Company.
(2) Number of facilities, beds and units expressed are at end of period
RESULTS OF OPERATIONS
For the year ended December 31, 1997, Unison reported a net loss of $47.2
million compared to a net loss of $23.4 million for 1996 and net income of
$117,000 in 1995. The Company recorded charges for the write-down of impaired
assets and reserves for disposition costs amounting to $27.2 million in 1997 and
$3.9 million in 1996. Net loss for the eight months ended August 31, 1998
amounted to $11.8 million.
Revenues increased to $224.4 million in 1997 from $148.7 million in 1996
and $68.5 million in 1995. These increases are due primarily to acquisitions and
the growth in ancillary services provided, both to Unison facilities and
unrelated entities. Revenues for the eight months ended August 31, 1998 amounted
to $133.3 million.
Wages and related expenses amounted to $116.1 million in 1997 compared to
$85.8 million in 1996 and $35.0 million in 1995. As a percentage of revenues,
wages and related expenses increased from 51.2% in 1995 to 57.7% in 1996, and
decreased to 51.8% in 1997. The decrease from 1996 to 1997 is a result of
improved controls over labor costs in the Company's facilities and reductions in
corporate overhead. For the eight months ended August 31, 1998, wages and
related expenses amounted to $68.5 million, or 51.4% of revenues.
Other operating expenses amounted to $84.6 million in 1997 compared to
$64.8 million in 1996 and $24.0 million in 1995. As a percentage of revenues,
wages and related expenses increased from 35.1% in 1995 to 43.6% in 1996, and
decreased to 37.7% in 1997. The decrease in 1997 is a result of the Company's
cost containment initiatives. For the eight months ended August 31, 1998, other
operating expenses amounted to $48.5 million, or 36.4% of revenues.
Interest expense increased to $20.1 million in 1997 from $5.8 million in
1996 and $1.2 million in 1995. The increase is due to the sale of the Notes on
October 31, 1996 as well as increased borrowings for working capital. Interest
expense for the eight months ended August 31, 1998 amounted to $10.5 million.
Following approval of the Plan, the Company's leverage will be
substantially reduced. Management projects that the Company will have sufficient
cash flow to meet its debt service obligations and working capital requirements.
SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
COMMENCEMENT OF THE CHAPTER 11 CASES.
On May 28, 1998 (the "Petition Date"), Unison Healthcare and twenty-nine
(29) of its subsidiaries filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. Three Unison subsidiaries, BritWill I, BritWill II and
BritWill Indiana had previously filed voluntary Chapter 11 petitions on January
7, 1998 (the "BritWill Petition Date"). All thirty-three (33) cases were
procedurally consolidated for administrative purposes and have been jointly
administered under Case No. 98-06583-PHX-GBN. Since the Petition Date, the
Unison Debtors and the BritWill Debtors have operated their businesses and
managed their properties as debtors-in-possession, under the authority of
Sections 1107(a) and 1108 of the Bankruptcy Code. No motions seeking the
appointment of a trustee have been filed.
34
<PAGE> 66
THE BRITWILL DEBTORS.
FIRST DAY ORDERS. The BritWill Debtors were precluded by their Chapter 11
filings from continuing certain activities vitally necessary to the continued
operation of their business. Accordingly, during the initial days of these
cases, the BritWill Debtors sought and received Bankruptcy Court approval to:
(i) operate their consolidated cash management system and maintain certain bank
accounts; (ii) continue to make certain payments to or for the benefit of
employees; and (iii) enter into a postpetition financing arrangement.
POSTPETITION FINANCING. On the BritWill Petition Date, the BritWill
Debtors obtained Bankruptcy Court approval for the interim use of cash
collateral. Subsequently, the BritWill Debtors negotiated with HCFP to provide
debtor-in-possession financing ("DIP Financing") to such entities pursuant to
Section 364(c) and (d). A hearing was held on January 29, 1998, at which time
the Bankruptcy Court approved the financing on a final basis. The BritWill
Debtors' DIP Financing Order terminates unless extended on or about November 28,
1998.
OMEGA'S LIFT STAY MOTION. On February 18, 1998, Omega filed a motion for
relief from stay (the "Stay Relief Motion") seeking termination of the automatic
stay with respect to fourteen nursing homes that are the subject of three Master
Leases between Omega and the BritWill Debtors. Omega asserts that the Master
Leases terminated prior to the BritWill Petition Date and, therefore, Omega is
within its rights to evict the BritWill Debtors from the facilities in question.
The BritWill Debtors, with the support of Unison and the Creditors' Committee,
sought unsuccessfully to have the motion converted to an adversary proceeding.
Prior to the hearing on the Stay Relief Motion in July 1998, Omega and the
BritWill Debtors stipulated to a 90-day continuance of the hearing, given the
anticipated filing of the Plan and resolution of Omega's claims. Discovery and
other pretrial matters were reactivated in October 1998. Oral arguments on the
Stay Relief Motion are scheduled to be heard on December 10, 1998.
UNSECURED CREDITORS' COMMITTEE. Upon the filing of the BritWill Debtors'
Chapter 11 Cases, the United States Trustee ("UST") filed notice of the
appointment of the Creditors' Committee. Shortly thereafter, the Creditors'
Committee retained Milbank, Tweed, Hadley & McCloy (the "Milbank Firm") as
counsel. Given the relatedness of the Debtors and the significant involvement of
the Creditors' Committee and its counsel in the BritWill Debtors' Chapter 11
Cases, the Unison Debtors sought to have a joint committee appointed upon the
commencement of the Unison Debtors' Chapter 11 Cases. On the Petition Date, the
Court authorized the appointment of a joint committee and on July 1, 1998, the
UST filed a notice of second amended appointment, which identified the following
creditors to the joint Creditors' Committee:
<TABLE>
<S> <C>
IBJ Schroder Bank & Trust Company Freedom Medical/formerly Tri-Med,
One State Street Inc.
New York, NY 10004 3799 W. S.R. 62, #104
Boonville, IN 47601
Sundance Rehabilitation Corporation Kinetic Concepts Inc.
3802 W. 96th Street, #100 8023 Vantage
Indianapolis, IN 46468 San Antonio, TX 78230
Columbia Medical Center of Sherman Laidlaw & Co.
111 Gallagher Drive 100 Park Avenue
Sherman, TX 75090 New York, NY 10017
Healthcare Services Group, Inc. U.S. Bank National Association,
2643 Huntingdon Pike f/k/a/ First Bank Association,
Huntingdon Valley, PA 19006 180 E. 5th Street, Suite 200
St. Paul, MN 55101
RCS Subacute, Inc.
3901 W. 86th Street, #397
Indianapolis, IN 46268
</TABLE>
35
<PAGE> 67
Debtors have kept the Creditors' Committee informed about their business
operations and have responded to requests for information. Debtors have
discussed the terms of the Plan with the Creditors' Committee and have sought
the approval of the Creditors' Committee for proposed actions outside the
ordinary course of Debtors' business operations. The Creditors' Committee and
its professional advisors consult regularly with Debtors and Debtors'
professionals regarding the administration of Debtors' Chapter 11 Cases. The
Creditors' Committee supports the Plan as proposed.
THE UNISON DEBTORS.
FIRST DAY ORDERS. The Unison Debtors were precluded by their Chapter 11
filings from continuing certain activities vitally necessary to the continued
operation of their businesses. Accordingly, in the initial days of these cases,
the Unison Debtors sought and received Bankruptcy Court approval to: (i) operate
their consolidated cash management system and maintain certain bank accounts;
(ii) pay certain prepetition claims of vendors and suppliers identified by the
Unison Debtors as being essential; (iii) continue to make certain payments to or
for the benefit of employees; (iv) use cash collateral; and (v) enter into a
postpetition financing arrangement.
CASH COLLATERAL. As part of the first day orders, the Bankruptcy Court
approved the use of cash collateral by: (i) Signature and six of its
subsidiaries (the "Signature Debtors"); and (ii) Quest, Ampro and Sunbelt
Therapy and each of their respective subsidiaries and affiliates (the "Ancillary
Debtors").
Subsequent to the entry of the first day order, Unison negotiated the
terms of an agreed order for the use of cash collateral by the Signature Debtors
with the secured creditor, NHI. In addition to replacement liens in its
collateral, NHI is also granted as adequate protection a monthly payment equal
to NHI's pre-petition debt service.
Parties purporting to hold security interests in the Ancillary Debtors'
cash collateral, including Kremser And Affiliates and Whitehead And Affiliates,
filed objections to the Ancillary Debtors continued use of cash collateral. The
objections were resolved on an interim basis by, inter alia, the granting of
replacement liens and the requirement that the Ancillary Debtors produce certain
financial and operational information to the objecting parties. On September 4,
1998, the Bankruptcy Court entered the fourth interim order authorizing the
Ancillary Debtors' use of cash collateral, which is in effect through November
1998.
POSTPETITION FINANCING. Prior to the Petition Date, Unison and certain of
its subsidiaries that operate healthcare facilities negotiated with HCFP to
provide DIP Financing to such entities pursuant to Section 364(c) and (d). An
interim order approving the financing was entered on the Petition Date. A final
hearing was held on June 18, 1998, at which time the Bankruptcy Court approved
the financing on a final basis. The Unison Debtors' DIP Financing order
terminates unless extended on or about November 28, 1998.
MATTERS PERTAINING TO ALL DEBTORS.
MOTION TO APPOINT AN EXAMINER. On or about July 17, 1998, BritWill
Investments and UNHC Real Estate Holdings, Inc. (Brit-Texas) filed a motion,
pursuant to Section 1104(c) of the Bankruptcy Code, requesting that the
Bankruptcy Court order the appointment of an examiner in Debtors' Chapter 11
Cases. The Debtors responded by agreeing to the appointment of an examiner but
requested that the scope of the examiner's duties be limited. On September 11,
1998, the Bankruptcy Court entered an order appointing an examiner in these
cases and limiting the scope of the examiner's duties to an examination of the
claims of related party creditors in these cases. Subsequently, the UST
appointed Keith J. Shapiro, an attorney with the firm of Holleb & Coff in
Chicago, as the examiner. Mr. Shapiro has extensive experience counseling
parties involved in health care workouts and bankruptcies and recently played an
integral role in drafting new health care bankruptcy legislation. As of the date
hereof, no official report has been issued by the examiner.
CLASS ACTION LITIGATION. Certain of Debtors' shareholders have filed
lawsuits asserting securities law violations and other tort claims against
certain Debtors and certain of their pre-petition officers and directors. The
class action, Martin Grossman, et al. v. Unison Healthcare Corporation, et al.
(CIV-97-0583-PHX-SMM), was consolidated in the United States District Court for
the District of Arizona in September 1997. Also pending is a class action
lawsuit captioned Van Dyke v. Cruttenden Roth, Inc., et al., Case No. 779111 in
Orange County Superior Court (together with the Grossman action, the "Securities
Action"). In October 1998, the parties to the Securities Action entered into a
36
<PAGE> 68
"Stipulation of Settlement," subject only to approval by the Bankruptcy Court.
In June 1998, an action, John D. Filkoski, et al. v. Unison Healthcare
Corporation, et al., 98-CV-4270 (Dist. Ct. Colo., Denver, Co.), was commenced in
Colorado District Court, County of Denver. Plaintiffs in the Filkoski action
voluntarily dismissed the Company from the litigation on June 24, 1998. The
Filkoski litigation continues against certain current and former officers and
directors of Unison Healthcare in their individual capacities. The automatic
stay prohibits the continuation of the class actions against any of the Debtors.
DEBTORS' PREFERENCE LITIGATION. On July 31, 1998, certain of the Debtors
commenced an adversary proceeding (Adversary No. 98-540) against Whitehead And
Affiliates and Kremser And Affiliates to set aside certain alleged preferential
transfers arising in connection with the BritWill Acquisition, the Signature
Acquisition and the 1997 Loans. On September 1, 1998, Whitehead and Affiliates
filed "Defendants' Motion to Dismiss" ("Motion to Dismiss") and the Court set a
hearing for October 6, 1998. Kremser and Affiliates filed its Answer and
Counter-Claim on September 22, 1998. At the October 6, 1998 hearing, the Court
ordered the Debtors to amend the complaint no later than October 20, 1998, to
address issues raised in the Motion to Dismiss. Any responses by Whitehead and
Affiliates or Kremser and Affiliates are due by November 20, 1998. The Plan also
preserves numerous claims and causes of action held by Debtors. See "OTHER
SIGNIFICANT PROVISIONS OF THE PLAN -- Preservation and Prosecution of Litigation
Claims."
RETENTION OF PROFESSIONALS. On January 8, 1998, the BritWill Debtors
sought Bankruptcy Court approval of their retention of Gallagher & Kennedy, P.A.
(the "Gallagher Firm"), as counsel to the BritWill Debtors. The retention of the
Gallagher Firm was approved by order dated January 12, 1998. With respect to the
Unison Debtors, the Bankruptcy Court entered an order on May 28, 1998, approving
the retention of Squire, Sanders & Dempsey L.L.P. (the "Squire Firm"), as
counsel to the Unison Debtors. On that same date, the Bankruptcy Court also
entered an order approving the retention of Gordian Group L.P. (the "Gordian
Group") as financial advisor to the Debtors. The terms of the Gordian Group's
retention was subsequently modified by orders dated July 6, 1998 and October 7,
1998.
The Debtors have also obtained Bankruptcy Court approval for the retention
of the following additional professionals:
1. Brobeck, Phleger & Harrison, LLP (the "Brobeck Firm"), to represent
the Debtors in connection with the settlement of certain securities
claims litigation.
2. PricewaterhouseCoopers ("PwC"), to provide litigation and financial
support with respect to the investigation of potential avoidance
actions, preferences, fraudulent conveyances and other causes of
action, and preparation of a solvency analysis. PwC has also been
retained as claims agent in these cases.
3. Ernst & Young ("E&Y"), to provide general accounting and audit
related services to the Debtors, to include specifically, as of
October 6, 1998, financial audits, and the audit of several
contribution plans.
4. Various ordinary course professionals (the "Ordinary Course
Professionals") who provide legal and accounting services to the
Debtors in connection with routine collection matters, insurance
claims, regulatory matters and other ordinary course matters that
are not directly related to the Debtors' Chapter 11 cases. These
Ordinary Course Professionals have been retained in accordance with
Section 328 of the Bankruptcy Code.
By order dated February 23, 1998, the Creditors' Committee was authorized
to retain the Milbank Firm as counsel to the Committee. On March 6, 1998, the
Committee sought Bankruptcy Court approval of its retention of Chanin and Co.
LLC ("Chanin") as financial advisors to the Creditors' Committee. Chanin's
retention was approved by order dated March 10, 1998, and subsequently modified
by order dated September 11, 1998.
DEBTORS' ESTIMATE OF PROFESSIONAL FEES AND EXPENSES. As of October 1,
1998, the Gallagher Firm has filed two interim applications for compensation and
reimbursement of expenses. On June 16, 1998, the Bankruptcy
37
<PAGE> 69
Court approved the first interim application of the Gallagher Firm and
authorized the BritWill Debtors to pay $112,693.00 in fees and $19,120.35 in
costs. The second interim application filed on September 25, 1998, has been set
for hearing on November 4, 1998. Debtors are authorized to make payments in the
ordinary course to the Ordinary Course Professionals without the need for
further application and order of court.
The following chart sets forth the fees and costs incurred by the
professionals retained by the Debtors and the Creditors' Committee through
August 31, 1998.
<TABLE>
<CAPTION>
FEES THROUGH
FIRM AUGUST 31, 1998
- ---- ---------------
<S> <C>
HOURLY PROFESSIONALS
Squire Firm $504,809
Milbank Firm 84,260
Gallagher Firm(10) 211,681
PwC(11) 42,000
FIXED FEE PROFESSIONALS(12)
Gordian Group(13) $195,000
Chanin 200,000
E&Y(14) 80,000
</TABLE>
As of August 31, 1998, the total fees and costs of all retained
professionals is approximately $1.3 million (excluding Ordinary Course
Professionals). Debtors estimate that a total of $2.75 million in professional
fees will be incurred through confirmation of the Plan.
WAYLAND INVESTMENT FUND, LLC OBJECTION TO DISCLOSURE STATEMENT. On
September 17, 1998, Wayland Investment Fund, LLC ("Wayland") filed an objection
to the Disclosure Statement. In its objection, Wayland argued that the
Bankruptcy Court could not approve the Disclosure Statement on the grounds that
the Plan is unconfirmable. Debtors assert that Wayland's objection is, in
reality, an objection to confirmation of the Plan and, therefor, should be heard
and considered at the confirmation hearing. At the October 1, 1998 hearing on
the Disclosure Statement, the Debtors agreed to include in the amended
disclosure statement a summary of Wayland's objection and the Debtors' response.
Attached hereto as Exhibit "C" is a summary of Wayland's objection prepared by
Wayland's counsel.
- ------------
(10) Gallagher Firm received full payment of $131,813.35 in fees and costs on
its First Interim Application by order dated July 16, 1998. Gallagher's Second
Interim Application was filed on September 25, 1998 for $79,868 in fees and
$6,342.91 in costs for a total Application of $86,210.91.
(11) The amount listed also reflects fees and costs incurred by PwC as
claims agent.
(12) The Brobeck Firm's compensation will paid by the Debtors' insurance
carrier as part of the settlement of certain securities claims litigation.
(13) The Gordian Group's fees for the period May 28, 1998 through August 31,
1998 were approved on a flat fee basis in the amount of $65,000 per month under
Section 328 of the Bankruptcy Code. Debtors have paid the Gordian Group through
August the amount of $195,000. From and after September 1, 1998, both the
Gordian Group's monthly fees and Chanin's monthly fees will accrue at their
respective flat fee rates, but will be subject to a "reasonableness" review
under Section 330 of the Bankruptcy Code.
(14) E&Y has been retained on a yearly flat fee basis for the
audit-related services it has and will provide to the Debtors.
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<PAGE> 70
The Debtors disagree in every respect with the arguments propounded by
Wayland regarding the confirmability of the Plan. The Debtors have attached as
Exhibit "D" hereto the reply to the Wayland objection filed by IBJ Schroder Bank
& Trust Company, as indenture trustee for the Senior Notes, which the Debtors
believe best summarizes the arguments in opposition to Wayland's objection.
DEBTORS' SCHEDULES AND STATEMENTS OF AFFAIRS. On July 16, 1998, Debtors,
in accordance with their internal accounting practices and the approved method
of filing monthly operating reports with the UST, filed Schedules and Statements
of Affairs (the "Schedules"), consolidated for each of Debtor's four (4)
business groups. The Schedules are grouped as follows: (i) Unison Healthcare and
the nineteen (19) subsidiaries that operate the nursing facilities; (ii) Quest,
which operates the pharmacy business; (iii) the six (6) subsidiaries that make
up the therapy business; and (iv) the four (4) subsidiaries that make up the
laboratory business. In response to a motion requesting that the Bankruptcy
Court order Debtors to file separate Schedules for each debtor entity, Debtors
volunteered to file supplemental schedules (the "Supplemental Schedules") for
the nineteen (19) subsidiaries that operate Debtors' nursing facilities. On
October 1, 1998, the Bankruptcy Court authorized Debtors to file the
Supplemental Schedules and otherwise ruled that the Schedules previously filed
were sufficient. Debtors anticipate filing the Supplemental Schedules on or
before October 28, 1998.
THE BAR DATE FOR FILING PROOFS OF CLAIM. By order dated August 14, 1998,
the Bankruptcy Court set September 21, 1998 (the "Bar Date"), as the bar date
for filing claims, other than administrative claims, against Debtors' estates.
Approximately 1,025 claims were filed on or before the Bar Date.
THE PLAN OF REORGANIZATION
A copy of the Plan accompanies this Disclosure Statement as Annex 1 and is
incorporated herein by reference. The following summary of the material
provisions of the Plan is qualified in its entirety by reference to all of the
provisions of the Plan, including the definitions therein of certain terms used
below.
BRIEF EXPLANATION OF CHAPTER 11 REORGANIZATION.
Chapter 11 of the Bankruptcy Code is the principal reorganization chapter
of the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize
its business for the benefit of itself and its creditors and shareholders.
Confirmation of a plan of reorganization is the principal objective of a Chapter
11 case.
In general, a Chapter 11 plan of reorganization (i) divides claims and
equity interests into separate classes, (ii) specifies the property that each
class is to receive under the plan, and (iii) contains other provisions
necessary to the reorganization of the debtor. A Chapter 11 plan may specify
that certain classes of claims or equity interests are either to be paid in full
upon the effective date of the plan, reinstated or their legal, equitable and
contractual rights are to remain unchanged by the reorganization effectuated by
the plan. Such classes are referred to under the Bankruptcy Code as "unimpaired"
and, because of such favorable treatment, are deemed to accept the plan.
Accordingly, it is not necessary to solicit votes from the holders of claims or
equity interest in such classes. A Chapter 11 plan also may specify that certain
classes will not receive any distribution of property. Such classes are deemed
to reject the plan and, therefore, need not be solicited to vote to accept or
reject the plan.
All the other classes of claims and equity interests are "impaired" claims
and equity interests which are entitled to vote on the plan. As a condition to
confirmation, the Bankruptcy Code generally requires that each impaired class of
claims or equity interests vote to accept a plan. Acceptances must be received
(i) from the holders of claims constituting at least two-thirds in dollar amount
and more than one-half in number of the allowed claims in each impaired class of
claims that have voted to accept or reject the plan, and (ii) from the holders
of at least two-thirds in amount of the allowed equity interests in each
impaired class of equity interest that have voted to accept or reject the plan.
If any class or classes of claims or equity interests entitled to vote with
respect to the plan rejects the plan, upon request of the plan proponents, the
Bankruptcy Court may nevertheless confirm the plan if certain minimum treatment
standards are met with respect to such class or classes.
Chapter 11 of the Bankruptcy Code does not require each holder of a claim
or equity interest to vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. However, the Bankruptcy Court must
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find that the plan of reorganization meets a number of statutory tests (other
than the voting requirements described in this section) before it may confirm,
or approve, the plan of reorganization. Many of these tests are designed to
protect the interest of holders of claims or equity interest who do not vote to
accept the plan of reorganization but who will nonetheless be bound by the
plan's provisions if it is confirmed by the Bankruptcy Court.
SOLICITATION OF ACCEPTANCES OF THE PLAN.
The Debtors are seeking acceptances of the Plan from holders of Allowed
Claims classified as Classes 5, 6, 7, 8, 9, 10, 11 and 14 under the Plan, which
Classes are the only impaired Classes entitled to vote under the Plan. The
holders of Notes Securities Claims (Class 12 under the Plan) are deemed to
reject the Plan.
If the requisite acceptances have been received, Debtors will use the
acceptances as evidenced by Ballots solicited pursuant to this Disclosure
Statement to seek confirmation of the Plan under Chapter 11 of the Bankruptcy
Code.
In the event that any impaired Class is determined to have rejected the
Plan in accordance with Section 1126 of the Bankruptcy Code, Debtors may use the
provisions of Section 1129(b) of the Bankruptcy Code to satisfy the requirements
for confirmation of the Plan. See "VOTING AND CONFIRMATION -- Confirmation - The
Cram Down Alternative."
Debtors believe that this Disclosure Statement complies with applicable
bankruptcy and non-bankruptcy law. This Disclosure Statement and the Plan
(delivered herewith as Annex 1, including the Plan Supplement attached thereto)
are being transmitted to all known holders of impaired claims. Debtors believe
that this Disclosure Statement contains adequate information for all holders of
impaired claims to cast an informed vote to accept or reject the Plan.
IF THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT, EACH HOLDER OF AN
IMPAIRED CLAIM WILL RECEIVE THE SAME PRO RATA CONSIDERATION AS OTHER HOLDERS OF
CLAIMS, WHETHER OR NOT SUCH HOLDER VOTED TO ACCEPT THE PLAN. MOREOVER, UPON
CONFIRMATION, THE PLAN WILL BE BINDING UPON ALL CREDITORS AND EQUITY INTEREST
HOLDERS OF DEBTORS REGARDLESS OF WHETHER OR NOT SUCH CREDITORS AND EQUITY
INTEREST HOLDERS VOTED TO ACCEPT THE PLAN.
VOTING ON THE PLAN.
As more fully described above, only impaired classes of claims and equity
interest are entitled to vote on a plan of reorganization. The Plan designates
14 separate Classes of Claims and Equity Interests - eight are impaired and,
thus, entitled to vote. The five remaining Classes under the Plan are unimpaired
and, accordingly, not entitled to vote. The members of Class 12 are deemed to
reject the Plan. For instructions on how to vote on the Plan, see "VOTING AND
CONFIRMATION."
UNIMPAIRED CLASSES.
The following Classes of Claims are not impaired under the Plan, and
pursuant to Section 1126(f) of the Bankruptcy Code, are conclusively deemed to
have accepted the Plan and are not entitled to vote on the Plan:
Class 1 Priority Wage Claims
Class 2 Priority Benefit Plans Contribution Claims
Class 3 Secured Tax Claims
Class 4 Miscellaneous Secured Claims
Class 13 Subsidiary and Affiliate Equity Interests
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CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS.
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
must classify claims against a debtor. Under Section 1122 of the Bankruptcy
Code, a plan must classify claims and equity interests into classes that contain
substantially similar claims and interests. The Plan divides the Claims of known
Creditors and the Equity Interests into Classes and sets forth the treatment
offered each Class. Debtors believe they have classified all Claims and Equity
Interests in compliance with the provisions of Section 1122 of the Bankruptcy
Code, but it is possible that a Creditor or Equity Interest holder may challenge
such classification of Claims and Equity Interests and that the Bankruptcy Court
may find that a different classification is required for the Plan to be
confirmed. In such event, it is the present intention of Debtors, to the extent
permitted by the Bankruptcy Code and the provisions of the Plan, to amend or
revoke such Plan and file an amended or different Plan that would make
modifications to the classification of Claims or Equity Interests that are
required by the Bankruptcy Court for confirmation.
SUMMARY OF TREATMENT OF AND DISTRIBUTIONS TO CREDITORS UNDER THE PLAN.
The following describes the Plan's classification of Claims against and
Equity Interests in Debtors and the treatment the holders of Allowed Claims and
Allowed Equity Interests would receive under the Plan. The treatment of Claims
set forth below is consistent with the requirements of Section 1129(a)(9)(A) of
the Bankruptcy Code.
1. UNCLASSIFIED CLAIMS. Pursuant to Section 1123(a)(1) of the Bankruptcy
Code, the following Claims are designated as unclassified under Article 3 of the
Plan.
A. ADMINISTRATIVE CLAIMS. Administrative Claims are generally any
Claims that arise after the Petition Date in conjunction with the business and
operations of the Company or the administration of the Company's Chapter 11 Case
and allowed under Section 503(b), Section 507(b) or Section 546(c)(2) of the
Bankruptcy Code and entitled to priority under Section 507(a)(1) of the
Bankruptcy Code. To the extent that a Claim is Allowed as an Administrative
Claim pursuant to Section 365(d)(3) of the Bankruptcy Code, such Claim will also
be treated as an Administrative Claim pursuant to Article 1.2 of the Plan.
Administrative Claims include, for example, quarterly fees payable pursuant to
Section 1930 of Title 28 of the United States Code, Claims for the payment of
Professional Fees, Reclamation Claims and Preserved Ordinary Course
Administrative Claims. Debtors estimate that Administrative Claims, excluding
quarterly fees and Professional Fees, total approximately $300,000.
- PROFESSIONAL FEES. Claims for Professional Fees are Claims
of professionals providing service to parties involved in the Chapter 11 Case.
These Claims are defined in Article 1.153 of the Plan. See "SIGNIFICANT EVENTS
DURING THE CHAPTER 11 CASES -- Debtors' Estimate of Professional Fees and
Expenses."
- RECLAMATION CLAIMS. These are Claims by Creditors arising
out of the sale of goods to Debtors, in the ordinary course of the Creditor's
business, provided that such Creditor has otherwise satisfied the requirements
of Section 546(c) of the Bankruptcy Code.
- PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIMS. These are
generally Claims for liabilities incurred in the ordinary course of Unison's
business during the Chapter 11 Case.
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B. TREATMENT.
GENERALLY. Each Allowed Administrative Claim (including all
accrued U.S. Trustee quarterly fees), other than Preserved Ordinary Court
Administrative Claims and Reclamation Claims, shall be paid in full in Cash (or
otherwise satisfied in accordance with its terms) upon the latest of: (a) the
Effective Date, or as soon thereafter as practicable; (b) such date as may be
fixed by the Bankruptcy Court, or as soon thereafter as practicable; (b) such
date as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (c) the tenth (10th) Business Day after such Claim is Allowed, or
as soon thereafter as practicable; and (d) such date as the holder of such Claim
and Reorganized Unison have agreed or shall agree. All requests for payment of
Administrative Claims (except for Professional Fees and Preserved Ordinary
Course Administrative Claims) must be filed by the Administrative Claims Bar
Date or the holders thereof shall be forever barred from asserting such
Administrative Claims against the Debtors and Reorganized Unison. All final
applications for allowance and disbursement of Professional Fees must be filed
by the Professional Fee Bar Date.
PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIMS. Each Allowed
Preserved Ordinary Course Administrative Claim shall be paid by Reorganized
Unison pursuant to either: (a) the terms and conditions under which such Claim
arose; or (b) in the ordinary course of Reorganized Unison's business. Such
payments shall be made by Reorganized Unison without further action by the
holder of such Claim.
HCFP DIP LOAN CLAIMS. The HCFP DIP Loan Claims shall be
Allowed Claims and paid pursuant to the terms of the DIP Financing Orders, but
in all events no later than the Effective Date.
ALLOWED PRIORITY TAX CLAIMS. Each Allowed Priority Tax Claim,
if any, will be paid in full in Cash on the Effective Date; provided, however,
that Reorganized Unison may elect to pay such Claims through deferred Cash
payments over a period not exceeding six (6) years after the date of assessment
of such Claim, of a value as of the Effective Date, equal to the amount of such
Allowed Claim. In that event, such payments shall be made in equal annual
installments of principal, plus interest accruing from the Effective Date at the
rate on the unpaid portion of Allowed Priority Tax Claim set forth in Internal
Revenue Code Sections 6621 and 6622. The first such payment shall be payable on
the latest of: (a) the Effective Date; (b) the tenth (10th) Business Day after
the date on which an order allowing such Claim becomes a Final Order; and (c)
such other time as is agreed upon by the holder of such Claim and Reorganized
Unison, provided, however, that Reorganized Unison shall have the right to
prepay any such Allowed Priority Tax Claim, or any remaining balance of such
Claim, in full or in part, at any time on or after the Effective Date, without
premium or penalty.
RECLAMATION CLAIMS. All requests for payment of Reclamation
Claims must be filed by the Bar Date or the holders thereof shall be forever
barred from asserting such Reclamation Claim against Debtors and Reorganized
Unison. Each allowed Reclamation Claim shall be paid in full in cash upon the
latest of: (i) the Effective Date, or as soon thereafter as practicable; (ii)
such date as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (iii) the tenth (10th) Business Day after such claim is Allowed
during the Chapter 11 Cases, or as soon thereafter as practicable; and (iv) such
date as the holder of such Reclamation Claim and Reorganized Unison have agreed
or shall agree.
2. CLASSIFIED CLAIMS. The treatment of Classified Claims, to the extent
Allowed, is generally discussed below. A Claim is in a particular Class only to
the extent that such Claim fits within the description of such Class and is in
such other and different Class or Classes to the extent that the remainder of
such Claim fits within the description of such other Class or Classes. The
treatment of classified Claims and the provisions governing distributions on
account of Allowed Claims is set forth in Articles 5 and 6 of the Plan. You
should refer to the Plan itself for the operative language governing the
treatment of your particular Claim.
A. CLASS 1 - ALLOWED PRIORITY WAGE CLAIM. Priority Wage Claims are
defined in Section 1.152 of the Plan as Allowed Claims entitled to priority
under Section 507(a)(3) of the Bankruptcy Code. Each holder of an Allowed
Priority Wage Claim which has not been paid as of the Effective Date will be
paid in cash, in full, as
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provided in Article 5.1 of the Plan. As of the Effective Date, Debtors estimate
that their liability for such Priority Wage Claims is zero.(15)
B. CLASS 2 - ALLOWED PRIORITY BENEFIT PLAN CONTRIBUTION CLAIMS.
These Claims are defined in Article 1.150 of the Plan as Allowed Claims entitled
to priority under Section 507(a)(4) of the Bankruptcy Code. Each holder of an
Allowed Priority Benefit Plan Contribution Claim which has not been paid as of
the Effective Date will be paid in cash, in full, as provided in Article 5.2 of
the Plan. Debtors estimate that their liability for such Priority Benefit Plan
Contribution Claims is zero.
C. CLASS 3 - SECURED TAX CLAIMS. These Claims are defined in Article
1.174 of the Plan as any Claim of any state or local governmental unit which is
secured by a lien upon property of the Company. Each holder of a Secured Tax
Claim which has not been paid as of the Effective Date shall be paid in cash, in
full, as provided in Article 5.3 of the Plan. As of the Effective Date, Debtors
estimate that their liability for such Secured Tax Claims will be $125,000.
D. CLASS 4 - MISCELLANEOUS SECURED CLAIMS. Class 4 is comprised of
Secured Claims (including the NHI Secured Claims) not otherwise classified under
the Plan. Each holder of a Miscellaneous Secured Claim shall be considered to be
in its own separate subclass within Class 4, and each such subclass shall be
deemed to be a separate Class for purposes of this Plan. Secured Claims in Class
4 will be treated in one of several alternative methods, as specified by the
Bankruptcy Code and Article 5.4 of the Plan. Debtors estimate that, as of the
Effective Date, Allowed Miscellaneous Secured Claims will be $19,512,000.
E. CLASS 5 - OMEGA SECURED CLAIMS. Class 5 consists of the Omega
Secured Claims, which are defined in Article 1.140 of the Plan. The Omega
Secured Claims is comprised of four subclaims: (1) the Omega Mortgage Guarantee
Claims; (2) the Omega Indiana Rejection Claims; (3) if on or prior to the
Effective Date Omega has acquired the interest of Brit-Texas in the Hasmark
Facilities, the Hasmark Facilities Rejection Claim; and (4) the Omega
Miscellaneous Secured Claims. As more fully set forth in Article 6.1 of the
Plan, the Omega Secured Claims shall be satisfied as follows:
1. OMEGA MORTGAGE GUARANTEE CLAIMS. In satisfaction of the
Omega Mortgage Guarantee Claims, on the Effective Date Unison and BritWill II
shall execute and deliver to Omega the New Omega Guarantee, which shall be an
absolute and unconditional guarantee of payment to supersede and replace any and
all of the Debtors' guarantees of Brit-Texas obligations. The New Omega
Guarantee shall be in an amount not to exceed $3 million and will be secured by
the New Omega Guarantee Collateral.
(a) PROVISIONS REGARDING CERTAIN BRIT-TEXAS FACILITIES. If
Omega obtains, through foreclosure or otherwise, the fee and leasehold
interests in and to the Brit-Texas Facilities free and clear of liens and
underlying encumbrances except for customary permitted exceptions and
other than the underlying leases on the leasehold facility (other than the
Hasmark Facilities, discussed in subparagraph 3 below) at any time prior
to the expiration of the Omega New Master Lease, Omega agrees to add those
facilities to the Omega New Master Lease. Upon such addition, the Minimum
Rent (as defined in the Omega New Master Lease) shall be increased by the
product of the Omega Mortgage Guarantee Claims (not including costs of
collection up to the Effective Date, which will be covered by the Closing
Allowance) and the interest rate currently in effect under the Mortgage
Note forming the bases of the Omega Mortgage Guarantee Claims; thereafter,
the Minimum Rent (as defined in the Omega New Master Lease) with respect
to the Brit-Texas Facilities shall be increased annually in the manner set
forth in Section 3.3 of the Mortgage Note.
- ------------------
(15) A number of creditors have filed Proofs of Claims asserting Priority
Wage Claims. At this time the Debtor intends to dispute such Claims.
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2. OMEGA INDIANA REJECTION CLAIM. The Omega Indiana Rejection
Claim shall be satisfied as follows: (a) the Indiana Returned Facilities shall
be turned over to Omega on the Effective Date if not surrendered prior to that
time. The Indiana Returned Facilities shall then be deleted from the Indiana
Master Lease, with a rent reduction attributable to the Indiana Returned
Facilities as set forth in Article 7.2.4 of the Plan; and (b) (i) cash in the
amount of $1 million to be paid as part of the Omega Effective Date Payment, and
(ii) the Indiana Returned Facility Note.
(a) SHARING AGREEMENT. The Indiana Returned Facility Note
shall be treated as follows with respect to the New Senior Note:
(i) If by the second anniversary after the Effective
Date, the holders of the Senior Notes receiving New Senior Notes
have not had their Claims reduced in principal by at least fifty
percent (50%) (including by virtue of the Effective Date Excess Cash
payment as referenced in Article 11.4.4(a) of the Plan) or
otherwise, then thereafter and until such time as the New Senior
Notes received by the holders of the Senior Notes are paid in full,
the Indiana Returned Facility Note shall share pari passu with such
New Senior Notes received by the holders of the Senior Notes
notwithstanding the original amortization or terms of the Indiana
Returned Facility Note (the "Sharing Agreement");
(ii) The Sharing Agreement shall only be applicable as
to payment of Cash, or other property actually received in payment
of the Indiana Returned Facilities Note, and shall not constitute a
sharing or assignment of collateral securing the Indiana Returned
Facility Note or the New Senior Note, respectively;
(iii) The Sharing Agreement shall only apply if there is
no continuing default by Reorganized Unison on the obligations to
Omega under the Plan (including under the documents executed in
connection with the Plan);
(iv) Any principal deferred on the Indiana Returned
Facility Note as a result of the Sharing Agreement shall bear
interest at the rate of ten percent (10%) per annum from the date of
deferral until paid;
(v) Notwithstanding any other provision in the Indiana
Returned Facility Note, if the Sharing Agreement becomes operative,
the deferral of the principal on the Indiana Returned Facility Note
shall not be a default under that note or other obligations of
Reorganized Unison to Omega; and
(vi) Notwithstanding any of the foregoing, no one other
than the holders of the New Senior Notes received by the holders of
the Notes shall have any rights with respect to the Sharing
Agreement. The provisions of this subparagraph (a) is a voluntary
accommodation by Omega for the benefit of the New Senior Notes
received by the holders of the Senior Notes. The New Senior Notes
received by other Creditors under Article 6.7.1 of the Plan shall
not share in the benefits of this accommodation and intercreditor
agreement.
3. HASMARK FACILITIES REJECTION CLAIM. Assuming that BritWill
II rejects the leases of the Hasmark Facilities, the Hasmark Facilities
Rejection Claim shall be satisfied as follows:
(a) PROVISIONS IF OMEGA HAS ACQUIRED HASMARK FACILITIES. If
prior to or on the Effective Date Omega has acquired the interest of
Brit-Texas in the Hasmark Facilities, the Hasmark Facilities Rejection
Claim shall be satisfied as follows:
(i) On the Effective Date, the Hasmark Facilities shall
be deleted from the lease pursuant to which they are leased to
BritWill II; and Omega shall be paid the sum of: (1) the unpaid rent
owing thereon (if any) pursuant to Article 6.2.2(c) of the Plan; and
(2) $1 million in Cash as part of the Omega Effective Date Payment
in full satisfaction of the Hasmark Facilities Rejection Claim.
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(ii) Upon payment of the amount set forth above, the
Minimum Rent as defined in, and under, the Omega New Master Lease
shall be reduced $120,000 per year, commencing with a Pro Rata
reduction on the Effective Date upon payment of the amount set forth
above. Moreover, the rent for the period of January through April,
1998 attributable to the Brit-Texas Facilities in the approximate
amount of $300,000 which was paid to Brit-Texas (which did not, in
turn pay those rents to Omega) will be added as an additional lease
expense of the Omega New Master Lessees, and be fully capitalized
under the Omega New Master Lease and this Plan.
(iii) Simultaneously with the payment of amounts
required by subparagraph (a)(i) above, Omega shall promptly quit
claim to Reorganized Unison or its assignee Omega's interest in the
Hasmark Facilities, which transfer shall be without any
representations, express or implied, with respect to the nature of
title being transferred.
(b) PROVISIONS IF OMEGA DOES NOT ACQUIRE HASMARK FACILITIES.
If prior to or on the Effective Date Omega has not acquired the interest
of Brit-Texas in the Hasmark Facilities, BritWill II and Omega will use
commercially reasonable efforts to enter into an agreement with Brit-Texas
which will include the following provisions:
(i) BritWill II will pay $1 million in cash in full
satisfaction of the Hasmark Facilities Rejection Claim;
(ii) The payment to be made by BritWill II pursuant to
clause (i) above shall be made directly to Omega in accordance with
the terms of the "Subordination Agreement-Debt" dated November 30,
1993, by and between Omega, BritWill Healthcare, BritWill
Investments Corporation, Whitehead Family Investments, Ltd. and
Brit-Texas, and such amount shall be credited against the amount
owing by Brit-Texas to Omega pursuant to its $10,200,000 Mortgage
Note dated November 30, 1993;
(iii) The rent payments owing by BritWill II to
Brit-Texas with respect to the Brit-Texas Facilities shall be
reduced by $120,000 per year; and
(iv) BritWill II will waive all subrogation rights which
it may have as a consequence of the $1 million payment to be made
pursuant to clause (i).
(c) OTHER ALTERNATIVES. If prior to or on the Effective Date:
(i) Omega has not acquired the interest of Brit-Texas in
the Hasmark Facilities, and BritWill II and Omega are unable to
enter into an agreement with Brit-Texas as contemplated by
subparagraph (b) above, then Omega and BritWill II shall enter into
an agreement which, taking into account the reduction in rent which
BritWill II is required to pay on the Hasmark Facilities Rejection
Claim, will, to the fullest extent practical, result in the same
economic burdens and benefits to Omega and BritWill II as would
result from the agreement contemplated by (b) above.
(ii) Omega has not acquired the interest of Brit-Texas
in the Hasmark Facilities, and if thereafter Omega acquires such
interest, and provided that the provisions of subparagraphs (b) or
(c), as appropriate, have been implemented, Omega shall promptly
quit claim to Reorganized Unison or its assignee its interests in
the Hasmark Facilities, which transfer shall be without any
representations, express or implied, with respect to the nature of
title being transferred.
(d) OMEGA UNDER NO OBLIGATION. Debtors and Reorganized Unison
acknowledge and agree that: (i) Omega is under no obligation to continue
its efforts to foreclose on the Hasmark Facilities; (ii) if Omega
forecloses on the Hasmark Facilities, the amount, if any, which Omega bids
for the Hasmark Facilities (or any portion thereof) at any foreclosure
sale relating to the Hasmark Facilities will be within the sole discretion
of Omega; and (iii) Omega may not acquire fee or leasehold interest to the
Hasmark Facilities.
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4. OMEGA MISCELLANEOUS SECURED CLAIMS. The Allowed Omega
Miscellaneous Secured Claim shall (a) be paid in Cash on the Effective Date; or
(b) the collateral for such loans returned to Omega in satisfaction of such
Claims; or (c) be provided such other treatment as agreed to between Omega and
the Debtors.
5. FEES AND EXPENSES OF OMEGA. Any and all fees and costs of
Omega relating to the Allowed Omega Secured Claims shall be paid to Omega upon
the closing of the Signature Sale Leaseback Transaction, which fees and costs
shall be Allowed in the amount of $1 million (the "Closing Allowance"), which
amount shall cover (irrespective of the actual amount thereof): (a) a two
percent (2%) commitment fee associated with the Signature Sale Leaseback
Transaction as discussed in Article 7.1 of the Plan; (b) any and all past and
prospective legal fees and other costs and expenses owed to Omega relating to
the Omega Secured Claims or otherwise; (c) all closing costs for the Signature
Sale Leaseback Transaction and the Omega New Master Lease. The Closing Allowance
will not include the security deposits required under the Omega New Master
Lease.
6. NO PREJUDICE TO OMEGA'S RIGHTS. Notwithstanding any of the
foregoing, no provision in the Plan or the Term Sheet shall be construed as or
otherwise deemed to prejudice, impair or otherwise adversely effect any rights
Omega has or may have against any Person other than Unison and Reorganized
Unison, including but not limited to Whitehead And Affiliates and the Omega
Subordination Rights, except as expressly provided in Article 6.2.2 of the Plan.
7. ADHERENCE TO OMEGA SUBORDINATION AGREEMENTS. Except as to
the treatment in this Plan with respect to payments of any Allowed Claims in
Classes 6 (if Class 6, including all sub-Classes, votes to accept the Plan), 8,
9, 10, and 11, and unless ordered otherwise by a court of competent
jurisdiction, Reorganized Unison shall abide by and not otherwise prejudice the
Omega Subordination Rights, and will not pay any Cash or other property to
Whitehead And Affiliates until all obligations of Brit-Texas to Omega are paid
in full, except as expressly provided in Article 6.2.2 of the Plan.
8. EXECUTION OF OMEGA NEW MASTER LEASE. On the Effective Date,
Reorganized Unison shall execute the Omega New Master Lease, which shall act as
an assumption (as amended and supplemented) of the Indiana Master Lease and
Texas Master Lease, as provided in Article 7.2 of the Plan. As a condition to
the execution of the Omega New Master Lease, all amounts due prior to the
Effective Date for Rent under and as defined in the existing Indiana Master
Lease (including without limitation with respect to the Indiana Returned
Facilities), and Texas Master Lease must be brought or paid current, except as
expressly set forth in the Plan.
9. TREATMENT OF OMEGA SECURED CLAIMS BASED ON ACCEPTANCE OF
EACH OMEGA SUBCLASS. The treatment of the Allowed Omega Secured Claims set forth
in Article 6.1 of the Plan is based on the acceptance of the Plan by each
sub-Class in Class 5.
F. CLASS 6 - BRITWILL ACQUISITION CLAIMS. The BritWill Acquisition
Claims are defined in Article 1.19 of the Plan as the Claims, including any such
Claims that are Disputed Claims, held by Whitehead And Affiliates as more fully
described in the Plan Supplement. The BritWill Acquisition Claims will be
satisfied and otherwise treated as follows:
1. ALLOWANCE OF CLAIMS. Subject to the provisions of Article
6.2.1(a) of the Plan, and provided that the holder(s) of the BritWill
Acquisition Claims vote to accept the Plan, the BritWill Acquisition Claims will
be Allowed in four (4) parts as follows: (a) an Allowed Claim of $541,000
representing the September, 1997 working capital loan and interest up to the
Unison Debtors' Petition Date (the "BritWill September 1997 Loan"); (b) an
Allowed Unsecured Claim of $1,530,000 representing the April, 1997 working
capital loan and interest up to the Unison Debtors' Petition Date (the "BritWill
April 1997 Loan"); (c) an Allowed Unsecured Claim in the amount of $1,740,000
representing certain seller notes between Unison (as borrower) and Brit-Texas
(the "Seller Notes"); and (d) an Allowed Unsecured Claim of $10,470,000 as and
for the balance of all other BritWill Acquisition Claims (the "BritWill
Acquisition Unsecured Claim"). No other or further Claim(s) shall be Allowed
with respect to or relating to the BritWill Acquisition Claims. If the holder(s)
of at least fifty-one percent (51%) in number and two-thirds in amount of the
BritWill Acquisition Claims do not vote to accept the Plan, the Claims shall be
treated as provided for in subparagraph 3, below.
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(a) EFFECT OF NON-ACCEPTANCE BY ANY SUB-CLASS. If one or
more sub-Classes in Class 6 (if any) does not vote to accept the Plan, the
Pro Rata portion of the distribution that would otherwise go to that
sub-Class shall be escrowed until the Claim(s) of the non-consenting
sub-Class(es) is determined and Allowed in accordance with the provisions
of Articles 10 and 18 of the Plan. Upon Allowance of such Claims, any
distributions which have been escrowed or are otherwise due will be
distributed when the Claim is Allowed by a Final Order, and future
distributions shall be made in accordance with the Plan.
2. TREATMENT OF CLAIMS. If the holder(s) of the BritWill
Acquisition Claims vote to accept the Plan, as provided in subparagraph 1 above,
the BritWill Acquisition Claims shall be treated as follows:
(a) ALLOWED SEPTEMBER 1997 LOAN CLAIMS. The Allowed
September 1997 Loan Claim shall be paid in Cash on the Effective Date in
full satisfaction of that Allowed Claim.
(b) Allowed BritWill April 1997 Loan, Seller Notes And
BritWill Acquisition Unsecured Claim In full satisfaction of the Allowed
BritWill April 1997 Loan, Seller Notes and Acquisition Unsecured Claim
(collectively the "BritWill Claims"), they shall be treated as follows:
(i) BRITWILL ACQUISITION PROMISSORY NOTE. The
Allowed BritWill Claims shall receive a promissory note (the
"BritWill Acquisition Promissory Note"): (1) in the principal
amount of $1,530,000; (2) will bear simple interest at the
rate of nine percent (9%) per annum, which will begin to
accrue on the Effective Date; (3) the BritWill Acquisition
Promissory Note will have no prepayment penalty; (4) will be
paid interest only with no amortization, with all accrued
interest (if any) and principal being due and fully payable on
the fourth anniversary of the Effective Date; (5) interest
payments will be made quarterly commencing with the first
calendar quarter subsequent to the Effective Date; and (6) the
note will be unsecured.
(1) ALLOCATION. The BritWill Acquisition
Promissory Note shall be allocated as payment and full
satisfaction of the Allowed BritWill April 1997 Loan.
The distributions provided for in subparagraph (b)(ii)
below, shall be in full satisfaction of all other
BritWill Claims of any nature or extent, except
indemnification Claims (if any) by Bruce H. Whitehead as
a former officer and director of Unison but only to the
extent such indemnification Claims (if any) are covered
by applicable insurance policy or policies, in which
case the provisions of Articles 8.1.7 and 10.4 of the
Plan apply.
(ii) NEW SENIOR NOTES AND NEW COMMON STOCK. In
addition to the BritWill Acquisition Promissory Note, the
Allowed BritWill Claims in the amount of $13.74 million shall
be entitled to the following in full satisfaction of such
Claims:
(1) The Allowed Seller Notes Claim of $1.74
million shall be entitled to a Pro Rata share of the New
Senior Notes and New Common Stock as an Allowed Class 11
General Unsecured Claim in accordance with Article 6.7.1
of the Plan. Notwithstanding the foregoing, by voting to
accept this Plan, the holder(s) of the Allowed Seller
Note Claims entitled to receive the Pro Rata portion of
the New Senior Notes agrees to allocate that Pro Rata
portion to the Britwill April 1997 Loan, and the
holder(s) of the BritWill April 1997 Loan agrees to
allocate the equal principal amount of the BritWill
Acquisition Promissory Note to the holder(s) of the
Allowed Seller Note Claims. The foregoing allocation
shall be effective without further action on the
Effective Date.
(2) An Allowed Unsecured Claim of $9 million
shall be entitled to a Pro Rata distribution of New
Common Stock as an Allowed Class 11 General Unsecured
Claim in accordance with the provisions of Article 6.7.1
of the Plan, but shall not be entitled to any
distribution of the New Senior Notes. In lieu
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of their Pro Rata share of the New Senior Notes, the
holders of these Claims shall share in the BritWill
Acquisition Promissory Note as provided in Article
6.2.2(b)(i) of the Plan.
(3) An Allowed Unsecured Claim of $3 million
shall be entitled to a Pro Rata distribution of New
Common Stock in the same manner and calculation as the
Allowed Class 11 Claims of the Consenting Noteholders.
(c) FORECLOSURE BY OMEGA. The Whitehead and Affiliates
that are currently defendants in the Omega Texas Litigation shall: (i)
stipulate to judgment in that litigation; (ii) allow Omega to foreclose on
the Brit-Texas Facilities; and (iii) Brit-Texas, which received rental
payments for the months of January through April, 1998 as and for the
Brit-Texas Facilities aggregating approximately $300,000 shall be required
to reimburse Reorganized Unison $100,000 (or such lesser amount as may be
determined Omega had a legal right to receive) provided that a court of
competent jurisdiction (including the Bankruptcy Court) determines that
Omega had a legal right to receive those rental payments from Brit-Texas
at the time those payments were made to Brit-Texas.
(d) APPLICATION OF ESCROWED RENT. Upon the Effective
Date, all rent paid by BritWill II to Omega with respect to the Brit-Texas
Facilities now held in the trust account of Dykema Gossett PLLC shall be
released to Omega and applied against the Omega Mortgage Guarantee Claims.
(e) SETTLEMENT OF THE RELATED PARTY AVOIDANCE ACTION AND
RELEASES. Provided that: (i) the holder(s) of the BritWill Acquisition
Claims vote to accept the Plan; and (ii) the Plan is Confirmed by a Final
Order, then for and in consideration of the treatment contained in the
Plan, the Debtors (including Reorganized Unison) and the holder(s) of the
BritWill Acquisition Claims, and each of them, and their respective
officers and directors shall be deemed to release and waive any and all
claims, causes of action and other rights they have or may have against
each other relating to the BritWill Acquisition Claims (including the
Related Party Avoidance Action, the Litigation Claims and Related Party
Creditor Defenses), and the Confirmation Order shall so provide. Nothing
contained herein shall be construed to preclude, impact, prejudice or
affect any independent rights of any parties other than the Debtors
(including Reorganized Unison) (the "Third Party Rights") with respect to
the holder(s) of the BritWill Acquisition Claims other than insofar as
those rights are directly derivative of the rights held and enforceable by
the Debtors' Estates only, nor shall it preclude, impact, prejudice or
affect any defenses, rights or counterclaims that the holder(s) of the
BritWill Acquisition Claims shall have with respect to, or relating to,
the Third Party Rights, except any indemnification or contribution claims
which are or may be asserted against the Debtors (including Reorganized
Unison), and their officers and directors by the holder(s) of the BritWill
Acquisition Claims, which rights shall be waived and otherwise released.
(f) BANKRUPTCY RULE 9019 EFFECT. The Confirmation Order
shall act as an approval of the settlement and compromise with respect to
the BritWill Acquisition Claims pursuant to Bankruptcy Rule 9019 as to
those sub-Classes that vote to accept the Plan.
3. CLAIMS RESOLUTION PROCEDURE. If the holder(s) of the
BritWill Acquisition Claims do not vote to accept the Plan as set forth in
Article 6.2.1 of the Plan, the BritWill Acquisition Claims will be Disputed
Claims, and constitute some of the Litigation Claims, Related Party Avoidance
Action, and Related Party Creditor Defenses to be litigated under the provisions
of Article 10 of the Plan. The adjudication as to the Allowed amounts (if any)
of the BritWill Acquisition Claims shall be determined pursuant to Article 10 of
the Plan, and shall be prosecuted (or compromised) as set forth in Articles 10
and 18 of the Plan. The Disputed BritWill Acquisition Claims shall not be
entitled to any distributions under this Plan until the Class 6 Claims are
Allowed. The Class 6 Claims shall be Allowed as and when (and in such amounts)
set forth in a Final Order entered in accordance with Article 10 of the Plan.
(a) ISSUANCE OF NEW COMMON STOCK. Upon entry of a Final
Order Allowing the BritWill Acquisition Claims, the holder(s) of such
Allowed Claims shall, subject to the Forbearance Agreement and Omega
Subordination Rights, receive a number of shares of the Class 6 Reserved
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Stock equal to the percentage of the Class 6 Reserved Stock which the
amount of such Allowed Claims represents of $12,541,000.
(b) NO PREJUDICE TO OMEGA SUBORDINATION RIGHTS.
Notwithstanding any of the foregoing, nothing contained in this Article
6.2.3 is intended to, nor shall it, impair or prejudice the Omega
Subordination Rights or any other rights held by Omega against a holder or
holders of the Disputed Class 6 BritWill Acquisition Claims. In accordance
with Article 6.7.10 of the Plan, Omega has agreed to waive and/or assign
the Omega Subordination Rights to the extent necessary to give effect to
the treatment of the holders of the Senior Notes in Class 11 provided in
this Plan only after payment of all amounts owing to Omega with respect to
the Brit-Texas Facilities are satisfied (other than payments under the
Omega New Master Lease). To the extent that Omega would be entitled to the
receipt of such New Common Stock on account of the Omega Subordination
Rights, all such stock will be deemed assigned to the holders of Senior
Notes and then immediately reassigned to the Consenting Noteholders on
account or the New Senior Notes allocated to the holders of the Senior
Notes in accordance with the New Senior Notes Allocation Schedule.
G. CLASS 7 - SIGNATURE ACQUISITION CLAIMS. These Claims are defined
in Article 1.185 of the Plan as, collectively, the purported secured obligations
against Debtors resulting from the Signature Acquisition. The Signature
Acquisition Claims will be satisfied and otherwise treated as follows:
1. ALLOWANCE OF CLAIMS. Subject to the provisions of Article
6.3.1(a) of the Plan, and provided that the holder(s) of the Signature
Acquisition Claims vote to accept the Plan, the Signature Acquisition Claims
will be Allowed in two (2) parts as follows: (a) an Allowed Claim of $1,894,704
(the "Signature Allowed Unsecured Claim"); and (b) a Claim in the amount of
$3,475,247 (the "Signature Claim Balance"). No other or further Claim(s) shall
be Allowed with respect to or relating to the Signature Acquisition Claims. If
the holder(s) of fifty-one percent (51%) in number and two-thirds in amount of
the Signature Acquisition Claims do not vote to accept the Plan, the Claims
shall be treated as provided for in subparagraph 3 below.
(a) EFFECT OF NON-ACCEPTANCE BY ANY SUB-CLASS. If one or
more sub-Classes in Class 7 (if any) does not vote to accept the Plan, the
Pro Rata portion of the Signature Claim Payout defined in Article
6.3.2(a)(ii) shall be escrowed until the Claim(s) of the non-accepting
sub-Class(es) is determined and Allowed in accordance with the provisions
of Articles 10 and 18 of the Plan. Upon Allowance of such Claims, such
amounts of the Signature Claim Payout which have already become due will
be paid when the Claim is Allowed by a Final Order, and future
distributions shall be made in accordance with the Plan.
2. TREATMENT OF CLAIMS. If the holder(s) of the Signature
Acquisition Claims vote to accept the Plan as provided in subparagraph 1 above,
the Signature Acquisition Claims shall be treated as follows:
(a) SIGNATURE ALLOWED UNSECURED CLAIM. The Signature
Allowed Unsecured Claim shall be paid and fully satisfied as follows:
(i) The sum of $541,000 shall be paid, in Cash, on
the Effective Date as and for full satisfaction of the working
capital loan made to Unison by Elk Meadows Investments, LLC in
September 1997; and
(ii) The sum of $1,353,704 shall be shared Pro
Rata between all holders of Claims in Class 7, including sub-Classes
(if any) (or as otherwise agreed between such holders), and which
will be paid over a five (5) year period, with interest at the rate
of nine percent (9%) per annum (the "Signature Claim Payout"). The
Signature Claim Payout shall be as follows: (1) simple interest will
begin to accrue from the Effective Date; (2) the Signature Claim
Payout shall be paid as interest only with no amortization, with all
accrued interest (if any) and principal being due and payable on the
fifth anniversary of the Effective Date; (3) there shall be no
prepayment penalty in connection with the Signature Claim Payout;
(4) interest payments shall be made quarterly, commencing with the
first calendar quarter subsequent to the Effective Date; and (5) the
obligation shall be secured by: (A) a first priority lien on the
stock and all assets (including but not limited to accounts
receivable) in and of American Professional, Ampro, Gamma and
Memphis Clinical; and
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(B) a lien junior to the New Senior Notes Collateral in the Debtors'
interest in the stock and assets of Quest. Notwithstanding the
foregoing, nothing herein is intended to prejudice or impair rights
and obligations (if any) under the Forbearance Agreement.
(b) THE SIGNATURE CLAIMS BALANCE. The Signature Claims
Balance shall be discharged, and receive no further or other distribution
under the Plan.
(c) SETTLEMENT OF THE RELATED PARTY AVOIDANCE ACTION AND
Releases. Provided that: (i) the holder(s) of the Signature Acquisition
Claims vote to accept the Plan; and (ii) the Plan is Confirmed by a Final
Order, then for and in consideration of the treatment contained in the
Plan, the Debtors (including Reorganized Unison) and the holder(s) of the
Signature Acquisition Claims, and each of them, and their respective
officers and directors shall be deemed to release and waive any and all
claims, causes of action and other rights they have or may have against
each other relating to the Signature Acquisition Claims (including the
Related Party Avoidance Action, the Litigation Claims and Related Party
Creditor Defenses, but not including any Claims relating to the Securities
Action), and the Confirmation Order shall so provide. Nothing contained
herein shall be construed to preclude, impact, prejudice or affect any
independent rights of any parties other than the Debtors (including
Reorganized Unison) (the "Third Party Rights") with respect to the
holder(s) of the Signature Acquisition Claims other than insofar as those
rights are directly derivative of the rights held and enforceable by the
Debtors' Estates only, nor shall it preclude, impact, prejudice or affect
any defenses, rights or counterclaims that the holder(s) of the Signature
Acquisition Claims shall have with respect to, or relating to, the Third
Party Rights, except any indemnification or contribution claims which are
or may be asserted against the Debtors (including Reorganized Unison), and
their officers, directors, agents or representatives, by the holder(s) of
the Signature Acquisition Claims, which rights shall be waived and
otherwise released. Moreover, nothing contained herein shall impact,
impair or prejudice the rights of either the Debtors (including
Reorganized Unison) and the holders of the Signature Acquisition Claims
with respect to the Securities Action, including but not limited to the
Securities Action Settlement Agreement.
(c) BANKRUPTCY RULE 9019 EFFECT. The Confirmation Order
shall act as an approval of the settlement and compromise with respect to
the BritWill Acquisition Claims pursuant to Bankruptcy Rule 9019.
3. CLAIMS RESOLUTION PROCEDURE. If the holder(s) of the
Signature Acquisition Claims do not vote to accept the Plan as set forth in
Article 6.3.1 of the Plan, the Signature Acquisition Claims will be Disputed
Claims, and constitute some of the Litigation Claims and Related Party Creditor
Defenses to be litigated under the provisions of Articles 10 and 18 of the Plan.
The adjudication as to the Allowed amounts (if any) of the Signature Acquisition
Claims shall be determined pursuant to Article 10 hereof, and shall be
prosecuted (or compromised) as set forth in Articles 10 and 18 of the Plan. The
Disputed Signature Acquisition Claims shall not be entitled to any distributions
under this Plan until the Class 7 Claims are Allowed. The Class 7 Claims shall
be Allowed as and when (and in such amounts) set forth in accordance with
Article 10 of the Plan.
(a) ISSUANCE OF NEW COMMON STOCK. Upon entry of a Final
Order Allowing the Signature Acquisition Claims, the holder(s) of such
Allowed Claims shall, subject to the Forbearance Agreement and Omega
Subordination Rights, receive a number of shares of the Class 7 Reserved
Stock equal to the percentage of the Class 7 Reserved Stock which the
amount of such Allowed Claims represents of $5,095,000.
H. CLASS 8 - CONVENIENCE CLAIMS. Class 8 is comprised of Convenience
Claims as defined in Article 1.45 of the Plan. Each Allowed Convenience Claim
shall be paid in Cash the lesser of: (a) the amount of such Allowed Claim; or
(b) the sum of $1,000. All such Allowed Convenience Claim shall be paid upon the
latest of: (i) the Effective Date, or as soon thereafter as practicable; (ii)
such date as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (iii) the tenth (10th) Business Day after such Claim is allowed, or
as soon thereafter as practicable; and (iv) such date as the holder of such
Claim and Reorganized Unison have agreed. The Debtors' obligations to pay such
Claims shall be capped at the amount of $650,000 (the "Administrative
Convenience Capped Amount"). If Allowed Claims qualifying for treatment in Class
8 exceed the Administrative Convenience Capped
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Amount, Creditors holding Allowed Class 8 Claims shall share Pro Rata in the
Administrative Convenience Capped Amount, with Allowed Claims in excess of
$1,000 being first reduced to $1,000 for Pro Rata Calculation purposes.
I. CLASS 9 - ESSENTIAL VENDOR CLAIMS. Essential Vendor Claims are
defined in Article 1.71 of the Plan as those Unsecured Claims as identified in
the Plan Supplement (Exhibit "4") that the Debtors believe are essential to the
continued operation of its business by virtue of: (a) irreplaceability of the
service or goods in a particular marketplace; (b) adverse impact on
reimbursement from federal or state health care agencies; and/or (c) other
business reasons. As described more fully in Article 6.5 of the Plan, the
holder(s) of Allowed Essential Vendor Claims (to the extent not paid prior to
Confirmation pursuant to authority by the Bankruptcy Court) shall be paid in
Cash on the Effective Date: (a) the full amount of the Allowed claim; or (b) the
Pro Rata portion of the Essential Vendors Capped Amount (as defined below) if
the total Allowed Class 9 Claims exceed $4.4 million. In this regard, the
Debtors' obligations to pay Allowed Class 9 Claims shall be capped at the amount
of $4.4 million (the "Essential Vendors Capped Amount").
J. CLASS 10 - TRADE UNSECURED CLAIMS. Trade Unsecured Claims are
defined in Article 1.198 of the Plan as those Unsecured Claims, when Allowed,
resulting from the provision of goods or services to Debtors, but not including:
(a) Claims resulting from rejections of unexpired leases or executory contracts;
(b) the Related Party Creditor Claims; (c) Reclamation Claims; and (d) the
Essential Vendor Claims. As described more fully in Article 6.6 of the Plan, the
holder(s) of Allowed Trade Unsecured shall be paid as follows:
1. CASH ON EFFECTIVE DATE. On the Effective Date, the holders
of Allowed Trade Unsecured Claims shall receive a Cash payment equal to the
lesser of: (a) thirty-five percent (35%) of the Allowed Trade Unsecured Claim;
and (b) the Pro Rata portion of $1.4 million.
2. NEW COMMON STOCK. On the Effective Date, and in addition to
the Cash payments as set forth in subparagraph 1 above, holders of Allowed Trade
Unsecured Claims will receive New Common Stock on a Pro Rata basis with the
Class 11 Allowed Claims as provided in Article 6.7 of the Plan, except that the
total, aggregate amount of Allowed Trade Unsecured Claims that shall be entitled
to receive New Common Stock as provided herein shall be limited to Claims equal
to five percent (5%) of the total Allowed Trade Unsecured Claims. By way of
example and not limitation, if the total Allowed Trade Unsecured Claims equaled
$4,500,000.00, the holders of those Claims would: (a) receive a Pro Rata portion
of a Cash Payment of $1,400,000.00; and (b) be entitled to receive New Common
Stock for an aggregate Claim of $225,000.00 ($4,500,000.00 x .05 = $225,000.00),
which Claim would share Pro Rata in the receipt of New Common Stock with the
Allowed Claims in Class 11. The Trade Unsecured Claims will not share in the New
Senior Notes, nor will the amount of the Allowed Trade Unsecured Claims (as
reduced in the aggregate, as set forth above) share in or receive any
distributions relating to the New Senior Notes.
K. CLASS 11 - GENERAL UNSECURED CLAIMS. General Unsecured Claims are
defined in Article 1.83 of the Plan as an Unsecured Claim (as defined in Article
1.202), not including: (a) the Trade Unsecured Claims; (b) the Essential Vendor
Claims; and (c) the Convenience Claims. Class 11 consists of all General
Unsecured Claims not otherwise classified herein, including, without limitation,
the Claims of : (a) the Consenting Noteholders; (b) the Non-Consenting
Noteholders; (c) the Filkoski Claims (other than Claims on which Filkoski is a
co-payee as part of the Signature Acquisition Claims as set forth in the Plan
Supplement and also not including the Filkoski Securities Litigation Claims);
(d) the holders of the Senior Notes; and (e) the Allowed BritWill Claims. As
described more fully in Article 6.7 of the Plan, the Allowed General Unsecured
Claims will be satisfied or otherwise treated as follows:
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1. THE NEW SENIOR NOTE; NEW COMMON STOCK. In full satisfaction
(subject to Article 6.7.7 of the Plan) of the Allowed Class 11 General Unsecured
Claims, on the Effective Date, each holder of an Allowed Class 11 General
Unsecured Claim as of the Distribution Record Date shall receive: (a) its Pro
Rata distribution of 2,000,000 shares of the New Common Stock less such New
Common Stock that is allocable to holders of Classes 6 and 10 as set forth in of
the Plan; and (b) its Pro Rata share of the New Senior Notes. The New Senior
Notes and New Common Stock distributed on a Pro Rata basis pursuant to the
preceding sentence shall be reallocated as amongst the holders of the Senior
Notes and the Consenting Notes Holders as set forth in the New Senior Notes
Allocation Schedule. The New Senior Notes and New Common Stock distributed on a
Pro Rata basis pursuant to the preceding sentence shall be reallocated as
amongst the holders of the Senior Notes and the Consenting Noteholders as set
forth in the New Senior Notes Allocation Schedule. The reallocation set forth in
the New Senior Notes Allocation Schedule is the result of the enforcement of the
Notes Subordination Agreement. Such reallocation will result in all
distributions that would otherwise go to Consenting Noteholders to be
distributed to the holders of the Senior Notes until the Senior Notes are paid
in full, including accrued but unpaid interest. Specifically, the Pro Rata share
of the New Senior Notes that otherwise would be distributed to the Consenting
Noteholders will be redistributed to the holders of the Senior Notes in an
amount equal to the principal amount of the Senior Notes plus accrued interest.
Thereafter, the holders of the Senior Notes will reallocate to the Consenting
Noteholders their Pro Rata share of New Common Stock. As a result of the
foregoing reallocations, the actual distribution to the holders of Allowed Class
11 General Unsecured Claims will be as follows: (a) the holders of the Senior
Notes will receive New Senior Notes equal to one-hundred percent (100%) of their
Allowed Claims (i.e., $21.298 million); (b) the Consenting Noteholders will only
receive New Common Stock; and (c) all other holders of Allowed Class 11 General
Unsecured Claims will receive their Pro Rata share of both New Senior Notes and
New Common Stock.(16) In other words, the enforcement of the Notes Subordination
Agreement results in the holders of Senior Notes receiving a greater percentage
distribution of the New Senior Notes than the Consenting Noteholders. The
distribution to all other holders of Allowed Class 11 General Unsecured Claims
will be unaffected by the foregoing reallocation. Furthermore, and
notwithstanding the foregoing, the Plan does not impair other rights (if any) of
the Senior Notes under the Notes Subordination Agreement. As such, to the extent
other reallocation is required (if any), or if a dispute arises over the New
Senior Notes Allocation Schedule, the holders of either the Senior Notes, the
Consenting Noteholders and any other appropriate party shall have the right to
bring these disputes to the attention of the Bankruptcy Court for appropriate
adjudication.
Notwithstanding the foregoing, the Allowed BritWill Claims (as defined in
Article 6.2.2(b) of the Plan) shall be treated in accordance with Article
6.2.2(b)(ii) of the Plan.
(a) RESTRICTIONS ON CERTAIN NEW COMMON STOCK. If Class 6
votes to accept the Plan and receives New Common Stock pursuant to
Articles 6.7.1 and 6.7.9(a) hereof, that New Common Stock shall not be
entitled to vote or have any other rights to elect or select (directly or
indirectly) directors of Reorganized Unison as long as it is held by the
holders of the Class 6 Claims as of the Petition Date. Notwithstanding any
of the foregoing, the New Common Stock held by the holders of Class 6
Claims shall have any and all other rights of the New Common Stock.
(b) DISPUTES REGARDING NEW SENIOR NOTES ALLOCATION
SCHEDULE. Any disputes relating to the allocation or other rights between
and among creditors as reflected in the New Senior Notes Allocation
Schedule shall be filed with the Bankruptcy Court no later than ten (10)
days after the Confirmation Hearing and will be resolved by the Bankruptcy
Court subsequent to the Confirmation Date. Notwithstanding the foregoing,
any disputes as set forth above shall not delay the occurrence of the
Effective Date.
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(16) Based on the Debtors' estimates, the New Senior Notes received by all other
holders of Allowed Class 11 General Unsecured Claims should equal approximately
fifteen percent (15%) of their Allowed Claims, plus a Pro Rata portion of the
New Common Stock.
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2. THE NEW SENIOR NOTES. On the Effective Date, Reorganized
Unison shall execute and issue: (a) the New Senior Notes; (b) the New Senior
Notes Indenture; (c) the New Senior Notes Security Documents; and (d) the New
Senior Notes Guarantee. Each holder of an Allowed Class 11 Claim as of the
Distribution Record Date shall share Pro Rata (subject to Articles 6.7.9 and
6.7.11 of the Plan) in the New Senior Notes and related documents and
instruments. The holders of Senior Notes Claims receiving New Senior Notes shall
be entitled to the rights under the Sharing Agreement set forth in Article
6.1.2(c) of the Plan. On or before ten (10) days before the Confirmation Date,
the Debtors shall file the New Senior Notes Allocation Schedule with the
Bankruptcy Court.
3. DISBURSING AGENT. With respect to each holder of an Allowed
Notes Claim or Allowed Senior Notes Claim, as of the Distribution Record Date
Reorganized Unison shall distribute such holder's Pro Rata share of New Common
Stock to the Disbursing Agent, on the Distribution Date. As soon as practicable
after the New Senior Notes Indenture Trustee receives the Debt Instruments
pursuant to Article 6.7.4 of the Plan: (a) the New Senior Notes Indenture
Trustee shall distribute the Pro Rata Share of the New Senior Notes in
accordance with the terms of this Plan and the New Senior Notes Indenture; and
(b) the Disbursing Agent shall issue and distribute the Pro Rata Share of the
New Common Stock. With respect to each holder of an Allowed General Unsecured
Claim other than a Notes Claim or Senior Notes Claim, on the Distribution Date:
(a) the New Senior Notes Indenture Trustee shall distribute the Pro Rata Share
of the New Senior Notes in accordance with the terms of this Plan and the New
Senior Notes Indenture as such payments come due; and (b) the Disbursing Agent
shall issue and distribute the Pro Rata share of the New Common Stock on the
Distribution Date.
4. TREATMENT OF RIGHTS UNDER NOTES SUBORDINATION AGREEMENT AND
FORBEARANCE AGREEMENT. The Treatment set forth in Article 6.7 of the Plan in
respect of the Senior Notes and the Notes held by the Consenting Noteholders
(including the allocations of New Senior Notes and New Common Stock pursuant to
the New Senior Notes Allocation Schedule) represents an attempt to implement the
Notes Subordination Agreement and the Forbearance Agreement. Notwithstanding the
foregoing, nothing in this Plan is intended to, nor shall it be construed as,
impairing or prejudicing rights (if any) of the parties and/or third party
beneficiaries under the Notes Subordination Agreement and/or the Forbearance
Agreement. Moreover, nothing in this Plan shall effect the subrogation rights of
the Consenting Noteholders on account of the allocation, pursuant to the New
Senior Notes Allocation Schedule, of property distributable to the Consenting
Noteholders, but for the enforcement of the Notes Subordination Agreement
provided for herein.
5. ASSIGNMENT OF SUBORDINATION RIGHTS. On the Effective Date,
and to the extent that Class 6 does not vote to accept the Plan, Omega shall be
deemed to have waived and/or assigned its rights to assert subordination of the
Claims of Whitehead And Affiliates (without representation or warranty) only to
the extent necessary to give effect to the treatment of the New Senior Notes as
contained in this Plan and Article 6.2.3(b) of the Plan, and except as those
rights relate to amounts owed by BritWill II to Brit-Texas, which rights shall
be retained by Omega until all obligations owing to Omega with respect to the
Brit-Texas Facilities are satisfied.
6. RESERVATION OF RIGHTS UNDER FORBEARANCE AGREEMENT. If and
to the extent that the Class 6 BritWill Acquisition Claims and Class 7 Signature
Acquisition Claims do not vote to accept the Plan and are determined to be
Allowed Claims in accordance with Articles 6.2 and 6.3 of the Plan, the holders
of Allowed Senior Notes Claims reserve any and all rights under the Forbearance
Agreement. All such rights shall be subject to the subrogation rights of the
Consenting Noteholders.
L. CLASS 12 - NOTES SECURITIES CLAIMS. Notes Securities Claims are
defined in Article 1.123 of the Plan as all Claims, if any, whether asserted
prior to or after the Petition Date based on alleged violations of applicable
federal or state securities laws: (a) arising from the rescission of a purchase
or sale, or offer to purchase or sell, any Notes or Senior Notes; and (b) for
damages arising from the purchase or sale of any such Notes or Senior Notes. The
holders of Notes Securities Claims will receive no distribution under the Plan,
and any and all such claims will be discharged under the Plan.
M. CLASS 13 - SUBSIDIARY AND AFFILIATE EQUITY INTERESTS. Subsidiary
And Affiliate Equity Interests are defined in Article 1.191 of the Plan as all
of the common stock or other equity interests issued by Amberwood, American
Professional, Ampro, Arbors, Arkansas, BritWill Funding, BritWill Healthcare,
BritWill I,
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<PAGE> 85
BritWill II, BritWill Indiana, Brookshire, Cedar Care, Christopher,
Cornerstone, Decatur, Douglas, Gamma, Henderson, Los Arcos, Memphis Clinical,
Pueblo Norte, Quest, Rehab, Rio Verde, Safford, Sherwood, Signature Health,
Signature Management, Sunbelt Therapy (Alabama), Sunbelt Therapy (Arizona),
Sunquest, and Therapy Health, and held by Unison Healthcare or a Unison
subsidiary or Affiliate, including, if applicable, any warrants, options, or
rights to purchase any such stock or equity interests, and including the
twenty-five percent (25%) interest in Quest held by L. Robert Oberfield. On the
Effective Date, Reorganized Unison (and its subsidiaries, as applicable) shall
continue to hold and own the Subsidiary And Affiliate Equity Interests, and
those entities shall continue as subsidiaries or Affiliates (as the case may be)
of Reorganized Unison.
N. CLASS 14 - EQUITY INTERESTS AND EQUITY INTERESTS RELATED CLAIMS.
Equity Interests And Equity Interests Related Claims are defined in Articles
1.69 and 1.70 of the Plan as any interest in Unison, including any right to
purchase or otherwise acquire any such Equity Interests and any Claim arising
from the rescission of a purchase or sale of an Equity Interest, or for damages
arising from the purchase or sale of an Equity Interest, or any Claim by any
Person that asserts equitable or contractual rights of reimbursement,
contribution or indemnification arising from such Claim, including the
Securities Action (as defined in Article 1.176 of the Plan) and the Securities
Litigation Claims (as defined in Article 1.178 of the Plan). As described more
fully in Article 6.9 of the Plan, the Allowed Equity Interests and Equity
Interest Related Claims will be satisfied as follows:
1. SECURITIES ACTION SETTLEMENT AGREEMENT. The Debtors shall
seek Bankruptcy Court approval of the Securities Action Settlement Agreement,
which shall also be subject to approval by the United States District Court for
the District of Arizona (the "District Court"). If and only if the Securities
Action Settlement Agreement is approved by both the Bankruptcy Court and the
District Court, the holders of Class 14 Claims based upon the Securities Action
shall be entitled to receive New Warrants in the amount that the shares of
Unison's common stock to be issued under the Securities Action Settlement
Agreement would have entitled them had the Securities Action Settlement
Agreement been approved as of the Effective Date (regardless of when such
approval occurs), in addition to any New Warrants they would otherwise be
entitled to receive by virtue of their ownership of any other Allowed Equity
Interests as of the Distribution Record Date. In this regard, a sufficient
number of New Warrants shall be reserved pending approval of the Securities
Action Settlement Agreement to make such a distribution. If the Securities
Action Settlement Agreement is not approved, the New Warrants so reserved shall
be issued in accordance with subparagraph 2 below.
2. ISSUANCE OF NEW WARRANTS. In full satisfaction of all
Allowed Equity Interests and Equity Interest Related Claims, subject to the
provisions of subparagraph 3 below, on the Effective Date each holder of an
Equity Interest and Equity Interest Related Claim shall receive its Pro Rata
portion of the New Warrants from the Disbursing Agent pursuant to Article 12 of
the Plan.
(a) CALCULATION OF DISTRIBUTION. For purposes of
effecting distributions of New Warrants on account of the Securities
Action (if the Securities Action Settlement Agreement is not approved),
any other Securities Litigation Claims, and Allowed Equity Interests, any
judgment evidencing any Allowed Securities Litigation Claim shall be
converted into an implied number of shares of common stock of Unison
calculated as the quotient of: (i) the aggregate amount of any such
judgment, divided by (ii) the average of intraday high and low average
sales prices of a share of common stock of Unison on Nasdaq Stock Market's
National Market System, as reported in The Wall Street Journal (National
Edition) for the ten consecutive trading days ending on the trading day
immediately preceding the date of the commencement of any action
underlying any Allowed Securities Litigation Claim.
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3. ALTERNATIVE TREATMENT. In the event that: (a) the
Bankruptcy Court determines that the treatment of, and distributions to, Class
14 under the Plan violates the provisions of Section 1129(b) of the Bankruptcy
Code (to the extent such provisions may be applicable); or (b) the SEC asserts
that the New Warrants or the New Warrant Shares must be registered pursuant to
the Securities Act or otherwise; or (c) the Bankruptcy Court determines that the
issuance of the New Warrants is not covered by the exemptions provided in
Section 1145 of the Bankruptcy Code; or (d) Class 14 does not vote to accept the
Plan, then the Equity Interests shall be cancelled and extinguished on the
Confirmation Date without further act or action under any applicable agreement,
law, regulation, order or rule, and neither the holders of Equity Interests nor
the holders of Allowed Equity Interest Related Claims shall receive or retain
any rights, property or distributions on account of their Equity Interests or
Equity Interest Related Claims, as the case may be. Nothing in Article 6.9 of
the Plan shall affect the rights of the Securities Litigation Claimants to
receive payment from any applicable insurance carrier pursuant to the terms of
the Securities Action Settlement Agreement.
OTHER SIGNIFICANT PROVISIONS OF THE PLAN
SUBSTANTIVE CONSOLIDATION.
The Plan incorporates the substantive consolidation of Debtors' assets and
liabilities. Substantive consolidation means that the assets and liabilities of
the 33 Debtors will be pooled and all of Debtors' creditors will share in that
common pool. If Debtors' estates were not substantively consolidated, it would
be necessary to have 33 separate plans of reorganization, with each creditor
receiving a distribution from the debtor with which the particular creditor did
business. Substantive consolidation of Debtors' estates is necessary because
Debtors have operated and continue to operate as a single business enterprise
and have no reliable or reasonable means of separating their assets and
liabilities by individual Debtor in order to formulate 33 individual plans of
reorganization. Moreover, a substantial majority of Debtors' creditors would
similarly be unable to identify the particular Debtors with which they did
business. Substantive consolidation is an equitable remedy that must be approved
by the Bankruptcy Court. Accordingly, the Plan constitutes Debtors' motion for
the substantive consolidation of their estates.
Substantive consolidation is an equitable remedy that courts will employ
under certain circumstances to promote fairness to all creditors as a group. The
substantive consolidation of two or more entities typically affects the rights
of creditors as they relate to individual debtors and debtor groups. For
instance, substantively consolidating a debtor having substantial assets with a
debtor having little or no assets will substantially benefit creditors of the
latter entity, but at the expense of the creditors of the former entity. See,
e.g., In re Auto-Train Corp., 810 F.2d 270, 276 (D.C. Cir. 1987) ("because every
entity is likely to have a different debt-to-asset ratio consolidation almost
invariably redistributes wealth among the creditors of the various entities");
In re Snider Bros., Inc., 18 B.R. 230, 234 (Bankr. D. Mass. 1982) (differing
asset-to-liability ratios prejudice creditors of entity with higher ratio).
Another potential impact on creditors from the substantive consolidation of
affiliated entities is the likely elimination of any intercompany obligations or
liabilities among the consolidated entities. See, e.g., Federal Deposit Ins.
Corp. v. Colonial Realty Co., 966 F.2d 57, 58-59 (2d Cir. 1992) ("[s]ubstantive
consolidation usually results . . . in eliminating inter-[entity] claims");
Auto-Train, 810 F.2d at 276 ("liabilities of consolidated entities inter se are
extinguished by the consolidation"); Flora Mir Candy Corp. v. R. S. Dickson &
Co. (In re Flora Mir Candy Corp.), 432 F. 2d 1060, 1063 (2d Cir. 1970)
(substantive consolidation would eliminate corporation's claim against another
for misappropriation of assets). Similarly, a creditor holding a guaranty claim
against an entity that is substantively consolidated with the primary obligor on
the guaranteed debt would likely lose the guaranty claim in favor of a single
claim against the consolidated entity. See, e.g., In re Manzey Land & Cattle
Co., 17 B.R. 332, 338 (Bankr. D.S.D. 1982) (unsecured creditor's claim against
individual guarantors would be a single unsecured claim against the consolidated
estate of the individuals and the corporation).
Debtors believe that substantive consolidation of their assets and
liabilities is critical to the successful conclusion of these Chapter 11 cases.
Debtors' consolidated organizational and operational structure constitutes the
"rare case" referred to by the Second Circuit Court of Appeals in which "the
interrelationships of the group are hopelessly obscured and the time and expense
necessary even to attempt to unscramble them so substantial as to threaten the
realization of any net assets for all the creditors. Chemical Bank New York
Trust Co., v. Kheel, 369 F.2d 845, 847 (2d Cir. 1966). Debtors would have to
spend considerable time and expense and employ innumerable speculative
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<PAGE> 87
assumptions in order to attempt a complete separation of their business
relationships and operations with each other and with individual creditors,
unnecessarily consuming Debtors' employees' time and energies better spent in
rehabilitating Debtors' business. Perhaps more importantly, substantive
consolidation is also necessary to remain consistent with the expectations of
Debtors' creditors, who largely dealt with Debtors as a single economic
enterprise known as "Unison," not as a fractured affiliation of 33 separate
companies. Substantive consolidation is necessary to treat fairly the creditors
in a plan of reorganization by acknowledging the economic reality with which
they did business. See Soviero v. Franklin Nat'l Bank of Long Island, 328 F.2d
446, 448 (2d Cir. 1964) ("to adhere to the separate corporate entities theory
would result in an injustice to the bankrupt's creditors).
Because the consequences of substantive consolidation can be dramatic,
courts will carefully evaluate a series of criteria to determine if substantive
consolidation of entities is appropriate and will ultimately benefit creditors
as a group. While these criteria differ among courts, Debtors believe that they
easily meet any widely-accepted set of criteria for substantive consolidation.
Earlier cases applied a test that resembled the test for piercing the corporate
veil or determining whether one corporation was the alter ego of another. A
leading case in this regard is Fish v. East, 114 F.2d 177, 191 (10th Cir. 1940)
in which the court identified ten factors as supporting a decision to
substantively consolidate parent and subsidiary corporations: (1) the parent
corporation owns all or a majority of the capital stock of the subsidiary; (2)
the parent and subsidiary corporation have common directors or officers; (3) the
parent corporation finances the subsidiary; (4) the parent corporation
subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation; (5) the subsidiary has grossly inadequate capital; (6) the parent
corporation pays the salaries or expenses or losses of the subsidiary; (7) the
subsidiary has substantially no business except with the parent corporation or
no assets except those conveyed to it by the parent corporation; (8) in the
papers of the parent corporation and in the statements of its officers "the
subsidiary" is referred to as such or as a department or division; (9) the
directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take direction from the parent corporation; (10)
the formal legal requirements of the subsidiary as a separate and independent
corporation are not observed. Subsequent courts have frequently relied on the
Fish criteria in analyzing facts and determining whether a subsidiary and its
parent should be consolidated. See, e.g., In re Gulfco Investment Corp., 593
F.2d 921, 923, 928-29 (10th Cir. 1979); Anaconda Bldg. Materials Co. v. Newland,
336 F.2d 625, 629 (9th Cir. 1964); Fisser v. Int'l Bank, 282 F.2d 231, 238 (2d
Cir. 1960); Maule Indus. v.
Gerstel, 232 F.2d 294, 298 (5th Cir. 1956).
Evaluating Debtors' organizational and operational structure and
procedures, it is clear that Debtors fall well within the limits of each of the
Fish criteria:
1) Parent corporation owns all or a majority of the capital stock of the
subsidiary Unison Healthcare owns 100% of the shares of every other Debtor
except Quest, of which Unison Healthcare owns 75% of the shares.
2) Parent and subsidiary corporation have common directors or officers - The
directors and officers of all Debtors are almost exactly the same
individuals. Two of Unison HealthCare's directors, Michael Jeffries and
Clayton Kloehr, serve as sole directors of every other Debtor. Several of
Unison HealthCare's officers also serve as the sole officers of the
remaining Debtors. Jimmy Fields is a Vice President of every Debtor,
Clayton Kloehr Chief Financial Officer, Vice President and Treasurer of
every Debtor, Helen Johnson is the Assistant Treasurer of every Debtor,
Nir Margalit is the Secretary of every Debtor, and Michael Jeffries is the
President of every Debtor, except Quest and Sunbelt, for which he serves
as Chief Executive Officer. See In re Richton Int'l Corp., 12 B.R. 555,
557 (Bankr. S.D.N.Y. 1981) ("increased need for substantive consolidation
occasioned by the interlocking directorates of modern corporations").
3) Parent corporation finances the subsidiary - Unison Healthcare regularly
extends loans and other financial accommodations to subsidiary Debtors,
usually with the expectation that such loans will be repaid, but with the
understanding that because many subsidiary Debtors are not financial
viable as independent entities without continual funding from Unison
Healthcare, most subsidiaries would likely not pay back such loans.
4) Parent corporation subscribed to all capital stock of subsidiary or
otherwise causes its incorporation - Unison Healthcare remains 100% equity
owner of all subsidiary Debtors and caused the incorporation of most
Debtors and the creation of the intercompany corporate structure to
accommodate global business operations and objectives.
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<PAGE> 88
5) Subsidiary has grossly inadequate capital - Most subsidiary Debtors would
be unable to operate without continual capitalization from Unison
Healthcare, nor would they be able to sustain an independent existence
unless Unison Healthcare continued its financial support and internal
business dealings with the subsidiary Debtors. On both a going concern and
a liquidation basis, the subsidiary Debtors are grossly undercapitalized
and are viable only as part of a consolidated business enterprise with all
other Debtors, including Unison Healthcare.
6) Parent corporation pays the salaries or expenses or losses of the
subsidiary - While subsidiary Debtors attempt to pay their own invoices,
most creditors do not deal specifically with one subsidiary Debtor.
Frequently the issuance of invoices and their payment will be accomplished
at the Unison Healthcare consolidated level. Moreover, a substantial
number of Debtors' supply contracts with major vendors are in the name of
Unison Healthcare or are negotiated by the senior management of Unison
Healthcare.
7) Subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to it by the parent
corporation - Nearly all subsidiary Debtors would not be able to sustain
an independent existence if Unison Healthcare ceased all business with
those subsidiaries. For all nursing home subsidiaries, 100% of the
business is internal to the consolidated Unison Healthcare economic
structure. Sunbelt relies on Unison Healthcare entities for at least 70%
of its business, Quest, 50%. Though Ampro derives only approximately 10%
of its business internally, it would not be able to sustain operations
without continual financing by Unison Healthcare.
8) Papers of the parent corporation and statements of officers refer to
subsidiary as such or as department or division - Virtually all internal
documents, as well as external documents such as filings with the
Securities and Exchange Commission, regularly refer to subsidiary Debtors
as "divisions" of Unison Healthcare. See Cissell v. First Nat'l Bank of
Cincinnati, 476 F. Supp. 474, 480 (S.D. Ohio 1979) (subsidiaries treated
as divisions of consolidated operation rather than as separate entities).
9) Directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take direction from the parent corporation
- Because the directors and officers of all Debtors are virtually
identical, it is impossible for subsidiary Debtors to have corporate
governance procedures independent of other Debtors. Business decisions are
always made on a consolidated Company basis, in consideration of the
interests of the consolidated enterprise, not individual subsidiaries.
From its Scottsdale, Arizona headquarters, Unison HealthCare's corporate
management team directs and oversees all Debtors with respect to cash
management, budgeting, accounting controls, staffing, growth and marketing
strategies, accounts receivable management and the integration and quality
of services between Debtors. Unison Healthcare provides additional support
in the areas of workers compensation, liability and casualty insurance,
legal services, risk management, regulatory compliance, government
reimbursement, management information systems and purchasing. See In re
F.A. Potts & Co., 23 B.R. 569, 571 (Bankr. E.D. Pa. 1982) (operation of
both debtors directed from the same office).
10) Formal legal requirements of subsidiary as separate and independent
corporation are not observed - The Board of Directors of Unison Healthcare
regularly meets and discusses policy for all Debtors. The Boards of
Directors of the subsidiary Debtors do not hold meetings and take action
by routinely signing resolutions that conform usually verbatim - with
those of the Board of Directors of Unison Healthcare. Corporate policy is
created and executed for all Debtors at the direction of the management of
Unison Healthcare. Operational decisions are made and carried out for all
Debtors by the management of Unison Healthcare from the corporate
headquarters located in Scottsdale. All major capital projects must be
approved in advance by an officer of Unison Healthcare.
More recently, in cases such as In re Vecco Constr. Indus. Inc., 4 B.R.
407, 410 (Bankr. E.D. Va. 1980), courts have focused on a revised series of
criteria to be considered in determining whether to substantively consolidate
affiliated debtors: (1) the degree of difficulty in segregating and ascertaining
individual assets and liabilities; (2) the presence or absence of consolidated
financial statements; (3) the profitability of consolidation at a single
physical location; (4) the commingling of assets and business functions; (5) the
unity of interests and ownership between the various corporate entities; (6) the
existence of parent and intercorporate guarantees on loans;
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(7) the transfer of assets without observance of corporate formalities. Debtors
fit easily within the boundaries of these criteria as well, further indicating
that substantive consolidation under the Plan is appropriate:
1) Degree of difficulty in segregating and ascertaining individual assets and
liabilities - In litigation with certain parties during the pendency of
these Chapter 11 cases, Debtors agreed to exert significant energies in an
attempt to create schedules of each individual Debtor's assets and
liabilities. This process was lengthy and extremely difficult. While
possible, this undertaking required exhaustive efforts to disregard or
work around the unified financial and operational structure of all Debtors
that had existed for the entire history of the Debtors' business
enterprise.
2) Presence or absence of consolidated financial statements - Consolidated
books and records are maintained for all Debtors. Unison Healthcare
prepares consolidated financial statements and performs internal financial
projections on a consolidated basis. The Company, through Unison
Healthcare, files consolidated reports with the Securities and Exchange
Commission and prepares consolidated tax returns. Unison provides
information on a consolidated basis to third parties for the purpose of
determining creditworthiness.
3) Profitability of consolidation at a single physical location - As stated
above, all corporate governance for all Debtors is concentrated in one
location, at Unison HealthCare's Scottsdale, Arizona headquarters.
Considering the inseparable nature of the Debtors business operations,
anything other than centralized corporate decision-making would greatly
reduce operational efficiency and would jeopardize the success of the
consolidated enterprise.
4) Commingling of assets and business functions - All assets are reflected on
the Company's consolidated books as Company assets. All business functions
are centralized, with the same individuals executing identical business
functions for all Debtors as a unified enterprise.
5) Unity of interests and ownership between the various corporate entities -
All subsidiary Debtors except Quest are wholly-owned by Unison Healthcare.
All operations and corporate business strategies are formulated on a
consolidated basis such that the interests of the unified enterprise
remain paramount, not necessarily the interests of particular Debtor
entities.
6) Existence of parent and intercorporate guarantees on loans - Unison
HealthCare's most significant loans, the Notes and the Senior Notes, are
guaranteed by all subsidiary Debtors jointly and severally. See "THE NOTES
AND THE SENIOR NOTES -- Validity of the Upstream Guarantees." Likewise,
additional credit lines and other loans taken by individual subsidiary
Debtors are guaranteed in virtually all instances by Unison Healthcare,
and often by other subsidiary Debtors. In additional, all mortgages given
by nursing home subsidiaries are guaranteed by Unison Healthcare.
7) Transfer of assets without observance of corporate formalities -
Typically, extensions of credit and loans from Unison Healthcare to
subsidiary Debtors are recorded on the regular financial records of the
consolidated Company, but no meetings of the board of directors for either
the lender or the borrower are held nor are any corporate resolutions
regarding the loans adopted. As stated above, many, if not most, of the
loans are not expected to be repaid as among various Debtors.
Most recently, courts have shifted their focus away from lists of criteria
and have preferred to engage in a balancing of the relative benefits of
substantive consolidation against the harms resulting from such consolidation.
The two seminal cases outlining the method by which the benefits and harms of
substantive consolidation are to be weighed differ somewhat in their approaches.
In Union Savings Bank v. Augie/Restivo Baking Co., Ltd., 860 F.2d 515, 518 (2d
Cir. 1988), the court interpreted most of the above-cited criteria as "merely
variants on two critical factors: (i) whether creditors dealt with the entities
as a single economic unit and did not rely on their separate identity in
extending credit, or (ii) whether the affairs of the debtors are so entangled
that consolidation will benefit all creditors." Either one of these factors
justifies substantive consolidation of Debtors' estates:
(i) Substantive consolidation is justified here because Debtors' creditors
have demonstrated a reliance on the consolidated economic unit of the
Company, rather than individual Debtor entities. Thus, substantive
consolidation acknowledges the single business operation commonly called
"Unison" with which Debtors'
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creditors did business. A creditor can be prejudiced by substantive
consolidation only if that creditor decided to extend credit without
knowledge of the interrelationship of the debtors. See Kheel, 369 F.2d at 847
("possibility of unfair treatment of creditor of a corporate debtor who have
dealt solely with that debtor without knowledge of its interrelationship
with others").
Here, Debtors' creditors have demonstrated, and common sense dictates,
that creditors dealt with Debtors as a unified business enterprise and did
not rely on any one Debtor's separate corporate identity in extending
credit. As described in the above discussion of the various criteria,
Debtors comprise a single economic unit, the parts of which are so
inextricably interwoven that reliance on the separate credit of a
particular Debtor would have been impossible. See In re Lewellyn, 26 B.R.
246, 251-52 (Bankr. S.D. Iowa 1982) ("presumption that creditors have not
relied solely on the credit of one of the entities involved") citing Stone
v. Eacho, 127 F.2d 284, 287-88 (4th Cir. 1942) (facts that one corporation
had obtained a separate corporate charter and that one corporation
actually paid the invoices issued to second corporation "furnishes no good
reason why the creditors dealing with [the subsidiary corporation] should
be dealt with differently from its other creditors, since there is no
showing that business was done under that charter or that any of the
creditors knew anything about it or relied on it in any way").
Moreover, creditors themselves have demonstrated that they consider
Debtors to be one unified enterprise. In filing Proofs of Claim in
accordance with the Court's order, creditors were asked to indicate by a
check-box the Debtor or Debtors against whom their Claim was being
asserted. Many creditors checked more than one box, most checked Unison
HealthCare's box along with other subsidiary Debtors' boxes, and many
checked all Debtor boxes. Had creditors been extending credit on an
individual Debtor basis, those creditors would not have encountered
difficulty in denoting which Debtor their claim was against. Instead,
because creditors dealt with Debtors on a unified basis, they asserted
their Claims against more than one or all Debtors. This clearly
demonstrates why substantive consolidation is appropriate - it tracks the
economic realities within which creditors did business with Debtors. Cf.
Cissell, 476 F. Supp. at 481 (court refused to "shut [its] eyes to the
realities of the situation" and concluded that the debtors "should
properly be treated in a consolidated manner").
(ii) As amply demonstrated above, Debtors' business operations and financial
affairs are so entangled that substantive consolidation will benefit all
creditors by allowing Debtors to propose the consolidated Plan, thereby
avoiding the time consuming, expensive, and likely futile attempt by Debtors
to formulate 33 separate plans of reorganization and allocate assets and
liability by individual Debtor, diverting management's attention to critical
reorganizational and operational tasks benefiting all creditors.
In the other seminal case, Eastgroup Properties v. Southern Motel Assoc.,
935 F.2d 245, 249 (11th Cir. 1991), the court held that substantive
consolidation is appropriate if the proponent demonstrates that (i) there is
substantial identity between debtors, and (ii) consolidation is necessary to
avoid an certain harm or realize a certain benefit. The court also noted that
the Vecco Construction criteria may be relevant in determining whether a
proponent has made a prima facie case for substantive consolidation. This test
was expressly intended to be more "liberal" than older tests, such as that set
forth in Fish. 935 F.2d at 248. Debtors here submit that a prima facie case for
substantive consolidation has been more than amply set out above and may be
summarized, with respect to the Eastgroup factors, by reference to the
discussion accompanying the Fish and Vecco Construction criteria set forth
above. With respect to the harm and benefit attending substantive consolidation
under the Plan, even if a creditor could claim that it somehow relied on the
assets of an individual Debtor and that the creditor, therefore, was prejudiced
by substantive consolidation, such consolidation would still be appropriate,
since substantive consolidation is warranted to avoid the greater harm to all
creditors that would result from an inability to propose 33 separate plans. See
Kheel, 369 F.2d at 847 (ordering consolidation even though certain creditors
could possibly be prejudiced); In re Continental Vending Machine Corp., 517 F.2d
997, 1001 (2d Cir. 1975) (consolidation does not require that creditors
knowingly deal with the corporation as a unit); Chan v. Austin Bank of Chicago,
113 B.R. 427, 429 (N.D. Ill. 1990) ("the possibility that a creditor will be
prejudiced is not sufficient to foreclose consolidation"); In re Snider Bros.
Inc., 18 B.R. 230, 234 (Bankr. D. Mass. 1982) (because separate debtors will
almost always have different asset-to-liability ratios, consolidation could
always be said to prejudice some creditors).
Substantive consolidation of Debtors' estates is critical to Debtors'
successful reorganization and effectiveness of the Plan. The foregoing facts
amply demonstrate that the enmeshment of Debtors' affairs and their operation as
a single economic entity justify substantive consolidation of Debtors' assets
and liabilities. Debtors have historically
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operated as a single economic enterprise and few creditors even dealt with
Debtors in any other way. Debtors' financial management, organizational
structure, and corporate governance procedures described above fit easily within
the multitude of criteria cited by courts for decades to justify substantive
consolidation. No prejudice will result from substantively consolidating
Debtors' estates, since few creditors relied on the individual assets of a
particular Debtor in extending credit or doing regular business. Because
Debtors' creditors knowingly dealt with the unified business enterprise known as
"Unison," creditors will receive exactly what they expect - payment from the
consolidated Company. Even if prejudice were to result with regard to a
particular creditor, the costs to all other creditors, the greater harm to the
estates arising from Debtors' inability to propose a viable plan of
reorganization, would clearly outweigh such prejudice.
As a result of the substantive consolidation of all Debtors, (i) the
Chapter 11 Cases will be deemed to be one consolidated case; (ii) all property
of any of Debtors will be deemed to be property of a consolidated entity
consisting of all Debtors, (iii) all Claims against any Debtor will be deemed to
be a Claim against a consolidated entity consisting of all Debtors, and any
proof of claim filed against one or more of Debtors will be deemed to have been
filed against the consolidated entity unless otherwise provided in the Plan,
(iv) all Equity Interests in any Debtor other than Unison Healthcare will be
deemed extinguished; (v) all intercompany Claims by and among Debtors will be
eliminated; (vi) all guarantees by one Debtor in favor of any other Debtors will
be eliminated; and (vii) for purposes of determining the availability of the
right of setoff under Section 553 of the Bankruptcy Code, Debtors will be
treated as one entity so that, subject to the other provisions of Section 553,
debts due to any of Debtors may be set off against the debts of any of Debtors.
Substantive consolidation will not merge or otherwise affect the separate legal
existence of each Debtor for licensing, regulatory or other purposes, other than
with respect to distribution rights under this Plan. Moreover, substantive
consolidation will have no effect on valid, enforceable and unavoidable liens,
except for liens that secure a Claim that is eliminated by virtue of substantive
consolidation and liens against collateral that ceases to exist by virtue of
substantive consolidation. Furthermore, substantive consolidation will not
create a Claim in a class different from the class in which a Claim would have
been placed in the absence of substantive consolidation. The substantive
consolidation contemplated under the Plan shall not effect any applicable
date(s) for purposes of pursuing any Avoidance Actions.
DESCRIPTION OF REORGANIZED UNISON.
MANAGEMENT OF REORGANIZED UNISON. The following table identifies the proposed
officers and directors of Reorganized Unison on and after the Effective Date:
<TABLE>
<CAPTION>
REORGANIZED UNISON
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. Jeffries 48 President, Chief Executive Officer,
Director
Clayton Kloehr 41 Senior Vice President-Finance,
Treasurer, Director
Nir E. Margalit 40 Executive Vice President, General
Counsel, Secretary, Director
Jimmy L. Fields 48 Executive Vice President and Chief
Financial Officer
Terry Troxell 48 Executive Vice President-Operations
</TABLE>
<TABLE>
<CAPTION>
QUEST
Name Age Position
---- --- --------
<S> <C> <C>
L. Robert Oberfield 60 President
Michael A. Jeffries 48 Chief Executive Officer, Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer,
Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
SUNBELT THERAPY (ALABAMA)
Name Age Position
---- --- --------
<S> <C> <C>
Paul G. Henderson 43 President
Michael A. Jeffries 48 Chief Executive Officer, Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer,
Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
</TABLE>
<TABLE>
<CAPTION>
ALL OTHER DEBTORS
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. Jeffries 48 President, Chief Executive Officer,
Director
Clayton Kloehr 41 Chief Financial Officer, Treasurer,
Director
Nir E. Margalit 40 Secretary
Jimmy L. Fields 48 Vice President
</TABLE>
For information concerning the above-identified individuals, see "THE
DEBTORS -- Current Executive Officers and Directors."
EXECUTIVE COMPENSATION.
PROSPECTIVE COMPENSATION OF MANAGEMENT. As more fully discussed in Article
7.7 of the Plan, the Board of Directors of Reorganized Unison (or such committee
of the Board as appropriate) will evaluate the Senior Management within three
(3) months after the Effective Date to determine: (a) which members of Senior
Management will be given employment contracts on a post-Effective Date basis
(the "New Contracts"); (b) the terms of those New Contracts; and (c) the terms
of participation in the Options and Cash Bonuses discussed below. Compensation
to senior officers of Reorganized Unison are set forth on the following table
together with the historic salary levels for such individuals.
<TABLE>
<CAPTION>
Name Pre-Reorganization Post-Reorganization
Annual Salary Annual Salary
- -------------------------------------------------------------------------------
<S> <C> <C>
Michael A. Jeffries $315,000 $315,000
L. Robert Oberfield $172,000 $172,000
Paul G. Henderson $175,000 $175,000
Jimmy L. Fields $170,000 $170,000
Nir E. Margalit $170,000 $170,000
Terry Troxell $170,000 $170,000
Clayton Kloehr $154,000 $154,000
</TABLE>
SEVERANCE PACKAGES. In order to induce senior and midlevel management
employees to remain in Debtors' employ and to continue to serve the Creditors'
interests during the pendency of these Chapter 11 Cases, Debtors obtained
Bankruptcy Court authorization by order dated October 7, 1998, to adopt and
implement severance benefit packages (the "Severance Packages") for their key
management personnel. The approved Severance Packages contain the following
elements.
SENIOR SEVERANCE PACKAGES. The five (5) senior management employees
("Senior Management") receive, subject to the conditions below, a Senior
Severance Package comprised of one year's salary payable in the event of an
involuntary termination without cause on or before three months after the
Effective Date.
The Board of Directors of Reorganized Unison (or a committee appointed by
the Board), as it exists after the Effective Date, will evaluate the Senior
Management within three months after the Effective Date to determine:
(a) which members of Senior Management will be given employment
contracts ("New Contracts") after the Effective Date, which must be
in substantially the same form as the existing employment contracts
between the Debtors and Senior Management, at substantially similar
compensation terms as currently existing, and contain not less than
eighteen (18) months severance
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(specifically excluding any terms or provisions contained in the
executive severance agreements dated on or about April 30, 1998 (the
"April Severance Agreements");
(b) the terms of those New Contracts; and
(c) the terms of participation in the Post Effective Date Options
and Cash Bonuses referenced below;
In addition to their Senior Severance Packages, the Debtors will reimburse
Mr. Jeffries (CEO) and Mr. Fields (CFO) the closing costs for their homes in
Albuquerque, New Mexico and Tucson, Arizona, respectively, not to exceed $25,000
for Mr. Jeffries and $30,000 for Mr. Fields (the "Closing Costs Reimbursement");
If any member of Senior Management declines to accept an offered New
Contract, that member may be terminated without a Severance Package. Each member
of Senior Management has waived and released all other claims for severance or
other termination payments as may have existed before the Petition Date other
than the Closing Costs Reimbursement, and the terms of the Senior Severance
Packages as set forth herein, supersede and replace, in their entirety, any
prepetition severance or termination agreements or arrangements.
MID-LEVEL SEVERANCE PACKAGES. The approximately eleven (11) individuals
that comprise mid-level management ("Mid-Level Management") will receive,
provided they agree to remain through the Interim Period, the one-year's salary
severance payment provided in their existing employment contracts, which will
remain in full force and effect in accordance with their assumption under
Section 365(a) of the Bankruptcy Code by Debtors.
A sale of Quest will not constitute an involuntary termination for
purposes of entitlement to Mid-Level Severance Package benefits for Mr.
Oberfield or Mr. Roberts. No severance payments will be made, and any severance
rights will expire for Mr. Oberfield, in the event Unison purchases the 25%
interest in Quest from Mr. Oberfield.
Each member of Mid-Level Management has waived and released all other
claims for severance or any other termination payments (whether contained in
employment contracts or otherwise) as may have existed before the Petition Date,
and the terms of the Mid-Level Severance Packages supersede and replace, in
their entirety, any prepetition severance or termination agreements or
arrangements.
OTHER MANAGEMENT. Other management ("Other Management") will receive,
provided they agree to remain through the Interim Period, a severance payment
equal to a percentage of their annual salary.
MAINTENANCE OF STATUS QUO. Other than the revisions to severance rights as
set forth above, the basic terms of employment of Senior Management, Mid-Level
Management and Other Management (such as compensation, insurance and other
benefits, etc.) will remain in full force and effect throughout the Interim
Period.
POST EFFECTIVE DATE OPTIONS FOR SENIOR MANAGEMENT. The board of
Reorganized Unison, within three (3) months of the Effective Date, will allocate
to Senior Management retained under New Contracts, Management Options to
purchase or otherwise receive up to five percent (5%) of the New Common Stock
(on a Fully Diluted basis) to be provided to Senior Management under the terms
and conditions to be determined by the board of Reorganized Unison.
CASH BONUSES. In addition to the foregoing, the board of Reorganized
Unison, within six (6) months of the Effective Date, will allocate and direct to
be paid to Senior Management retained under New Contracts an aggregate cash
bonus of $250,000, with the terms and conditions for such bonuses (such as
performance criteria) to be set by the board of Reorganized Unison.
PROVISIONS GOVERNING DISTRIBUTIONS.
The provisions for the timing and manner of making distributions under the
Plan are generally discussed below. All parties are referred to Article 6 of the
Plan for the operative language governing the distributions and payments to
specific Classes of Creditors. In the case of any inconsistency between this
Disclosure Statement and the Plan, the Plan will control.
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GENERALLY. Except as otherwise provided in the Plan, Reorganized Unison,
or a Disbursing Agent on its behalf, will make the Cash payments and other
distributions provided for under the Plan. The Cash distributions required to be
made on account of Allowed Administrative Claims (excepting therefrom Allowed
Preserved Ordinary Course Claims), Allowed Priority Wage Claims, Allowed
Priority Benefit Plan Contribution Claims, Allowed Priority Tax Claims, and
Allowed Convenience Claims will be made upon the latest of: (i) the Effective
Date, or as soon thereafter as practicable; (ii) such date as may be fixed by
the Bankruptcy Court, or as soon thereafter as practicable; (iii) the tenth
(10th) Business Day after such Claim is Allowed, or as soon thereafter as
practicable; and (iv) such date as the holder of such Claims and Reorganized
Unison have agreed or shall agree.
DISTRIBUTIONS TO CLASS 11. The provisions governing distributions to
Creditors holding Allowed Claims in Class 11 are set forth in Article 6.7 of the
Plan. On the Effective Date, Reorganized Unison will execute and issue: (a) the
New Senior Notes; (b) the New Senior Notes Indenture; (c) the New Senior Notes
Security Documents; and (d) the New Senior Notes Guarantee. Each holder of an
Allowed Class 11 Claim, as of the Distribution Record Date, shall share Pro Rata
(subject to Articles 6.7.9 and 6.7.11 of the Plan) in the New Senior Notes and
related documents and instruments. The New Senior Notes received by the holders
of the Senior Notes will be entitled to the rights under the Sharing Agreement
set forth in Article 6.1.2(c) of the Plan.
With respect to each holder of an Allowed Notes Claim or Senior Notes
Claim, as of the Distribution Record Date, Reorganized Unison will distribute
such holder's Pro Rata share of New Common Stock to the Disbursing Agent, on the
Distribution Date. As soon as practicable after the New Senior Notes Indenture
Trustee receives the Debt Instruments pursuant to Article 6.7.4 of the Plan: (a)
the New Senior Notes Indenture Trustee will distribute Pro Rata Share of the New
Senior Notes in accordance with the terms of the Plan and the New Senior Notes
Indenture; and (b) the Disbursing Agent will issue the Pro Rata Share of the New
Common Stock.
With respect to each holder of an Allowed General Unsecured Claim other
than a Notes Claim or Senior Notes Claim, on the Distribution Date: (a) the New
Senior Notes Indenture Trustee will distribute the Pro Rata Share of the New
Senior Notes in accordance with the terms of the Plan and the New Senior Notes
Indenture as such payments come due; and (b) the Disbursing Agent will issue the
Pro Rata share of the New Common Stock on the Distribution Date.
If all of the Class 6 Reserved Stock and the Class 7 Reserved Stock is not
issued to the holders of the Class 6 and Class 7 Claims pursuant to Articles 6.2
and 6.3 of the Plan, after completion of the Claims resolution procedure
contemplated in the Plan, or is not issued by virtue of the acceptance of the
Plan by Classes 6 and 7, all of the unissued shares of the Class 6 and Class 7
Reserved Stock will be cancelled.
DISTRIBUTIONS TO CLASS 14. The provisions governing distributions to
holders of Allowed Equity Interests in Class 14 are set forth in Article 12 of
the Plan. With respect to each holder of an Allowed Equity Interest as of the
Distribution Record Date, Reorganized Unison shall distribute such holder's Pro
Rata Share of the New Warrants to the Transfer Agent on the Distribution Date.
As soon as practicable after the Transfer Agent receives such holder's security
pursuant to Article 12.2 of the Plan, the Transfer Agent shall distribute the
New Warrants to such holder in accordance with the terms of this Plan and the
New Warrant Agreement.
OBJECTIONS TO CLAIMS. After the Effective Date, objections to Claims shall
be made and objections to Claims made previous thereto shall be pursued by
Reorganized Unison or any other party properly entitled to do so after notice to
Reorganized Unison and approval by the Bankruptcy Court. Any objections made
after the Effective Date shall be filed and served not later than ninety (90)
days after the Effective Date; provided, however, that such period may be
extended by order of the Bankruptcy Court for good cause shown.
SETTLEMENT OF OBJECTIONS AFTER EFFECTIVE DATE. From and after the
Effective Date, Reorganized Unison may litigate to judgment, propose settlements
of, or withdraw objections to, all pending or filed Disputed Claims or Disputed
Equity Interests, and Reorganized Unison may settle or compromise any Disputed
Claim, Disputed Equity Interest, and/or Litigation Claim without notice and a
hearing and without approval of the Bankruptcy Court.
DISTRIBUTIONS TO DISPUTED CLAIMS. In order to facilitate distribution of
Pro Rata shares to holders of Allowed Claims, and if and to the extent there are
Disputed Claims in any Class, the Disbursing Agent will set aside in a separate
designated reserve account the payments or distributions applicable to such
Disputed Claims as if such Disputed Claims were Allowed Claims, pending the
allowance or disallowance of such Disputed Claims. All amounts applicable to
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Disputed Claims in Class 11 shall be segregated in a separate interest bearing
account from which shall be deducted the reasonable costs, expenses, and fees
incurred by the: (a) Disbursing Agent in administering distributions; and (b)
Reorganized Unison in objecting to, litigating and settling on Disputed Claims
in Classes 6 and 7 (to the extent applicable) and 11. In the event that
Reorganized Unison wishes to deposit or hold a lesser amount than required
herein and is unable to reach an agreement with the holder of the Disputed Claim
or the Disbursing Agent, as the case may be, on the amount to be deposited or
held, the Bankruptcy Court shall fix the amount after notice and hearing. Upon
Final Order with respect to a Disputed Claim, the holder of such Disputed Claim,
to the extent it has been determined to be an Allowed Claim, will receive from
the Disbursing Agent that payment or distribution to which it would have been
entitled if the portion of the Claim so Allowed had been Allowed as of the
Effective Date. Such payment or distribution will be made as soon as practical
after the order Allowing the Claim has become a Final Order. The balance of the
amount held by the Disbursing Agent after such payment applicable to a
previously Disputed Claim that has been disallowed in whole or in part, will be
returned to Reorganized Debtors, except with regard to a previously Disputed
Claim in Class 11, in which event, the balance will be distributed Pro Rata
amongst the holders of Allowed Claims in Class 11 or continue to be held by the
Disbursing Agent with regard to Disputed Claims not yet resolved.
MEANS FOR IMPLEMENTATION OF PLAN.
SIGNATURE SALE LEASEBACK TRANSACTION. On or before the Effective Date and
provided the Effective Date payments required to be paid to Omega under the Plan
have been paid, Debtors will consummate the Signature Sale Leaseback Transaction
in which Omega will purchase fee simple title to the Signature Facilities for a
total amount of $38.2 million, plus the following Additional Contingent Payment,
less the Closing Allowance.
1. ADDITIONAL CONTINGENT PAYMENT. On March 15, 2004, and in addition
to the purchase price for the Signature Facilities as set forth above, Omega
will pay an "Additional Contingent Payment," which will be the lesser of: (a) $4
million; (b) an amount such that the EBITDARM for the Signature Facilities for
2003 divided by the sum of, on a pro forma basis taking into account the Minimum
Rent (as defined in the Omega New Master Lease) increase which will result from
the Additional Contingent Payment: (i) Signature's Consolidated Debt Service (as
defined in the Omega New Master Lease); and (ii) Minimum Rent attributable to
the Signature Facilities under the Omega New Master Lease will be 1.75; and (c)
an amount such that EBITDAR for the Signature Facilities for 2003, less the
capital expenditures required under the Omega New Master Lease with respect to
the Signature Facilities for 2003, divided by the sum of, on a pro forma basis
taking into account the Minimum Rent increase which will result from the
Additional Contingent Payment: (i) Signature's Consolidated Debt Service; and
(ii) Minimum Rent attributable to the Signature Facilities under the Omega New
Master Lease will be 1.25.
(a) OTHER CONDITIONS. Payment of the Additional Contingent
Payment is contingent on all of the following conditions being
satisfied: (i) no Event of Default shall have occurred under the
Omega New Master Lease; (ii) the average occupancy for the Signature
Facilities for the year 2003 shall equal or exceed the average
occupancy for 1997; (iii) the New Omega Master Lessees shall be in
compliance, on a pro forma basis taking into account the Minimum
Rent Increase which will result from the Additional Contingent
Payment, with the financial covenants set forth in Section 8.3 of
the Omega New Master Lease; and (iv) Reorganized Unison (on a
consolidated basis) shall have a minimum Tangible Net Worth (as
defined in the Omega New Master Lease) of $25 million.
2. USE OF PROCEEDS. The proceeds will be utilized as follows:
- SATISFACTION OF NHI SECURED CLAIMS. Approximately $19 million of
the proceeds from Signature Sale Leaseback Transactions will be used to satisfy
the Allowed Class 4 NHI Secured Claims.
- EXERCISE OF OPTION. In conjunction with the Signature Sale
Leaseback Transaction, Reorganized Unison will exercise its option to purchase
The Arbors Health Care Center in Arizona for approximately $3.2 million.
- WORKING CAPITAL. The remainder of the Signature Sale Leaseback
Transaction Proceeds will be utilized for the working capital requirements of
Reorganized Unison.
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- RENT FOR SIGNATURE FACILITIES UNDER OMEGA NEW MASTER LEASE. Upon
the closing of the Signature Sale Leaseback Transaction, the Signature
Facilities will be leased back to Reorganized Unison as part of the Omega New
Master Lease Facilities covered by the Omega New Master Lease discussed below.
The rent on the Signature Facilities under the Omega New Master Lease will
commence at nine and one-half percent (9.5%) (the "Investment Yield") of the
purchase price of each facility and will increase by two percent (2%) of the
initial rent each year over the fourteen (14) year initial term and over any
fourteen (14) year renewal lease term as contained in the Omega New Master
Lease. This rent is based on the transaction closing on or before December 15,
1998. By voting in favor of the Plan, Omega will commit to locking in the terms
of the closing of the Signature Sale Leaseback Transaction on the terms set
forth herein if the Signature Sale Leaseback Transaction is consummated on or
before December 15, 1998, time being of the essence. If the Signature Sale
Leaseback Transaction is not consummated on or before December 15, 1998, the
Debtors shall have the right to seek alternative purchases and/or refinancing
for the Signature Facilities, with Omega being given the right to match any such
transaction, provided such transaction can close by the Effective Date.
EXECUTION OF THE OMEGA NEW MASTER LEASE. As more fully described in
Article 7.2 of the Plan, on the Effective Date, the Indiana Master Lease and
Texas Master Lease shall be amended and restated by the Omega New Master Lease
which shall encompass the Omega New Master Lease Facilities, and be guaranteed
by the Omega New Master Lease Guarantors pursuant to the Omega New Master Lease
Guarantee. Some of the principal provisions of the Omega New Master Lease shall
be as follows:
- INITIAL TERM/RENEWAL OPTION. The initial term of the Omega New
Master Lease will be fourteen (14) years commencing on the Effective Date with
one fourteen (14) year renewal option by the Omega New Master Lessees. Any
renewal must be on a global basis encompassing all Omega New Master Lease
Facilities. Moreover, at or prior to the end of the initial term of the Omega
New Master Lease, Reorganized Unison shall have the option to purchase the
Signature Facilities for the greater of: (a) their Fair Market Value as defined
in the Omega New Master Lease; or (b) Omega's investment therein, including any
Additional Contingent Payment, increased by three percent (3%) per year
compounded annually.
- SECURITY DEPOSITS. A security deposit equal to three (3) months
rent on each of the Omega New Master Lease Facilities (including the Signature
Facilities), will be payable at the execution of the Omega New Master Lease.
- COVENANTS. The Omega New Master Lease will contain customary
operating and creditors' rights covenants, all to be agreed upon between Omega,
the Omega New Master Lessees, and the Omega New Master Lease Guarantors.
Accounts receivable borrowing will be permitted on the Omega New Master Lease
Facilities only if certain financial ratios are met by the Lessees. In addition,
the Omega New Master Lessees will be permitted to finance equipment with an
annual lease or finance payment not to exceed the aggregate amount existing as
of the Confirmation Date with the maximum aggregate amount to be reduced over
the three (3) years following the Effective Date to an amount to be agreed upon
by Reorganized Unison and Omega. No other borrowings by the Omega New Master
Lessees will be permitted.
- RENTAL ADJUSTMENT FOR INDIANA RETURNED FACILITIES. From and after
the Effective Date (as defined in the Plan), the Debtors or Reorganized Unison
will have no further liability for rental attributable to the Indiana Returned
Facilities. Unison and BritWill Indiana (as reorganized) will be responsible for
all obligations of the Indiana Returned Facilities arising or accrued on or
prior to the Effective Date and with all of Omega's security securing such
obligations and Omega will be responsible for all obligations arising or
accruing after the Effective Date.
OBTAINING NEW LINE OF CREDIT. As more fully set forth in Article 13.2 of
the Plan, one of the conditions precedent to the occurrence of the Effective
Date is that Reorganized Unison has obtained a New Line of Credit, in the
approximate amount of $12 million, and it is ready to fund. Debtors are
negotiating with HCFP to provide the New Line of Credit.
NAME CHANGE. On or before the Effective Date, Unison shall effectuate a
corporate name change to "Raintree HealthCare Corp."
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COUNSEL TO AD HOC COMMITTEE. As part of the distributions otherwise
distributable to the holders of Notes and Senior Notes pursuant to this Plan,
and as compensation in connection with making a substantial contribution to the
Chapter 11 Cases, on the Effective Date, legal counsel to the Ad Hoc Committee
shall be reimbursed for its reasonable fees and expenses incurred in connection
with the Chapter 11 Cases, subject to review by the Bankruptcy Court as to the
reasonableness of such fees and costs.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES. Except as provided in Article
6.1 of the Plan relating to Omega (which shall control as to any executory
contract and/or unexpired leases between the Debtors and Omega), the executory
contracts and unexpired leases between the Debtors and any Person shall be dealt
with as provided below.
ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. All
executory contracts and unexpired leases set forth on the schedule of assumed
executory contracts filed with the Bankruptcy Court as part of the Plan
Supplement that exist between the Debtors and any Person will be deemed assumed
by Reorganized Unison as of the Effective Date, except for any executory
contract or unexpired lease: (a) that has been rejected pursuant to an order of
the Bankruptcy Court entered prior to the Confirmation Date; or (b) as to which
a motion for approval or rejection of such executory contract or unexpired
lease, if applicable, has been filed with the Bankruptcy Court prior to the
Confirmation Date. The Texas Master Lease and Indiana Master Lease shall be
assumed, as modified and supplemented pursuant to Articles 6.1 and 7.2 of this
Plan and as more fully set forth in the Omega New Master Lease, on the Effective
Date.
REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. All executory
contracts and unexpired leases that exist between the Debtors and any Person and
are either set forth on the schedule of rejected executory contracts and
unexpired leases filed with the Bankruptcy Court as part of the Plan Supplement,
or which do not appear in the Plan Supplement will be deemed rejected as of the
Effective Date, except for any executory contract or unexpired lease that has
been assumed or rejected pursuant to an order of the Bankruptcy Court entered
prior to the Confirmation Date.
APPROVAL OF ASSUMPTION OR REJECTION. Entry of the Confirmation Order
will constitute: (a) the approval, pursuant to Section 365(a) of the Bankruptcy
Code, of the assumption of the executory contracts and unexpired leases assumed
pursuant to the Plan or otherwise during the Chapter 11 Cases; and (b) the
approval, pursuant to Section 365(a) of the Bankruptcy Code, of the rejection of
the executory contracts and unexpired leases rejected pursuant to the Plan or
otherwise during the Chapter 11 Cases. Notwithstanding anything contained herein
to the contrary, as part of the Plan Supplement the Debtors will have the right
to add or delete any executory contract or unexpired lease that is initially an
assumed executory contract or an assumed unexpired lease on the Schedules.
CURE OF DEFAULTS. On the Effective Date or as soon thereafter as is
practicable, Reorganized Unison will Cure any defaults under any executory
contract or unexpired lease assumed pursuant to this Plan in accordance with
Section 365(b)(1) of the Bankruptcy Code.
POST-PETITION DATE CONTRACTS AND LEASES. Executory contracts and
unexpired leases entered into and other obligations incurred after the Petition
Date by the Debtors, will be performed by the Debtors or Reorganized Unison, as
applicable, in the ordinary course of their business.
BAR DATE. All proofs of claims with respect to Claims arising from
the rejection of any executory contract or unexpired lease rejected pursuant to
the Plan must be filed with the Bankruptcy Court no later than THIRTY (30) DAYS
after the Confirmation Date. Any Claim not filed within such time will be
forever barred. With respect to any executory contract or unexpired lease that
was rejected by the Debtors prior to the Confirmation Date, the deadline for
filing such Claims shall be as set forth in the Bar Date Order.
INDEMNIFICATION OBLIGATIONS. Any obligations of the Debtors to
indemnify any Person serving as a fiduciary of any employee benefit plan or
program of the Debtors, pursuant to charter, by-laws, contract or applicable
state law will be deemed to be, and shall be treated as, an executory contract
and assumed by Reorganized Unison on the Confirmation Date. Any obligation of
the Debtors to indemnify, reimburse, or limit the liability of any Person,
including but not limited to any officer or director of any of the Debtors, any
Broker Dealer, or any agent, professional, financial advisor, or underwriter of
any securities issued by the Debtors which relate to any acts or omissions which
occurred prior
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to the Petition Date: (a) will be rejected, canceled, and discharged pursuant to
the Plan as of the Confirmation Date; and (b) any and all Claims resulting
therefrom will be disallowed pursuant to Section 502(e) of the Bankruptcy Code.
Notwithstanding any of the foregoing, nothing contained in the Plan shall
impact, impair or prejudice the rights of any Person covered by any applicable
directors and officers liability insurance policy and/or any applicable errors
and omissions policy (collectively, "D&O Policies") with respect to such policy
or policies. Moreover, Reorganized Unison will maintain in force for a period of
two (2) years following the Effective Date appropriate D&O Policies covering
pre-Effective Date directors and officers of the Debtors and containing
substantially the same provisions and limits of coverage as the policies that
were in force on the Petition Date, and Reorganized Unison will also be
responsible for paying the deductible or retention amounts under such policies
for such two-year period.
PRESERVATION AND PROSECUTION OF LITIGATION CLAIMS.
In accordance with Section 1123(b)(3) of the Bankruptcy Code, and except
as otherwise expressly provided in the Plan, all Litigation Claims and Related
Party Creditor Defenses (if applicable) will be retained and reserved for the
benefit of Reorganized Unison and the holders of Allowed Claims in Class 11. For
the avoidance of doubt, the holders of the Notes, the Notes Indenture Trustee,
the holders of the Senior Notes and the Senior Notes Indenture Trustee shall
retain any and all independent rights of action against any Person except as
expressly provided for otherwise in the Plan.
PROSECUTION OF LITIGATION CLAIMS. Reorganized Unison shall prosecute any
and all preserved Litigation Claims not otherwise expressly comprised in the
Plan, and will do so in its capacity as a representative of the Estates pursuant
to and in accordance with Section 1123(b)(3)(B) of the Bankruptcy. The fees and
costs to litigate such preserved Litigation Claims shall come from the
post-Effective Date operations of Reorganized Unison. Reorganized Unison shall
have sole discretion in its business judgment as to what Litigation Claims to
pursue, which to settle, and the terms and conditions of those settlements.
DISTRIBUTION OF LITIGATION CLAIMS PROCEEDS. All monetary judgments and
awards resulting from the settlement or prosecution of the preserved Litigation
Claims shall be distributed to the holders of Allowed Claims in Class 11 after
deduction of the reasonable and necessary fees and costs incurred by Reorganized
Unison in the prosecution and/or settlement of the preserved Litigation Claims.
SPECIFIC CLAIMS PRESERVED. During the course of the Chapter 11 Cases, with
the assistance of their court-approved professionals, Debtors continue to
investigate causes of action available to them under the Bankruptcy Code and
applicable state law. The Plan preserves all causes of action available to
Debtors, including all objections to Claims and all other causes of action
arising under the Bankruptcy Code, unless the Plan specifically provides
otherwise.
Specifically reserved and preserved are all claims, rights or causes of
action arising out of or related to: (1) to the extent that holders of Claims in
Class 6 do not vote for the Plan, the BritWill Acquisition, (2) to the extent
that holders of Claims in Class 7 do not vote for the Plan, the Signature
Acquisition, (3) such further related transactions to (1) and (2) above,
including, but not limited to, an April 1997 loan and September 1997 loan by Elk
Meadows and BritWill Investments; (4) the business operation of Debtors for the
period July 1, 1992 to May 28, 1998, including as related to the foregoing but
not limited to, any claims for breach of contract, fraud, misrepresentation,
negligence, misappropriation of business opportunities or trade secrets,
corporate waste, fraudulent conveyance, constructive trust, breach of fiduciary
duty, self-dealing or any claims for indemnity, or any claims arising from an
employment relationship with any Debtors; (5) the Related Party Avoidance
Actions; (6) the Avoidance Actions; (7) the Related Party Creditor Defenses; and
(8) all other Litigation Claims (collectively, the "Preserved Claims"). Each
Debtor specifically reserves the Preserved Claims as to: (a) each and every
member of Kremser and Affiliates and Whitehead and Affiliates; (b) any officer
or director of any Debtor for the period July 1, 1992 to May 28, 1998; or (c)
any entity or individual who is determined to be (i) the alter-ego of the
foregoing; (ii) any entity the aforementioned might successfully claim are
necessary parties for purposes of joinder under the Federal Rules of Civil
Procedure; or (iii) any entity in whose hands the proceeds and benefit of any
impermissible conduct has flowed. See "THE PLAN OF REORGANIZATION -- Summary of
Treatment of and Distributions to Creditors Under the Plan -- BritWill
Acquisition Claims, Signature Acquisition Claims."
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SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN.
Reorganized Unison shall issue for distribution in accordance with the
provisions of the Plan the New Common Stock, the New Warrants, the New Warrant
Shares, the Debt Instrument evidencing the Signature Claim Payout, as defined in
Article 6.3.2(a)(ii) of the Plan, the BritWill Acquisition Promissory Note, as
defined in Article 6.2.2(b)(I), and the New Senior Notes required for
distribution or sale pursuant to the provisions of the Plan. Please refer to
Article 11 of the Plan for a complete discussion of the securities to be issued
in connection with the Plan.
COMMON STOCK. Principal provisions of the New Common Stock are summarized
as follows:
- AUTHORIZATION. The Reorganized Unison Certificate will authorize the
issuance of ten million (10,000,000) shares of New Common Stock. On
the Effective Date Reorganized Unison will issue two million
(2,000,000) shares of such New Common Stock pursuant to Article 6.7
of the Plan which will represent approximately seventy-nine percent
(79%) of the equity in Reorganized Unison on a fully diluted basis
if the Class 6 Reserved Stock and Class 7 Reserved Stock is issued
in full to the holders of Allowed Claims in Classes 6 and 7; and
approximately ninety percent (90%) of the equity in Reorganized
Unison on a Fully Diluted basis if the New Class 6 Reserved Stock
and Class 7 Reserved Stock is not issued to holders of Claims in
Classes 6 and 7.
- PAR VALUE. The New Common Stock will have a par value of $.001 per
share.
- RIGHTS. The New Common Stock will have such rights with respect to
dividends, liquidation, voting and other matters as are set forth in
the Reorganized Unison Certificate and as provided under applicable
law, including, without limitation, the right to one vote per share.
- EXCHANGE LISTING. Reorganized Unison will use its reasonable best
efforts to register the New Common Stock on a national securities
exchange or automated quotation system prior to, or as soon as
practicable after, the distribution to holders of Allowed Claims
entitled to receive New Common Stock.
- REGISTRATION RIGHTS. Any Person who receives ten percent (10%) or
more of the New Common Stock on account of its Allowed Claim under
the Plan will be deemed to have entered into the New Common Stock
Registration Agreement with respect to that stock, and shall have
the rights afforded under that agreement.
NEW WARRANTS. Principal provisions of the New Warrants are as follows:
- AUTHORIZATION. The Plan authorizes (subject to the provisions of
Article 6.9.2 of the Plan) the issuance of New Warrants to purchase
approximately 100,000 shares of New Common Stock, which, if and to
the extent exercised, will represent up to approximately five
percent (5%) of the equity of Reorganized Unison on a Fully Diluted
basis.
- EXERCISE PRICE. The New Warrants will have a per share exercise
price equal to 1.25 times the Initial Price.
- EXERCISE; EXPIRATION. The New Warrants will be exercisable by the
holder thereof at any time on or prior to the fifth anniversary of
the Effective Date, at which time all unexercised New Warrants will
expire.
- RIGHTS. The New Warrants will not be redeemable. The number of
shares purchasable upon exercise of the New Warrants will, in the
aggregate, equal a maximum of five percent (5%) of the equity in
Reorganized Unison on a Fully Diluted basis, and will be subject to
standard anti-dilution provisions.
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<PAGE> 100
The holders of the New Warrants will not have any voting or other
rights as shareholders of Reorganized Unison in respect thereof.
NEW SENIOR NOTES. Principal provisions of the New Senior Notes are as
follows:
- AUTHORIZATION. The Plan authorizes the issuance of the New Senior
Notes in the amount of $24 million less the Effective Date Excess
Cash payment set forth in Article 11.3.4(a) of the Plan, pursuant to
the New Senior Notes Indenture.
- SECURITY. The New Senior Notes will be secured by the New Senior
Notes Collateral.
- INTEREST RATE. The New Senior Notes will bear interest, payable as
set forth in Article 11.3.4 of the Plan, in arrears, at a fixed rate
equal to eleven percent (11%) per annum.
- MATURITY AND AMORTIZATION. The New Senior Notes will mature on the
fourth anniversary of the Effective Date, and will be payable as
follows:
(a) On the Effective Date, the Effective Date Excess Cash will be
paid to reduce the principal due and owing on the New Senior
Notes. Under no circumstances will Reorganized Unison be
required to access its New Line Of Credit or otherwise borrow
to make all or any portion of this Effective Date Payment;
(b) If and when the New Senior Notes Collateral or any portion
thereof is sold, the proceeds therefrom (less costs of sale)
will be used to prepay the New Senior Note, which payment will
be applied: (i) first to outstanding fees and costs under the
New Senior Note Indenture (if any); (ii) then to accrued
interest; and (iii) then to principal;
(c) Interest only will be payable semi-annually for the first and
second years after issuance;
(d) On the third anniversary of the Effective Date, a payment
equal to accrued interest plus a principal reduction of $2.0
million will be made; and
(e) All unpaid interest, fees, costs and principal will be fully
due and payable on the fourth anniversary of the Effective
Date.
- PREPAYMENT PENALTY. The New Senior Notes will contain no prepayment
penalty.
- GUARANTEES. The New Senior Notes will be guaranteed by all
subsidiaries and Affiliates of Reorganized Unison pursuant to the
New Senior Notes Guarantee other than the Omega New Master Lessees.
- OTHER RIGHTS. The holders of the New Senior Notes received by the
holders of the Senior Notes will have those rights under the Sharing
Agreement with respect to the Indiana Returned Facility Note set
forth in Article 6.1.2(c) of the Plan.
SECTION 1145 EXEMPTION. It is the Company's position that, in accordance
with Section 1145 of the Bankruptcy Code, the issuance of the New Common Stock
and the New Senior Notes, the Debt Instrument evidencing the Signature Claim
Payout, the BritWill Acquisition Promissory Note, the New Warrants and the New
Warrant Shares under this Plan is exempt from the registration requirements of
Section 5 of the Securities Act, as amended, and any state or local law
requiring registration for offer or sale of a security or registration or
licensing of an issuer of, underwriter of, or Broker Dealer in such securities
and is deemed to be a public offer of such securities. With respect to the
issuance of the New Warrants and the New Warrant Shares upon exercise of the New
Warrants, the issuance of such securities under the Plan shall be exempt from
the registration requirements of Section 5 of the Securities Act, as amended,
and any state
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<PAGE> 101
or local law requiring registration of such securities only to the extent the
Bankruptcy Court determines, as part of the Confirmation Hearing and pursuant to
the Confirmation Order, that such issuance is exempt under the provisions of
Section 1145 of the Bankruptcy Code.
TITLE TO PROPERTY; DISCHARGE; INJUNCTION.
REVESTING OF ASSETS. Subject to the provisions of the Plan, the property
of the Estates of Debtors will vest in Reorganized Unison on the Effective Date.
As of the Effective Date, all such property of Debtors shall be free and clear
of all liens, Claims and Equity Interests of holders thereof, except as
otherwise provided herein. From and after the Effective Date, Reorganized Unison
may operate their business, and may use, acquire and dispose of their property
free of any restrictions of the Bankruptcy Code, including the employment of and
payment to professionals, except as otherwise provided in the Plan or the
Confirmation Order.
DISCHARGE. Except as provided in the Plan or the Confirmation Order, the
rights afforded under the Plan and the treatment of Claims and Equity Interests
under the Plan shall be in exchange for and in complete satisfaction, discharge
and release of all Claims, including any interest accrued on General Unsecured
Claims from the Petition Date and termination of all Equity Interests. Except as
provided in the Plan or the Confirmation Order, Confirmation shall: (a)
discharge Debtors and Reorganized Unison from all Claims or other debts that
arose before the Confirmation Date, and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (i) a
proof of claim based on such debt is filed or deemed filed pursuant to Section
501 of the Bankruptcy Code; (ii) a Claim based on such debt is allowed pursuant
to Section 502 of the Bankruptcy Code; or (iii) the holder of a Claim based on
such debt has accepted the Plan; and (b) terminate all Equity Interests and
other rights of Equity Interests in Debtors except as expressly provided herein.
INJUNCTION. Except as provided in the Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Equity
Interest, Equity Interest Related Claim, or other right of an equity security
holder that is terminated pursuant to the terms of the Plan are permanently
enjoined from taking any of the following actions on account of any such
discharged Claims, debts or liabilities or terminated Equity Interests or
rights: (a) commencing or continuing in any manner any action or other
proceeding against the Debtors or Reorganized Unison (including any officer or
director acting as a representative of Debtors or Reorganized Unison); (b)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against Debtors, Reorganized Unison, or their respective
property; (c) creating, perfecting or enforcing any lien or encumbrance against
Debtors, Reorganized Unison, or their respective property; (d) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to Debtors, Reorganized Unison, or their respective
property; and (e) commencing or continuing any action, in any manner, in any
place, that does not comply with or is inconsistent with the provisions of the
Plan or the Bankruptcy Code.
EXCULPATION. Neither Debtors, Reorganized Unison, the Creditors Committee,
the Ad Hoc Committee, Omega nor any of their respective officers, directors,
employees, financial advisors, attorneys, or agents, shall have or incur any
liability to any holder of a Claim or Equity Interest, including the holder of
any Equity Interest Related Claim, or any other party in interest, or any of
their respective members or former members, agents, employees, representatives,
financial advisors, attorneys, or Affiliates, or any of their successors or
assigns, for any act or omission in connection with, relating to, or arising out
of, the Chapter 11 Cases, the pursuit of confirmation of the Plan, or the
consummation of the Plan, except for their willful misconduct, and in all
respects shall be entitled to reasonably rely upon the advice of counsel with
respect to their duties and responsibilities under the Plan or in the context of
the Chapter 11 Cases. No holder of a Claim, Equity Interest or Equity Interest
Related Claim, or any other party in interest, including their respective
agents, employees, representatives, financial advisors, attorneys or Affiliates,
shall have any right of action against the Debtors, Reorganized Unison, the
Creditors Committee, the Ad Hoc Committee, Omega or any of their respective
officers, directors, employees, financial advisors, attorneys, or agents, for
any act or omission in connection with, relating to, or arising out of, the
Chapter 11 Cases, the pursuit of confirmation of the Plan, the consummation of
the Plan, or the administration of the Plan, except for their willful
misconduct.
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<PAGE> 102
FEASIBILITY
GENERAL FEASIBILITY ANALYSIS.
Pursuant to Section 1129(a)(11) of the Bankruptcy Code, one of the
requirements for confirmation of a plan of reorganization is a determination by
the Bankruptcy Court that the plan is feasible -- that is, that confirmation of
the plan is not likely to be followed by liquidation or by the need for a
further financial restructuring, unless such is specifically provided for in the
plan. For purposes of determining whether the Plan meets this requirement,
Debtors have analyzed the Reorganized Unison's future prospects and its ability
to meet its obligations under the Plan. Debtors believe that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of Reorganized Unison.
A: (i) projected balance sheet as of the Effective Date of the Plan; (ii)
projected cash flows statement; and (iii) projected income statement, are set
forth below. These projections were prepared by the Company and include
projections of the expected results of operations of the Company assuming the
disposition of the Company's rehabilitation therapy subsidiary and the
Disposition Facilities.
BASED ON THE RESULTS OF OPERATIONS AND CASH FLOWS, DEBTORS BELIEVE THAT
THE PLAN COMPLIES WITH THE FINANCIAL FEASIBILITY STANDARDS FOR CONFIRMATION SET
FORTH IN SECTION 1129(a)(11) OF THE BANKRUPTCY CODE. DEBTORS BELIEVE THAT THE
ASSUMPTIONS ARE REASONABLE, THAT THE PROJECTIONS ARE ATTAINABLE BY REORGANIZED
UNISON ON AN OPERATIONAL BASIS AND THAT REORGANIZED UNISON WILL HAVE SUFFICIENT
FUNDS AVAILABLE TO MEET ITS OBLIGATIONS UNDER THE PLAN.
THE PROJECTIONS AND ANALYSES CONTAINED HEREIN SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY DEBTORS, REORGANIZED UNISON, OR ANY OTHER PERSON,
INCLUDING ANY PROFESSIONALS EMPLOYED BY, OR ANY OFFICERS, DIRECTORS, EMPLOYEES
OR OTHER REPRESENTATIVES OF SUCH PARTIES, THAT ANY PROJECTED RESULTS OF
OPERATIONS OR RECOVERIES WILL BE REALIZED. ACTUAL RESULTS ACHIEVED BY
REORGANIZED UNISON MAY VARY MATERIALLY FROM THE PROJECTED RESULTS. HOLDERS OF
CLAIMS AND EQUITY INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE
REASONABLENESS OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS IN REACHING THEIR
DECISIONS OF WHETHER TO ACCEPT OR REJECT THE PLAN.
KEY ASSUMPTIONS UNDERLYING THE OPERATING PLAN AND THE PROJECTIONS.
The projections assume that, after the Effective Date, Unison will operate 32
skilled nursing facilities with 3,284 licensed beds and 3 assisted living
facilities with 214 units. In addition, Unison will continue its pharmacy and
laboratory ancillary businesses. Unison's therapy business is assumed to be sold
by December 31, 1998, with the proceeds from this sale used to repay a portion
of the New Senior Note. No further acquisitions or dispositions have been
assumed.
REVISIONS FROM DISCLOSURE STATEMENT DATED AUGUST 10, 1998. The
original disclosure statement projections were started in the Spring of 1998 and
filed on August 10, 1998 with the disclosure statement. While it is felt that
those projections were a reasonable expectation based on the information
available at the time and may still be attainable, Unison believes that a more
conservative estimate should also be presented. For fiscal 1999, this more
conservative projection has reduced revenue by $11.4 million and reduced
expenses by $8.3 million resulting in a reduction of EBITDA of $3.1 million.
The adjustments made and rationale for each are as follows:
1. Revenues were increased by $2.0 million as a result of increased
length of stay for Medicare residents. Under the new Medicare
payment system going into effect on January 1, 1999, the rates
assume a minimum amount of therapy time will be required in each
different resource utilization group. The highest group, for
example, assumes that the patient will receive a minimum of 720
minutes of therapy within a seven-day period of time. The therapy
component of the rate pays for this amount of time. While some
patients may well receive more than 720 minutes a week, since the
payment amount is for approximately 720 minutes, therapy services
are not likely to exceed the 720 minutes by a substantial amount.
The patient, however, may require much more than this
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<PAGE> 103
before they are completely rehabilitated; therefore, they will stay
in the Medicare unit for a longer number of days to continue to
receive the therapy services. Additionally, Medicare has created a
low rehabilitation category, which incorporates nursing
rehabilitation services allowing the resident to remain on Medicare
for even further extended periods while covered by Medicare. (Prior
to PPS, nursing rehabilitation was not covered by Medicare.) While
it may increase the total number of days in the facility because
some patients are rehabilitated and sent home, still others are
rehabilitated but discharged to the facility into a non-Medicare
unit. Unison has, for the purposes of this projection, assumed that
there is no increase in total census days (although there very well
could be), but there is an increase in the number of Medicare days
and a decrease in the number of non-Medicare days.
2. Medicare revenues from long term care facilities were decreased by
$7.5 million as a result of a reduction in the average daily rate to
be paid under PPS versus non-PPS. The Healthcare Financing
Administration estimated that the PPS system would result in
approximately a 17% reduction in rates. Unison's estimation, based
upon information now available, is that its rates will on average be
reduced by 18.6%.
3. Pharmacy revenue has been reduced by $2.8 million. This reduction is
the result of lower estimated rates negotiated with nursing
providers, again as a result of PPS rate reductions. This will not
necessarily be reductions in prices for a given product, but may
reflect the use of a substitute product that has a lower cost. (See
expense explanation below.)
4. Revenues have been reduced an additional $3.1 million as a result of
reductions in the assumed level of census. Under the original
projections it was assumed that the Company would complete the
bankruptcy proceedings and exit as a reorganized company on November
1, 1998. Unison believes that, during the period the Company remains
in bankruptcy, the uncertainty about the Company's future is and
will continue to have a negative impact on marketing facilities to
prospective residents. As a result, Management has reduced the
census assumptions from an occupancy level of 85.1% to 83% for the
1999 fiscal year. Unison's rate of recovery of census remains
approximately the same. However, the starting point is lower.
Occupancy in June 1998 was 81.2% and in August 1998 fell to 79.7%.
5. Expenses have been reduced for pharmacy cost of goods sold by $1.5
million. As a result of lower payments, the pharmacy is working with
its customers to put in place "formularies". This is an attempt to
reduce the number of different products carried by the pharmacy in
order to negotiate better pricing. Additionally, the "formulary"
will contain more generic drugs that can be obtained at much lower
prices than name brand drugs. While the pharmacy will in fact still
supply any drug required, it is expected that physicians will
cooperate in an effort to reduce overall costs.
6. Expenses were reduced by $1 million (estimate of variable cost) as a
result of the reduction in census discussed in item 4 above.
7. Expenses were reduced by $5.5 million as a result of lower therapy
expense and lower pharmacy expense negotiated based upon lower
revenues from PPS. Suppliers of these services are reducing their
costs through wage reductions and increased productivity and, in
turn, passing these cost savings on to the nursing facilities.
8. Rent expense was increased by $272,000 as a result of the change in
the proposed terms of the Signature Sale Leaseback Transaction.
9. Because the above adjustments resulted in a reduction of revenue of
$11.4 million, the Company reduced its estimated management fees by
$572,000. The Company intends to hold administrative costs
(Management Fees) to 5% of Revenues.
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<PAGE> 104
To summarize, the reduction in EBITDA results primarily from a reduction
in assumed census based upon what is currently being experienced, and a
reduction Pharmacy EBITDA. The affect of PPS on the revenues of nursing
facilities is substantially offset by reductions in expenses and increased
length of stay.
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<PAGE> 105
UNISON HEALTHCARE CONSOLIDATED
PROJECTED BALANCE SHEET
($000'S)
<TABLE>
<CAPTION>
PRO FORMA
DEC-31-98 DEC-31-99 DEC-31-00 DEC-31-01 DEC-31-02 DEC-31-03
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH $ 0 $ 2,313 $ 2,313 $ 3,176 $ 2,313 $ 2,313
ACCOUNTS RECEIVABLE (NET) 33,970 20,255 21,247 22,381 23,153 24,027
INVENTORY 2,252 2,217 2,261 2,306 2,352 2,399
PREPAID EXPENSES & OTHER 7,741 9,502 9,502 9,502 9,502 9,502
-------- -------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 43,962 34,288 35,324 37,366 37,321 38,242
PROPERTY, PLANT & EQUIPMENT (NET) 6,418 7,740 8,465 8,889 8,434 7,979
GOODWILL, LSE OP RTS & OTH
INTANG (NET) 40,386 27,474 22,955 18,437 13,919 9,401
OTHER ASSETS 9,589 9,465 9,465 9,465 9,465 9,465
-------- -------- -------- -------- -------- --------
TOTAL ASSETS $100,355 $ 78,966 $ 76,208 $ 74,156 $ 69,139 $ 65,086
======== ======== ======== ======== ======== ========
ACCOUNTS PAYABLE $ 4,463 $ 4,120 $ 4,219 $ 4,333 $ 4,411 $ 4,499
ACCRUED EXPENSES 11,582 8,392 8,640 9,129 9,214 9,431
RESERVES 12,539 0 0 0 0 0
ACCRUED BUSINESS TAXES 3,133 2,974 2,974 2,974 2,974 2,974
NOTES PAYABLE 24 2,789 797 0 13,922 8,676
CURRENT MATURITIES OF LONG
TERM DEBT 709 701 673 5,313 2,032 411
-------- -------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 32,449 18,976 17,303 21,749 32,553 26,020
LONG TERM DEBT 30,943 26,242 25,562 18,249 919 479
DEFERRED TAXES 16,018 16,018 16,018 16,018 16,018 16,018
OTHER LONG TERM LIABILITIES 945 1,221 1,519 1,833 2,164 2,514
-------- -------- -------- -------- -------- --------
TOTAL LIABILITIES 80,355 62,457 60,401 57,848 51,654 45,031
PREFERRED STOCK 0 0 0 0 0 0
COMMON STOCKHOLDERS' EQUITY 20,000 16,509 15,808 16,308 17,485 20,055
-------- -------- -------- -------- -------- --------
TOTAL EQUITY 20,000 16,509 15,808 16,308 17,485 20,055
TOTAL LIABILITIES &
EQUITY $100,355 $ 78,966 $ 76,208 $ 74,156 $ 69,139 $ 65,086
======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 106
UNISON HEALTHCARE CONSOLIDATED
PROJECTED CASH FLOWS
($000'S)
<TABLE>
<CAPTION>
FULL YEAR FULL YEAR FULL YEAR FULL YEAR FULL YEAR
DEC-31-99 DEC-31-00 DEC-31-01 DEC-31-02 DEC-31-03
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET INCOME (3,491) (702) 501 1,176 2,571
DEPRECIATION & AMORTIZATION
6,518 6,518 6,518 6,518 6,518
------- ------- ------- ------- -------
GROSS OPERATING CASH FLOW 3,028 5,817 7,019 7,695 9,089
(INCREASE) IN ACCOUNTS RECEIVABLE 13,714 (992) (1,134) (772) (873)
(INCREASE) IN INVENTORY 35 (44) (45) (46) (47)
(INCREASE) IN PREPAID EXPENSES & OTHER (1,761) 0 0 0 0
INCREASE IN ACCOUNTS PAYABLE (343) 100 114 78 88
INCREASE IN ACCRUED LIABILITIES (3,201) 246 281 191 216
INCREASE IN OTHER CURRENT
LIABILITIES (12,698) 0 0 0 0
------- ------- ------- ------- -------
CASH FLOW FROM WORKING CAPITAL (1,277) 5,126 6,234 7,145 8,473
(INCREASE) IN OTHER ASSETS 124 (0) 0 0 0
INCREASE IN OTHER LIABILITIES 276 297 314 332 350
CAPITAL EXPENDITURES (NET OF SALES) 5,072 (2,724) (2,424) (1,546) (1,546)
------- ------- ------- ------- -------
CASH FLOW FROM OPERATIONS 4,245 2,699 4,124 5,932 7,277
CHANGE IN DEBT (1,932) (2,699) (3,261) (6,794) (7,277)
LIABILITIES ST COMPROMISE 0 0 0 0 0
INTERCO ADJUSTMENTS (0) (0) 0 0 0
DIVIDENDS 0 0 0 0 0
EQUITY ADJUSTMENTS 0 0 0 0 0
CHANGE IN CASH 2,313 0 863 (863) 0
BEGINNING CASH (0) 2,313 2,313 3,176 2,313
ENDING CASH 2,313 2,313 3,176 2,313 2,313
</TABLE>
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<PAGE> 107
UNISON HEALTHCARE CONSOLIDATED
PROJECTED INCOME STATEMENT
($ IN 000'S EXCEPT PER SHARE)
<TABLE>
<CAPTION>
FY1998 FY1999 FY2000 FY2001 FY2002 FY2003
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 195,824 $ 135,575 $ 142,479 $ 149,208 $ 154,354 $ 160,177
Wages and Related 100,911 62,686 64,639 66,732 68,735 70,885
Other Operating Expenses 71,421 51,135 52,940 54,710 56,507 58,410
--------- --------- --------- --------- --------- ---------
EBITDAR 23,492 21,754 24,900 27,766 29,112 30,883
EBITDAR% 12.00% 16.05% 17.48% 18.61% 18.86% 19.28%
Rent 14,560 15,142 15,500 15,755 16,185 16,526
--------- --------- --------- --------- --------- ---------
EBITDA 8,932 6,612 9,399 12,011 12,928 14,358
EBITDA% 4.56% 4.88% 6.60% 8.05% 8.38% 8.96%
Depreciation and Amortization 9,951 6,518 6,518 6,518 6,518 6,518
--------- --------- --------- --------- --------- ---------
EBIT (1,019) 93 2,881 5,493 6,409 7,839
Impairment losses and
Restructuring Costs 11,058 0 0 0 0 0
Interest Expense (net) 11,548 3,113 3,087 2,943 2,567 1,642
--------- --------- --------- --------- --------- ---------
Pre Tax Income before Minority Interest (23,625) (3,020) (206) 2,549 3,842 6,197
Minority Interest NA (471) (496) (523) (553) (583)
Taxes 0 0 0 1,526 2,113 3,043
--------- --------- --------- --------- --------- ---------
Net Income (23,625) (3,491) (702) 501 1,176 2,571
Preferred Dividends 0 0 0 0 0 0
Available for Common (23,625) (3,491) (702) 501 1,176 2,571
Earnings per Share (based on
2,000,000 shares) ($ 11.81) ($ 1.75) ($ 0.35) $ 0.25 $ 0.59 $ 1.29
Skilled Nursing Facilities 32 32 32 32 32 32
Licensed Beds 3,284 3,284 3,284 3,284 3,284 3,284
Assisted Living Facilities 3 3 3 3 3 3
Number of Units 214 214 214 214 214 214
Sources of Patient Revenues
Medicare 30.10% 29.66% 29.00% 28.33% 27.98% 27.25%
Private Pay 16.13% 17.05% 17.44% 18.48% 19.06% 19.64%
--------- --------- --------- --------- --------- ---------
Quality Mix 46.24% 46.71% 46.44% 46.82% 47.04% 46.89%
Medicaid 53.76% 53.29% 53.56% 53.18% 52.96% 53.11%
--------- --------- --------- --------- --------- ---------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Occupancy % 80.34% 83.00% 85.00% 87.00% 87.31% 88.20%
</TABLE>
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RISK FACTORS
The restructuring of Unison involves a degree of risk, and this Disclosure
Statement and certain of the documents incorporated herein by reference contain
forward-looking statements that involve risks and uncertainty. Reorganized
Unison's actual results could differ materially from those anticipated in such
forward-looking statements as a result of a variety of factors, including those
set forth in the following risk factors and elsewhere in this Disclosure
Statement. Creditors should consider carefully the following factors, in
addition to the other information contained in this Disclosure Statement, prior
to submitting a vote to accept or reject the Plan.
REORGANIZATION FACTORS.
As with any plan of reorganization or other financial transaction, there
are certain risk factors that must be considered. It should be noted that all
risk factors cannot be anticipated, that some events will develop in ways that
were not foreseen and that many or all of the assumptions which have been used
in connection with this Disclosure Statement and the Plan will not be realized
exactly as assumed. Some or all of such variations may be material. While
efforts have been made to be reasonable in this regard, there can be no
assurance that subsequent events will bear out the analyses set forth herein.
Under the Plan, some of the principal risks that holders of Claims should be
aware of are as follows.
- There is a risk that one or more of the required conditions or
obligations under the Plan will not occur, be satisfied or waived, as the case
may be, resulting in the inability to confirm the Plan.
- The total amount of all Claims filed in these Chapter 11 Cases may be
materially in excess of the estimated final amounts of Allowed Claims assumed in
the development of the Plan and in the valuation estimates provided herein. The
actual amount of all Allowed Claims in any Class may differ significantly from
the estimates provided herein. Accordingly, the amount and timing of the
distributions that will ultimately be received by any particular holder of an
Allowed Claim in any Class may be materially and adversely affected should the
estimates be exceeded as to any Class.
- A number of other uncertainties may adversely impact Reorganized
Unison's future operations including, but not necessarily limited to, economic
recession, increased competition, adverse regulatory agency actions, acts of
God, or similar circumstances. Many of these factors will be substantially
beyond the control of Reorganized Unison, and a change in any factor or
combination of factors could have a material adverse effect on Reorganized
Unison's financial condition, cash flows and results of operations.
- There can be no assurance that Reorganized Unison will be able to
continue to generate sufficient funds to meet its obligations and necessary
capital expenditures, notwithstanding the significant improvements in
Reorganized Unison's operations and financial condition. Although Reorganized
Unison's financial projections assume that Reorganized Unison will generate
sufficient funds to meet its working capital needs for the foreseeable future,
its ability to gain access to additional capital, if needed, cannot be assured,
particularly in view of possible competitive factors and industry conditions.
In addition to risks associated with the restructuring process, the
following risks affecting the Company's business should be considered:
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND ACCUMULATED DEFICIT.
Unison began operations in 1992. Since then, except for a small net profit
in the fourth quarter of 1995 (and the pooling effect of the Ampro Acquisition
completed in October 1996, described more fully at "THE DEBTORS--Acquisitions"),
it has reported net losses for every period, culminating in losses of $23.4
million for 1996, $47.2 million for 1997 and $11.8 million for the eight months
ended August 31, 1998. The Company's future profitability will depend on many
factors, including its ability to control costs, occupancy levels, government
regulation and reimbursement policies, competition, its ability to attract and
retain qualified personnel at competitive rates, and general economic
conditions. While the Company has instituted revenue enhancement and cost
containment
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<PAGE> 109
programs and has completed the integration of recent acquisitions, there can be
no assurance that the Company will be profitable in the future.
MANAGEMENT RESIGNATIONS AND DEPENDENCE ON SKILLED PERSONNEL.
Three of Unison's executive officers, including its Chief Executive
Officer, Chief Financial Officer and Executive Vice President of Acquisitions,
resigned in April 1997 and its Chief Operating Officer resigned in October 1997.
In addition, the Company's prior General Counsel and several facility
administrators resigned during 1997. The Company hired a CEO in September 1997
and replaced its CFO and General Counsel in 1998. Although the pre-petition
resignations of senior managers is not expected to have a material adverse
impact on Unison's future results of operations, the loss of certain other key
personnel could adversely affect Unison's results of operations and its efforts
to rebuild its financial health. Unison's business strategy also depends 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 healthcare
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.
RELIANCE ON REIMBURSEMENT FROM GOVERNMENT SOURCES.
The Company is reimbursed under the Medicare program for its actual
allowable direct and indirect costs of services based on the submission of an
annual cost report. Each facility is also subject to limits on reimbursement for
routine costs. Exceptions to these limits are available for, among other things,
the provision of atypical services. Due in part to the provision of subacute
services, Unison's costs for the care delivered to Medicare patients in certain
of its nursing facilities have exceeded the routine cost limits in the aggregate
amount of $1.8 million and $2.3 million and $2.7 million in 1995, 1996 and 1997,
respectively. The Company has filed 18 exception requests with HCFA with respect
to 1995, requesting reimbursement for excess costs. Unison was granted interim
(pending audit) routine cost limit exceptions for 16 of the 18 facilities in the
aggregate amount of approximately $1.5 million. However, in the fourth quarter
of 1997, the fiscal intermediary audited the Company's 1995 Medicare cost
reports and, as a result, the Company recorded a provision for potential audit
adjustments of approximately $1.2 million. The Company is currently in the
process of filing exception requests related to 1996 and 1997. Although
management believes that the Company will recover these routine cost limit
exceptions, failure to obtain such exceptions could adversely affect the
Company's results of operations.
Governmental payors and their paying agencies and private third-party
payor sources have instituted cost containment measures of various kinds
designed to limit payments made for long-term care and ancillary services, and
there can be no assurance that future measures will not materially and adversely
affect reimbursement to the Company. Revenues received from the Medicare program
for services provided in Unison's facilities represented approximately 32.1% and
34.2% of Unison's 1997 actual and pro forma long-term care revenues. The
Medicare program is subject to statutory and regulatory changes, retroactive and
prospective rate adjustments, complex reimbursement audits, paying agency
discretion and interpretations, administrative rulings and funding restrictions,
all of which could have the effect of limiting or reducing reimbursement levels
for Unison's services. 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 the Company's facilities will continue to satisfy the
requirements for participation in the Medicare program.
Revenues received from state Medicaid programs for services provided in
the Company's facilities represented approximately 51.7% and 49.8% of Unison's
1997 actual and pro forma long-term care revenues. The Company's facilities are
subject to risks of changes in Medicaid reimbursement and payment delays
resulting from budgetary shortfalls of state Medicaid programs. Many states have
enacted or are considering enacting measures that are designed to reduce their
Medicaid expenditures and to make certain changes to private healthcare
insurance. There are also a number of legislative proposals including cost caps
and the establishment of Medicaid prospective payment systems for nursing
facilities. Indiana has adopted a case-mix prospective payment system effective
October 1, 1998. Unison is unable to predict what other changes may occur to
state reimbursement policies or what effect any such changes would have on the
Company. There can be no assurance that any changes to the Medicaid program
would not have a material adverse impact on the Company's financial condition or
results of operations.
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HEALTH CARE REFORM.
The Balanced Budget Act, signed into law on August 5, 1997, is intended to
reduce Medicare payments by $115 billion over the next five years and makes
numerous changes to Medicare and Medicaid programs. The Balanced Budget Act
mandates the establishment of a PPS for Medicare skilled nursing facility
services, under which facilities will be paid a fixed fee for virtually all
covered services. PPS will be phased in over a four-year period, effective for
the Company's facilities on January 1, 1999. During the first three years,
payments will be based on a blend of the facility's historical costs and
calculated federal rates. Thereafter, the per diem rates will be based 100% on
federal rates. In addition, effective January 1, 1999, there will be an annual
per-patient cap of $1,500 on reimbursement for combined Part B and outpatient
physical and speech therapy services and an annual cap of $1,500 on
reimbursement for Part B and outpatient occupational therapy services. There can
be no assurance that payments under PPS will be comparable to current levels and
that PPS will not have a material adverse impact on the Company's results of
operations or financial condition.
The Balanced Budget Act also contains changes to the Medicaid program, the
most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and services in compliance with applicable standards. Effective
October 1, 1997, states have more flexibility in establishing payment rates. The
State of Indiana changed its Medicaid program to a prospective payment system
effective October 1, 1998 and Colorado is expected to implement a prospective
payment system in 1999. The Company does not believe that the change in
Indiana's reimbursement system will negatively impact Unison's results of
operations or financial condition, and has not yet determined the impact of the
change in Colorado's system. Unison is unable to predict whether any other
states will change their reimbursement policies and, if so, what effect such
changes would have on the Company. There can be no assurance that any changes to
the Medicaid program will not have a material adverse impact on the Company.
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. 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 the Company's business.
EXTENSIVE 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, as well as those relating to other businesses,
such as those mandating fair employment practices and prohibiting damage to the
environment. 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. As of July 6, 1998, Unison had no
outstanding deficiencies for substandard care. Although the Company generally
has been able to secure necessary approvals or licenses in the past, it
voluntarily closed one facility in 1996 and one in 1997 due to violations of
Medicare regulations, 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 scope of its operations, any of which could materially adversely affect the
Company's business. See "THE DEBTORS--Operations-Quality Management".
In May 1996, HCFA announced the first year results of its "Operation
Restore Trust" initiative, designed to combat Medicare and Medicaid fraud, waste
and abuse by home health agencies, nursing homes and durable medical equipment
suppliers. Operation Restore Trust originally focused on five states and is now
extended to all states and is focused on problems with claims for services not
rendered or not provided as claimed and claims falsified to circumvent coverage
limitations on medical supplies. In addition, HCFA certification, survey and
enforcement regulations impose significant burdens on long-term care facilities.
The regulations may require state
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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. 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. There can be no assurance
that these rules, or future rules or legislation, will not have a material
adverse effect on the Company.
COMPETITION FOR PATIENTS AND EMPLOYEES.
The industries in which Unison operates 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, both for
patients and for nurses and other key personnel. Many of these companies have
greater financial and other resources than Unison. A number of states in which
Unison operates do not have "certificate of need" or similar laws restricting
the construction of competing facilities. No assurance can be given that Unison
will have the resources to compete successfully with such companies.
CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion sets forth the material federal income tax
consequences of the Plan to the Debtors and holders of certain Claims. This
discussion is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Tax Code"), final, temporary, and proposed Treasury regulations
thereunder, and administrative and judicial interpretations thereof, all as in
effect as of the date hereof. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service or opinion of counsel has been or will be sought as to the
federal income tax consequences of the Plan.
The description that follows does not include all matters that may
be relevant to any particular holder and could be affected by the specific facts
and circumstances pertaining to such holder. Certain holders, including
financial institutions, broker-dealers, tax-exempt entities, insurance
companies, and foreign persons may be subject to special rules not discussed
below.
ALL HOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS AS TO
THEIR PARTICULAR TAX CONSEQUENCES ASSOCIATED WITH THE PLAN, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, OR ANY
PROPOSED LEGISLATION. FURTHER, THERE CAN BE NO ASSURANCE THAT THE TAX
CONSEQUENCES TO THE DEBTORS WILL BE AS DISCUSSED, SINCE SUCH TAX CONSEQUENCES
WILL BE SUBJECT TO FUTURE EVENTS THAT CANNOT BE PREDICTED WITH CERTAINTY.
CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS.
IMPORTANCE OF WHETHER CERTAIN DEBT INSTRUMENTS CONSTITUTE "SECURITIES". As
discussed below with respect to the various Classes of Claims, the federal
income tax consequences to the Claim holders of the exchanges provided for by
the Plan will depend, in part, on whether such exchanges qualify as a
recapitalization or other "reorganization" as defined in the Tax Code. This, in
turn, will depend, in part, on whether the Claims and certain debt instruments
constitute "securities" for federal income tax purposes ("Securities" or
"Security"). The term "security" is not defined in the Tax Code or in the
regulations, and has not been clearly defined in court decisions. Although there
are a number of factors that may affect the determination of whether a debt
instrument is a Security, one of the most important factors is the original term
of the instrument, i.e., the length of time between the issuance of the
instrument and its maturity. In general, instruments with an original term of
more than ten years are likely to be treated as Securities and instruments with
a term of less than five years are likely not to be treated as Securities.
Debtors are not rendering federal income tax advice as to whether any of the
debt instruments discussed below are, or are not, Securities. ACCORDINGLY,
DEBTORS RECOMMEND THAT THE CLAIM HOLDERS CONSULT WITH THEIR TAX ADVISERS AS TO
THE PROPER TREATMENT OF THE RESPECTIVE DEBT INSTRUMENTS.
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CLASS 1 AND CLASS 2 PRIORITY CLAIMS. Under the Plan, holders of Allowed
Priority Wage and Benefit Plan Contribution Claims generally will be paid in
full in Cash on the Effective Date, or as soon as reasonably practicable
thereafter. Such holders must include such amounts in their gross income in the
taxable year in which such amounts are actually or constructively received by
them. Amounts of income tax and employment tax will be deducted and withheld
form such payments as required by law.
CLASS 4 MISCELLANEOUS SECURED CLAIMS. Holders of Allowed Class 4
Miscellaneous Secured Claims will receive one of the four following treatments:
(1) they will have their Claims paid in full in Cash on the Effective Date; (2)
they will receive a one-time cash payment to cure past defaults and have their
Claims otherwise paid in accordance with their original contractual terms; (3)
they will have the collateral securing such Claims released to them; or (4) they
will be treated in accordance with terms of the Debt Instruments evidencing such
Claims and the legal, equitable and contractual rights to which the holders of
such Claims are entitled will not be altered. Holders of Allowed Class 4
Miscellaneous Secured Claims who receive Cash (in full payment of their Claims
or to cure past defaults in their reinstated Claims) or who receive collateral
for their Claims will recognize gain or loss measured by the difference between
the amount of Cash or the fair market value of the collateral (other than any
portion of such cash or collateral attributable to accrued but unpaid interest)
and the adjusted tax basis in the Claims (other than any portion of such basis
allocable to accrued but unpaid interest). To the extent that the remainder of a
Claim evidenced by a Debt Instrument is reinstated without causing a
"significant modification" (as such term is defined and used in Section 1.1001-3
of the Treasury Regulations) of the Claim, there should be no additional federal
income tax consequences to the holder of such Claim Similarly, there should be
no federal income tax consequences to the holder of a Claim whose contractual
rights with respect to such Claim remain unaltered by the Plan.
If a Claim evidenced by a Debt Instrument is reinstated or modified
in a way that is considered a significant modification of the Debt Instrument,
the holder of such Claim will be treated for federal income tax purposes as
having exchanged the Debt Instrument for a new Debt Instrument. The holder of
such Claim will realize gain or loss on the deemed exchange measured by the
difference between: (i) the issue price of the new Debt Instrument (or if the
holder is a cash basis taxpayer the fair market value of the new Debt
Instrument) (other than any portion of such Debt Instrument allocable to accrued
but unpaid interest); and (ii) the holder's adjusted basis in the original Debt
Instrument. Gain or loss realized generally will be recognized unless the both
the original and new Debt Instruments constitute Securities. See "CERTAIN
FEDERAL TAX CONSEQUENCES -- Consequences to Creditors - Class 6 and Class 7
Britwill and Signature Acquisition Claims and Class 11 General Unsecured
Claims."
CLASS 5 OMEGA SECURED CLAIMS. The holder of the Class 5A Omega
Mortgage Guarantee Claims will receive the New Omega Guarantee in exchange for
such Claims. The Class 5A Omega Mortgage Guarantee Claims relate to a certain
debt obligation owing from Brit-Texas to Omega. If the New Omega Guarantee
constitutes a "significant modification" of the debt obligation, then Omega will
be treated for federal income tax purposes as if it had exchanged such debt
obligation for a new modified debt obligation. Such deemed exchange of debt
obligations will be a taxable exchange, in which case Omega would recognize gain
or loss measured by the difference between the issue price of the new debt
obligation (other than any portion of the new debt obligation attributable to
accrued but unpaid interest) and Omega's adjusted basis in the original debt
obligation (other than any portion of the such basis attributable to accrued but
unpaid interest). The New Omega Guarantee will likely result in a significant
modification of the debt obligation if the debt obligation is a nonrecourse debt
obligation. If the debt obligation is a recourse debt obligation, however, the
New Omega Guarantee will result in a significant modification of the debt
obligation only if there is a change in payment expectations.
Under the Plan: (1) the holder of the Class 5B Omega Indiana
Rejection Claim will receive a Cash payment and the Indiana Returned Facility
Note on the Effective Date in exchange for such Claim; and (2) the holder of the
Class 5C Hasmark Facilities Rejection Claim will receive a Cash payment in
exchange for such Claim. The Cash, and the issue price of the Indiana Returned
Facility Note, will likely trigger ordinary income to the holder of each such
Claim for the year in which the Cash and Note is received.
The holder of the Class 5D Omega Miscellaneous Secured Claim will be
paid in full in Cash on the Effective Date in exchange for the Claim, or be
provided such other treatment as agreed to between the holder of such Claim and
Debtors. If the Class 5D Omega Miscellaneous Secured Claim is paid in full in
Cash, the holder of such Claim will recognize gain or loss measured by the
difference between (i) the amount of Cash received (other
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than any portion of the Cash allocable to accrued but unpaid interest) and (ii)
the holder's adjusted tax basis in such Claim (other than any portion of such
basis allocable to accrued but unpaid interest).
CLASS 6 AND CLASS 7 BRITWILL AND SIGNATURE ACQUISITION CLAIMS; CLASS
10 TRADE UNSECURED CLAIMS, CLASS 11 GENERAL UNSECURED CLAIMS. Under the Plan:
(1) holders of Allowed Class 6 Britwill Acquisition Claims, and Class 7
Signature Acquisition Claims (if they do not vote to accept the Plan) will
receive inter alia New Common Stock; (2) holders of Allowed Class 10 Trade
Unsecured Claims will receive inter alia New Common Stock; and (3) holders of
Allowed Class 11 General Unsecured Claims will receive New Common Stock and New
Senior Notes. Gain or loss will be realized to the extent that the fair market
value of the New Common Stock, plus the issue price of any New Senior Notes (or,
if the holder is a cash basis taxpayer, the fair market value of such Notes)
(other than any portion of consideration allocable to accrued but unpaid
interest) received by the Claim holder exceeds (or is less than) the adjusted
basis of the Allowed Class 6, Class 7 or Class 11 Claims (other than any portion
of the basis in such Claims allocable to accrued by unpaid interest). The amount
of gain recognized, if any, for federal income tax purposes depends (in part),
however, on whether the Class 6, Class 7 or Class 11 Claims and New Senior Notes
constitute Securities.
If the holder's Allowed Britwill Acquisition Claim constitutes a
Security, then the exchange of such Claim for New Common Stock may constitute a
tax-free reorganization exchange under Section 354(a) of the Tax Code. If so,
the holder will not recognize gain or loss on the exchange. If the holder's
Allowed Britwill Acquisition Claim is not a Security, then the holder of such
Claim will recognize gain or loss on the exchange of such Claim for New Common
Stock equal to the amount of gain or loss realized.
If the holder's Allowed Signature Acquisition Claim constitutes a
Security, then the exchange of such Claim for New Common Stock may constitute a
tax-free exchange under Section 354(a) of the Tax Code. If so, the holder will
not recognize gain or loss on the exchange. If the holder's Allowed Signature
Acquisition Claim is not a Security, then the holder of such Claim will
recognize gain or loss on the exchange of such Claim for New Common Stock equal
to the amount of gain or loss realized.
If the holder's Allowed Trade Unsecured Claim constitutes a
Security, then the exchange of such Claim for New Common Stock may constitute a
tax-free reorganization exchange under Section 354(a) of the Tax Code. If so,
the holder will not recognize gain or loss on the exchange. If the holder's
Allowed Trade Unsecured Claim is not a Security, then the holder of such Claim
will recognize gain or loss on the exchange of such Claim for New Common Stock
equal to the amount of gain or loss realized.
If the holder's Allowed General Unsecured Claim constitutes a
Security, then the exchange of the Allowed General Unsecured Claim for New
Common Stock and New Senior Notes may constitute a partially tax-free
reorganization exchange under Sections 354(a) and 356(a) of the Tax Code. If so,
any realized loss will not be recognized for federal income tax purposes and the
amount of realized gain that will be recognized will depend on whether the New
Senior Notes also constitute Securities. If the New Senior Notes constitute
Securities, a holder's realized gain will be recognized in an amount equal to
the lesser of (i) the amount of gain realized or the fair market value of the
excess, if any, of the principal amount of the New Senior Notes (other than any
portion of such Notes allocable to accrued but unpaid interest) over the
principal amount of Allowed General Unsecured Claims (other than any portion of
such Claims allocable to accrued but unpaid interest). If the New Senior Notes
are not Securities, any realized gain will be recognized in an amount equal to
the lesser of (i) the amount of gain realized or the fair market value of the
New Senior Notes (other than any portion of such Notes allocable to accrued but
unpaid interest).
If the holder's Allowed Class 11 General Unsecured Claim does not
constitute a Security, then the holder of such Claim will recognize gain or loss
on the exchange of such Claim for New Common Stock and New Senior Notes in an
amount equal to the gain or loss realized on the exchange.
CLASS 8 CONVENIENCE CLAIMS. Holders of Allowed Class 8 Convenience Claims
will receive a one time Cash payment on the Effective Date in exchange for their
Claims. The exchange of Class 8 Convenience Claim for Cash will be a taxable
exchange. As a result, a holder of an Allowed Class 8 Convenience Claim will
recognize gain or loss on the exchange measured by the difference between: (i)
the amount of Cash received (other than any portion of the cash
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allocable to accrued but unpaid interest); and (ii) the holder's adjusted tax
basis in such Claim (other than any portion of the basis allocable to accrued
but unpaid interest).
CLASS 12 NOTES SECURITIES CLAIMS. The holders of Allowed Class 12 Notes
Securities Claims will receive no distributions under the Plan. The holders of
such Claims may claim a loss for federal income tax purposes equal to their
adjusted basis in their Claims. The loss generally will be a capital loss unless
the holder did not hold such Claim as a capital asset, in which case the loss
will be an ordinary loss.
CLASS 14 EQUITY INTERESTS AND EQUITY INTEREST RELATED CLAIMS. Under the
Plan, the holders of Allowed Class 14 Equity Interests and Equity Interest
Related Claims may receive New Warrants to purchase shares of New Common Stock
for 1.25 times the Initial Price in exchange for such Claims. If so, gain or
loss generally will be realized to the extent that the fair market value of the
New Warrants exceeds (or is less than) the adjusted basis of the Allowed Equity
Interest or Equity Interest Related Claim. Any gain or loss realized by the
holder of an Allowed Equity Interest will not be recognized. In addition, if a
holder's Allowed Equity Interest Related Claim constitutes a Security, any gain
or loss realized on the exchange will not be recognized. However, if the
holder's Equity Interest Related Claim is not a Security, the holder of such
Claim will recognize gain or loss on the exchange of the Allowed Equity Interest
Related Claim for the New Warrants equal to the amount of gain or loss realized
on the exchange.
Alternatively, under certain circumstances, the Equity Interests
will be canceled and extinguished and the holders of Equity Interests and Equity
Interest Related Claims will not receive any distributions under the Plan. The
holders of Equity Interests and Equity Interest Related Claims generally will be
entitled to claim a loss for federal income tax purposes equal to their adjusted
basis in their Equity Interests and Equity Interest Related Claims. The loss
will be a capital loss unless the holder did not hold the Equity Interest or
Equity Interest Related Claim as a capital asset, in which case the loss will be
an ordinary loss.
CHARACTER OF GAIN, BASIS, AND HOLDING PERIOD. The character of the various
potential gains, losses, and income described above as long-term or short-term
capital gain or loss or as ordinary income or loss will be determined by a
number of factors. These factors include whether the particular Claim
constitutes a capital asset in the hands of the Claim holder, whether the Claim
has been held for more than one year, whether the Claim was purchased at a
discount, and whether and to what extent the Claim holder has previously claimed
a bad debt deduction with respect to such Claim.
In the case of any exchange described above that constitutes a
reorganization, the Claim holder's basis in the Security received will equal the
Claim holder's adjusted tax basis in the Security surrendered, decreased by the
amount of Cash and the value of any additional property or rights received, and
increased by any gain recognized in respect of the Claim. The Claim holder's
holding period for the Security received will include the Claim holder's holding
period for the Security surrendered, provided such Security was held as a
capital asset. The Claim holder's basis in any non-Security property or rights
received in the exchange will be equal to the fair market value of such property
or rights, and the holding period of such property or rights will begin on the
day after receipt thereof.
In the case of any exchange described above that does not constitute
a reorganization, the Claim holder's basis in all property and rights received
will be equal to the fair market value of such property or rights. The Claim
holder's holding period of such property or rights will begin on the day after
receipt thereof.
TREATMENT OF ACCRUED BUT UNPAID INTEREST. Holders of Claims that have not
previously included in their taxable income accrued but unpaid interest on a
Claim may be treated as receiving taxable interest to the extent any
consideration they receive under the Plan is allocable to such accrued but
unpaid interest. Holders of Claims that have previously included in their
taxable income accrued but unpaid interest on a Claim may be entitled to
recognize a deductible loss to the extent such accrued but unpaid interest is
not satisfied under the Plan. The proper allocation between principal and
interest of amounts received in exchange for a Claim is unclear and may be
affected by, among other things, the rules in the Tax Code relating to imputed
interest, original issue discount, market discount, and bond issuance premium.
Thus, it is possible that the Service may take the position that a pro rata
portion of the consideration received by a holder of an interest bearing
obligation must be allocated to interest, or that consideration must be
allocated first to accrued but unpaid interest and then to principal. In this
regard, holders of Claims should consult their own tax advisors.
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ORIGINAL ISSUE DISCOUNT. The New Senior Notes are not expected to have
original issue discount because they are not expected to have "issue prices"
less than their "stated redemption prices at maturity." (Original issue discount
must be recognized as income over the term of the debt instrument pursuant to
Sections 1271 through 1275 of the Tax Code.) Where a debt instrument (such as
the New Senior Notes) is issued in exchange for another debt instrument (such as
the Notes Claims and Senior Notes Claims, which are included in the Class 11
General Unsecured Claims), and neither the newly issued debt instrument nor the
prior debt instrument is traded on an established securities market, the issue
price of the new debt instrument is its stated principal amount if the
instrument bears "adequate stated interest."
The General Unsecured Claims have not been, and it is expected that
New Senior Notes will not be, traded on an established securities market It is
further expected that the New Senior Notes, which bear interest at a fixed rate
equal to 11% per annum, will have adequate stated interest. Accordingly, the
issue price and the stated redemption price at maturity of the New Senior Notes
should be equal to the principal amounts thereof, and thus the New Senior Notes
should have no original issue discount.
BACKUP WITHHOLDING. All distributions under the Plan are subject to
applicable withholding. Under the Tax Code, interest, dividends and other
reportable payments may, under certain circumstances, be subject to backup
withholding at a 31% rate. Backup withholding generally applies if the holder
(a) fails to furnish its social security number or other taxpayer identification
number ("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report
interest or dividends, or (d) under certain circumstances, fails to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment, which may be
refunded to the extent it results in an overpayment of tax. Certain persons are
exempt from backup withholding, including corporations and financial
institutions.
CONSEQUENCES TO DEBTORS.
SIGNATURE SALE LEASEBACK TRANSACTION. The Plan contemplates the
consummation, on or before the Effective Date, of a transaction in which Debtors
will sell the Signature Facilities and leaseback certain of the Signature
Facilities. Debtors would recognize gain (or loss) on the sale of the Signature
Facilities measured by the difference between (i) the sum of (A) cash and the
fair market value of property received by Debtors and (B) any liabilities of
Debtors that are assumed by the purchaser of the Signature Facilities, and (ii)
Debtors' adjusted basis in the Signature Facilities. To the extent that Debtors
recognize gain on the sale of the Signature Facilities, that gain will be able
to be offset to the extent that Debtors would otherwise have a net operating
loss for the taxable year that includes the sale leaseback transaction or have
available net operating loss carryovers ("NOLs") from prior taxable years to the
taxable year that includes the sale leaseback transaction. If the sale of the
Signature Facilities occurs within the taxable year of Debtors that includes the
Effective Date (or in any prior taxable year), the NOLs available to offset any
gain recognized by Debtors on such sale will be determined without regard to any
reduction that may be required as a result of the exclusion from Debtors' income
of any discharge of indebtedness income. See "CERTAIN FEDERAL TAX CONSEQUENCES
- -- Consequences to Debtors - Discharge of Indebtedness and Reduction of Tax
Attributes." If, for the taxable year that includes the sale of the Signature
Facilities, Debtors have positive taxable income (prior to any offset by NOLs),
Debtors may be subject to the alternative minimum tax. See "CERTAIN FEDERAL TAX
CONSEQUENCES -- Consequences to Debtors - Alternative Minimum Tax."
DISCHARGE OF INDEBTEDNESS AND REDUCTION OF TAX ATTRIBUTES. The principal
amount of Debtors' aggregate outstanding indebtedness will be substantially
reduced under the Plan. Generally, the cancellation or other discharge of
indebtedness triggers ordinary income to a debtor unless payment of the
liability would have given rise to a deduction. The amount of such discharge of
indebtedness income generally will equal the excess of the principal amount (as
determined for federal income tax purposes) of the indebtedness discharged over
the aggregate value of cash and other property (including stock of Debtors)
transferred in satisfaction of the debt. If debt is discharged in a case under
the Bankruptcy Code, however, no ordinary income to the debtor generally
results. Instead, certain tax attributes otherwise available to the debtor are
reduced, in most cases by the amount that would otherwise be included as
ordinary income.
Tax attributes are subject to reduction generally in the following
order: (i) NOLs from prior taxable years or from the year in which the discharge
occurs; (ii) general business credit carryovers; (iii) minimum tax credits; (iv)
capital losses and capital loss carryovers; (v) the tax basis of the debtor's
depreciable and non-depreciable assets,
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including inventory; (vi) passive activity loss and credit carryovers; and (vii)
foreign tax credit carryovers. Attribute reduction is calculated only after the
tax for the year of discharge has been determined, and asset basis reduction
applies to property held by the debtor at the beginning of the taxable year
following the taxable year in which the discharge occurs. Asset basis reduction
is generally not required in an amount greater than the excess of the aggregate
tax bases of the property held by the debtor immediately after the discharge
over the aggregate of the debtor's liabilities immediately after the discharge.
In very general terms, the basis of property other than inventory and notes and
accounts receivable is reduced before the basis of inventory and notes and
accounts receivable.
Debtors believe that the amount of the discharge of indebtedness
income realized as a result of the Plan will result in a substantial reduction
of Debtors' tax attributes. It is anticipated that Debtors' NOLs will be
eliminated and that Debtors will be required to reduce the basis in their
depreciable assets to a significant extent. These attribute reductions will
likely have the effect of subjecting Debtors to greater federal income tax
liabilities in taxable years subsequent to the year in which the discharge
occurs than would occur absent the attribute reductions.
LIMITATION ON USE OF NOLS. Debtors, which are a group of corporations
filing consolidated federal income tax returns (a "Consolidated Group"), will
very likely experience an "ownership change" for purposes of Section 382 of the
Tax Code upon consummation of the Plan. In general, a Consolidated Group
experiences an ownership change if the percentage of stock of the parent
corporation of such group owned by one or more stockholders that each own at
least five percent of the stock of such corporation (or certain specified groups
of stockholders) increases by more than 50 percentage points within a prescribed
time period. In general, after a Consolidated Group of corporations experiences
an ownership change, the amount of NOLs (and "built-in losses," if any, as
defined for this purpose) arising before the ownership change that the group is
permitted to use each year after the ownership change may not exceed a specified
amount, referred to as the "Section 382 Limitation" and described below.
Assuming that the Consolidated Group experiences an ownership
change, it may qualify for the so-called "Bankruptcy Exception" from the Section
382 Limitation under Tax Code Section 382(l)(5); however, the effect on the NOLs
required under the Bankruptcy Exception may impose a greater tax burden on the
Consolidated Group than the alternative of being subject to the Section 382
Limitation. This might be the case, for example, if, within two years after the
ownership change resulting from consummation of the Plan, Reorganized Unison
experiences another ownership change If the Bankruptcy Exception is utilized and
another ownership change occurs within the two-year period referred to above,
then Reorganized Unison's Section 382 Limitation for any year thereafter would
be zero and Reorganized Unison would not be permitted to reduce otherwise
taxable income by any NOLs attributable to pre-ownership change years.
If the Consolidated Group anticipates that the Bankruptcy Exception
will impose a tax burden on it greater than that resulting from application of
the Section 382 Limitation, the Consolidated Group will likely elect not to have
the Bankruptcy Exception apply. The Consolidated Group would then be subject to
the Section 382 Limitation, which, pursuant to Tax Code Section 382(l)(6), would
be calculated by multiplying the "long-term tax-exempt rate" (which is a rate
announced monthly by the Service and is 5.15% for the month of August 1998) by
the sum of (i) the value of the outstanding stock of the members of the
Consolidated Group (other than such stock owned by a Consolidated Group member)
immediately before consummation of the Plan plus (ii) the increase in the value
of the Debtors resulting from the discharge of creditor claims pursuant to the
Plan.
As indicated above, it is anticipated that Debtors' NOLs
attributable to the pre-ownership change years will be eliminated as a result of
Debtors' realization of discharge of indebtedness income. In that case, Debtors'
NOLs attributable to pre-ownership change years will not be impacted by the
ownership change rules of Tax Code Section 382.
ALTERNATIVE MINIMUM TAX. A corporation is required to pay alternative
minimum tax to the extent that 20% of alternative minimum taxable income
("AMTI") exceeds the corporation's regular tax liability for the year. AMTI
generally is equal to a corporation's regular taxable income with certain
adjustments to eliminate or limit the availability of certain deductions or
other beneficial allowances and to include in income certain amounts not
generally included in computing regular income tax liability. Of special
importance is a rule that limits the availability of loss carryovers under the
alternative minimum tax. For purposes of computing AMTI, a corporation may
offset not more than 90% of its AMTI with available NOLs. This limitation may
result in alternative minimum tax liability for Debtors for the taxable year
that includes the sale of the Signature Facilities, regardless of the amount of
NOLs that are available.
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Accordingly, although Debtors may have sufficient NOLs to offset any gain on the
sale of the Signature Facilities, the corporate alternative minimum tax may
cause Debtors to have some federal income tax liability for the taxable year
including such sale.
CERTAIN SECURITIES LAWS MATTERS
GENERAL DISCUSSION.
The Confirmation Order will authorize the issuance of the New Common
Stock, the New Senior Notes, the Debt Instrument evidencing the Signature Claim
Payout, the BritWill Acquisition Promissory Note, the New Warrants and the New
Warrant Shares issuable upon exercise of the New Warrants. These instruments
will be issued without registration under the Securities Act, or under any state
or local law, generally in reliance on the exemptions set forth in Section 1145
of the Bankruptcy Code.
In order for the issuance of securities to be exempt from registration
under Section 1145(a) of the Bankruptcy Code, three principal requirements must
be satisfied: (a) the securities must be issued "under a plan" of reorganization
by a debtor, its successor under a plan of reorganization, or an affiliate
participating in a joint plan of reorganization with the debtor; (b) each
recipient of the securities must hold a claim against the debtor, an interest in
the debtor, or a claim or an administrative expense against the debtor; and (c)
the securities be issued entirely in exchange for the recipient's claim against
or interest in the debtor, or "principally" in such exchange and "partly" for
cash or other property.
The Company believes that the issuance of the New Common Stock, the New
Senior Notes, the Debt Instrument evidencing the Signature Claim Payout, the
BritWill Acquisition Promissory Note, the New Warrants and the New Warrant
Shares issuable upon exercise of the New Warrants will be eligible for the
exemption provided by Section 1145(a) of the Bankruptcy Code because the
issuance satisfies the exemption's requirements: (a) the securities to be issued
will be securities of the Company, which is a Debtor, and the issuance of the
securities is specifically mandated under the Plan; (b) the recipients of the
securities hold claims against or interests in the Company; and (c) the
recipients will receive the securities in exchange for their claims against and
interest in the Debtors.
RESALE CONSIDERATIONS.
Pursuant to Section 1145 of the Bankruptcy Code, the resale or disposition
by the recipients of the New Common Stock, the New Senior Notes, the Debt
Instrument evidencing the Signature Claim Payout, the BritWill Acquisition
Promissory Note, the New Warrants and the New Warrant Shares to be issued upon
exercise of the New Warrants will also be exempt from registration under the
Securities Act and state and local securities laws, unless the recipient is
deemed to be an "underwriter" under Bankruptcy Code Section 1145(b). Bankruptcy
Code Section 1145(b) defines four types of underwriters:
a. a person who purchases a claim against, interest in or claim for
administrative expense in the case concerning a debtor, with a view to
distributing any security received in exchange for that claim or interest;
b. a person who offers to sell securities offered or sold under a
plan for the holders of those securities;
c. a person who offers to buy those securities from the holders of
such securities, if the offer is (i) made with a view to distribution of
the securities, or (ii) made under an agreement made in connection with
the plan, its consummation or the offer or sale of securities under the
plan;
d. a person who is an "issuer" with respect to the securities as the
term "issuer" is defined in Section 2(11) of the Securities Act.
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<PAGE> 118
Under Section 2(11) of the Securities Act, an "issuer" includes any person
directly or indirectly controlling or controlled by the issuer of the
securities, or any person under direct or indirect common control with the
issuer of the securities (an "affiliate"). Any person or group of persons who
act in concert, who receive a substantial amount of securities pursuant to the
Plan, may be deemed to be an "issuer" under the foregoing definition and,
therefore, an "underwriter" under Section 1145(b) of the Bankruptcy Code.
Whether a person would be deemed to be an issuer and therefore an underwriter
with respect to the securities to be issued pursuant to the Plan for purposes of
the Bankruptcy Code will depend on a number of factors. These factors include:
(a) the person's equity interest in the Company; (b) the distribution and
concentration of other equity interests in the Company; (c) whether the person
is an officer or director of the Company; (d) whether the person, either alone
or acting in concert with others, has a contractual or other relationship giving
that person power over management policies and decisions of the Company; and (e)
whether the person actually has such power notwithstanding the absence of formal
indicia of control. Accordingly, the Company expresses no view on whether any
person would be an "underwriter" or an "affiliate" with respect to the
securities to be issued pursuant to the Plan.
To the extent that a person receiving securities under the Plan is deemed
to be an "underwriter" of the securities of the Company, resales by that person
likely would not be exempted by Section 1145 from registration under the
Securities Act, or other applicable law, except in "ordinary trading
transactions" (within the meaning of Section 1145(b)(1) of the Bankruptcy Code).
The Bankruptcy Code does not define the term "ordinary trading
transactions," and the Securities and Exchange Commission ("SEC") has not given
definitive guidance with respect to the proper construction of the term.
However, the Company believes that a transaction will be an "ordinary trading
transaction" if it is carried out on an exchange or in the over-the-counter
market at a time when the Company is a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and does NOT involve any
of the following:
(i) either (x) concerted action by two or more recipients of securities
issued under a plan of reorganization in connection with the sale of
those securities, or (y) concerted action by distributors on behalf
of one or more of such recipients in connection with sales, or (z)
both;
(ii) the preparation or use of informational documents concerning the
offering of the securities to assist in the resale of the
securities, other than the disclosure statement approved in
connection with the plan (and any supplement thereto) and documents
filed with the SEC by the debtors or the reorganized company
pursuant to the Exchange Act; or
(iii) special compensation to brokers or dealers in connection with the
sale of the securities designed as a special incentive to resell the
securities, other than compensation that would be paid pursuant to
arms-length negotiations between a seller and a broker or dealer,
each acting unilaterally, not greater than the compensation that
would be paid for a routine similar-sized sale or similar securities
of a similar issuer.
In addition, a person deemed to be an "underwriter" under Bankruptcy Code
Section 1145 solely because he is an affiliate (as defined in the Securities
Act) may be able to sell securities received under the Plan without
registration, in accordance with Rule 144 under the Securities Act, which
permits public sales of securities received pursuant to a plan by statutory
underwriters subject to the availability to the public of current information
regarding the Company, volume limitations, and certain other conditions (without
complying with the holding period requirement of Rule 144(d)).
The Company will execute registration rights agreements in favor of those
persons who, on the Effective Date, receive in exchange for their Allowed Claims
more than ten percent (10%) of the New Common Stock ("Restricted Holders"). The
registration rights agreement grants such Restricted Holders certain
registration rights with respect to their shares of New Common Stock. See "OTHER
SIGNIFICANT PROVISIONS OF THE PLAN -- Securities to be issued in connection with
the Plan."
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER OR AN AFFILIATE, THE COMPANY MAKES NO
REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO TRANSFER, THE NEW COMMON
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STOCK, THE NEW SENIOR NOTES, THE DEBT INSTRUMENT EVIDENCING THE SIGNATURE CLAIM
PAYOUT, THE BRITWILL ACQUISITION PROMISSORY NOTE, THE NEW WARRANTS AND THE NEW
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE NEW WARRANTS. THE DEBTOR RECOMMENDS
THAT POTENTIAL RECIPIENTS OF SECURITIES UNDER THE PLAN CONSULT WITH THEIR OWN
COUNSEL CONCERNING LIMITATIONS ON THEIR RIGHT TO TRANSFER THOSE SECURITIES.
TRUST INDENTURE ACT.
Issuance of the New Senior Notes requires compliance with the Trust
Indenture Act of 1939. The indenture for the New Senior Notes will be qualified
under the Trust Indenture Act of 1939.
DELIVERY OF DISCLOSURE STATEMENT.
Under Bankruptcy Code Section 1145(a)(4), "stockbrokers" (as that term is
defined in the Bankruptcy Code) wishing to sell securities received under the
Plan qualify for the exemption from registration under Bankruptcy Code Section
1145 for sales during the first 40 days after the Effective Date of the Plan,
provided that they deliver a copy of this Disclosure Statement (and any
supplement to it ordered by the Bankruptcy Court) at or before the time of sale
of any security issued under the Plan. The requirement specifically applies to
trading and other after-market transactions in the securities issued under the
Plan.
ALTERNATIVES TO THE PLAN
If the Plan is not confirmed or consummated, the alternatives include: (i)
liquidation of Debtors under Chapter 7 of the Bankruptcy Code; or (ii)
confirmation of an alternative Chapter 11 plan.
LIQUIDATION UNDER CHAPTER 7.
In evaluating the Plan, Debtors have considered the alternative of a
liquidation of Debtors' assets under Chapter 7 of the Bankruptcy Code. Debtors
believe that the Plan will significantly enhance the prospects for recovery
which may be achieved under the Chapter 11 Plan as opposed to a Chapter 7
liquidation.
In a Chapter 7, an independent trustee would be appointed to liquidate the
estate. The Chapter 7 trustee would make all of his or her own decisions with
respect to the liquidation of the estate, the hiring of professionals, the
pursuit of any claims or litigation, the payment of or objection to Claims, and
the distribution of any ultimate dividend. The Chapter 7 trustee would be paid
pursuant to the provisions of the Bankruptcy Code, although, in certain
circumstances, a Chapter 7 trustee can apply to the Bankruptcy Court for a
different type of compensation.
It is difficult to compare with any certainty what Creditors might receive
under a Chapter 7 liquidation versus what Creditors will receive under the Plan.
Debtors believe, however, that the Plan will result in a more timely and greater
ultimate recovery to Creditors than would be the case under Chapter 7.
As demonstrated by the Liquidation Analysis discussed and set forth below,
Debtors strongly believe that in a Chapter 7 liquidation, the holders of Allowed
General Unsecured Claims would receive, at best, a minimal distribution. Debtors
do not believe that liquidation under Chapter 7 offers an even remotely
competitive alternative to the Plan.
ALTERNATIVE PLANS.
If the Plan is not confirmed, Debtors could attempt to formulate a
different plan of reorganization. Debtors believe, however, that significant
additional costs, risks and delays would be incurred in connection with any
alternative plan, and that no party in interest has more incentive to create the
best possible plan for Creditors than Debtors.
With this in mind, Debtors believe that it is highly unlikely that any
alternative plan could be developed which would provide greater value or
certainty of closure than the Plan prepared by Debtors.
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LIQUIDATION ANALYSIS
In order for the Plan to be confirmed by the Bankruptcy Court, Section
1129(a)(7) of the Bankruptcy Code requires Creditors receive under the Plan as
much or more than such Creditors would receive if Debtors were liquidated under
Chapter 7. This is the so-called best interest of creditors test. Specifically,
Debtors believe that the members of each impaired Class will receive more under
the Plan than they would in a liquidation. The Debtors' liquidation analysis is
attached hereto as Exhibit "E".
VOTING AND CONFIRMATION
VOTING PROCEDURES.
GENERALLY. Only those Classes which are impaired under the Plan are
entitled to vote to accept or reject the Plan. In that regard, Classes 5, 6, 7,
8, 9, 10, 11 and 14 are the only Classes impaired under the Plan and entitled to
vote. Class 12 is deemed to reject the Plan and need not vote. Ballots will be
sent to the known holders of Claims and Equity Interests whether or not such
Claims and Equity Interests are disputed. Only the holders of impaired Allowed
Claims and Equity Interests, or impaired Claims and Equity Interests that have
been temporarily allowed for voting purposes in accordance with the voting
guidelines approved by the Bankruptcy Court are entitled to vote on the Plan.
Any Claims and Equity Interests as to which an objection has been timely filed
and has not been withdrawn or dismissed is not entitled to vote, unless the
Bankruptcy Court, pursuant to Bankruptcy Rule 3018(a), upon application by the
holder of such Claims or Equity Interests, temporarily allows the Claim or
Equity Interest in an amount that the Bankruptcy Court deems proper for the
purposes of voting on the Plan.
SUBMISSION OF BALLOTS. Ballots for accepting or rejecting the Plan is
enclosed for use by those Classes entitled to vote on the Plan. Holders of
Claims and Equity Interests entitled to vote should carefully read the
instructions contained on the Ballots and complete the appropriate Ballot, make
an appropriate election if eligible, sign the Ballot, and transmit the Ballot by
U.S. Mail, Federal Express, courier, or facsimile to the Claims Agent as
indicated on the Ballot. The Claims Agent may be contacted at:
Claims Agent
PricewaterhouseCoopers
2901 North Central Avenue
Suite 1000
Phoenix, Arizona 85012-2755
Attn: Michael A. Tucker
Ted M. Burr
Telephone: (602) 280-1800
Facsimile: (602) 280-1938
TO BE COUNTED, BALLOTS MUST BE RECEIVED BY THE CLAIMS AGENT BY 4:00 P.M.,
PHOENIX TIME, ON NOVEMBER 30, 1998 (THE "EXPIRATION DATE").
CONFIRMATION.
REQUIREMENTS FOR CONFIRMATION. In order to confirm the Plan, Section 1129
of the Bankruptcy Code requires that the Bankruptcy Court make a series of
findings concerning the Plan and Debtors, including: (i) that the Plan has
classified Claims and Equity Interests in a permissible manner; (ii) that the
Plan complies with the applicable provisions of the Bankruptcy Code; (iii) that
Debtors have complied with the applicable provisions of the Bankruptcy Code;
(iv) that Debtors have proposed the Plan in good faith and not by any means
forbidden by law; (v) that the Plan has been accepted by the requisite votes of
Creditors (except to the extent that Confirmation is available under Section
1129(b) of the Bankruptcy Code); (vi) that the Plan is feasible and that
Confirmation is not likely to be followed by the
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liquidation or the need for further financial reorganization of Reorganized
Unison; (vii) that the Plan is in the "best interest" of Creditors and the
holders of Equity Interests, by providing all parties with distributions in an
amount not less than such parties would receive if Debtors were liquidated under
Chapter 7; (viii) that all fees and expenses payable under 28 U.S.C. Section
1930, as determined by the Bankruptcy Court at the hearing on Confirmation, have
been paid or the Plan provides for the payment of such fees on the Effective
Date; and (ix) that the Plan provides for the continuation after the Effective
Date of all retiree benefits, if any, as defined in Section 1114 of the
Bankruptcy Code, at the level established at any time prior to Confirmation
pursuant to Section 1114(e)(1)(B) or 1114(g) of the Bankruptcy Code, for the
duration of the period and since the time at which the debtor became obligated
to provide such benefits.
THE CRAM DOWN ALTERNATIVE. In the event that any impaired Class of Claims
or Equity Interests does not accept the Plan, Debtors will nevertheless seek to
confirm the Plan under the so-called "cram down" provisions of Section 1129(b)
of the Bankruptcy Code.
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if the plan is not accepted by all impaired classes, as long as
at least one impaired class of claims has accepted it. The Bankruptcy Court may
confirm the Plan at the request of Debtors if the Plan "does not discriminate
unfairly" and is "fair and equitable" as to each impaired Class that has not
accepted the Plan. A plan does not discriminate unfairly within the meaning of
the Bankruptcy Code if a dissenting class is treated equally with respect to
other classes of equal rank.
A plan is fair and equitable as to a class of secured claims that rejects
such plan if the plan provides: (a)(i) that the holders of claims included in
the rejecting class retain the liens securing those claims whether the property
subject to those liens is retained by the debtor or transferred to another
entity, to the extent of the allowed amount of such claims, and (ii) that each
holder of a claim of such class receive on account of that claim deferred cash
payments totaling at least the allowed amount of that claim of a value as of the
effective date of the plan, of at least the value of the holders' interest in
the estate's interest in such property; (b) for the sale, subject to Section
363(k) of the Bankruptcy Code, of any property that is subject to the liens
securing the claims included in the rejecting class, free and clear of the
liens, with the liens to attach to the proceeds of the sale, and the treatment
of the liens or proceeds under clause (a) or (b) of this subparagraph; or (c)
for the realization by such holders of the indubitable equivalent of such
claims.
A plan is fair and equitable as to a class of unsecured claims which
rejects a plan if the plan provides (a) for each holder of a claim included in
the rejecting class to receive or retain on account of that claim property that
has a value, as of the effective date of the plan, equal to the allowed amount
of such claim, or (b) that the holder of any claim or interest that is junior to
the claims of such class will not receive or retain on account of such junior
claim or interest any property at all.
A plan is fair and equitable as to a class of equity interests that
rejects a plan if the plan provides (a) that each holder of an interest included
in the rejecting class receive or retain on account of that interest property
that has a value, as of the effective date of the plan, equal to the greatest of
the allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or the
value of such interest, or (b) that the holder of any interest that is junior to
the interest of such class will not receive or retain under the plan on account
of such junior interest any property at all.
CONFIRMATION HEARING. Section 1128(a) of the Bankruptcy Code requires the
Bankruptcy Court, after notice, to hold a hearing on Confirmation of the Plan.
Section 1128(b) provides that any party in interest may object to Confirmation
of the Plan. THE BANKRUPTCY COURT HAS SCHEDULED A HEARING ON CONFIRMATION OF THE
PLAN ON DECEMBER 9, 1998, COMMENCING AT 1:30 O'CLOCK P.M., ARIZONA TIME. The
hearing on confirmation may be continued from time to time or adjourned as
announced in open court. The location of the hearing on confirmation is as
follows:
UNITED STATES BANKRUPTCY COURT
The Honorable George B. Nielsen
Courtroom 4
10th Floor
2929 N. Central Avenue
Phoenix, Arizona 85012
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<PAGE> 122
OBJECTIONS. Any objections to confirmation of the Plan must be in writing,
state with specificity both the legal and factual basis of any such objection,
and be filed with the Bankruptcy Court at the location set forth above, and
served by hand-delivery or facsimile to the following parties on or before 4:00
p.m., Arizona time, on November 30, 1998.
Thomas J. Salerno
Craig D. Hansen
Christopher D. Johnson
Kathleen T. Tobin
SQUIRE, SANDERS & DEMPSEY L.L.P.
Two Renaissance Square
40 North Central, Suite 2700
Phoenix, Arizona 85004
Telephone: (602) 528-4000
Facsimile: (602) 253-8129
Counsel to Debtors
CONCLUSION AND RECOMMENDATION
Debtors believe that confirmation of the Plan is in the best interests of
Debtors and their Creditors. The Plan provides for an equitable distribution to
Creditors. The Creditors' Committee supports the Plan as proposed. ACCORDINGLY,
DEBTORS RECOMMEND THAT CREDITORS VOTE TO ACCEPT THE PLAN.
Respectfully submitted,
UNISON HEALTHCARE CORPORATION
By: /s/ Michael A. Jeffries
Its CEO and President
SQUIRE, SANDERS & DEMPSEY L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
(602) 528-4000
By: /s/ Thomas J. Salerno
Thomas J. Salerno
Craig D. Hansen
Christopher D. Johnson
Kathleen Tobin
Counsel to Unison Debtors
GALLAGHER & KENNEDY
2600 North Central Avenue
Phoenix, Arizona 85004
(602) 530-8000
By: /s/ Charles R. Sterbach
Charles R. Sterbach
Joseph E. Cotterman
Counsel to Britwill Debtors
Document #: 15598v11 - Disclosure Statement
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<PAGE> 123
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
<TABLE>
<S> <C>
In re: ) In Proceedings Under Chapter 11
)
UNISON HEALTHCARE CORPORATION, a ) Case Nos. B-98-06583-PHX-GBN
Delaware corporation, and related ) through B-98-06612-PHX-GBN
proceedings, )
)
Debtors. )
)
- -----------------------------------------------------
)
In re: )
)
BRITWILL INVESTMENTS-I, INC., a )
Delaware corporation, and ) Case Nos. B-98-0173-PHX-GBN
related proceedings, ) through B-98-0175-PHX-GBN
)
Debtors. ) (Jointly Administered)
)
</TABLE>
DEBTORS' FIRST AMENDED JOINT PLAN OF
REORGANIZATION DATED OCTOBER 15, 1998
SQUIRE, SANDERS & DEMPSEY L.L.P. GALLAGHER & KENNEDY
Two Renaissance Square 2600 North Central Avenue
40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004-3020
Phoenix, Arizona 85004 (602) 530-8000
(602) 528-4000
Attorneys: Thomas J. Salerno Attorneys: Charles R. Sterbach
Craig D. Hansen Joseph E. Cotterman
Christopher D. Johnson
Kathleen T. Tobin
Counsel to Unison Debtors Counsel to BritWill Debtors
<PAGE> 124
APPLICABLE DEBTORS
UNISON HEALTHCARE CORPORATION [X]
(Case No. 98-06583-PHX-RGM)
BRITWILL INVESTMENTS-I, INC. [X]
(Case No. 98-0173-PHX-GBN)
BRITWILL INVESTMENTS-II, INC. [X]
(Case No. 98-0174-PHX-GBN)
BRITWILL INDIANA PARTNERSHIP [X]
(Case No. 98-0175-PHX-GBN)
SUNQUEST SPC, INC. [X]
(Case No. 98-06584-PHX-SSC)
BRITWILL HEALTHCARE COMPANY [X]
(Case No. 98-06585-PHX-SSC)
BRITWILL FUNDING CORPORATION [X]
(Case No. 98-06602-PHX-CGC)
MEMPHIS CLINICAL LABORATORY, INC. [X]
(Case No. 98-06588-PHX-CGC)
AMERICAN PROFESSIONAL HOLDINGS, INC. [X]
(Case No. 98-06587-PHX-GBN)
AMPRO MEDICAL SERVICES, INC. [X]
(Case No. 98-06609-PHX-GBN)
GAMMA LABORATORIES, INC. [X]
(Case No. 98-06611-PHX-SSC)
SIGNATURE HEALTH CARE CORPORATION [X]
(Case No. 98-06591-PHX-SSC)
BROOKSHIRE HOUSE INC. [X]
(Case No. 98-06608-PHX-RGM)
CHRISTOPHER NURSING CENTER, INC. [X]
(Case No. 98-06596-PHX-JMM)
AMBERWOOD COURT, INC. [X]
(Case No. 98-06597-PHX-RGM)
THE ARBORS HEALTH CARE CORPORATION [X]
(Case No. 98-06598-PHX-CGC)
LOS ARCOS, INC. [X]
(Case No. 98-06603-PHX-RGM)
PUEBLO NORTE, INC. [X]
(Case No. 98-06604-PHX-RTB)
RIO VERDE NURSING CENTER, INC. [X]
(Case No. 98-06606-PHX-CGC)
SIGNATURE MANAGEMENT GROUP, INC. [X]
(Case No. 98-06605-PHX-GBN)
CORNERSTONE CARE CENTER, INC. [X]
(Case No. 98-06595-PHX-RTB)
ARKANSAS, INC. [X]
(Case No. 98-06590-PHX-GBN)
DOUGLAS MANOR, INC. [X]
(Case No. 98-06589-PHX-CGC)
SAFFORD CARE, INC. [X]
(Case No. 98-06593-PHX-RTB)
REHABWEST, INC. [X]
(Case No. 98-06594-PHX-CGC)
QUEST PHARMACIES, INC. [X]
(Case No. 98-06586-PHX-RGM)
SUNBELT THERAPY MANAGEMENT SERVICES, INC. (ALABAMA) [X]
(Case No. 98-06607-PHX-RTB)
DECATUR SPORTS FIT & WELLNESS CENTER, INC. [X]
(Case No. 98-06601-PHX-SSC)
THERAPY HEALTH SYSTEMS, INC. [X]
(Case No. 98-06600-PHX-GBN)
HENDERSON & ASSOCIATES REHABILITATION, INC. [X]
(Case No. 98-06599-PHX-SSC)
SUNBELT THERAPY MANAGEMENT SERVICES, INC. (ARIZONA) [X]
(Case No. 98-06592-PHX-RGM)
CEDAR CARE, INC. [X]
(Case No. 98-06612-PHX-GBN)
SHERWOOD HEALTHCARE CORP. [X]
(Case No. 98-06610-PHX-SSC)
<PAGE> 125
UNISON HEALTHCARE CORPORATION, and its affiliates and subsidiaries, the
debtors and debtors-in-possession in the above-referenced jointly administered
Chapter 11 cases (including the BRITWILL DEBTORS, as defined below), hereby
jointly propose the following plan of reorganization. All creditors and holders
of equity interests should refer to the Disclosure Statement (as that term is
defined herein) for a discussion of the Debtors' history, business, properties,
results of operations and financial projections for future operations and for a
summary and analysis of the plan of reorganization and certain related matters.
ALL HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTORS ARE
ENCOURAGED TO READ THE PLAN OF REORGANIZATION, THE DISCLOSURE STATEMENT
AND THE RELATED SOLICITATION MATERIALS IN THEIR ENTIRETY BEFORE VOTING
TO ACCEPT OR REJECT THE PLAN.
Subject to the restrictions on modifications set forth in Section 1127
of the Bankruptcy Code and Bankruptcy Rule 3019, and those restrictions on
modifications set forth in Article 15 to this Plan, the Debtors expressly
reserve the right to alter, amend or modify the plan of reorganization, one or
more times before its substantial consummation.
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TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................I
ARTICLE 1 DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME.........1
A. DEFINITIONS...........................................................1
1.1 Ad Hoc Committee...................................................1
1.2 Administrative Claim...............................................1
1.3 Administrative Claim Bar Date......................................1
1.4 Affiliate..........................................................1
1.5 Allowed Claim......................................................2
1.6 Amberwood..........................................................2
1.7 American Professional..............................................2
1.8 Ampro..............................................................2
1.9 Arbors.............................................................2
1.10 Arkansas...........................................................2
1.11 Avoidance Actions..................................................3
1.12 Bankruptcy Code....................................................3
1.13 Bankruptcy Court...................................................3
1.14 Bankruptcy Rules...................................................3
1.15 Bar Date...........................................................3
1.16 Brit-Texas.........................................................3
1.17 Brit-Texas Facilities..............................................3
1.18 Brit-Acquisition...................................................3
1.19 BritWill Acquisition Claims........................................3
1.20 BritWill Debtors...................................................3
1.21 BritWill Funding...................................................4
1.22 BritWill Healthcare................................................4
1.23 BritWill I.........................................................4
1.24 BritWill II........................................................4
1.25 BritWill Indiana...................................................4
1.26 Broker Dealer......................................................4
1.27 Brookshire.........................................................4
1.28 Business Day.......................................................4
1.29 Cash...............................................................4
1.30 Cedar Care.........................................................4
1.31 Chapter 11 Cases...................................................4
1.32 Christopher........................................................4
1.33 Claim..............................................................5
1.34 Claims Resolution Procedure........................................5
1.35 Class..............................................................5
1.36 Class 6 Reserved Stock.............................................5
1.37 Closing Allowance..................................................5
1.38 Class 7 Reserved Stock.............................................5
1.39 Confirmation.......................................................5
1.40 Confirmation Date..................................................5
1.41 Confirmation Hearing...............................................6
1.42 Confirmation Order.................................................6
1.43 Consenting Noteholders.............................................6
1.44 Consolidated Estates...............................................6
1.45 Contingent Claim...................................................6
1.46 Convenience Claims.................................................6
1.47 Cornerstone........................................................6
1.48 Creditor...........................................................6
1.49 Creditor Ballot....................................................6
1.50 Creditors' Committee...............................................7
1.51 Cure...............................................................7
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1.52 Debt Instrument....................................................7
1.53 Debtors............................................................7
1.54 Decatur............................................................7
1.55 DIP Financing Orders...............................................7
1.56 Disbursing Agent...................................................8
1.57 Disclosure Statement...............................................8
1.58 Disputed Claim.....................................................8
1.59 Disputed Equity Interest...........................................9
1.60 Distribution Date..................................................9
1.61 Distribution Record Date...........................................9
1.62 Douglas............................................................9
1.63 EBITDA.............................................................9
1.64 EBITDAR............................................................9
1.65 EBITDARM...........................................................9
1.66 Effective Date.....................................................9
1.67 Effective Date Cash................................................9
1.68 Effective Date Excess Cash.........................................9
1.69 Equity Interest...................................................10
1.70 Equity Interest Related Claim.....................................10
1.71 Essential Vendor Claims...........................................10
1.72 Estate or Estates.................................................10
1.73 Examiner..........................................................10
1.74 Exchange Act......................................................10
1.75 Filkoski..........................................................10
1.76 Filkoski Claims...................................................10
1.77 Filkoski Securities Litigation Claims.............................11
1.78 Final Order.......................................................11
1.79 Forbearance Agreement.............................................11
1.80 Fully Diluted.....................................................11
1.81 GAAP..............................................................11
1.82 Gamma.............................................................11
1.83 General Unsecured Claim...........................................11
1.84 Hasmark Facilities................................................11
1.85 Hasmark Facilities Rejection Claim................................12
1.86 HCFP..............................................................12
1.87 HCFP DIP Loan Claims..............................................12
1.88 Henderson.........................................................12
1.89 Indiana Master Lease..............................................12
1.90 Indiana Returned Facilities.......................................12
1.91 Indiana Returned Facility Note....................................12
1.92 Initial Price.....................................................12
1.93 IRS...............................................................13
1.94 Kremser And Affiliates............................................13
1.95 Litigation Claims.................................................13
1.96 Los Arcos.........................................................13
1.97 Management Options................................................13
1.98 Memphis Clinical..................................................13
1.99 New Common Stock..................................................13
1.100 New Common Stock Registration Agreement........................13
1.101 New Line of Credit.............................................13
1.102 New Line of Credit Agreement...................................14
1.103 New Line of Credit Promissory Note.............................14
1.104 New Omega Guarantee............................................14
1.105 New Omega Guarantee Collateral.................................14
1.106 New Omega Guarantee Security Documents.........................14
1.107 New Senior Notes...............................................14
1.108 New Senior Notes Allocation Schedule...........................15
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1.109 New Senior Notes Collateral....................................15
1.110 New Senior Notes Guarantee.....................................15
1.111 New Senior Notes Indenture.....................................15
1.112 New Senior Notes Indenture Trustee.............................15
1.113 New Senior Notes Security Documents............................15
1.114 New Unison Stock...............................................15
1.115 New Warrants...................................................15
1.116 New Warrant Shares.............................................15
1.117 NHI............................................................16
1.118 NHI Secured Claims.............................................16
1.119 Non-Consenting Noteholders.....................................16
1.120 Notes..........................................................16
1.121 Notes Indenture................................................16
1.122 Notes Indenture Trustee........................................16
1.123 Notes Securities Claims........................................16
1.124 Notes Subordination Agreement..................................16
1.125 Notice and a Hearing...........................................16
1.126 Omega..........................................................16
1.127 Omega Effective Date Payment...................................17
1.128 Omega Indiana Facilities.......................................17
1.129 Omega Indiana Leasehold Mortgage Facilities....................17
1.130 Omega Indiana Rejection Claim..................................17
1.131 Omega Indiana Returned Facilities..............................17
1.132 Omega Miscellaneous Secured Claim..............................17
1.133 Omega Mortgage Guarantee Claims................................17
1.134 Omega New Master Lease.........................................18
1.135 Omega New Master Lease Collateral..............................18
1.136 Omega New Master Lease Facilities..............................18
1.137 Omega New Master Lease Guarantee...............................18
1.138 Omega New Master Lease Guarantors..............................18
1.139 Omega New Master Lessees.......................................18
1.140 Omega Secured Claims...........................................18
1.141 Omega Subordination Rights.....................................19
1.142 Omega Texas Facilities.........................................19
1.143 Omega Texas Litigation.........................................19
1.144 Person.........................................................19
1.145 Petition Date..................................................19
1.146 Plan...........................................................19
1.147 Plan Distributed Cash..........................................19
1.148 Plan Supplement................................................19
1.149 Preserved Ordinary Course Administrative Claim.................19
1.150 Priority Benefit Plan Contribution Claim.......................20
1.151 Priority Tax Claim.............................................20
1.152 Priority Wage Claim............................................20
1.153 Pro Rata.......................................................20
1.154 Professional Fee Bar Date......................................20
1.155 Professional Fees..............................................20
1.156 Pueblo Norte...................................................20
1.157 Quest..........................................................20
1.158 Quest Purchase Option..........................................20
1.159 Reclamation Claims.............................................21
1.160 Rehab..........................................................21
1.161 Reinstated or Reinstatement....................................21
1.162 Related Party Avoidance Action.................................21
1.163 Related Party Creditors........................................21
1.164 Related Party Creditor Claims..................................21
1.165 Related Party Creditor Defenses................................22
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1.166 Reorganized Unison.............................................22
1.167 Reorganized Unison By-Laws.....................................22
1.168 Reorganized Unison Certificate.................................22
1.169 Rio Verde......................................................22
1.170 Safford........................................................22
1.171 Schedules......................................................22
1.172 SEC............................................................22
1.173 Secured Claim..................................................22
1.174 Secured Tax Claims.............................................22
1.175 Securities Act.................................................23
1.176 Securities Action..............................................23
1.177 Securities Action Settlement Agreement.........................23
1.178 Securities Litigation Claims...................................23
1.179 Senior Management..............................................23
1.180 Senior Notes...................................................23
1.181 Senior Notes Indenture.........................................23
1.182 Senior Notes Indenture Trustee.................................23
1.183 Sherwood.......................................................23
1.184 Signature Acquisition..........................................24
1.185 Signature Acquisition Claims...................................24
1.186 Signature Health...............................................24
1.187 Signature Facilities...........................................24
1.188 Signature Management...........................................24
1.189 Signature Sale Leaseback Transaction...........................24
1.190 Subordinated Claim.............................................24
1.191 Subsidiary And Affiliate Equity Interests......................24
1.192 Sunbelt Therapy (Alabama)......................................25
1.193 Sunbelt Therapy (Arizona)......................................25
1.194 Sunquest.......................................................25
1.195 Taxes..........................................................25
1.196 Texas Master Lease.............................................25
1.197 Therapy Health.................................................25
1.198 Trade Unsecured Claim..........................................25
1.199 Transfer Agent.................................................25
1.200 Unison.........................................................25
1.201 Unison Debtors.................................................25
1.202 Unsecured Claim................................................25
1.203 Voting Record Date.............................................26
1.204 Whitehead And Affiliates.......................................26
B. COMPUTATION OF TIME..................................................26
C. RULES OF INTERPRETATION..............................................26
ARTICLE 2 SUBSTANTIVE CONSOLIDATION OF DEBTORS' ESTATES.......................26
2.1 Request for Substantive Consolidation.............................26
2.2 Effect of Substantive Consolidation...............................27
2.3 Exceptions To Substantive Consolidation...........................27
ARTICLE 3 TREATMENT OF UNCLASSIFIED CLAIMS....................................28
3.1 Treatment of Administrative Claims................................28
3.2 Preserved Ordinary Course Administrative Claims...................28
3.3 HCFP DIP Loan Claims..............................................28
3.4 Allowed Priority Tax Claims.......................................29
3.5 Allowed Reclamation Claims........................................29
ARTICLE 4 DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS...............29
4.1 Summary of Classification.........................................30
4.2 Specific Classification...........................................31
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ARTICLE 5 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS
NOT IMPAIRED BY THE PLAN......................................................33
5.1 Class 1 - Priority Wage Claims....................................33
5.2 Class 2 - Priority Benefit Plan Contribution Claims...............33
5.3 Class 3 - Secured Tax Claims......................................33
5.4 Class 4 - Miscellaneous Secured Claims............................33
5.5 Class 13 - Subsidiary And Affiliate Equity Interests..............34
ARTICLE 6 DESIGNATION OF AND PROVISIONS FOR TREATMENT OF CLASSES OF CLAIMS AND
EQUITY INTERESTS IMPAIRED BY THE PLAN.........................................34
6.1 Class 5 - Omega Secured Claims....................................34
6.2 Class 6 - BritWill Acquisition Claims.............................40
6.3 Class 7 - Signature Acquisition Claims............................44
6.4 Class 8 -Convenience Claims.......................................47
6.5 Class 9 - Essential Vendor Claims.................................48
6.6 Class 10 - Trade Unsecured Claims.................................48
6.7 Class 11 - General Unsecured Claims...............................48
6.8 Class 12 -Notes Securities Claims.................................53
6.9 Class 14--Equity Interests And Equity Interests Related Claims....53
ARTICLE 7 MEANS FOR IMPLEMENTATION OF PLAN....................................54
7.1 Signature Sale Leaseback Transaction..............................54
7.2 Execution Of The Omega New Master Lease...........................56
7.3 Issuance Of New Common Stock And New Warrants.....................57
7.4 Corporate Structure...............................................57
7.5 New Certificate Of Incorporation And Bylaws.......................58
7.6 No Corporate Action Required......................................58
7.7 Directors And Officers............................................58
7.8 Post-Effective Date Financing.....................................60
7.9 Duties Of Indenture Trustees......................................60
7.10 Name Change.......................................................60
7.11 New Line of Credit................................................60
7.12 Counsel To Ad Hoc Committee.......................................60
ARTICLE 8 EXECUTORY CONTRACTS AND UNEXPIRED LEASES............................60
8.1 Assumption or Rejection of Executory Contracts and Unexpired
Leases............................................................60
ARTICLE 9 CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES.............63
ARTICLE 10 PRESERVATION AND PROSECUTION OF LITIGATION CLAIMS..................63
10.1 Preservation Of Litigation Claims.................................63
10.2 Prosecution Of Litigation Claims..................................63
10.3 Distribution Of Litigation Claims Proceeds........................63
10.4 Preservation Of Insurance.........................................63
ARTICLE 11 SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN................64
11.1 Common Stock......................................................64
11.2 New Warrants......................................................65
11.3 New Senior Notes..................................................65
11.4 Section 1145 Exemption............................................66
ARTICLE 12 PROVISIONS GOVERNING DISTRIBUTIONS TO HOLDERS OF ALLOWED EQUITY
INTERESTS IN CLASS 14.........................................................67
12.1 Transfer Agent....................................................67
12.2 Surrender Of Securities...........................................67
12.3 Distribution Record Date..........................................68
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12.4 Delivery Of Distributions.........................................68
12.5 Fees And Expenses.................................................68
ARTICLE 13 TITLE TO PROPERTY; DISCHARGE; INJUNCTION...........................69
13.1 Conditions To Confirmation........................................69
13.2 Conditions To Effectiveness.......................................70
13.3 Waiver Of Conditions..............................................71
ARTICLE 14 NON-ALLOWANCE OF PENALTIES AND FINES...............................71
ARTICLE 15 TITLE TO PROPERTY; DISCHARGE; INJUNCTION...........................72
15.1 Revesting of Assets...............................................72
15.2 Discharge.........................................................72
15.3 Injunction........................................................72
15.4 Exculpation.......................................................73
ARTICLE 16 RETENTION OF JURISDICTION..........................................73
16.1 Jurisdiction......................................................73
ARTICLE 17 MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN....................76
ARTICLE 18 MISCELLANEOUS......................................................76
18.1 Filing of Objections to Claims....................................76
18.2 Settlement of Objections After Effective Date.....................76
18.3 Distributions.....................................................76
18.4 Effectuating Documents; Further Transactions; Timing..............77
18.5 Exemption From Transfer Taxes.....................................77
18.6 Revocation or Withdrawal of the Plan..............................78
18.7 Binding Effect....................................................78
18.8 Governing Law.....................................................78
18.9 Modification of Payment Terms.....................................78
18.10 Providing For Claims Payments..................................78
18.11 Set Offs.......................................................79
18.12 Notices........................................................79
18.13 Statutory Committee/Examiner...................................81
18.14 Severability...................................................81
18.15 Withholding And Reporting Requirements.........................82
18.16 Quarterly Fees To The United States Trustee....................82
18.17 Fractional Shares; Odd Lots; De Minimis Distributions..........82
18.18 Method Of Payment..............................................82
18.19 Payment Dates..................................................82
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ARTICLE 1
DEFINITIONS, RULES OF INTERPRETATION AND COMPUTATION OF TIME
A. DEFINITIONS.
For purposes of this Plan (as defined below), except as expressly
provided or unless the context otherwise requires, all capitalized terms not
otherwise defined shall have the meanings ascribed to them in Article 1 of this
Plan. Any term used in this Plan that is not defined herein, but is defined in
the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to
that term in the Bankruptcy Code or the Bankruptcy Rules. Whenever the context
requires, such terms shall include the plural as well as the singular, the
masculine gender shall include the feminine, and the feminine gender shall
include the masculine.
As used in this Plan, the following terms shall have the meanings
specified below:
1.1 AD HOC COMMITTEE. The ad hoc committee of holders of the Notes, the
members of which are set forth in the "Statement, Pursuant To Federal Rule Of
Bankruptcy Procedure 2019, Of Counsel For The Ad Hoc Committee Of Noteholders"
filed on August 20, 1998. The members of the Ad Hoc Committee hold,
collectively, approximately eighty-eight percent (88%) of the outstanding dollar
amount of the Notes.
1.2 ADMINISTRATIVE CLAIM. A Claim for any cost or expense of
administration of the Chapter 11 Cases allowed under Sections 503(b), 507(b) or
546(c)(2) of the Bankruptcy Code and entitled to priority under Section
507(a)(1) of the Bankruptcy Code, including, but not limited to: (i) fees
payable pursuant to Section 1930 of Title 28 of the United States Code; (ii) the
actual and necessary costs and expenses incurred after the Petition Date of
preserving the Debtors' Estates, including wages, salaries, or commissions for
services rendered after the commencement of the Chapter 11 Cases; and (iii) all
Professional Fees approved by the Bankruptcy Court pursuant to interim and final
allowances. To the extent that a Claim is allowed as an administrative claim
pursuant to Section 365(d)(3) of the Bankruptcy Code, such Claim shall also be
deemed an "Administrative Claim" under this section.
1.3 ADMINISTRATIVE CLAIM BAR DATE. The date or dates established by the
Bankruptcy Court for the filing of Administrative Claims, excepting, therefrom
claims for Professional Fees and Preserved Ordinary Course Administrative
Claims.
1.4 AFFILIATE. This term will refer to and mean with respect to any
specified Person, any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such Person and,
with respect to any specified natural Person, any other Person having a
relationship by blood, marriage or adoption not more remote than
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first cousins with such natural Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
1.5 ALLOWED CLAIM. Any Claim, or any portion thereof, against the
Debtors: (a) proof of which, requests for payment of which, or application for
allowance of which, was filed or deemed to be filed on or before the Bar Date,
Administrative Claim Bar Date or the Professional Fee Bar Date, as the case may
be, for filing proofs of claim or requests for payment for Claims of such type
against the Debtors; (b) if no proof of claim is filed, which has been or
hereafter is listed by the Debtors in the Schedules as liquidated in amount and
not disputed or contingent; or (c) a Claim that is allowed under the Plan or in
any contract, instrument, indenture or other agreement entered into in
connection with the Plan and, in any case of a Claim described in subsections
(a) or (b) only, the portion of any such Claim as to which no objection to the
allowance thereof has been interposed within the applicable period of limitation
fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy
Court. The term "Allowed," when used to modify a reference in the Plan to any
Claim or Class of Claims, shall mean a Claim (or any Claim in any such Class)
that is so allowed, e.g. an "Allowed Secured Claim" is a Claim that has been
allowed to the extent of the value, as determined by the Bankruptcy Court
pursuant to Section 506(a) of the Bankruptcy Code, of any interest in property
of the Estates of the Debtors securing such Claim.
1.6 AMBERWOOD. Amberwood Court, Inc., a Colorado corporation, and its
successors and assigns.
1.7 AMERICAN PROFESSIONAL. American Professional Holding, Inc., a Utah
corporation, and its successors and assigns.
1.8 AMPRO. Ampro Medical Services, Inc., a Texas corporation, and its
successors and assigns.
1.9 ARBORS. The Arbors Health Care Center, Inc., an Arizona
corporation, and its successors and assigns.
1.10 ARKANSAS. Arkansas, Inc., a Colorado corporation, and its
successors and assigns.
1.11 AVOIDANCE ACTIONS. This term refers to and means all statutory
causes of actions preserved for the Estates under Sections 510, 542, 543, 544,
545, 547, 548, 549 and 550 of the Bankruptcy Code.
1.12 BANKRUPTCY CODE. The Bankruptcy Reform Act of 1978, Title 11,
United States Code, as applicable to the Chapter 11 Cases, as now in effect or
hereafter amended, 11 U.S.C. Sections 101 et seq.
1.13 BANKRUPTCY COURT. The Bankruptcy Court for the District of Arizona
or such other court as may have jurisdiction over the Chapter 11 Cases.
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1.14 BANKRUPTCY RULES. Collectively the Federal Rules of Bankruptcy
Procedure, the local rules of the Bankruptcy Court and the Federal Rules of
Civil Procedure, as applicable to the Chapter 11 Cases, as now in effect or
hereinafter amended.
1.15 BAR DATE. The date or dates established by the Bankruptcy Court
for the filing of proofs of claim for all Creditors, excepting therefrom,
Administrative Claims, Preserved Ordinary Course Administrative Claims, and
Claims for Professional Fees.
1.16 BRIT-TEXAS. BritWill Investments Texas, Ltd., a Texas limited
partnership, now known as UNHC Real Estate Holdings, Ltd., and its successors
and assigns.
1.17 BRIT-TEXAS FACILITIES. Collectively Colonial Pines Healthcare,
West Place Nursing Center, South Place Nursing Center and the Hasmark
Facilities. The Brit-Texas Facilities are more fully described in the Plan
Supplement.
1.18 BRIT-ACQUISITION. The August 1995 stock purchase transaction in
which Unison acquired BritWill Healthcare from Whitehead And Affiliates.
1.19 BRITWILL ACQUISITION CLAIMS. Collectively the Claims, including
any such Claims that are Disputed Claims, held by Whitehead And Affiliates as
described more fully in the Plan Supplement.
1.20 BRITWILL DEBTORS. Collectively BritWill I, BritWill II and
BritWill Indiana.
1.21 BRITWILL FUNDING. BritWill Funding Corporation, a Delaware
corporation, and its successors and assigns.
1.22 BRITWILL HEALTHCARE. BritWill HealthCare Company, a Delaware
corporation, and its successors and assigns.
1.23 BRITWILL I. BritWill Investments-I, Inc., a Delaware corporation,
and its successors and assigns.
1.24 BRITWILL II. BritWill Investments-II, Inc., a Delaware
corporation, and its successors and assigns.
1.25 BRITWILL INDIANA. BritWill Indiana Partnership, an Arizona General
Partnership, and its successors and assigns.
1.26 BROKER DEALER. Any Person registered as a securities dealer under
the Exchange Act.
1.27 BROOKSHIRE. Brookshire House, Inc., a Colorado corporation, and
its successors and assigns.
1.28 BUSINESS DAY. Any day other than a Saturday, Sunday or other day
on which commercial banks in Arizona are authorized or required by law to close.
1.29 CASH. Currency, checks, negotiable instruments and wire transfers
of immediately available funds.
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1.30 CEDAR CARE. Cedar Care, Inc., an Indiana corporation, and its
successors and assigns.
1.31 CHAPTER 11 CASES. The cases under Chapter 11 of the Bankruptcy
Code in which the Unison Debtors and the BritWill Debtors are the debtors and
debtors-in-possession pending before the Bankruptcy Court, including all
adversary proceedings pending in connection therewith.
1.32 CHRISTOPHER. Christopher Nursing Center, Inc., a Colorado
corporation, and its successors and assigns.
1.33 CLAIM. Any right to payment from the Debtors, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
arising at any time before the Effective Date or relating to any event that
occurred before the Effective Date; or any right to an equitable remedy for
breach of performance if such breach gives rise to a right of payment from the
Debtors, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
1.34 CLAIMS RESOLUTION PROCEDURE. The procedure set forth in Article 10
of the Plan for resolving Disputed Claims, including, but not limited to, the
BritWill Acquisition Claims and the Signature Acquisition Claims should it be
necessary under the terms of the Plan.
1.35 CLASS. A category of holders of Claims or Equity Interests as
classified in the Plan.
1.36 CLASS 6 RESERVED STOCK. The approximately two hundred thousand
(200,000) shares of New Common Stock escrowed by Reorganized Unison for the
Class 6 Claims.
1.37 CLOSING ALLOWANCE. The amount of ONE MILLION DOLLARS
($1,000,000.00) payable to Omega from the proceeds of the Signature Sale
Leaseback Transaction, representing: (a) a two percent (2%) commitment fee
associated with the Signature Sale Leaseback Transaction; (b) any and all past
and prospective legal fees and other costs and expenses owed to Omega relating
to the Omega Secured Claim or otherwise; (c) all closing costs relating to the
Signature Sale Leaseback Transaction and the Omega New Master Lease, including
but not limited to legal costs and expenses incurred by Omega, title insurance
costs, transfer and recording taxes (if any), Phase I environmental assessment
costs, and any and all other closing costs. The Closing Allowance shall not
include the security deposits required under the Omega New Master Lease.
1.38 CLASS 7 RESERVED STOCK. The approximately eighty thousand (80,000)
shares of New Common Stock escrowed by Reorganized Unison for the Class 7 Claim.
1.39 CONFIRMATION. The entry by the Bankruptcy Court of the
Confirmation Order.
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1.40 CONFIRMATION DATE. The date upon which the Bankruptcy Court enters
the Confirmation Order confirming this Plan.
1.41 CONFIRMATION HEARING. The duly noticed hearing held by the
Bankruptcy Court on confirmation of the Plan pursuant to Section 1128 of the
Bankruptcy Code. The Confirmation Hearing may be adjourned by the Bankruptcy
Court from time to time without further notice other than the announcement of
the adjourned date at the Confirmation Hearing.
1.42 CONFIRMATION ORDER. An order entered by the Bankruptcy Court
confirming the Plan containing, among other things, the provisions as set forth
in Article 13.
1.43 CONSENTING NOTEHOLDERS. The holders of the Notes bearing Cusip No.
909199 AB9, which are subject to subordination to the Senior Notes pursuant to
the Notes Subordination Agreement.
1.44 CONSOLIDATED ESTATES. The Estates of the Unison Debtors and the
BritWill Debtors resulting from the substantive consolidation of the Debtors
pursuant to and in accordance with Article 2 of the Plan.
1.45 CONTINGENT CLAIM. A Claim which is either contingent or
unliquidated on or immediately before the Confirmation Date.
1.46 CONVENIENCE CLAIMS. An Allowed Unsecured Claim in an amount of
$1,000.00 or less, or any Unsecured Claim in excess of $1,000.00, but in no
event more than $2,000.00, that is reduced to $1,000.00 by election of the
holder thereof as provided on the Ballot; provided that, for purposes hereof,
all such Unsecured Claims held by an entity or by an entity and any Affiliate of
such entity shall be aggregated and treated as one such Unsecured Claim; and
provided further that, for purposes hereof, if all or any part of a Unsecured
Claim was or is assigned, the Unsecured Claim held by all assignees of such
Unsecured Claim shall be treated collectively as one such Unsecured Claim for
purposes of this definition.
1.47 CORNERSTONE. Cornerstone Care Center, Inc., a Colorado
corporation, and its successors and assigns.
1.48 CREDITOR. Any holder of a Claim, whether or not such Claim is an
Allowed Claim, encompassed within the statutory definition set forth in Section
101(a) of the Bankruptcy Code.
1.49 CREDITOR BALLOT. The ballot or ballots that will be distributed
with the Disclosure Statement to holders of Claims entitled to vote under the
Plan in connection with solicitation of acceptances of the Plan.
1.50 CREDITORS' COMMITTEE. Any Official Committee or Committees of
General Unsecured Creditors appointed by the United States Trustee in the
Chapter 11 Cases pursuant to Section 1102(a)(1) of the Bankruptcy Code.
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1.51 CURE. The distribution on the Effective Date or as soon thereafter
as practicable of Cash, or such other property as may be agreed upon by the
parties or ordered by the Bankruptcy Court, with respect to the assumption of an
executory contract or unexpired lease, pursuant to Section 365(b) of the
Bankruptcy Code, in an amount equal to all unpaid monetary obligations, or such
other amount as may be agreed upon by the parties, under such executory contract
or unexpired lease, to the extent such obligations are enforceable under the
Bankruptcy Code and applicable bankruptcy law.
1.52 DEBT INSTRUMENT. A physical debenture, bond, promissory note, note
or other transferable instrument or document evidencing any payment obligation.
1.53 DEBTORS. Collectively Unison, BritWill-I, BritWill-II, BritWill
Indiana, Sunquest, BritWill Healthcare, BritWill Funding, Memphis Clinical,
American Professional, Ampro, Gamma, Signature Health, Brookshire, Christopher,
Amberwood, Arbors, Los Arcos, Pueblo Norte, Rio Verde, Signature Management,
Cornerstone, Arkansas, Douglas, Safford, Rehab, Quest, Sunbelt Therapy
(Alabama), Decatur, Therapy Health, Henderson, Sunbelt Therapy (Arizona), Cedar
Care and Sherwood.
1.54 DECATUR. Decatur Sports Fit & Wellness Center, Inc., an Alabama
corporation, and its successors and assigns.
1.55 DIP FINANCING ORDERS. Collectively: (a) the "Final Order: (I)
Authorizing Debtors To Obtain Post-Petition Financing From HCFP Funding, Inc.
Pursuant To 11 U.S.C. Sections 364(c)(1) And (d); (II) Granting Senior Liens And
Security Interests; (III) Granting Authority To Make Payments To Lender; And
(IV) Granting Other Requested Relief" entered on January 29, 1998, as such Order
may be extended, amended or otherwise modified in the context of the BritWill
Debtors' Chapter 11 Cases; and (b) the "Stipulated Order Authorizing Debtors to
Obtain Postpetition Financing from HCFP Funding, Inc. Pursuant to 11 U.S.C.
Sections 364(c)(1) and (d)" entered on May 28, 1998, as such Order may be
extended, amended, or otherwise modified in the context of the Unison Debtors'
Chapter 11 Cases.
1.56 DISBURSING AGENT. Reorganized Unison, or such other Person as may
be retained by Reorganized Unison and approved by the Bankruptcy Court, to hold
and distribute certain consideration to the holders of Allowed Claims in Classes
1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 of the Plan. With respect to distributions of
the New Senior Notes to the holders of the Allowed Claims in Class 11, the New
Senior Notes Indenture Trustee shall be the Disbursing Agent. With respect to
distributions of New Common Stock and other property to the holders of the
Allowed Claims in Class 11, the Transfer Agent shall be the Disbursing Agent.
With respect to the distribution of the New Warrants to the Equity Interests and
Equity Interest Related Claims, the Transfer Agent shall be the Disbursing
Agent.
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1.57 DISCLOSURE STATEMENT. The written disclosure statement that
relates to the Plan, as approved by the Bankruptcy Court pursuant to Section
1125 of the Bankruptcy Code and Bankruptcy Rule 3017, as such disclosure
statement may be amended, modified or supplemented from time to time, which
disclosure statement will be used to solicit votes to accept or reject the Plan
by Creditors and holders of Equity Interests entitled to vote on such Plan.
1.58 DISPUTED CLAIM. A Claim which is: (a) subject to timely objection
interposed by the Debtors, or any party in interest entitled to file and
prosecute such objection in the Chapter 11 Case, if at such time such objection
remains unresolved; (b) a Claim that is listed by the Debtors as disputed,
unliquidated or contingent in the Schedules; or (c) if no objection has been
timely filed, a Claim which has been asserted in a timely filed proof of claim
in an amount greater than or in a Class different than that listed by the
Debtors in the Schedules as liquidated in amount and not disputed or contingent;
provided, however, that the Bankruptcy Court may estimate a Disputed Claim for
purposes of allowance pursuant to Section 502(c) of the Bankruptcy Code. The
term "Disputed", when used to modify a reference in the Plan to any Claim or
Class of Claims, shall mean a Claim (or any Claim in such Class) that is a
Disputed Claim as defined herein. In the event there is a dispute as to
classification or priority of a Claim, it shall be considered a Disputed Claim
in its entirety. Until such time as a Contingent Claim becomes fixed and
absolute, such Claim shall be treated as a Disputed Claim and not an Allowed
Claim for purposes related to voting, allocations, and distributions under the
Plan. In addition, any Claim held by any entity from which property is
recoverable under Section 542, 543, 550 or 553 of the Bankruptcy Code or that is
a transferee of a transfer avoidable under Section 522(f), 522(h), 544, 545,
547, 548, 549 or 724(a) of the Bankruptcy Code shall be a Disputed Claim unless
and until such entity or transferee has paid the amount, or turned over any such
property for which such entity or transferee is liable under Section 522(i),
542, 543, 550 or 553 of the Bankruptcy Code.
1.59 DISPUTED EQUITY INTEREST. An Equity Interest which is the subject
of a timely objection interposed by the Debtors, or any party in interest
entitled to file and prosecute any such objection in the Chapter 11 Cases, if at
such time such objection remains unresolved.
1.60 DISTRIBUTION DATE. The date, occurring as soon as practicable
after the Effective Date, upon which distributions are made to holders of
Allowed Claims and Equity Interests under the Plan.
1.61 DISTRIBUTION RECORD DATE. The date or dates established by the
Bankruptcy Court, which shall be the record date or dates for determining the
holders of Senior Notes, Notes and Equity Interests entitled to receive the New
Senior Note, New Common Stock, or New Warrants, as the case may be, pursuant to
Article 6 of the Plan.
1.62 DOUGLAS. Douglas Manor, Inc., a Colorado corporation, and its
successors and assigns.
1.63 EBITDA. Earnings before interest, taxes, depreciation and
amortization.
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1.64 EBITDAR. Earnings before interest, taxes, depreciation,
amortization and rent.
1.65 EBITDARM. Earnings before interest, taxes, depreciation,
amortization, rent and management fees.
1.66 EFFECTIVE DATE. The last to occur of: (a) the first Business Day
that is at least eleven (11) days after the Confirmation Date and on which no
stay of the Confirmation Order is in effect; and (b) the Business Day on which
all of the conditions set forth in Article 13 to the Plan shall have been
satisfied or waived.
1.67 EFFECTIVE DATE CASH. All Cash and/or cash equivalents of the
Debtors on the Effective Date prior to distribution or reservation of any
amounts payable under this Plan.
1.68 EFFECTIVE DATE EXCESS CASH. The Cash available for payment on the
New Senior Note on the Effective Date pursuant to Article 11.3 hereof in an
amount equal to Effective Date Cash less the sum (without duplication) of: (a)
the amount necessary for the payment (or reserve) for outstanding Administrative
Claims; (b) the reserve for accrued Preserved Ordinary Course Administrative
Claims, as of the Effective Date; (c) the amount necessary for the payment of
the Omega Effective Date Payment; (d) the amount necessary for the consummation
of the Quest Purchase Option; (e) the amount necessary for the payment (or
reserve) for Allowed Convenience Claims; (f) repayment of the DIP Loan; (g)
payment of priority tax Claims; (h) payments to Allowed Claims in Classes 3, 6,
7, 8, 9 and 10 (as necessary); (i) the security deposits to be provided under
the Omega New Master Lease pursuant to Article 7.2.2; (j) any Cure payments for
assumed executory contracts; and (k) the amount necessary for the payment (or
reserve) for Reclamation Claims.
1.69 EQUITY INTEREST. Any interest in Unison, including any right to
purchase or otherwise acquire any such Equity Interests.
1.70 EQUITY INTEREST RELATED CLAIM. Any Claim arising from the
rescission of a purchase or sale of an Equity Interest, or for damages arising
from the purchase or sale of an Equity Interest, or any Claim by any Person that
asserts equitable or contractual rights of reimbursement, contribution or
indemnification arising from such Claim, including the Securities Action and
Securities Litigation Claims.
1.71 ESSENTIAL VENDOR CLAIMS. Those Unsecured Claims as identified in
the Plan Supplement that the Debtors believe are essential to the continued
operation of its business by virtue of: (a) irreplaceability of the service or
goods in a particular marketplace; (b) adverse impact on reimbursement from
federal or state health care agencies; and/or (c) other business reasons.
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1.72 ESTATE OR ESTATES. The estates created for the Debtors in the
Chapter 11 Cases pursuant to Section 541 of the Bankruptcy Code.
1.73 EXAMINER. Keith J. Shapiro, Esq.
1.74 EXCHANGE ACT. The Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder.
1.75 FILKOSKI. Collectively John D. Filkoski, Michael F. Filkoski, Lisa
M. Filkoski, and/or David D. Filkoski, and their successors and assigns.
1.76 FILKOSKI CLAIMS. Collectively those Claims held by John D.
Filkoski, Michael F. Filkoski, Lisa M. Filkoski, and/or David D. Filkoski (and
their respective successors and assigns) relating to the Signature Acquisition
as set forth in the Plan Supplement, but not including the Filkoski Securities
Litigation Claims.
1.77 FILKOSKI SECURITIES LITIGATION CLAIMS. Those Securities Claims and
other tort Claims in the action encaptioned John D. Filkoski, et al. v. Unison
HealthCare Corporation, et al., No. 98-CIV-4270 pending in the Colorado District
Court, District of Colorado, which action is continuing against certain current
and former officers and directors of Unison in their individual capacities.
1.78 FINAL ORDER. An order or judgment which has not been reversed,
stayed, modified or amended and is no longer subject to appeal, certiorari
proceeding or other proceeding for review or rehearing, and as to which no
appeal, certiorari proceeding, or other proceeding for review or rehearing shall
then be pending.
1.79 FORBEARANCE AGREEMENT. The "Forbearance Agreement" dated December
1, 1997 between Unison and the Related Party Creditors.
1.80 FULLY DILUTED. The amount (expressed as a percentage) of New
Common Stock issued as of the Effective Date, assuming issuance on the Effective
Date of the maximum amount of shares of New Common Stock issuable upon the
exercise of: (a) the Management Options; and (b) the New Warrant Shares.
1.81 GAAP. The generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and Statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession.
1.82 GAMMA. Gamma Laboratories, Inc., a Missouri corporation, and its
successors and assigns.
1.83 GENERAL UNSECURED CLAIM. An Unsecured Claim not including: (a) the
Trade Unsecured Claims; (b) the Essential Vendor Claims; and (c) the Convenience
Claims.
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1.84 HASMARK FACILITIES. Collectively Four States Care Center, Heritage
Oaks and Texarkana Nursing Center as more specifically identified in the Plan
Supplement.
1.85 HASMARK FACILITIES REJECTION CLAIM. The Allowed Claim for damages
asserted or assertable by Omega should BritWill II reject the leases of the
Hasmark Facilities.
1.86 HCFP. HCFP Funding, Inc., a Delaware corporation, and its
successors and assigns.
1.87 HCFP DIP LOAN CLAIMS. The Allowed Claims for debtor-in-possession
financing of HCFP pursuant to the DIP Financing Orders.
1.88 HENDERSON. Henderson & Associates Rehabilitation, Inc., an Alabama
corporation, and its successors and assigns.
1.89 INDIANA MASTER LEASE. The "Master Lease" dated November 1, 1992
between Omega and BritWill I relating to the Omega Indiana Facilities
1.90 INDIANA RETURNED FACILITIES. Collectively English Estates, English
Senior Living, Capital Care Healthcare Center, Sunset Manor, Lockerbie
Healthcare Center and Parkview Manor as more specifically described in the Plan
Supplement.
1.91 INDIANA RETURNED FACILITY NOTE. The promissory note made payable
to Omega, which will be executed and delivered to Omega on the Effective Date of
the Plan pursuant to Article 6.1 hereof. The Indiana Returned Facility Note
shall: (a) be in the principal amount of THREE MILLION DOLLARS ($3,000,000.00);
(b) bear interest at the rate of seven percent (7%) per annum; (c) fully
amortize over a seven (7) year period, with principal and interest payments made
quarterly commencing with the first last day of the calendar quarter following
the Effective Date; (d) be guaranteed by Unison and BritWill Healthcare; (e) be
secured by all of the collateral held by Omega as of the Petition Date, as well
as the Omega New Master Lease Collateral; and (f) shall be cross-defaulted with
and to the Omega New Master Lease. The Indiana Returned Facility Note shall be
substantially in the form set forth in the Plan Supplement.
1.92 INITIAL PRICE. The value per share derived from a total equity
value of $65,000,000.00 subject to adjustment should the Debtors (on or before
the Effective Date) issue or incur debt more than $3,800,000.00 over $34.3
million (exclusive of any obligations resulting from the Signature Sale
Leaseback Transaction).
1.93 IRS. The Internal Revenue Service.
1.94 KREMSER AND AFFILIATES. Collectively David A. Kremser, Bernice E.
Kremser, Michael P. Kremser, Stanley A. Kremser, Holly M. Kremser, Elk Meadows
Investments, LLC, all Affiliates of the foregoing and each of their respective
successors and assigns.
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1.95 LITIGATION CLAIMS. All rights, claims, torts, liens, liabilities,
obligations, actions, causes of action, Avoidance Actions (including the Related
Party Avoidance Action), avoiding powers, proceedings, debts, contracts,
judgments, offsets, damages and demands whatsoever in law or in equity, whether
known or unknown, contingent or otherwise, that the Debtors, the Estates or the
Consolidated Estates may have against any Person, including but not limited to,
those listed in the Plan Supplement and the Related Party Creditor Defenses.
Failure to list a Litigation Claim in the Plan Supplement shall not constitute a
waiver or release by the Debtors and/or Reorganized Unison of such Litigation
Claim.
1.96 LOS ARCOS. Los Arcos, Inc., a Colorado corporation, and its
successors and assigns.
1.97 MANAGEMENT OPTIONS. The options or New Common Stock to be
allocated and issued by the board of directors of Reorganized Unison pursuant to
Article 7 of the Plan which, when issued and exercised, will represent
approximately five percent (5%) of the equity in Reorganized Unison on a Fully
Diluted basis.
1.98 MEMPHIS CLINICAL. Memphis Clinical Laboratory, Inc., a Tennessee
corporation, and its successors and assigns.
1.99 NEW COMMON STOCK. The ten million (10,000,000) authorized shares
of common stock in Reorganized Unison described in Article 11, approximately two
million (2,000,000) of which are to be issued on the Effective Date pursuant to
and in accordance with Articles 6.2, 6.3, and 6.7 of the Plan to, inter alia,
the holders of Allowed Claims in Classes 6, 7 and 11.
1.100 NEW COMMON STOCK REGISTRATION AGREEMENT. The agreement to be
entered into on the Effective Date by Reorganized Unison and any holder of an
Allowed General Unsecured Claim that will receive more than ten percent (10%) of
the Common Stock issued under this Plan. The New Common Stock Registration
Rights Agreement shall be substantially in the form in the Plan Supplement.
1.101 NEW LINE OF CREDIT. The working capital line of credit evidenced
by the New Line Of Credit Agreement and New Line Of Credit Promissory Note.
1.102 NEW LINE OF CREDIT AGREEMENT. The agreement between Reorganized
Unison and a working capital lender to be determined providing Reorganized
Unison with a secured working line of credit of approximately TWELVE MILLION
DOLLARS ($12,000,000.00) under terms and conditions agreeable to Reorganized
Unison and Omega.
1.103 NEW LINE OF CREDIT PROMISSORY NOTE. The promissory note or notes
evidencing the New Line of Credit.
1.104 NEW OMEGA GUARANTEE. The guarantee to be provided to Omega on the
Effective Date pursuant to Article 6.1.1 of the Plan substantially in the form
in the Plan Supplement.
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1.105 NEW OMEGA GUARANTEE COLLATERAL. Collectively: (a) a leasehold
mortgage on the Omega Indiana Leasehold Mortgage Facilities; (b) the security
deposits to be provided under the Omega New Master Lease; and (c) a junior lien
on accounts receivable generated by the Omega New Master Lease Facilities.
1.106 NEW OMEGA GUARANTEE SECURITY DOCUMENTS. Collectively the
documents evidencing the lien on the New Omega Guarantee Collateral
substantially in the form in the Plan Supplement.
1.107 NEW SENIOR NOTES. The 11% Senior Notes of Reorganized Unison in
an original principal amount sufficient to provide for: (a) the issuance of New
Senior Notes to holders of Senior Notes, after giving effect to the distribution
to holders of Senior Notes of New Senior Notes that would be distributed to
Consenting Noteholders but for the Notes Subordination Agreement (and as
provided in the New Senior Note Allocation Schedule), having an aggregate
principal amount on the Effective Date equal to the Allowed Senior Note Claims
plus the amount of accrued and unpaid interest for the period to the Unison
Debtors Petition Date; and (b) a Pro Rata distribution of New Senior Notes to
creditors with Allowed Claims in Class 11 other than holders of Senior Notes and
Consenting Noteholders, as set forth in Article 6.7 of the Plan. The Debtors
estimate that the principal amount of New Senior Notes will be approximately $24
million, but the exact amount will depend on the timing of the Effective Date
(which affects the accrual of interest on the Senior Notes) and the Allowed
amount of Class 11 Claims other than holders of the Senior Notes and Consenting
Noteholders. The New Senior Notes shall be issued and distributed pursuant to
Article 6.7 of the Plan on the Distribution Date for the benefit of Allowed
Claims in Class 11 and governed by the terms of the New Senior Notes Indenture
contained in the Plan Supplement. A sample form of the New Senior Notes is set
forth in the Plan Supplement.
1.108 NEW SENIOR NOTES ALLOCATION SCHEDULE. The Schedule set forth in
the Plan Supplement which sets forth: (a) the allocation to the holders of the
Senior Notes of New Senior Notes and other consideration (if any) otherwise
distributable to the Consenting Noteholders, pursuant to Article 6.7 hereof; and
(b) the allocation to the Consenting Noteholders of New Common Stock, pursuant
to Article 6.7 hereof, in order to give effect, in each case, to the rights of
the holders of the Senior Notes under the Notes Subordination Agreement.
1.109 NEW SENIOR NOTES COLLATERAL. All of the stock and assets of
Quest, Sunbelt Therapy (Arizona) and their respective subsidiaries.
1.110 NEW SENIOR NOTES GUARANTEE. The guarantee of obligations of
Reorganized Unison under the New Senior Notes, which guarantee shall be set
forth in the New Senior Notes Indenture or in a separate guarantee agreement to
be filed with the Bankruptcy Court as part of the Plan Supplement.
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1.111 NEW SENIOR NOTES INDENTURE. The Indenture to be entered into by
Reorganized Unison and the New Senior Notes Indenture Trustee under which the
New Senior Notes will be issued, which indenture shall be substantially the form
of the indenture filed with the Bankruptcy Court as part of the Plan Supplement.
1.112 NEW SENIOR NOTES INDENTURE TRUSTEE. IBJ Schroder Bank & Trust
Company or its successor.
1.113 NEW SENIOR NOTES SECURITY DOCUMENTS. Collectively the security
agreement, pledge agreement, each substantially in the form set forth in the
Plan Supplement, and any other documents evidencing or relating to the lien on
the New Senior Notes Collateral to secure the New Senior Notes.
1.114 NEW UNISON STOCK. Collectively the New Common Stock, the New
Warrants and the New Warrant Shares.
1.115 NEW WARRANTS. The warrants for the purchase of New Common Stock
described in Article 11 to be made available to holders of Class 12 Equity
Interests and Equity Interest Related Claims pursuant to and in accordance with
Articles 6.9 and 12 of this Plan.
1.116 NEW WARRANT SHARES. The New Common Stock issuable by Reorganized
Unison upon exercise of the New Warrants.
1.117 NHI. National Health Investors, Inc., a Maryland corporation.
1.118 NHI SECURED CLAIMS. The Allowed Secured Claims of NHI secured by,
inter alia, the Signature Facilities.
1.119 NON-CONSENTING NOTEHOLDERS. The holders of the Notes bearing
Cusip No. 909196 AA 5 which are not subject to subordination to the Senior Notes
pursuant to the Note Subordination Agreement.
1.120 NOTES. Collectively, the 12 1/4% Senior Notes due 2006 held by
Consenting Noteholders and/or Non-Consenting Noteholders, originally issued in
the aggregate principal amount of $100 million pursuant to the Notes Indenture.
The Notes Claims are hereby allowed in the amount of $107,965,000.00.
1.121 NOTES INDENTURE. The "Indenture" dated as of October 31, 1996,
between Unison, the other Debtors and the Notes Indenture Trustee, pursuant to
which the Notes were issued.
1.122 NOTES INDENTURE TRUSTEE. U.S. Bank National Association, or any
other successor trustee under the Notes Indenture.
1.123 NOTES SECURITIES CLAIMS. All Claims, if any, whether asserted
prior to or after the Petition Date based on alleged violations of applicable
federal or state securities laws: (a) arising from the rescission of a purchase
or sale, or offer
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to purchase or sell, any Notes or Senior Notes; and (b) for damages arising from
the purchase or sale of any such Notes or Senior Notes.
1.124 NOTES SUBORDINATION AGREEMENT. That "Subordination Agreement"
entered into on or about December 1, 1997 in which the Consenting Noteholders
only agreed to subordinate to the Senior Notes, to the extent set forth therein,
pursuant to the consent solicitation by Unison dated November 23, 1997.
1.125 NOTICE AND A HEARING. This phrase shall have the same meaning as
provided for in Section 102(1) of the Bankruptcy Code.
1.126 OMEGA. Omega HealthCare Investors, Inc., a Maryland corporation.
1.127 OMEGA EFFECTIVE DATE PAYMENT. Collectively: (a) if prior to or on
the Effective Date Omega has acquired the interest of Brit-Texas in the Hasmark
Facilities, the Cash payment in the amount of ONE MILLION DOLLARS
($1,000,000.00) as satisfaction of the Hasmark Facilities Rejection Claim to be
made as provided in Article 6.1.3 of the Plan; and (b) the Cash payment of an
additional ONE MILLION DOLLARS ($1,000,000.00) as partial satisfaction of the
Omega Indiana Rejection Claims, as provided in Article 6.1 of the Plan; (c) any
amounts due prior to the Effective Date, pursuant to Article 6.1, for rent under
and as defined in the existing Indiana Master Lease and Texas Master Lease; and
(d) to the extent not paid, the Closing Allowance.
1.128 OMEGA INDIANA FACILITIES. Collectively Wellington Manor,
Cloverleaf of Knightsville and Kendalville Manor as more specifically described
in the Plan Supplement.
1.129 OMEGA INDIANA LEASEHOLD MORTGAGE FACILITIES. Collectively
Owensville Convalescent, Boonville Convalescent, Holiday Manor and Willow Manor
Convalescent as more specifically described in the Plan Supplement.
1.130 OMEGA INDIANA REJECTION CLAIM. The Claims of Omega relating to
the release of the Omega Indiana Returned Facilities from the Indiana Master
Lease as treated in Article 6.1. of the Plan.
1.131 OMEGA INDIANA RETURNED FACILITIES. Collectively English Estates,
English Senior Living, Capital Care Healthcare Center, Sunset Manor, Lockerbie
Healthcare Center and Parkview Manor.
1.132 OMEGA MISCELLANEOUS SECURED CLAIM. The Allowed Secured Claim of
Omega as evidenced by: (a) a promissory note dated April 29, 1996 in the
original principal amount of $152,000.00 secured by the personality contained in
Pine Haven Care Center located in Texarkana, Texas and Omega's Leasehold
Mortgage on the Omega Indiana Leasehold Mortgage Facilities as treated in
Article 6.1 of the Plan; and (b) a promissory note dated April 29, 1996 in the
original principal amount of $144,000.00 secured by the personalty contained in
English Manor located in
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Lebanon, Indiana, and Omega's Leasehold Mortgage on the Omega Leasehold Mortgage
Facilities, all as treated in Article 6.1 of the Plan.
1.133 OMEGA MORTGAGE GUARANTEE CLAIMS. The Claims amounting to
approximately $10.2 million, plus accrued and unpaid interest and costs of
collection; of Omega pursuant to a "Mortgage Note" dated November 30, 1993
between Omega and Brit-Texas secured by, inter alia: (a) mortgages on Heritage
Oaks, Colonial Pines Healthcare, and West Place Nursing Center; and (b)
leasehold mortgages on Four States Care Center, South Place Nursing Center, and
Texarkana Nursing Center (all of which facilities are located in Texas) which
Claims have been guaranteed by Unison and BritWill II, and as treated in Article
6.1 of the Plan.
1.134 OMEGA NEW MASTER LEASE. That form of Master Lease covering the
Omega Indiana Facilities, Omega Texas Facilities, the Signature Facilities, and
potentially those Brit-Texas Facilities (excluding the Hasmark Facilities) as
set forth in Article 6.1 of the Plan, substantially in the form contained in the
Plan Supplement.
1.135 OMEGA NEW MASTER LEASE COLLATERAL. Collectively all existing
collateral and all personal property owned or leased by the Omega New Master
Lessees (which interest will be subordinate to the lessor's interest),
including, without limitation: (a) to the extent permitted by law a security
interest in licenses and permits; and (b) a subordinate security interest in
accounts receivable of the Omega New Master Lease Facilities owned by or
mortgaged to Omega with an intercreditor agreement with the lender of the New
Line of Credit reasonably satisfactory to Omega.
1.136 OMEGA NEW MASTER LEASE FACILITIES. Collectively the Omega Indiana
Facilities, the Omega Texas Facilities, the Signature Facilities, and
potentially those Brit-Texas Facilities described in Article 6.1.1 of the Plan.
1.137 OMEGA NEW MASTER LEASE GUARANTEE. The unconditional guarantee of
payment obligations by the Omega New Master Lease Guarantors with respect to the
Omega New Master Lease substantially in the form contained in the Plan
Supplement.
1.138 OMEGA NEW MASTER LEASE GUARANTORS. Collectively Unison, Signature
Health, BritWill Healthcare, BritWill I, Cedar Care and Sherwood.
1.139 OMEGA NEW MASTER LESSEES. Jointly and severally and collectively
Amberwood, Arbors, BritWill II, BritWill Indiana, Brookshire, Christopher, Los
Arcos, Pueblo Norte, and Rio Verde.
1.140 OMEGA SECURED CLAIMS. Collectively the Allowed Omega Mortgage
Guarantee Claims, the Omega Indiana Rejection Claims and, if on or prior to the
Effective Date Omega has acquired the interest of Brit-Texas in the Hasmark
Facilities, the Hasmark Facilities Rejection Claims. The Omega Secured Claims
are allowed, in an unliquidated amount, and will be treated as provided in
Article 6.1 herein.
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1.141 OMEGA SUBORDINATION RIGHTS. The rights asserted or assertable by
Omega relating to subordination of certain Claims of Whitehead And Affiliates to
all Claims of Omega pursuant to contractual and other agreements between Omega
and Whitehead And Affiliates.
1.142 OMEGA TEXAS FACILITIES. Collectively Heritage Plaza, Pine Haven
Care Center, Reunion Plaza, Pine Grove Nursing Center, Pleasant Manor Living
Center, and, to the extent Omega obtains fee title to such facilities, the
Brit-Texas Facilities, all as more specifically described in the Plan
Supplement.
1.143 OMEGA TEXAS LITIGATION. That litigation pending in the United
States District Court for the Northern District of Texas, Dallas Division, as
Omega HealthCare Investors, Inc. v. BritWill Investments-Texas, Ltd., and Bruce
H. Whitehead, No. 3-98CV-978-P.
1.144 PERSON. An individual, a corporation, a limited liability
company, a partnership, an association, a joint stock company, a joint venture,
an estate, a trust, an unincorporated organization or a government, governmental
unit or any subdivision thereof or any other entity.
1.145 PETITION DATE. As to the BritWill Debtors, January 7, 1998. As to
the Unison Debtors, May 28, 1998. If not otherwise specified herein, Petition
Date shall refer to January 7, 1998.
1.146 PLAN. This Plan of Reorganization, either in its present form or
as it may be amended, supplemented or modified from time to time, including all
exhibits and schedules annexed hereto or referenced herein and the Plan
Supplement.
1.147 PLAN DISTRIBUTED CASH. The Cash to be paid pursuant to this Plan
to the holders of Allowed Claims in all Classes and Allowed Unclassified Claims
hereunder.
1.148 PLAN SUPPLEMENT. The supplement filed with the Bankruptcy Court
with the Plan or thereafter (but in all events no later than ten (10) days prior
to the Confirmation Hearing) which contains all of the exhibits to the Plan as
such exhibits may be subsequently amended, modified or supplemented. The Plan
Supplement shall be a part of this Plan as if such exhibits were set forth more
fully herein.
1.149 PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIM. Administrative
Claims that are based on liabilities incurred by the Debtors in the purchase,
lease or use of goods and services in the ordinary course of its business,
including, but not limited to, Administrative Claims due on account of services
provided to the Debtors after the Petition Date by its employees, as well as
security deposits which may need to be posted as part of the Cure of any assumed
executory contract and/or unexpired lease.
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1.150 PRIORITY BENEFIT PLAN CONTRIBUTION CLAIM. Any Claim entitled to
priority in payment under Section 507(a)(4) of the Bankruptcy Code.
1.151 PRIORITY TAX CLAIM. Any Claim entitled to priority in payment
under Section 507(a)(8) of the Bankruptcy Code.
1.152 PRIORITY WAGE CLAIM. Any Claim entitled to priority in payment
under Section 507(a)(3) of the Bankruptcy Code.
1.153 PRO RATA. The ratio of an Allowed Claim or Allowed Equity
Interest in a particular class to the aggregate amount of all such Allowed
Claims or Allowed Equity Interests in any such Class.
1.154 PROFESSIONAL FEE BAR DATE. The date, as set by order of the
Bankruptcy Court, on or before which applications for compensation or expense
reimbursement, including Professional Fees receivable pursuant to Section
503(b), must be filed with the Bankruptcy Court, and served on Reorganized
Unison and its counsel.
1.155 PROFESSIONAL FEES. The Administrative Claims for compensation and
reimbursement submitted pursuant to Sections 328, 330, 331 or 503(b) of the
Bankruptcy Code of Persons: (a) employed pursuant to an order of the Bankruptcy
Court under Sections 327, 328 or 1103 of the Bankruptcy Code; or (b) for whom
compensation and reimbursement has been allowed by the Bankruptcy Court pursuant
to Section 503(b) of the Bankruptcy Code.
1.156 PUEBLO NORTE. Pueblo Norte, Inc., a Colorado corporation, and its
successors and assigns.
1.157 QUEST. Quest Pharmacies, Inc., an Arizona corporation, and its
successors and assigns.
1.158 QUEST PURCHASE OPTION. The "Agreement" dated May 19, 1998,
between Unison and L. Robert Oberfield relating to the purchase of twenty-five
percent (25%) interest in Quest held by L. Robert Oberfield for a total purchase
price of $4 million.
1.159 RECLAMATION CLAIMS. Any Claim against the Debtors by any Person
arising out of the sale of goods to the Debtor, in the ordinary course of such
Person's business, provided that such Person has otherwise satisfied the
requirements of Section 546(c) of the Bankruptcy Code and the Uniform Commercial
Code, as applicable.
1.160 REHAB. RehabWest, Inc., a Colorado corporation, and its
successors and assigns.
1.161 REINSTATED OR REINSTATEMENT. These terms shall mean: (a) leaving
unaltered the legal, equitable, and contractual rights of the holder of a Claim
so as to leave such Claim unimpaired in accordance with Section 1124 of the
Bankruptcy Code; or (b) notwithstanding any contractual provision or applicable
law that entitles the holder of such Claim to demand or receive accelerated
payment of such Claim after the occurrence of a default: (i) Curing any such
default that occurred before or after the Petition Date, other than a default of
a kind specified in Section 365(b)(2) of the Bankruptcy
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<PAGE> 149
Code; (ii) reinstating the maturity of such Claim as such maturity existed
before such default; (iii) compensating the holder of such Claim for any damages
incurred as a result of any reasonable reliance by such holder on such
contractual provision or such applicable law; and (iv) not otherwise altering
the legal, equitable, or contractual rights to which such Claim entitles the
holder of such Claim; provided, however, that any contractual right that does
not pertain to the payment when due of principal and interest on the obligation
on which such Claim is based, including, but not limited to, financial covenant
ratios, negative pledge covenants, covenants or restrictions on merger or
consolidation, and affirmative covenants regarding corporate existence
prohibiting certain transactions or actions contemplated by the Plan, or
conditioning such transactions or actions on certain factors, shall not be
required in order to accomplish Reinstatement.
1.162 RELATED PARTY AVOIDANCE ACTION. Adversary Proceeding No. 98-540
pending as of the Confirmation Date against Elk Meadows Investments, LLC;
BritWill Investments Company, Ltd.; UNHC Real Estate Holdings Ltd. (fka
Brit-Texas), Bruce H. Whitehead; David A. Kremser; Bernice E. Kremser; Michael
P. Kremser; Stanley A. Kremser and Holly M. Kremser brought pursuant to
Sections 544 and 547 of the Bankruptcy Code (as amended or otherwise
modified from time to time) and any other adversary proceeding which may be
filed against the Related Party Creditors prior to the Effective Date.
1.163 RELATED PARTY CREDITORS. Collectively Whitehead And Affiliates,
Kremser And Affiliates, and Filkoski.
1.164 RELATED PARTY CREDITOR CLAIMS. Collectively the Claims of
Whitehead And Affiliates, Kremser And Affiliates, and Filkoski.
1.165 RELATED PARTY CREDITOR DEFENSES. Those Litigation Claims, claims
and defenses relating to the Related Party Creditors in the nature of the
Related Party Avoidance Action, other preferences, breaches of fiduciary duties,
fraudulent conveyances, equitable subordination, breach of contract, the
Forbearance Agreement and any and all other claims, defenses, and offsets
asserted or assertable against the Related Party Creditors by the Debtors and/or
an appropriate estate representative pursuant to Section 1123(b)(3)(B) of the
Bankruptcy Code.
1.166 REORGANIZED UNISON. Collectively the Debtors, as reorganized and
reconstituted, pursuant to the Plan on the Effective Date.
1.167 REORGANIZED UNISON BY-LAWS. The Restated By-Laws of Reorganized
Unison, which shall be substantially in the form set forth in the Plan
Supplement.
1.168 REORGANIZED UNISON CERTIFICATE. The Restated Certificate of
Incorporation, which shall be substantially in the form set forth in the Plan
Supplement.
1.169 RIO VERDE. Rio Verde Nursing Center, Inc., a Colorado
corporation, and its successors and assigns.
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<PAGE> 150
1.170 SAFFORD. Safford Care, Inc., a Colorado corporation, and its
successors and assigns.
1.171 SCHEDULES. The schedules of assets and liabilities and any
amendments thereto filed by the Debtors with the Bankruptcy Court in accordance
with Section 521(1) of the Bankruptcy Code.
1.172 SEC. The United States Securities and Exchange Commission.
1.173 SECURED CLAIM. The Claim to the extent of the value of any
interest in property of the Debtors Estate securing such Claim or to the extent
of the amount of such Claim subject to setoff in accordance with Section 553 of
the Bankruptcy Code, in either case as determined pursuant to Section 506(a) of
the Bankruptcy Code.
1.174 SECURED TAX CLAIMS. The Claim of any state or local governmental
unit which is secured by a lien upon property owned by the Debtors by operation
of applicable law, including, but not limited to, every such Claim for unpaid
real and personal property taxes.
1.175 SECURITIES ACT. The Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
1.176 SECURITIES ACTION. Collectively: (a) the consolidated class
actions litigation pending as Martin Grossman fbo Martin Grossman Profit Sharing
Plan, et al., v. Unison Healthcare Corporation, et al., No. CIV 97-0583-PHX-SMM
(Lead); CIV 97-0584-PHX-SMM; CIV 97-0825-PHX-RCB; CIV 97-0603-PHX-SMM; CIV
97-0602-PHX-RGS; CIV 97-1017-PHX-SMM; and CIV 97-1412-PHX-RCB in the United
States District Court for the District of Arizona; and (b) the class action
lawsuit captioned Van Dyke v. Cruttendon Roth, Inc., et al., Case No. 779111 in
Orange County Superior Court.
1.177 SECURITIES ACTION SETTLEMENT AGREEMENT. The "Stipulation Of
Settlement" dated October ___, 1998 entered into by the parties to the
Securities Action, subject only to approval by the Bankruptcy Court for the
District of Arizona.
1.178 SECURITIES LITIGATION CLAIMS. Those Claims which are or may be
asserted against Unison, its officers and/or directors, including the Securities
Action, asserting violations of federal securities laws, including but not
limited to actions under Sections 11 and 15 of the Securities Act and Sections
10(b) and 20 of the Exchange Act, and Rule 10b5 promulgated thereunder by the
SEC; and any applicable non-federal law, including the Filkoski Securities
Litigation Claims.
1.179 SENIOR MANAGEMENT. Collectively those Persons holding the offices
as of the Confirmation Date of: (a) President/Chief Executive Officer; (b)
Executive Vice President/General Counsel; (c) Senior Vice
President/Finance/Treasurer; (d) Executive Vice President/Chief Financial
Officer; and (e) Executive Vice President of Operations.
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<PAGE> 151
1.180 SENIOR NOTES. The 13% Senior Notes due 1999 (Cusip No. 909196 AB
3) originally issued on or about December 1, 1997 in the original principal
amount of $20 million pursuant to the Senior Notes Indenture. The Senior Notes
Claims are hereby Allowed in the amount of $21,299,539.58.
1.181 SENIOR NOTES INDENTURE. The "Indenture" dated as of December 1,
1997 pursuant to which the Senior Notes were issued.
1.182 SENIOR NOTES INDENTURE TRUSTEE. IBJ Schroder Bank & Trust
Company, or such other successor trustee under the Senior Notes Indenture.
1.183 SHERWOOD. Sherwood HealthCare Corporation, an Indiana
corporation, and its successors and assigns.
1.184 SIGNATURE ACQUISITION. The October 31, 1996 stock purchase
transaction in which Unison acquired Signature Health and four affiliated
companies--Douglas, Safford, Arkansas and Cornerstone.
1.185 SIGNATURE ACQUISITION CLAIMS. Collectively the purported secured
obligations against the Debtors held by Kremser and Affiliates (but not
including any Claims relating to the Securities Action) and the Filkoski Claims
(but not including the Filkoski Securities Litigation Claims) resulting from the
Signature Acquisition as described more fully in the Plan Supplement.
1.186 SIGNATURE HEALTH. Signature HealthCare Corporation, a Delaware
corporation, and its successors and assigns.
1.187 SIGNATURE FACILITIES. Collectively the facilities located in
Colorado and Arizona known as Amberwood Court Care Center; The Arbors Health
Care Center; Brookshire House; Los Arcos Health Care Center; Pueblo Norte
Nursing Center; Rio Verde Nursing Center; and Christopher House.
1.188 SIGNATURE MANAGEMENT. Signature Management Group, Inc., a
Colorado corporation, and its successors and assigns.
1.189 SIGNATURE SALE LEASEBACK TRANSACTION. The sale leaseback
transaction involving the Signature Properties, to be consummated on or before
the Effective Date, as more fully described in Article 7 of the Plan.
1.190 SUBORDINATED CLAIM. Any Claim or Equity Interest subordinated,
for purposes of distribution or otherwise, pursuant to Section 510 of the
Bankruptcy Code (including Section 510(a)).
1.191 SUBSIDIARY AND AFFILIATE EQUITY INTERESTS. All of the common
stock or other equity interests issued by Amberwood, American Professional,
Ampro, Arbors, Arkansas, BritWill Funding, BritWill Healthcare, BritWill I,
BritWill II, BritWill Indiana, Brookshire, Cedar Care, Christopher, Cornerstone,
Decatur, Douglas, Gamma, Henderson, Los Arcos, Memphis Clinical, Pueblo Norte,
Quest, Rehab, Rio Verde, Safford, Sherwood, Signature Health, Signature
Management,
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<PAGE> 152
Sunbelt Therapy (Alabama), Sunbelt Therapy (Arizona), Sunquest, and Therapy
Health, and held by Unison or a Unison subsidiary or Affiliate, including, if
applicable, any warrants, options, or rights to purchase any such stock or
equity interests; and also including the twenty-five percent (25%) interest in
Quest held by L. Robert Oberfield.
1.192 SUNBELT THERAPY (ALABAMA). Sunbelt Therapy Management Services,
Inc., an Alabama corporation, and its successors and assigns.
1.193 SUNBELT THERAPY (ARIZONA). Sunbelt Therapy Management Services,
Inc., an Arizona corporation, and its successors and assigns.
1.194 SUNQUEST. SunQuest, SPC., Inc., an Arizona corporation, and its
successors and assigns.
1.195 TAXES. All income, franchise, excise, sales, use, employment,
withholding, property, payroll or other taxes, assessments, or governmental
charges, together with any interest, penalties, additions to tax, fines, and
similar amounts relating thereto, imposed or collected by any federal, state,
local or foreign governmental authority.
1.196 TEXAS MASTER LEASE. Collectively: (a) the "Master Lease" dated
November 30, 1993 between Omega and BritWill II; and (b) the "Master Lease"
dated December 31, 1994 between Omega and BritWill II, both of which relate to
the Omega Texas Facilities.
1.197 THERAPY HEALTH. Therapy Health Systems, Inc., a Mississippi
corporation, and its successors and assigns.
1.198 TRADE UNSECURED CLAIM. Those Unsecured Claims, when Allowed,
resulting from the provision of goods or services to the Debtors, but not
including: (a) Claims resulting from rejections of unexpired leases or executory
contracts; (b) the Related Party Creditor Claims; (c) Reclamation Claims; and
(d) the Essential Vendor Claims.
1.199 TRANSFER AGENT. Any qualified national transfer agent selected by
Unison.
1.200 UNISON. Unison HealthCare Corporation, a Delaware corporation,
and its successors and assigns.
1.201 UNISON DEBTORS. All of the Debtors other than the BritWill
Debtors.
1.202 UNSECURED CLAIM. A Claim not secured by a charge against,
security interest, lien, encumbrance or interest in any asset in which the
Debtors' Estate(s) has an interest.
1.203 VOTING RECORD DATE. The date established by the Bankruptcy Court
prior to the approval of the Disclosure Statement for purposes of determining
the holders of record of the Senior Notes, Notes and Equity Interests entitled
to vote on the Plan.
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<PAGE> 153
1.204 WHITEHEAD AND AFFILIATES. Collectively Bruce H. Whitehead;
Whitehead Family Investments, Ltd.; Brit-Texas; and BritWill Investments
Company, Ltd., all Affiliates of the foregoing, and each of their respective
successors and assigns.
B. COMPUTATION OF TIME.
In computing any period of time prescribed or allowed by the Plan,
unless otherwise expressly provided, the provisions of Bankruptcy Rule 9006(a)
shall apply.
C. RULES OF INTERPRETATION.
For purposes of the Plan: (a) any reference in the Plan to a contract,
instrument, release, indenture, or other agreement or documents being in
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions; (b) any reference in the Plan to an existing document or exhibit
filed or to be filed means such document or exhibit as it may have been or may
be amended, modified, or supplemented; (c) unless otherwise specified, all
references in the Plan to Sections, Articles, Schedules and Exhibits are
references to Sections, Articles, Schedules and Exhibits of or to the Plan; (d)
the words "herein," "hereof," "hereto," and "hereunder" refer to the Plan in its
entirety rather than to a particular portion of the Plan; (e) captions and
headings to Articles and Sections are inserted for convenience of reference only
and are not intended to be a part of or to affect the interpretation of the
Plan; and (f) the rules of construction set forth in Section 102 of the
Bankruptcy Code and in the Bankruptcy Rules shall apply.
ARTICLE 2
SUBSTANTIVE CONSOLIDATION OF DEBTORS' ESTATES
FOR DISTRIBUTION PURPOSES
2.1 REQUEST FOR SUBSTANTIVE CONSOLIDATION. This Plan constitutes a
motion for substantive consolidation of the liabilities and properties of all
Debtors for purposes of distributions hereunder, and the confirmation of the
Plan shall constitute approval of the motion by the Bankruptcy Court. The
Confirmation Order shall contain findings supporting and conclusions providing
for substantive consolidation for purposes of distribution on the terms set
forth in Article 2.2 of this Plan.
2.2 EFFECT OF SUBSTANTIVE CONSOLIDATION. Except as expressly set forth
in Article 2.3, below, as a result of the substantive consolidation of the
liabilities and properties of all Debtors: (a) the Chapter 11 Cases shall be
consolidated
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into the case of Unison as a single consolidated case; (b) all property of the
Estate of each Debtor shall be deemed to be property of the Consolidated
Estates; (c) all Claims against each Estate shall be deemed to be Claims against
the Consolidated Estates, any proof of claim filed against one or more of
Debtors shall be deemed to be a single claim filed against the Consolidated
Estates, and all duplicate proofs of claim for the same claim filed against more
than one Debtor shall be deemed expunged; (d) unless otherwise provided in the
Plan, all Equity Interests in any Debtor other than Unison shall be deemed
extinguished for purposes of distributions under this Plan, and no distributions
under this Plan shall be made on account of any such Equity Interests; (e) all
intercompany obligations by and against Debtors shall be eliminated, and no
distributions under this Plan shall be made on account of Claims based upon such
intercompany obligations; (f) except as specifically provided herein, all
guarantees by one Debtor in favor of any other Debtors shall be eliminated, and
no distributions under this Plan shall be made on account of Claims based upon
such guarantees; and (g) for purposes of determining the availability of the
right of setoff under section 553 of the Bankruptcy Code, Debtors shall be
treated as one consolidated entity so that, subject to the other provisions of
section 553, debts due to any of Debtors may be set off against the debts of any
other of Debtors. Substantive consolidation shall not merge or otherwise affect
the separate legal existence of each Debtor for licensing, regulatory or other
purposes, other than with respect to distribution rights under this Plan.
Moreover, substantive consolidation shall have no effect on valid, enforceable
and unavoidable liens, except for liens that secure a Claim that is eliminated
by virtue of substantive consolidation and liens against collateral that are
extinguished by virtue of substantive consolidation; and substantive
consolidation shall not have the effect of creating a Claim in a class different
from the class in which a Claim would have been placed in the absence of
substantive consolidation. The substantive consolidation contemplated herein
shall not effect any applicable date(s) for purposes of pursuing any Avoidance
Actions.
2.3 EXCEPTIONS TO SUBSTANTIVE CONSOLIDATION. Notwithstanding the
foregoing, the substantive consolidation shall not impact or otherwise affect
provisions in this Plan which provide that specific entities comprising the
Debtors or Reorganized Unison shall be liable on specific obligations under this
Plan.
ARTICLE 3
TREATMENT OF UNCLASSIFIED CLAIMS
The Claims against the Debtors set forth in this Article 3 are not
designated as Classes pursuant to Section 1123(a)(1) of the Bankruptcy Code. The
holders of such Claims are not entitled to vote on the Plan. The treatment of
the Claims set forth below is consistent with the requirements of Section
1129(a)(9)(A) of the Bankruptcy Code.
3.1 TREATMENT OF ADMINISTRATIVE CLAIMS.
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3.1.1 GENERALLY. Each Allowed Administrative Claim (including
all accrued U.S. Trustee quarterly fees), other than Preserved Ordinary Course
Administrative Claims and Reclamation Claims, shall be paid in full in Cash (or
otherwise satisfied in accordance with its terms) upon the latest of: (a) the
Effective Date, or as soon thereafter as practicable; (b) such date as may be
fixed by the Bankruptcy Court, or as soon thereafter as practicable; (c) the
tenth (10th) Business Day after such Claim is Allowed, or as soon thereafter as
practicable; and (d) such date as the holder of such Claim and Reorganized
Unison have agreed or shall agree.
3.1.2 REQUESTS FOR PAYMENT. All requests for payment of
Administrative Claims (except for Professional Fees and Preserved Ordinary
Course Administrative Claims) must be filed by the Administrative Claims Bar
Date or the holders thereof shall be forever barred from asserting such
Administrative Claims against the Debtors and Reorganized Unison. All final
applications for allowance and disbursement of Professional Fees must be filed
by the Professional Fee Bar Date. All such applications must be in compliance
with all of the terms and provisions of any applicable order of the Bankruptcy
Court, including the Confirmation Order, and all other orders governing payment
of Professional Fees. Such applications may be later amended to include any fees
and costs incurred after the Confirmation Date.
1.2 PRESERVED ORDINARY COURSE ADMINISTRATIVE CLAIMS. Each Allowed
Preserved Ordinary Course Administrative Claim shall be paid by Reorganized
Unison pursuant to either: (a) the terms and conditions under which such Claim
arose; or (b) in the ordinary course of Reorganized Unison's business. Such
payments shall be made by Reorganized Unison without further action by the
holder of such Claim.
3.3 HCFP DIP LOAN CLAIMS. The HCFP DIP Loan Claims shall be Allowed
Claims and paid pursuant to the terms of the DIP Financing Orders, but in all
events no later than the Effective Date.
3.4 ALLOWED PRIORITY TAX CLAIMS. Each Allowed Priority Tax Claim, if
any, will be paid in full in Cash on the Effective Date; provided, however, that
Reorganized Unison may elect to pay such Claims through deferred Cash payments
over a period not exceeding six (6) years after the date of assessment of such
Claim, of a value as of the Effective Date, equal to the amount of such Allowed
Claim. In that event, such payments shall be made in equal annual installments
of principal, plus interest accruing from the Effective Date at the rate on the
unpaid portion of Allowed Priority Tax Claim set forth in Internal Revenue Code
Sections 6621 and 6622. The first such payment shall be payable on the latest
of: (a) the Effective Date; (b) the tenth (10th) Business Day after the date on
which an order allowing such Claim becomes a Final Order; and (c) such other
time as is agreed upon by the holder of such Claim and Reorganized Unison,
provided, however,
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that Reorganized Unison shall have the right to prepay any such Allowed Priority
Tax Claim, or any remaining balance of such Claim, in full or in part, at any
time on or after the Effective Date, without premium or penalty.
3.5 ALLOWED RECLAMATION CLAIMS. All requests for payment of Reclamation
Claims must be filed by the Bar Date or the holders thereof shall be forever
barred from asserting such Reclamation Claim against the Debtors and Reorganized
Unison. Each Allowed Reclamation Claim shall be paid in full in Cash upon the
latest of: (a) the Effective Date, or as soon thereafter as practicable; (b)
such date as may be fixed by the Bankruptcy Court, or as soon thereafter as
practicable; (c) the tenth (10th) Business Day after such Claim is Allowed
during the Chapter 11 Cases, or as soon thereafter as practicable; and (d) such
date as the holder of such Reclamation Claim and Reorganized Unison have agreed
or shall agree.
ARTICLE 4
DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS
Pursuant to this Plan and in accordance with Section 1123(a)(1) of the
Bankruptcy Code, all Claims of Creditors and the holders of Equity Interests
(except Administrative Claims, Priority Tax Claims, Reclamation Claims, and
Preserved Ordinary Course Administrative Claims) are placed in the Classes
described below. A Claim or Equity Interest is classified in a particular Class
only to the extent that the Claim or Equity Interest qualifies within the
description of that Class and is classified in other Classes only to the extent
that any remainder of the Claim or Equity Interest qualifies within the
description of such other Classes. A Claim is also classified in a particular
Class only to the extent that such Claim has not been paid, released or
otherwise satisfied prior to the Effective Date.
4.1 SUMMARY OF CLASSIFICATION.
<TABLE>
<CAPTION>
CLASS 1: Unimpaired
<S> <C>
Priority Wage Claims - no solicitation required
- ----------------------------------------------------------- ----------------------------------------------
CLASS 2: Unimpaired
Priority Benefit Plan - no solicitation required
Contribution Claims
- ----------------------------------------------------------- ----------------------------------------------
CLASS 3: Unimpaired
Secured Tax Claims - no solicitation required
</TABLE>
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<PAGE> 157
<TABLE>
<CAPTION>
CLASS 4: Unimpaired
<S> <C>
Miscellaneous Secured Claims (including the NHI Secured - no solicitation required
Claims)
- ----------------------------------------------------------- ----------------------------------------------
CLASS 5: Impaired
Omega Secured Claims - entitled to vote
- CLASS 5A Omega Mortgage
Guarantee Claims
- CLASS 5B Omega Indiana Rejection
Claims
- CLASS 5C Hasmark Facilities
Rejection Claims
- CLASS 5D Omega Miscellaneous
Secured Claim
- ----------------------------------------------------------- ----------------------------------------------
CLASS 6: Impaired
BritWill Acquisition Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 7: Impaired
Signature Acquisition Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 8: Impaired
Convenience Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 9: Impaired
Essential Vendor Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 10: Impaired
Trade Unsecured Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 11: Impaired
General Unsecured Claims - entitled to vote
- ----------------------------------------------------------- ----------------------------------------------
CLASS 12: Impaired
Notes Securities Claims - deemed rejected
</TABLE>
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<TABLE>
<CAPTION>
CLASS 13: Unimpaired
<S> <C>
Subsidiary And Affiliate Equity - not entitled to vote
Interests
- ----------------------------------------------------------- ----------------------------------------------
CLASS 14: Impaired
Equity Interests And Equity Interest - entitled to vote
Related Claims
- ----------------------------------------------------------- ----------------------------------------------
</TABLE>
4.2 SPECIFIC CLASSIFICATION.
4.2.1 CLASS 1 - PRIORITY WAGE CLAIMS. Class 1 consists of all
Claims that are entitled to priority under Section 507(a)(3) of the Bankruptcy
Code.
4.2.2 CLASS 2 - PRIORITY BENEFIT PLAN CONTRIBUTION CLAIMS.
Class 2 consists of all Claims that are entitled to priority under Section
507(a)(4) of the Bankruptcy Code.
4.2.3 CLASS 3 - SECURED TAX CLAIMS. Class 3 consists of all
Secured Tax Claims. Each holder of a Secured Tax Claim shall be considered to be
in its own separate subclass within Class 3, and each such subclass shall be
deemed to be a separate Class for purposes of this Plan.
4.2.4 CLASS 4 - MISCELLANEOUS SECURED CLAIMS. Class 4 consists
of all Secured Claims (including the NHI Secured Claims) other than Secured
Claims in Classes 3, 5, 6 and 7. Each holder of a Miscellaneous Secured Claim
shall be considered to be in its own separate subclass within Class 4, and each
such subclass shall be deemed to be a separate Class for purposes of this Plan.
4.2.5 CLASS 5 - OMEGA SECURED CLAIMS. Class 5 consists of: (a)
the Omega Mortgage Guarantee Claims (Class 5A); (b) the Omega Indiana Rejection
Claim (Class 5B); (c) the Hasmark Facilities Rejection Claims (Class 5C); and
(d) the Omega Miscellaneous Secured Claims (Class 5D). Each of the foregoing
Claims shall be considered a separate subclass within Class 5, and each subclass
shall be deemed a separate class for purposes of the Plan.
4.2.6 CLASS 6 - BRITWILL ACQUISITION CLAIMS. Class 6 consists
of the BritWill Acquisition Claims. Each BritWill Acquisition Claim shall be
considered a separate subclass within Class 6, and each subclass shall be deemed
a separate class for purposes of the Plan.
4.2.7 CLASS 7 - SIGNATURE ACQUISITION CLAIMS. Class 7 consists
of the Signature Acquisition Claims. Each Signature Acquisition Claim shall be
considered a separate subclass within Class 7, and each subclass shall be deemed
a separate class for purposes of the Plan.
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<PAGE> 159
4.2.8 CLASS 8 - ALLOWED CONVENIENCE CLAIMS. Class 8 consists
of Allowed Convenience Claims (other than any Claim evidenced by a Note or
Senior Note), against the Debtors that is $1,000.00 or less, or that is greater
than $1,000.00 (but not more than $2,000.00), but is voluntarily reduced by the
holders thereof to $1,000.00. The option to reduce an Allowed Convenience Claim
to the sum of $1,000.00, and to have such Allowed Convenience Claim treated as a
Class 8 Claim must be made in the manner prescribed in the Ballot.
4.2.9 CLASS 9 - ESSENTIAL VENDOR CLAIMS. Class 9 consists of
the Essential Vendor Claims.
4.2.10 CLASS 10 - TRADE UNSECURED CLAIMS. Class 10 consists of
all Trade Unsecured Claims.
4.2.11 CLASS 11 - GENERAL UNSECURED CLAIMS. Class 11 consists
of all General Unsecured Claims not otherwise classified herein, including,
without limitation, the Claims of: (a) the Consenting Noteholders; (b) the
Non-Consenting Noteholders; (c) the Filkoski Claims (other than Claims on which
Filkoski is a co-payee as part of the Signature Acquisition Claims as set forth
in the Plan Supplement, and also not including the Filkoski Securities
Litigation Claims); (d) the holders of the Senior Notes; and (e) the Allowed
BritWill Claims (as defined in Article 6.2.2).
4.2.12 CLASS 12 - NOTES SECURITIES CLAIMS. Class 12 consists
of any Notes Securities Claims which, pursuant to this Plan and Section 510 of
the Bankruptcy Code, shall be subordinated to the Claims of all other Creditors.
4.2.13 CLASS 13 - SUBSIDIARY AND AFFILIATE EQUITY INTERESTS.
Class 13 consists of the Subsidiary And Affiliate Equity Interests held by
Unison.
4.2.14 CLASS 14 - EQUITY INTERESTS AND EQUITY INTERESTS
RELATED CLAIMS. Class 14 consists of the Equity Interests and the Equity
Interest Related Claim, including the Securities Litigation Claims.
ARTICLE 5
DESIGNATION OF AND PROVISIONS FOR TREATMENT OF
CLASSES OF CLAIMS NOT IMPAIRED BY THE PLAN
5.1 CLASS 1 - PRIORITY WAGE CLAIMS. Each Allowed Priority Wage Claim,
if any, shall be paid in full in Cash upon the latest of: (a) the Effective
Date, or as soon thereafter as practicable; (b) such date as may be fixed by the
Bankruptcy Court, or as soon thereafter as practicable; (c) the tenth (10th)
Business Day after such Claim is allowed, or as soon thereafter as practicable;
and (d) such date as the holder of such Claim and Reorganized Unison have agreed
or shall agree. Class 1 is unimpaired under the Plan; and holders of Allowed
Claims in Class 1 are not entitled to vote on the Plan.
5.2 CLASS 2 - PRIORITY BENEFIT PLAN CONTRIBUTION CLAIMS. Each Allowed
Priority Benefit Plan Contribution Claim, if any, shall be paid in full in Cash
upon the latest of: (a) the Effective Date, or as soon thereafter as
practicable; (b) such date as may be fixed by the Bankruptcy Court, or as soon
thereafter as practicable; (c) the tenth (10th)
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<PAGE> 160
Business Day after such Claim is Allowed, or as soon thereafter as practicable;
and (d) such date as the holder of such Claim and Reorganized Unison have agreed
or shall agree. Class 2 is unimpaired under the Plan; and holders of Allowed
Claims in Class 2 are not entitled to vote on the Plan.
5.3 CLASS 3 - SECURED TAX CLAIMS. Each Allowed Secured Tax Claim shall
be paid in full in Cash upon the latest of: (a) the Effective Date, or as soon
thereafter as practicable; (b) such date as may be fixed by the Bankruptcy
Court, or as soon thereafter as practicable; (c) the tenth (10th) Business Day
after such Claim is Allowed, or as soon thereafter as practicable; (d) the date
on which such Secured Tax Claim is scheduled to be paid in the ordinary course
of business under applicable law or regulation; and (e) such date as the holder
of such Claims and Reorganized Unison have agreed or shall agree. Class 3 is
unimpaired under the Plan; and holders of Allowed Claims in Class 3 are not
entitled to vote on the Plan.
5.4 CLASS 4 - MISCELLANEOUS SECURED CLAIMS. On the Effective Date, at
Reorganized Unison's option, the holder of any Allowed Secured Claims in Class 4
shall receive one of the following alternative treatments:
(a) The holder of such Claim shall be treated in accordance
with the terms and conditions of all Debt Instruments evidencing such Claim and
the legal, equitable, or contractual rights to which each holder of such Claim
is entitled shall not otherwise be altered;
(b) (i) Any default, other than a default of the kind
specified in Section 365(b)(2) of the Bankruptcy Code, shall be Cured or
Reinstated;
(ii) The maturity of the Claims shall
be Reinstated as such maturity existed before any default;
(iii) The other legal, equitable or
contractual rights to which the holder of
the Claim is entitled shall not otherwise be altered, provided, however, that as
to any Allowed Secured Claim which is a nonrecourse claim and exceeds the value
of the collateral securing the Claim, the collateral may be sold at a sale at
which the holder of such Claim has an opportunity to bid; or
(c) On the Effective Date, or on such other date thereafter as
may be agreed to by Reorganized Unison and the holder of such Claim, the Estates
shall abandon the collateral securing such Claim to the holder thereof in full
satisfaction and release of such Claim; or
(d) On the Effective Date, the holder of such Claim shall
receive, on account of such Claim, Cash equal to its Allowed Secured Claim, or
such lesser amount to which the holder of such Claim shall agree, in full
satisfaction and release of such Claim.
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Class 4 is unimpaired under the Plan; and the holders of
Allowed Claims in Class 4 are not entitled to vote on the Plan.
5.5 CLASS 13 - SUBSIDIARY AND AFFILIATE EQUITY INTERESTS. On the
Effective Date, Reorganized Unison (and its subsidiaries, as applicable) shall
continue to hold and own the Subsidiary And Affiliate Equity Interests, and
those entities shall continue as subsidiaries or Affiliates (as the case may be)
of Reorganized Unison. Class 13 is unimpaired under this Plan. The holders of
the Class 13 Subsidiary And Affiliate Equity Interests are not entitled to vote
on this Plan.
ARTICLE 6
DESIGNATION OF AND PROVISIONS FOR TREATMENT OF
CLASSES OF CLAIMS AND EQUITY INTERESTS IMPAIRED BY THE PLAN
6.1 CLASS 5 - OMEGA SECURED CLAIMS. The Allowed Omega Secured Claims
shall be satisfied as follows:
6.1.1 OMEGA MORTGAGE GUARANTEE CLAIMS. As and for full satisfaction of
the Omega Mortgage Guarantee Claims, on the Effective Date Unison and BritWill
II shall execute and deliver to Omega the New Omega Guarantee which shall be an
absolute and unconditional guarantee of payment to supersede and replace any and
all of the Debtors' guarantees of Brit-Texas obligations.
(a) PROVISIONS OF THE NEW OMEGA GUARANTEE. The
New Omega Guarantee shall have the following provisions and terms:
(i) The New Omega Guarantee shall be in an
amount not to exceed THREE MILLION DOLLARS ($3,000,000.00) and
interest at ten percent (10%) per annum after default thereon,
plus reasonable fees and costs for collection if called upon;
(ii) The New Omega Guarantee shall be
secured by the New Omega Guarantee Collateral;
(iii) The New Omega Guarantee shall not be
cross-defaulted with either the Omega New Master Lease or any
other obligations of the Debtors to Omega under the Plan;
(iv) If called upon, any amounts due
thereunder shall be payable on a four (4) year, fully
amortizing basis with no interest, except after default as
provided above; and
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(v) Reorganized Unison shall retain any and
all rights of subrogation, contribution, reimbursement and/or
offset with respect to Whitehead And Affiliates relating to
the New Omega Guarantee and any of the obligations to Omega
covered thereby.
(b) PROVISIONS REGARDING CERTAIN BRIT-TEXAS
FACILITIES. If Omega obtains, through foreclosure or otherwise, the fee
and leasehold interests in and to the Brit-Texas Facilities free and
clear of liens and underlying encumbrances except for customary
permitted exceptions and other than the underlying leases on the
leasehold facility (other than the Hasmark Facilities, discussed in
Article 6.1.3 below) at any time prior to the expiration of the Omega
New Master Lease, Omega agrees to add those facilities to the Omega New
Master Lease. Upon such addition, the Minimum Rent (as defined in the
Omega New Master Lease) shall be increased by the product of the Omega
Mortgage Guarantee Claims (not including costs of collection up to the
Effective Date, which will be covered by the Closing Allowance) and the
interest rate currently in effect under the Mortgage Note forming the
bases of the Omega Mortgage Guarantee Claims; thereafter, the Minimum
Rent (as defined in the Omega New Master Lease) with respect to the
Brit-Texas Facilities shall be increased annually in the manner set
forth in Section 3.3 of the Mortgage Note.
(c) RESERVATION OF RIGHTS. Notwithstanding any of the
foregoing, Omega shall be entitled to pursue any and all claims it has
or may have against Whitehead And Affiliates, whether such claims are
based on guarantees, the Omega Subordination Rights, fraud,
misrepresentation or otherwise.
6.1.2 OMEGA INDIANA REJECTION CLAIM. The Omega Indiana
Rejection Claim shall be satisfied as follows:
(a) SURRENDER OF INDIANA RETURNED FACILITIES. The
Indiana Returned Facilities shall be turned over to Omega on the
Effective Date if not surrendered prior to that time. The Indiana
Returned Facilities shall then be deleted from the Indiana Master
Lease, with a rent reduction attributable to the Indiana Returned
Facilities as set forth in Article 7.2.4 of the Plan. If Omega desires
the Debtors or Reorganized Unison to operate the Indiana Returned
Facilities for a transition period after surrender of those facilities,
the Debtor or Reorganized Unison will do so, for the account of Omega,
at a five percent (5%) of gross revenue management fee pursuant to a
management agreement acceptable in form and substance to Unison.
(b) DISTRIBUTIONS. In full satisfaction of the Claims
resulting from the revision to the Indiana Master Lease as set forth
above, on the Effective Date Omega shall receive:
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(i) ONE MILLION DOLLARS
($1,000,000.00) in Cash as part of the Omega Effective Date
Payment; and
(ii) The Indiana Returned Facility Note.
(c) SHARING AGREEMENT. The Indiana Returned Facility
Note shall be treated as follows with respect to the New Senior Note:
(i) If by the second anniversary after the
Effective Date, the holders of the Senior Notes receiving New
Senior Notes have not had their Claims reduced in principal by
at least fifty percent (50%) (including by virtue of the
Effective Date Excess Cash payment as referenced in Article
11.3.4(a) of the Plan) or otherwise, then thereafter and until
such time as the New Senior Notes received by the holders of
the Senior Notes are paid in full, the Indiana Returned
Facility Note shall share pari passu with such New Senior
Notes received by the holders of the Senior Notes
notwithstanding the original amortization or terms of the
Indiana Returned Facility Note (the "Sharing Agreement");
(ii) The Sharing Agreement shall only be
applicable as to payment of Cash, or other property actually
received in payment of the Indiana Returned Facilities Note,
and shall not constitute a sharing or assignment of collateral
securing the Indiana Returned Facility Note or the New Senior
Note, respectively;
(iii) The Sharing Agreement shall only apply
if there is no continuing default by Reorganized Unison on the
obligations to Omega under the Plan (including under the
documents executed in connection with the Plan);
(iv) Any principal deferred on the Indiana
Returned Facility Note as a result of the Sharing Agreement
shall bear interest at the rate of ten percent (10%) per annum
from the date of deferral until paid;
(v) Notwithstanding any other provision in
the Indiana Returned Facility Note, if the Sharing Agreement
becomes operative, the deferral of the principal on the
Indiana Returned Facility Note shall not be a default under
that note or other obligations of Reorganized Unison to Omega;
and
(vi) Notwithstanding any of the foregoing,
no one other than the holders of the New Senior Notes received
by the holders of the Notes shall have any rights with respect
to the Sharing Agreement. The provisions of this Article
6.1.2(c) is a voluntary accommodation by Omega for the benefit
of the New Senior Notes received by the holders of the Senior
Notes. The New Senior Notes
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received by other Creditors under Article 6.7.1 shall not
share in the benefits of this accommodation and intercreditor
agreement.
6.1.3 HASMARK FACILITIES REJECTION CLAIMS. Assuming that BritWill II
rejects the leases of the Hasmark Facilities, the Hasmark Facility Rejection
Claim shall be satisfied as follows:
(a) PROVISIONS IF OMEGA HAS ACQUIRED HASMARK
FACILITIES. If prior to or on the Effective Date Omega has acquired the
interest of Brit-Texas in the Hasmark Facilities, the Hasmark
Facilities Rejection Claim shall be satisfied as follows:
(i) DELETION FROM TEXAS MASTER LEASE. On the
Effective Date, the Hasmark Facilities shall be deleted from
the lease pursuant to which they are leased to BritWill II;
and Omega shall be paid the sum of: (i) the unpaid rent owing
thereon (if any) to be paid pursuant to the provisions of
Article 6.2.2(c); and (ii) ONE MILLION DOLLARS ($1,000,000.00)
in Cash as part of the Omega Effective Date Payment in full
satisfaction of the Hasmark Facilities Rejection Claim.
(ii) RENT ADJUSTMENTS. Upon payment of the
amount set forth above, the Minimum Rent as defined in, and
under, the Omega New Master Lease shall be reduced ONE HUNDRED
TWENTY THOUSAND DOLLARS ($120,000.00) per year, commencing
with a Pro Rata reduction on the Effective Date upon payment
of the amount set forth above. Moreover, the rent for the
period of January through April, 1998 attributable to the
Brit-Texas Facilities in the approximate amount of $300,000.00
which was paid to Brit-Texas (which did not, in turn pay those
rents to Omega) will be added as an additional lease expense
of the Omega New Master Lessees, and be fully capitalized
under the Omega New Master Lease and this Plan.
(iii) TRANSFER OF HASMARK FACILITIES TO
REORGANIZED UNISON. Simultaneously with payment of the amounts
required by Article 6.1.3(a)(i), Omega shall promptly quit
claim to Reorganized Unison or its assignee Omega's interest
in the Hasmark Facilities, which transfer shall be without any
representations, express or implied, with respect to the
nature of title being transferred.
(b) PROVISIONS IF OMEGA DOES NOT ACQUIRE HASMARK
FACILITIES. If prior to or on the Effective Date Omega has not acquired
the interest of Brit-Texas in the Hasmark Facilities, BritWill II and
Omega will use commercially reasonable efforts to enter into an
agreement with Brit-Texas which will include the following provisions:
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(i) BritWill II will pay One Million Dollars
($1,000,000.00) in cash in full satisfaction of the Hasmark
Facilities Rejection Claim;
(ii) The payment to be made by BritWill II
pursuant to Article 6.1.3(b)(i) shall be made directly to
Omega in accordance with the terms of the "Subordination
Agreement-Debt" dated November 30, 1993 by and between Omega,
BritWill Healthcare, BritWill Investments Corporation,
Whitehead Family Investments, Ltd. and Brit-Texas, and such
amount shall be credited against the amount owing by
Brit-Texas to Omega pursuant to its $10,200,000.00 Mortgage
Note dated November 30, 1993;
(iii) The rent payments owing by BritWill II
to Brit-Texas with respect to the Brit-Texas Facilities shall
be reduced by One Hundred and Twenty Thousand Dollars
($120,000.00) per year; and
(iv) BritWill II will waive all subrogation
rights which it may have as a consequence of the $1,000,000.00
payment to be made pursuant to clause (i).
(c) If prior to or on the Effective Date: (i) Omega has not
acquired the interest of Brit-Texas in the Hasmark Facilities; and (ii)
if BritWill II and Omega are unable to enter into an agreement with
Brit-Texas as contemplated by Article 6.1.3(b), then Omega and BritWill
II shall enter into an agreement which, taking into account the
reduction in rent which BritWill II is required to pay on the Hasmark
Facilities Rejection Claim, will, to the fullest extent practical,
result in the same economic burdens and benefits to Omega and BritWill
II as would result from the agreement contemplated by Article 6.1.3(b).
(d) If prior to or simultaneously with the Effective Date
Omega has not acquired the interest of Brit-Texas in the Hasmark
Facilities, and if thereafter Omega acquires such interest, and
provided that the provisions of Article 6.1.3(b) or (c), as
appropriate, have been implemented, Omega shall promptly quit claim to
Reorganized Unison or its assignee its interests in the Hasmark
Facilities, which transfer shall be without any representations,
express or implied, with respect to the nature of title being
transferred.
(e) Debtors and Reorganized Unison acknowledge and agree that:
(i) Omega is under no obligation to continue its efforts to foreclose
on the Hasmark Facilities; (ii) if Omega forecloses on the Hasmark
Facilities, the amount, if any, which Omega bids for the Hasmark
Facilities (or any portion thereof) at any foreclosure sale relating to
the Hasmark Facilities will be within the sole discretion of Omega; and
(iii) Omega may not acquire fee or leasehold interest to the Hasmark
Facilities.
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6.1.4 OMEGA MISCELLANEOUS SECURED CLAIMS. The Allowed Omega
Miscellaneous Secured Claim shall: (a) be paid in Cash on the Effective Date; or
(b) the collateral for such loans returned to Omega in satisfaction of such
Claims; or (c) be provided such other treatment as agreed to between Omega and
the Debtors.
6.1.5 EXECUTION OF OMEGA NEW MASTER LEASE. On the Effective
Date, Reorganized Unison shall execute the Omega New Master Lease, which shall
act as an assumption (as amended and supplemented) of the Indiana Master Lease
and Texas Master Lease, as provided in Article 7.2 of the Plan. As a condition
to the execution of the Omega New Master Lease, all amounts due prior to the
Effective Date for Rent under and as defined in the existing Indiana Master
Lease (including without limitation with respect to the Indiana Returned
Facilities), and Texas Master Lease must be brought or paid current, except as
expressly set forth in the Plan.
6.1.6 FEES AND EXPENSES OF OMEGA. Any and all fees and costs
of Omega relating to the Allowed Omega Secured Claims shall be paid to Omega
upon the closing of the Signature Sale Leaseback Transaction, which fees and
costs shall be Allowed in the amount of the Closing Allowance.
6.1.7 NO PREJUDICE. Notwithstanding any of the foregoing, no
provision in this Plan or the Term Sheet shall be construed as or otherwise
deemed to prejudice, impair or otherwise adversely effect any rights Omega has
or may have against any Person other than Unison and Reorganized Unison,
including but not limited to Whitehead And Affiliates and the Omega
Subordination Rights, except as expressly provided in Article 6.2.2 of the Plan.
6.1.8 ADHERENCE TO OMEGA SUBORDINATION AGREEMENTS. Except as
to the treatment in this Plan with respect to payments of any Allowed Claims in
Classes 6 (if Class 6, including all sub-Classes, votes to accept the Plan), 8,
9, 10 and 11, and unless ordered otherwise by a court of competent jurisdiction,
Reorganized Unison shall abide by and not otherwise prejudice the Omega
Subordination Rights, and will not pay any Cash or other property to Whitehead
And Affiliates until all obligations of Brit-Texas to Omega are paid in full,
except as expressly provided in Article 6.2.2 of the Plan.
6.1.9 IMPAIRMENT. The Allowed Omega Secured Claims are
impaired under the Plan.
6.1.10 TREATMENT OF OMEGA SECURED CLAIMS BASED ON ACCEPTANCE
OF EACH OMEGA SUBCLASS. The treatment of the Allowed Omega Secured Claims set
forth in Article 6.1 of the Plan is based on the acceptance of the Plan by each
sub-Class in Class 5.
6.2 CLASS 6 - BRITWILL ACQUISITION CLAIMS. The BritWill Acquisition
Claims will be satisfied and otherwise treated as follows:
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6.2.1 ALLOWANCE OF CLAIMS. Subject to the provisions of
Article 6.2.1(a), and provided that the holder(s) of the BritWill Acquisition
Claims vote to accept the Plan, the BritWill Acquisition Claims will be Allowed
in four (4) parts as follows: (1) an Allowed Claim of $541,000.00 representing
the September, 1997 working capital loan and interest up to the Unison Debtors'
Petition Date (the "BritWill September 1997 Loan"); (2) an Allowed Unsecured
Claim of $1,530,000.00 representing the April, 1997 working capital loan and
interest up to the Unison Debtors' Petition Date (the "BritWill April 1997
Loan"); (3) an Allowed Unsecured Claim in the amount of $1,740,000.00
representing certain seller notes between Unison (as borrower) and Brit-Texas
(the "Seller Notes"); and (4) an Allowed Unsecured Claim of $10,470,000.00 as
and for the balance of all other BritWill Acquisition Claims (the "BritWill
Acquisition Unsecured Claim"). No other or further Claim(s) shall be Allowed
with respect to or relating to the BritWill Acquisition Claims. If the holder(s)
of at least fifty-one percent in number and two-thirds in amount of the BritWill
Acquisition Claims do not vote to accept the Plan, the Claims shall be treated
as provided for in Article 6.2.3, below.
(a) EFFECT OF NON-ACCEPTANCE BY ANY SUB-CLASS. If one
or more sub-Classes in Class 6 (if any) does not vote to accept the
Plan, the Pro Rata portion of the distribution that would otherwise go
to that sub-Class shall be escrowed until the Claim(s) of the
non-consenting sub-Class(es) is determined and Allowed in accordance
with the provisions of Articles 10 and 18 of the Plan. Upon Allowance
of such Claims, any distributions which have been escrowed or are
otherwise due will be distributed when the Claim is Allowed by a Final
Order, and future distributions shall be made in accordance with the
Plan.
6.2.2 BIFURCATION OF CLAIMS AND TREATMENT THEREOF. If the
holder(s) of the BritWill Acquisition Claims vote to accept the Plan as provided
in Article 6.2.1, the BritWill Acquisition Claims shall be treated as follows:
(a) ALLOWED SEPTEMBER 1997 LOAN CLAIMS. The Allowed
BritWill September 1997 Loan Claim shall be paid in Cash on the
Effective Date in full satisfaction of that Allowed Claim.
(b) ALLOWED BRITWILL APRIL 1997 LOAN, SELLER NOTES
AND BRITWILL ACQUISITION UNSECURED CLAIM. In full satisfaction of the
Allowed BritWill April 1997 Loan, Seller Notes and Acquisition
Unsecured Claim (collectively the "BritWill Claims"), they shall be
treated as follows:
(i) BRITWILL ACQUISITION PROMISSORY NOTE.
The Allowed BritWill Claims shall receive a promissory note
(the "BritWill Acquisition Promissory Note"): (1) in the
principal amount of $1,530,000.00; (2) bearing simple interest
at the rate of nine percent (9%) per annum, which will begin
to accrue on the Effective Date; (3) having no prepayment
penalty; (4) will be paid interest only with no amortization,
with all accrued interest (if any) and principal being due and
fully payable on the fourth
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anniversary of the Effective Date; (5) interest payments being
made quarterly commencing with the first calendar quarter
subsequent to the Effective Date; and (6) being unsecured.
(1) ALLOCATION. The BritWill
Acquisition Promissory Note shall be allocated as
payment and full satisfaction of the Allowed BritWill
April 1997 Loan. The distributions provided for in
Article 6.2.2(b)(ii) shall be in full satisfaction of
all other BritWill Claims of any nature or extent,
except indemnification Claims (if any) by Bruce H.
Whitehead as a former officer and director of Unison
but only to the extent such indemnification Claims
(if any) are covered by applicable insurance policy
or policies, in which case the provisions of Articles
8.1.7 and 10.4 of the Plan apply.
(ii) NEW SENIOR NOTES AND NEW
COMMON STOCK. In addition to the BritWill Acquisition
Promissory Note, the Allowed BritWill Claims in the amount of
THIRTEEN MILLION SEVEN HUNDRED FORTY THOUSAND DOLLARS
($13,740,000.00) shall be entitled to the following in full
satisfaction of such Claims:
(1) The Allowed Seller
Notes Claim of ONE MILLION SEVEN HUNDRED
FORTY THOUSAND DOLLARS ($1,740,000.00) shall
be entitled to a Pro Rata share of the New
Senior Notes and New Common Stock as an
Allowed Class 11 General Unsecured Claim in
accordance with Article 6.7.1.
Notwithstanding the foregoing, by voting to
accept this Plan, the holder(s) of the
Allowed Seller Note Claims entitled to
receive the Pro Rata portion of the New
Senior Notes agrees to allocate that Pro
Rata portion to the Britwill April 1997
Loan, and the holder(s) of the BritWill
April 1997 Loan agrees to allocate the equal
principal amount of the BritWill Acquisition
Promissory Note to the holder(s) of the
Allowed Seller Note Claims. The foregoing
allocation shall be effective without
further action on the Effective Date.
(2) An Allowed Unsecured
Claim of NINE MILLION DOLLARS
($9,000,000.00) shall be entitled to a Pro
Rata distribution of New Common Stock as an
Allowed Class 11 General Unsecured Claim in
accordance with the provisions of Article
6.7.1, but shall not be entitled to any
distribution of the New Senior Notes. In
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lieu of their Pro Rata share of the New
Senior Notes, the holders of these Claims
shall share in the BritWill Acquisition
Promissory Note as provided in Article
6.2.2(b)(i).
(3) An Allowed Unsecured Claim of
THREE MILLION DOLLARS ($3,000,000.00) shall
be entitled to a Pro Rata distribution of
New Common Stock in the same manner and
calculation as the Allowed Class 11 Claims
of the Consenting Noteholders.
(c) FORECLOSURE BY OMEGA. The Whitehead And
Affiliates that are currently defendants in the Omega Texas Litigation
shall: (i) stipulate to judgment in that litigation; (ii) allow Omega
to foreclose on the Brit-Texas Facilities; and (iii) Brit-Texas, which
received rental payments for the months of January through April, 1998
as and for the Brit-Texas Facilities aggregating approximately
$300,000.00 shall be required to reimburse Reorganized Unison
$100,000.00 (or such lesser amount as may be determined Omega had a
legal right to receive) provided that a court of competent jurisdiction
(including the Bankruptcy Court) determines that Omega had a legal
right to receive those rental payments from Brit-Texas at the time
those payments were made to Brit-Texas.
(d) APPLICATION OF ESCROWED RENT. Upon the Effective
Date, all rent paid by BritWill II to Omega with respect to the
Brit-Texas Facilities now held in the trust account of Dykema Gossett
PLLC shall be released to Omega and applied against the Omega Mortgage
Guarantee Claims.
(e) SETTLEMENT OF THE RELATED PARTY AVOIDANCE ACTION
AND RELEASES. Provided that: (i) the holder(s) of the BritWill
Acquisition Claims vote to accept the Plan; and (ii) the Plan is
Confirmed by a Final Order, then for and in consideration of the
treatment contained in the Plan, the Debtors (including Reorganized
Unison) and the holder(s) of the BritWill Acquisition Claims, and each
of them, and their respective officers and directors, shall be deemed
to release and waive any and all claims, causes of action and other
rights they have or may have against each other relating to the
BritWill Acquisition Claims (including the Related Party Avoidance
Action, the Litigation Claims and Related Party Creditor Defenses), and
the Confirmation Order shall so provide. Nothing contained herein shall
be construed to preclude, impact, prejudice or affect any independent
rights of any parties other than the Debtors (including Reorganized
Unison) (the "Third Party Rights") with respect to the holder(s) of the
BritWill Acquisition Claims other than insofar as those rights are
directly derivative of the rights held and enforceable by the Debtors'
Estates only, nor shall it preclude, impact, prejudice or affect any
defenses, rights or counterclaims that the holder(s) of the BritWill
Acquisition Claims shall have with respect to, or relating to, the
Third Party Rights, except any indemnification or contribution claims
which are or may be asserted against
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the Debtors (including Reorganized Unison), and their officers and
directors, by the holder(s) of the BritWill Acquisition Claims, which
rights shall be waived and otherwise released.
(f) BANKRUPTCY RULE 9019 EFFECT. The Confirmation
Order shall act as an approval of the settlement and compromise with
respect to the BritWill Acquisition Claims pursuant to Bankruptcy Rule
9019 as to those sub-Classes that vote to accept the Plan.
6.2.3 CLAIMS RESOLUTION PROCEDURE. If the holder(s) of the
BritWill Acquisition Claims do not vote to accept the Plan as set forth in
Article 6.2.1, the BritWill Acquisition Claims will be Disputed Claims, and
constitute some of the Litigation Claims, Related Party Avoidance Action, and
Related Party Creditor Defenses to be litigated under the provisions of Article
10 of this Plan. The adjudication as to the Allowed amounts (if any) of the
BritWill Acquisition Claims shall be determined pursuant to Article 10 hereof,
and shall be prosecuted (or compromised) as set forth in Articles 10 and 18 of
the Plan. The Disputed BritWill Acquisition Claims shall not be entitled to any
distributions under this Plan until the Class 6 Claims are Allowed. The Class 6
Claims shall be Allowed as and when (and in such amounts) set forth in a Final
Order entered in accordance with Article 10 of the Plan.
(a) ISSUANCE OF NEW COMMON STOCK. Upon entry of a
Final Order Allowing the BritWill Acquisition Claims, the holder(s) of
such Allowed Claims shall, subject to the Forbearance Agreement and
Omega Subordination Rights, receive a number of shares of the Class 6
Reserved Stock equal to the percentage of the Class 6 Reserved Stock
which the amount of such Allowed Claims represents of $12,541,000.00.
(b) NO PREJUDICE TO OMEGA SUBORDINATION RIGHTS.
Notwithstanding any of the foregoing, nothing contained in this Article
6.2.3 is intended to, nor shall it, impair or prejudice the Omega
Subordination Rights or any other rights held by Omega against a holder
or holders of the Disputed Class 6 BritWill Acquisition Claims. In
accordance with Section 6.7.10, Omega has agreed to waive and/or assign
the Omega Subordination Rights to the extent necessary to give effect
to the treatment of the holders of the Senior Notes in Class 11
provided in this Plan only after payment of all amounts owing to Omega
with respect to the Brit-Texas Facilities are satisfied (other than
payments under the Omega New Master Lease). To the extent that Omega
would be entitled to the receipt of such New Common Stock on account of
the Omega Subordination Rights, all such stock will be deemed assigned
to the holders of Senior Notes and then immediately reassigned to the
Consenting Noteholders on account or the New Senior Notes allocated to
the holders of the Senior Notes in accordance with the New Senior Notes
Allocation Schedule.
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6.2.4 IMPAIRMENT. The holders of the Class 6 BritWill
Acquisition Claims are impaired under the Plan.
6.3 CLASS 7 - SIGNATURE ACQUISITION CLAIMS. The Signature Acquisition
Claims will be satisfied and otherwise treated as follows:
6.3.1 ALLOWANCE OF CLAIMS. Subject to the provisions of
Article 6.3.1(a), and provided that the holder(s) of the Signature Acquisition
Claims vote to accept the Plan, the Signature Acquisition Claims will be Allowed
in two (2) parts as follows: (1) an Allowed Unsecured Claim of $1,894,704.00
(the "Signature Allowed Unsecured Claim"); and (2) a Claim in the amount of
$3,475,247.00 (the "Signature Claim Balance"). No other or further Claim(s)
shall be Allowed with respect to or relating to the Signature Acquisition
Claims. If the holder(s) of fifty-one percent in number and two-thirds in amount
of the Signature Acquisition claims do not vote to accept the Plan, the Claims
shall be treated as provided for in Article 6.3.3, below.
(a) EFFECT OF NON-ACCEPTANCE BY ANY SUB-CLASS. If one
or more sub-Classes in Class 7 (if any) does not vote to accept the
Plan, the Pro Rata portion of the Signature Claim Payout defined in
Article 6.3.2(a)(ii) shall be escrowed until the Claim(s) of the
non-accepting sub-Class(es) is determined and Allowed in accordance
with the provisions of Articles 10 and 18 of the Plan. Upon Allowance
of such Claims, such amounts of the Signature Claim Payout which have
already become due will be paid when the Claim is Allowed by a Final
Order, and future distributions shall be made in accordance with the
Plan.
6.3.2 BIFURCATION OF CLAIMS AND TREATMENT THEREOF. If the
holder(s) of the Signature Acquisition Claims as provided in Article 6.3.1 vote
to accept the Plan, the Signature Acquisition Claims shall be treated as
follows:
(a) SIGNATURE ALLOWED UNSECURED CLAIM. The
Signature Allowed Unsecured Claim shall be paid and fully satisfied as
follows:
(i) The sum of $541,000.00 shall be paid, in
Cash, on the Effective Date as and for full satisfaction of
the working capital loan made to Unison by Elk Meadows
Investments, LLC in September, 1997; and
(ii) The sum of $1,353,704.00, which shall
be shared Pro Rata between all holders of Claims in Class 7,
including sub-Classes (if any) (or as otherwise agreed between
such holders), and which shall be paid over a five (5) year
period, with interest at the rate of nine percent (9%) per
annum (the "Signature Claim Payout"). The Signature Claim
Payout shall be as follows: (1) simple interest will begin to
accrue from the Effective Date; (2) the Signature Claim Payout
shall be paid as
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interest only with no amortization, with all accrued interest
(if any) and principal being due and payable on the fifth
anniversary of the Effective Date; (3) there shall be no
prepayment penalty in connection with the Signature Claim
Payout; (4) interest payments shall be made quarterly,
commencing with the first calendar quarter subsequent to the
Effective Date; and (5) the obligation shall be secured by:
(A) a first priority lien on the stock and all assets
(including but not limited to accounts receivable) in and of
American Professional, Ampro, Gamma and Memphis Clinical; and
(B) a lien junior to the New Senior Notes Collateral in the
Debtors' interest in the stock and assets of Quest.
Notwithstanding the foregoing, nothing herein is intended to
prejudice or impair rights and obligations (if any) under the
Forbearance Agreement.
(b) THE SIGNATURE CLAIMS BALANCE. The Signature
Claims Balance shall be discharged, and receive no further or other
distribution under the Plan.
(c) SETTLEMENT OF THE RELATED PARTY AVOIDANCE ACTION
AND RELEASES. Provided that: (i) the holder(s) of the Signature
Acquisition Claims vote to accept the Plan; and (ii) the Plan is
Confirmed by a Final Order, then for and in consideration of the
treatment contained in the Plan, the Debtors (including Reorganized
Unison) and the holder(s) of the Signature Acquisition Claims, and each
of them, and their respective officers and directors, shall be deemed
to release and waive any and all claims, causes of action and other
rights they have or may have against each other relating to the
Signature Acquisition Claims (including the Related Party Avoidance
Action, the Litigation Claims and Related Party Creditor Defenses), but
not including any Claims relating to the Securities Action) and the
Confirmation Order shall so provide. Nothing contained herein shall be
construed to preclude, impact, prejudice or affect any independent
rights of any parties other than the Debtors (including Reorganized
Unison) (the "Third Party Rights") with respect to the holder(s) of the
Signature Acquisition Claims other than insofar as those rights are
directly derivative of rights held and enforceable by the Debtors'
Estates only, nor shall it preclude, impact, prejudice or affect any
defenses, rights or counterclaims that the holder(s) of the Signature
Acquisition Claims shall have with respect to, or relating to, the
Third Party Rights, except any indemnification or contribution claims
which are or may be asserted against the Debtors (including Reorganized
Unison), and their officers and directors, by the holder(s) of the
Signature Acquisition Claims, which rights shall be waived and
otherwise released. Moreover, nothing contained herein shall impact,
impair or prejudice the rights of either the Debtors (including
Reorganized Unison) and the holders of the Signature
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Acquisition Claims with respect to the Securities Action, including but
not limited to the Securities Action Settlement Agreement.
(d) BANKRUPTCY RULE 9019 EFFECT. The Confirmation
Order shall act as an approval of the settlement and compromise with
respect to the BritWill Acquisition Claims pursuant to Bankruptcy Rule
9019 as to those sub-Classes that vote to accept the Plan.
6.3.3 CLAIMS RESOLUTION PROCEDURE. If the holder(s) of the
Signature Acquisition Claims do not vote to accept the Plan as set forth in
Article 6.3.1, the Signature Acquisition Claims will be Disputed Claims, and
constitute some of the Litigation Claims and Related Party Creditor Defenses to
be litigated under the provisions of Articles 10 and 18 of the Plan. The
adjudication as to the Allowed amounts (if any) of the Signature Acquisition
Claims shall be determined pursuant to Article 10 hereof, and shall be
prosecuted (or compromised) as set forth in Articles 10 and 18 of the Plan. The
Disputed Signature Acquisition Claims shall not be entitled to any distributions
under this Plan until the Class 7 Claims are Allowed. The Class 7 Claims shall
be Allowed as and when (and in such amounts) set forth in accordance with
Article 10 of the Plan.
(a) ISSUANCE OF NEW COMMON STOCK. Upon entry of a
Final Order Allowing the Signature Acquisition Claims, the holder(s) of
such Allowed Claims shall, subject to the Forbearance Agreement,
receive a number of shares of Class 7 Reserved Stock equal to the
percentage of the Class 7 Reserved Stock which the amount of such
Allowed Claims represents of $5,095,000.00.
6.3.4 IMPAIRMENT. The holders of the Class 7 Signature
Acquisition Claims are impaired under the Plan.
6.4 CLASS 8 - CONVENIENCE CLAIMS. Except as provided below, each
Allowed Convenience Claim shall be paid in Cash the lesser of: (a) the amount of
such Allowed Claim; or (b) the sum of $1,000.00. All such Allowed Convenience
Claims shall be paid upon the latest of: (i) the Effective Date, or as soon
thereafter as practicable; (ii) such date as may be fixed by the Bankruptcy
Court, or as soon thereafter as practicable; (iii) the tenth (10th) Business Day
after such Claim is allowed, or as soon thereafter as practicable; and (iv) such
date as the holder of such Claim and Reorganized Unison have agreed. The
Debtors' obligations to pay such Claims shall be capped at the amount of
$650,000.00 (the "Administrative Convenience Capped Amount"). If Allowed Claims
qualifying for treatment in Class 8 exceed the Administrative Convenience Capped
Amount, creditors holding Allowed Class 8 Claims shall share Pro Rata in the
Administrative Convenience Capped Amount, with Allowed Claims in excess of
$1,000.00 being first reduced to $1,000.00 for Pro Rata Calculation purposes.
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6.4.1 IMPAIRMENT. The holders of Convenience Claims are
impaired under the Plan.
6.5 CLASS 9 - ESSENTIAL VENDOR CLAIMS. The holder(s) of Allowed
Essential Vendor Claims (to the extent not paid prior to Confirmation pursuant
to authority by the Bankruptcy Court) shall be paid in Cash on the Effective
Date: (a) the full amount of the Allowed Claim; or (b) the Pro Rata portion of
the Essential Vendors Capped Amount (as defined below) if the total Allowed
Class 9 Claims exceed $4,400,000.00. In this regard, the Debtors' obligations to
pay Allowed Class 9 Claims shall be capped at the amount of $4,400,000.00 (the
"Essential Vendors Capped Amount").
6.5.1 IMPAIRMENT. The holders of Essential Vendor Claims are
impaired under the Plan.
6.6 CLASS 10 - TRADE UNSECURED CLAIMS. The holder(s) of Allowed Trade
Unsecured shall be paid as
follows:
6.6.1 CASH ON EFFECTIVE DATE. On the Effective Date, the
holders of Allowed Trade Unsecured Claims shall receive a Cash payment equal to
the lesser of: (a) thirty-five percent (35%) of the Allowed Trade Unsecured
Claim; and (b) the Pro Rata portion of $1,400,000.00.
6.6.2 NEW COMMON STOCK. On the Effective Date, and in addition
to the Cash payments as set forth in Article 6.6.1 above, holders of Allowed
Trade Unsecured Claims will receive New Common Stock on a Pro Rata basis with
the Class 11 Allowed Claims as provided in Article 6.7 of the Plan, except the
total, aggregate amount of Allowed Trade Unsecured Claims that shall be entitled
to receive New Common Stock as provided herein shall be limited to Claims equal
to five percent (5%) of the total Allowed Trade Unsecured Claims. By way of
example and not limitation, if the total Allowed Trade Unsecured Claims equaled
$4,500,000.00, the holders of those Claims would: (a) receive a Pro Rata portion
of a Cash Payment of $1,400,000.00; and (b) be entitled to receive New Common
Stock for an aggregate Claim of $225,000.00 ($4,500,000.00 x .05 = $225,000.00),
which Claim would share Pro Rata in the receipt of New Common Stock with the
Allowed Claims in Class 11. The Trade Unsecured Claims will not share in the New
Senior Notes, nor will the amount of the Allowed Trade Unsecured Claims (as
reduced in the aggregate, as set forth above) share in or receive any
distributions relating to the New Senior Notes.
6.6.3 IMPAIRMENT. The holders of Trade Unsecured Claims are
impaired under the Plan.
6.7 CLASS 11 - GENERAL UNSECURED CLAIMS. The Allowed General Unsecured
Claims will be satisfied and otherwise treated as follows:
6.7.1 THE NEW SENIOR NOTES; NEW COMMON STOCK. In full
satisfaction (subject to Article 6.7.7, below) of the Allowed Class 11
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General Unsecured Claims, on the Effective Date, each holder of an Allowed Class
11 General Unsecured Claim as of the Distribution Record Date shall receive: (a)
its Pro Rata distribution of two million (2,000,000) shares of the New Common
Stock less such New Common Stock that is allocable to holders of Classes 6 (as
provided for in Article 6.2.2(b)(ii)) and 10 Trade Unsecured Claims (as set
forth in Article 6.6.2); and (b) its Pro Rata share of the New Senior Notes. The
New Senior Notes and New Common Stock distributed on a Pro Rata basis pursuant
to the preceding sentence shall be reallocated as amongst the holders of the
Senior Notes and the Consenting Notes Holders as set forth in the New Senior
Notes Allocation Schedule. Notwithstanding the foregoing, the Allowed BritWill
Claims (as defined in Article 6.2.2(b)) shall be treated in accordance with
Article 6.2.2(b)(ii).
(a) RESTRICTIONS ON CERTAIN NEW COMMON STOCK. If
Class 6 votes to accept the Plan and receives New Common Stock pursuant
to Articles 6.7.1 and 6.7.9(a) hereof, that New Common Stock shall not
be entitled to vote or have any other rights to elect or select
(directly or indirectly) directors of Reorganized Unison as long as it
is held by the holders of the Class 6 Claims as of the Petition Date.
Notwithstanding any of the foregoing, the New Common Stock shall have
any and all other rights of the New Common Stock.
(b) DISPUTES REGARDING NEW SENIOR NOTES ALLOCATION
SCHEDULE. Any disputes relating to the allocation or other rights
between and among creditors as reflected in the New Senior Notes
Allocation Schedule shall be filed with the Bankruptcy Court no later
than ten (10) days after the Confirmation Hearing and will be resolved
by the Bankruptcy Court subsequent to the Confirmation Date.
Notwithstanding the foregoing, any disputes as set forth above shall
not delay the occurrence of the Effective Date.
6.7.2 THE NEW SENIOR NOTES. On the Effective Date, Reorganized
Unison shall execute and issue: (a) the New Senior Notes; (b) the New Senior
Notes Indenture; (c) the New Senior Notes Security Documents; and (d) the New
Senior Notes Guarantee. Each holder of an Allowed Class 11 Claim as of the
Distribution Record Date shall share Pro Rata (subject to Articles 6.7.9 and
6.7.11) in the New Senior Notes and related documents and instruments. The
holders of Senior Notes Claims receiving New Senior Notes shall be entitled to
the rights under the Sharing Agreement set forth in Article 6.1.2(c) of the
Plan. On or before ten (10) days before the Confirmation Date, the Debtors shall
file the New Senior Notes Allocation Schedule with the Bankruptcy Court.
6.7.3 DISBURSING AGENT. With respect to each holder of an
Allowed Notes Claim or Allowed Senior Notes Claim, as of the Distribution Record
Date Reorganized Unison shall distribute such holder's Pro Rata share of New
Common Stock to the Disbursing Agent, on the Distribution Date. As soon as
practicable after the New Senior Notes Indenture Trustee receives the Debt
Instruments pursuant to Article 6.7.4, below: (a) the New Senior Notes Indenture
Trustee shall distribute the Pro Rata Share of the New Senior Notes in
accordance with the terms of this Plan and the New
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Senior Notes Indenture; and (b) the Disbursing Agent shall issue and distribute
the Pro Rata Share of the New Common Stock. With respect to each holder of an
Allowed General Unsecured Claim other than a Notes Claim or Senior Notes Claim,
on the Distribution Date: (a) the New Senior Notes Indenture Trustee shall
distribute the Pro Rata Share of the New Senior Notes in accordance with the
terms of this Plan and the New Senior Notes Indenture; and (b) the Disbursing
Agent shall issue and distribute the Pro Rata share of the New Common Stock on
the Distribution Date.
6.7.4 SURRENDER OF SECURITIES OR DEBT INSTRUMENTS. On or
before the Distribution Date, or as soon as practicable thereafter, each holder
of a Debt Instrument evidencing an Allowed Claim on account of the Notes or the
Senior Notes shall surrender or cause the surrender of such Debt Instrument to
the New Senior Notes Indenture Trustee. No distribution of property hereunder
shall be made to or on behalf of any such holder unless and until such Debt
Instrument is received by the New Senior Notes Indenture Trustee, or the
unavailability of such Debt Instrument is reasonably established to the
satisfaction of the New Senior Notes Indenture Trustee, and, with regard to New
Common Stock, Reorganized Unison. In the event any holder of an Allowed Notes
Claim or Senior Notes Claim seeks to establish the unavailability of the Debt
Instrument evidencing such Claim, the New Senior Notes Indenture Trustee shall,
within the first Business Day thirty (30) days after receipt of the holders
evidence of unavailability and statement of indemnity of Reorganized Unison and
the New Senior Notes Indenture Trustee: (a) provide the holder, in writing, with
a detailed description regarding the unacceptability of such evidence and
statement of indemnity; or (b) deliver to the Senior Notes Indenture Trustee,
the Notes Indenture Trustee and Reorganized Unison a notice of compliance and
distribute to such holder its Pro Rata Share of the New Senior Notes. Any such
holder who fails to surrender or cause to be surrendered such Debt Instrument or
fails to execute and deliver an affidavit of loss and indemnity reasonably
satisfactory to the New Senior Notes Indenture Trustee and Reorganized Unison
prior to the first anniversary of the Effective Date shall be deemed to have
forfeited all rights and Claims in respect of such Debt Instrument and shall not
participate in any distribution hereunder, and all property in respect of such
forfeited distribution, including interest accrued thereon, shall revert to
Reorganized Unison notwithstanding any federal or state escheat laws to the
contrary.
6.7.5 DISTRIBUTION RECORD DATE. At the close of business on
the Distribution Record Date, the transfer ledgers of the Senior Notes Indenture
Trustee and the Notes Indenture Trustee shall be closed, and there shall be no
further changes in the record holders of the Senior Notes or Notes. Reorganized
Unison, the New Senior Notes Indenture Trustee, the Disbursing Agent, the Senior
Notes Indenture Trustee and the Notes Indenture Trustee shall have no obligation
to recognize any transfer of such Senior Notes or Notes occurring after the
Distribution Record Date. Reorganized Unison, the Senior Notes Indenture
Trustee, the Notes Indenture Trustee, the New Senior Notes Indenture Trustee
(subject to the
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New Senior Notes Indenture), and the Disbursing Agent shall be entitled instead
to recognize and deal for all purposes hereunder with only those record holders
stated on the transfer ledgers as of the close of business on the Distribution
Record Date.
6.7.6 DELIVERY OF DISTRIBUTIONS. Distributions of the New
Senior Notes will be made by the New Senior Notes Indenture Trustee to the
holders of Allowed Notes Claims and Senior Notes Claims in accordance with the
Plan at the address contained in the records of the Senior Notes Indenture
Trustee, Notes Indenture Trustee, and/or the New Senior Notes Indenture Trustee.
Distributions of New Common Stock will be made by the Disbursing Agent to
holders of Senior Notes and Notes in accordance with the Plan at the addresses
contained in the official records of the Senior Notes Indenture Trustee, the
Notes Indenture Trustee and/or the New Senior Notes Indenture Trustee. If any
holder's distribution is returned as undeliverable, no further distributions to
such holder shall be made unless and until Reorganized Unison, the Disbursing
Agent, the New Senior Notes Indenture Trustee and the Notes Indenture Trustee
are notified of such holder's then current address, at which time all missed
distributions shall be made to such holder without interest. Undeliverable
distributions shall be returned to Reorganized Unison, until such distributions
are claimed. All claims for undeliverable distributions shall be made on or
before the first anniversary of the Effective Date. After such date, all
unclaimed property shall revert to Reorganized Unison and the Claim of any
holder or successor to such holder with respect to such property shall be
discharged and forever barred notwithstanding any federal or state escheat laws
to the contrary.
6.7.7 UNDISTRIBUTED RESERVED STOCK. If any or all of the Class
6 Reserved Stock and the Class 7 Reserved Stock is either not issued to the
holders of the Class 6 and Class 7 Claims pursuant to Articles 6.2 and 6.3 of
the Plan after completion of the Claims resolution procedure contemplated in the
Plan, or is not issued by virtue of the acceptance of the Plan by Classes 6 and
7, such unissued shares of the Class 6 and Class 7 Reserved Stock shall be
cancelled.
6.7.8 FEES AND EXPENSES. All unpaid reasonable fees, costs,
charges, and any other expenses incurred under the Senior Notes Indenture and
the Notes Indenture from and after the BritWill Debtors' Petition Date,
including any reasonable fees and expenses of professionals retained by the
Senior Notes Indenture Trustee and the Notes Indenture Trustee as of the
Effective Date, shall be paid by the Debtors or Reorganized Unison, as the case
may be, to the Senior Notes Indenture Trustee and the Notes Indenture Trustee
upon approval of the Bankruptcy Court. After the Effective Date, all reasonable
fees, costs, charges and expenses payable to the Senior Notes Indenture Trustee
and the Notes Indenture Trustee (if any) and/or Transfer Agent under the Senior
Notes Indenture and the Notes Indenture including any such items incurred by the
Senior Notes Indenture Trustee or the Notes Indenture Trustee or Transfer Agent
in their capacity as
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Disbursing Agent under this Plan, shall be paid by Reorganized Unison in
accordance with the Senior Notes Indenture, the Notes Indenture or Transfer
Agent agreement without further Bankruptcy Court approval.
6.7.9 TREATMENT OF RIGHTS UNDER NOTES SUBORDINATION AGREEMENT
AND FORBEARANCE AGREEMENT. The Treatment set forth in Article 6.7 in respect of
the Senior Notes and the Notes held by the Consenting Noteholders (including the
allocations of New Senior Notes and New Common Stock pursuant to the New Senior
Notes Allocation Schedule) represents an attempt to implement the Notes
Subordination Agreement and the Forbearance Agreement. Notwithstanding the
foregoing, nothing in this Plan is intended to, nor shall it be construed as,
impairing or prejudicing rights (if any) of the parties and/or third party
beneficiaries under the Notes Subordination Agreement and/or the Forbearance
Agreement. Moreover, nothing in this Plan shall effect the subrogation rights of
the Consenting Noteholders on account of the allocation, pursuant to the New
Senior Notes Allocation Schedule, of property distributable to the Consenting
Noteholders, but for the enforcement of the Notes Subordination Agreement
provided for herein.
6.7.10 ASSIGNMENT OF SUBORDINATION RIGHTS. On the Effective
Date, and to the extent that Class 6 does not vote to accept the Plan, Omega
shall be deemed to have waived and/or assigned its rights to assert
subordination of the Claims of Whitehead And Affiliates (without representation
or warranty) only to the extent necessary to give effect to the treatment of the
New Senior Notes as contained in this Plan and Article 6.2.3(b), and except as
those rights relate to amounts owed by BritWill II to Brit-Texas, which rights
shall be retained by Omega until all obligations owing to Omega with respect to
the Brit-Texas Facilities are satisfied.
6.7.11 RESERVATION OF RIGHTS UNDER FORBEARANCE AGREEMENT. If
and to the extent that the Class 6 BritWill Acquisition Claims and Class 7
Signature Acquisition Claims do not vote to accept the Plan and are determined
to be Allowed Claims in accordance with Articles 6.2 and 6.3, the holders of
Allowed Senior Notes Claims reserve and any and all rights under the Forbearance
Agreement. All such rights shall be subject to the subrogation rights of the
Consenting Noteholders.
6.7.12 IMPAIRMENT. The holders of the Allowed General
Unsecured Claims are impaired under the Plan.
6.8 CLASS 12 - NOTES SECURITIES CLAIMS. The holders of Notes Securities
Claims will receive no distributions under the Plan, and any and all such Claims
will be discharged under this Plan.
6.9 CLASS 14--EQUITY INTERESTS AND EQUITY INTERESTS RELATED CLAIMS. The
Allowed Equity Interests and Equity Interest Related Claims shall be satisfied
as follows:
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6.9.1 SECURITIES ACTION SETTLEMENT AGREEMENT. The Debtors
shall seek Bankruptcy Court approval of the Securities Action Settlement
Agreement, which shall also be subject to approval by the United States District
Court for the District of Arizona (the "District Court"). If and only if the
Securities Action Settlement Agreement is approved by both the Bankruptcy Court
and the District Court, the holders of Class 14 Claims based upon the Securities
Action shall be entitled to receive New Warrants in the amount that the shares
of Unison's common stock to be issued under the Securities Action Settlement
Agreement would have entitled them had the Securities Action Settlement
Agreement been approved as of the Effective Date (regardless of when such
approval occurs), in addition to any New Warrants they would otherwise be
entitled to receive by virtue of their ownership of any other Allowed Equity
Interests as of the Distribution Record Date. In this regard, a sufficient
number of New Warrants shall be reserved pending approval of the Securities
Action Settlement Agreement to make such a distribution. If the Securities
Action Settlement Agreement is not approved, the New Warrants so reserved shall
be issued in accordance with Article 6.9.2.
6.9.2 ISSUANCE OF NEW WARRANTS. In full satisfaction of all
Allowed Equity Interests and Equity Interest Related Claims, subject to the
provisions of Article 6.9.3 below, on the Effective Date each holder of an
Equity Interest and Equity Interest Related Claim shall receive its Pro Rata
portion of the New Warrants from the Disbursing Agent pursuant to Article 12 of
the Plan.
(a) CALCULATION OF DISTRIBUTION. For purposes of
effecting distributions of New Warrants on account of the Securities
Action (if the Securities Action Settlement Agreement is not approved),
any other Securities Litigation Claims, and Allowed Equity Interests,
any judgment evidencing any Allowed Securities Litigation Claim shall
be converted into an implied number of shares of common stock of Unison
calculated as the quotient of: (i) the aggregate amount of any such
judgment, divided by (ii) the average of intraday high and low average
sales prices of a share of common stock of Unison on Nasdaq Stock
Market's National Market System, as reported in The Wall Street Journal
(National Edition) for the ten consecutive trading days ending on the
trading day immediately preceding the date of the commencement of any
action underlying any Allowed Securities Litigation Claim.
6.9.3 ALTERNATIVE TREATMENT. In the event that: (a) the
Bankruptcy Court determines that the treatment of, and distributions to, Class
14 under the Plan violates the provisions of Section 1129(b) of the Bankruptcy
Code (to the extent such provisions may be applicable); or (b) the SEC asserts
that the New Warrants or the New Warrant Shares must be registered pursuant to
the Securities Act or otherwise; or (c) the Bankruptcy Court determines that the
issuance of
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the New Warrants is not covered by the exemptions provided in Section 1145 of
the Bankruptcy Code; or (d) Class 14 does not vote to accept the Plan, then the
Equity Interests shall be cancelled and extinguished on the Confirmation Date
without further act or action under any applicable agreement, law, regulation,
order or rule, and neither the holders of Equity Interests nor the holders of
Allowed Equity Interest Related Claims shall receive or retain any rights,
property or distributions on account of their Equity Interests or Equity
Interest Related Claims, as the case may be. Nothing in this Article shall
affect the rights of the Securities Litigation Claimants to receive payment from
any applicable insurance carrier pursuant to the terms of the Securities Action
Settlement Agreement.
6.9.4 IMPAIRMENT. The holders of Equity Interests and Equity
Interests Related Claims are impaired under the Plan.
ARTICLE 7
MEANS FOR IMPLEMENTATION OF PLAN
7.1 SIGNATURE SALE LEASEBACK TRANSACTION. On or before the Effective
Date, and provided the Effective Date payments required to be paid to Omega
under the Plan have been paid, the Debtors shall consummate the Signature Sale
Leaseback Transaction in which Omega shall purchase fee simple title to the
Signature Facilities for a total amount of THIRTY EIGHT MILLION TWO HUNDRED
THOUSAND DOLLARS ($38,200,000.00), plus an Additional Contingent Payment as set
forth in Article 7.1.1 below, less the Closing Allowance, resulting in net
proceeds to the Debtors of $37,200,000.00.
7.1.1 ADDITIONAL CONTINGENT PAYMENT. On March 15, 2004, and in
addition to the purchase price for the Signature Facilities as set forth above,
Omega will pay an "Additional Contingent Payment," which will be the lesser of:
(a) $4,000,000.00; (b) an amount such that the EBITDARM for the Signature
Facilities for 2003 divided by the sum of, on a pro forma basis taking into
account the Minimum Rent (as defined in the Omega New Master Lease) increase
which will result from the Additional Contingent Payment: (i) Signature's
Consolidated Debt Service (as defined in the Omega New Master Lease); and (ii)
Minimum Rent attributable to the Signature Facilities under the Omega New Master
Lease will be 1.75; and (c) an amount such that EBITDAR for the Signature
Facilities for 2003, less the capital expenditures required under the Omega New
Master Lease with respect to the Signature Facilities for 2003, divided by the
sum of, on a pro forma basis taking into account the Minimum Rent increase which
will result from the Additional Contingent Payment:
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(i) Signature's Consolidated Debt Service; and (ii) Minimum Rent attributable to
the Signature Facilities under the Omega New Master Lease will be 1.25.
(a) OTHER CONDITIONS. Payment of the Additional
Contingent Payment is contingent on all of the following conditions
being satisfied: (i) no Event of Default shall have occurred under the
Omega New Master Lease; (ii) the average occupancy for the Signature
Facilities for the year 2003 shall equal or exceed the average
occupancy for 1997; (iii) the New Omega Master Lessees shall be in
compliance, on a pro forma basis taking into account the Minimum Rent
Increase which will result from the Additional Contingent Payment, with
the financial covenants set forth in Section 8.3 of the Omega New
Master Lease; and (iv) Reorganized Unison (on a consolidated basis)
shall have a minimum Tangible Net Worth (as defined in the Omega New
Master Lease) of $25 million.
7.1.2 SATISFACTION OF NHI SECURED CLAIMS. Approximately $19
million of the proceeds from the Signature Sale Leaseback Transactions shall be
used to satisfy the Allowed Class 4 NHI Secured Claims.
7.1.3 EXERCISE OF OPTION. In conjunction with the Signature
Sale Leaseback Transaction, Reorganized Unison shall exercise its option to
purchase The Arbors Health Care Center in Arizona for approximately $3.2
million, which shall be subject to the Signature Sale Leaseback Transaction.
7.1.4 WORKING CAPITAL. The remainder of the Signature Sale
Leaseback Transaction Proceeds shall be utilized for the working capital
requirements of Reorganized Unison.
7.1.5 RENT FOR SIGNATURE FACILITIES UNDER OMEGA NEW MASTER
LEASE. Upon the closing of the Signature Sale Leaseback Transaction, the
Signature Facilities shall be leased back to Reorganized Unison as part of the
Omega New Master Lease Facilities covered by the Omega New Master Lease
discussed in Article 7.2 below. The rent on the Signature Facilities under the
Omega New Master Lease will commence at nine and one-half percent (9.5%) (the
"Investment Yield") of the purchase price of each facility and will increase by
two percent (2%) of the initial rent each year over the fourteen (14) year
initial term and over any fourteen (14) year renewal lease term as contained in
the Omega New Master Lease. This rent is based on the transaction closing on or
before December 15, 1998 or such later date to which Omega may consent, in
writing. By voting in favor of the Plan, Omega will commit to locking in the
terms of the closing of the Signature Sale Leaseback Transaction on the terms
set forth herein if the Signature Sale Leaseback Transaction is consummated on
or before December 15, 1998 or such later date to which Omega may consent, in
writing, time being of the essence. If the Signature Sale Leaseback Transaction
is not consummated on or before December 15, 1998 or such later date to which
Omega may consent, in writing, the Debtors shall have the right to seek
alternative purchases and/or refinancing for
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the Signature Facilities, with Omega being given the right to match any such
transaction, provided such transaction can close by the Effective Date.
7.2 EXECUTION OF THE OMEGA NEW MASTER LEASE. On the Effective Date, the
Indiana Master Lease and Texas Master Lease shall be amended and restated by the
Omega New Master Lease which shall encompass the Omega New Master Lease
Facilities, and be guaranteed by the Omega New Master Lease Guarantors pursuant
to the Omega New Master Lease Guarantee. Some of the principal provisions of the
Omega New Master Lease shall be as follows:
7.2.1 INITIAL TERM/RENEWAL OPTION/OPTION TO PURCHASE. The
initial term of the Omega New Master Lease shall be fourteen (14) years
commencing on the Effective Date with one fourteen (14) year renewal option by
the Omega New Master Lessees. Any renewal must be on a global basis encompassing
all Omega New Master Lease Facilities. Moreover, at or prior to the end of the
initial term of the Omega New Master Lease, Reorganized Unison shall have the
option to purchase the Signature Facilities for the greater of: (a) their Fair
Market Value as defined in the Omega New Master Lease; or (b) Omega's investment
therein, including any Additional Contingent Payment, increased by three percent
(3%) per year compounded annually.
7.2.2 SECURITY DEPOSITS. There shall be paid a security
deposit equal to three (3) months rent on each of the Omega New Master Lease
Facilities (including the Signature Facilities), payable at the execution of the
Omega New Master Lease. Security deposits in excess of the above stated amount
(if any) currently held by Omega pursuant to the Indiana Master Lease and the
Texas Master Lease shall be remitted to Reorganized Unison upon closing of the
Omega New Master Lease; any deficiency shall be paid by Reorganized Unison.
7.2.3 COVENANTS. The Omega New Master Lease shall contain
customary operating and creditors' rights covenants, including reasonable
limitations on restricted payments to Unison, all to be agreed upon between
Omega, the Omega New Master Lessees, and the Omega New Master Lease Guarantors.
Accounts receivable borrowing will be permitted on the Omega New Master Lease
Facilities only if the ratio agreed upon between Reorganized Unison and Omega in
the Omega New Master Lease is met. Notwithstanding the foregoing, the
calculation of EBITDARM for ratio calculation shall not include the contingent
liability based on the New Omega Guarantee. The Omega New Master Lessees will be
permitted to finance equipment with an annual lease or finance payment not to
exceed the aggregate amount existing as of the Confirmation Date with the
maximum aggregate amount to be reduced over the three (3) years following the
Effective Date to an amount to be agreed upon by Reorganized Unison and Omega.
No other borrowings by the Omega New Master Lessees will be permitted.
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7.2.4 RENTAL ADJUSTMENT FOR INDIANA RETURNED FACILITIES. From
and after the Effective Date, the Debtors or Reorganized Unison will have no
further liability for rental attributable to the Indiana Returned Facilities.
Reorganized Unison and BritWill Indiana (as reorganized) will be responsible for
all obligations of the Indiana Returned Facilities arising or accrued on or
prior to the Effective Date, and with all of Omega's security securing such
obligations; and Omega will be responsible for all obligations arising or
accruing after the Effective Date.
7.3 ISSUANCE OF NEW COMMON STOCK AND NEW WARRANTS. The Plan will
satisfy a substantial portion of the Class 11 General Unsecured Claims, the
Allowed Class 6 Claims, Allowed Class 7 Claims if Class 7 does not vote to
accept the Plan, and Allowed Equity Interests and Equity Interest Related Claims
(subject to Article 6.9.2 of the Plan), pursuant to the issuance of the New
Common Stock and the New Warrants as described in Articles 6 and 11.
7.4 CORPORATE STRUCTURE. At and after the Effective Date, Reorganized
Unison shall have the ability to modify its corporate structure (such as by
consolidation of subsidiaries and Affiliates, or otherwise), and the Reorganized
Unison Certificate and Reorganized Unison Bylaws shall authorize such action;
provided, however, that no such restructuring may impair or prejudice the rights
of any holders of Allowed Claims as provided in the Plan.
7.5 NEW CERTIFICATE OF INCORPORATION AND BYLAWS. As of the Effective
Date, the certificates of incorporation and bylaws of the Debtors shall be
amended and restated substantially in the forms of the Reorganized Unison
Certificate and Reorganized Unison Bylaws, which provide for, among other
things, the authorization of any and all acts necessary to effectuate this Plan
including, without limitation, the issuance of the New Common Stock, New Common
Stock, New Warrants and the New Warrant Shares. Such restated certificates of
incorporation and bylaws shall also provide (to the extent required by Section
1123(a) and (b) of the Bankruptcy Code), for a provision prohibiting the
issuance of non-voting equity securities. The initial members of the board of
directors of Reorganized Unison shall serve until such directors, or their
successors, are elected at a properly noticed and constituted stockholders'
meeting of Reorganized Unison. After the Effective Date, Reorganized Unison may
amend and restate the Reorganized Unison Certificate and Reorganized Unison
Bylaws as permitted by applicable law.
7.6 NO CORPORATE ACTION REQUIRED. As of the Effective Date: (a) the
adoption of the Reorganized Unison Certificate and Reorganized Unison Bylaws or
similar constituent documents for Reorganized Unison; (b) the initial selection
of directors and officers for Reorganized Unison; (c) the adoption, execution,
delivery and implementation of all contracts, leases, instruments, releases and
other agreements related to or contemplated by this Plan; and (d) the other
matters provided for under or in furtherance of this Plan involving corporate
action to be taken by or required of the Debtors or Reorganized Unison shall be
deemed to have occurred and be effective as provided herein, and shall be
authorized and
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approved in all respects without further order of the Bankruptcy Court or any
requirement of further action by the stockholders or directors of the Debtors
and Reorganized Unison. As of the Effective Date, the term of each of the
officers and directors of the Debtors not continuing in office, if any, shall
terminate pursuant to the Confirmation Order without any further action by the
stockholders or directors of the Debtors or Reorganized Unison.
7.7 DIRECTORS AND OFFICERS. The initial directors of Reorganized Unison
shall be selected by the holders of the Notes as of the Effective Date, which
directors shall be satisfactory to Omega. Reorganized Unison shall provide all
directors with indemnification rights and officers and directors liability
insurance and shall compensate its directors in accordance with practices
customary for public entities of its type. On the Effective Date, the operation
of Reorganized Unison shall become the general responsibility of the respective
boards of directors, who shall thereafter have responsibility for the
management, control and operation of Reorganized Unison in accordance with the
Plan, applicable law, the Reorganized Unison Certificate and the Reorganized
Unison Bylaws. The names of the initial members of the board of directors, and
the Senior Management will be as set forth in the Disclosure Statement. All such
directors and executive officers of Reorganized Unison shall be deemed to have
been elected or appointed as the case may be, pursuant to the Confirmation
Order, but shall not take office until the Effective Date. Those directors and
officers serving immediately before the Effective Date and not continuing in
office after the Effective Date, if any, shall be deemed removed therefrom
without cause as of the Effective Date pursuant to the Confirmation Order and
shall be indemnified by Reorganized Unison for all actions taken by such
directors and officers while acting as directors and officers for the Debtors in
accordance with the respective charters, bylaws or contracts of Unison or
applicable state law on account of services provided by such officers and
directors to the Debtors from the Petition Date through and including the
Effective Date. The existing directors of Unison, should they choose to do so,
will continue to serve as directors of Unison from and after the Confirmation
Date until the Effective Date. During the period from the Confirmation Date
until the Effective Date, but not beyond the Effective Date, each of the
non-officer existing directors of Unison will be compensated at $1,000.00 per
meeting of the board of directors for so long as they continue to serve as
directors of Unison.
7.7.1 SENIOR MANAGEMENT EVALUATION BY BOARD OF REORGANIZED
UNISON. The board of Reorganized Unison (or such committee of the board as
appropriate) will evaluate the Senior Management within three (3) months after
the Effective Date to determine: (a) which members of Senior Management will be
given employment contracts on a post-Effective Date basis (the "New Contracts");
(b) the terms of those New Contracts; and (c) the terms of participation in the
Options and Cash Bonuses referenced in Articles 7.7.2 and 7.7.3, below. The New
Contracts must be in substantially the same form as the employment agreements
held by Senior Management as of the Petition Date, at
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substantially similar compensation terms as currently existing and contain not
less than eighteen (18) months severance (but specifically excluding any terms
or provisions contained in the executive severance agreements held by certain
Senior Management on or about April 30, 1998).
7.7.2 POST EFFECTIVE DATE OPTIONS FOR SENIOR MANAGEMENT. The
board of Reorganized Unison, within three (3) months of the Effective Date,
shall allocate to Senior Management retained under New Contracts Management
Options to purchase or otherwise receive up to five percent (5%) of the New
Common Stock (on a Fully Diluted basis) to be provided to Senior Management
under the terms and conditions to be determined by the board of Reorganized
Unison.
7.7.3 CASH BONUSES. In addition to the foregoing, the board of
Reorganized Unison, within six (6) months of the Effective Date, shall allocate
and direct to be paid to Senior Management retained under New Contracts an
aggregate cash bonus of TWO HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000.00),
with the terms and conditions for such bonuses (such as performance criteria) to
be set by the board of Reorganized Unison.
7.8 POST-EFFECTIVE DATE FINANCING. From and after the Effective Date,
Reorganized Unison shall have sole and complete discretion to raise capital for
any purpose authorized by the Reorganized Unison Articles in any manner
consistent with the restrictions (if any) contained in this Plan.
7.9 DUTIES OF INDENTURE TRUSTEES. Following the Effective Date, the
Senior Notes Indenture and the Notes Indenture shall remain in effect to the
extent required under this Plan. On the Effective Date, the indemnity
obligations to the Notes Indenture Trustee and the Senior Notes Indenture
Trustee shall become the obligations of Reorganized Unison.
7.10 NAME CHANGE. On or before the Effective Date, Unison shall
effectuate a corporate name change to "Raintree HealthCare Corp."
7.11 NEW LINE OF CREDIT. On or prior to the Effective Date, Reorganized
Unison shall execute the New Line of Credit Agreement and New Line of Credit
Promissory Note evidencing the New Line of Credit for working capital purposes.
7.12 COUNSEL TO AD HOC COMMITTEE. As part of the distributions
otherwise distributable to the holders of Notes and Senior Notes pursuant to
this Plan, and as compensation in connection with making a substantial
contribution to the Chapter 11 Cases, on the Effective Date, legal counsel to
the Ad Hoc Committee shall be reimbursed for its reasonable fees and expenses
incurred in connection with the Chapter 11 Cases, subject to review by the
Bankruptcy Court as to the reasonableness of such fees and costs.
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ARTICLE 8
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
8.1 ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES. Except as provided in Article 6.1 of the Plan relating to Omega (which
shall control as to any executory contract and/or unexpired leases between the
Debtors and Omega) the executory contracts and unexpired leases between the
Debtors and any Person shall be dealt with as provided below.
8.1.1 ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
All executory contracts and unexpired leases set forth on the schedule of
assumed executory contracts filed with the Bankruptcy Court as part of the Plan
Supplement that exist between the Debtors and any Person shall be deemed assumed
by Reorganized Unison as of the Effective Date, except for any executory
contract or unexpired lease: (a) that has been rejected pursuant to an order of
the Bankruptcy Court entered prior to the Confirmation Date; or (b) as to which
a motion for approval or rejection of such executory contract or unexpired
lease, if applicable, has been filed with the Bankruptcy Court prior to the
Confirmation Date. The Texas Master Lease and Indiana Master Lease shall be
assumed, as modified and supplemented pursuant to Articles 6.1 and 7.2 of this
Plan and as more fully set forth in the Omega New Master Lease, on the Effective
Date.
8.1.2 REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
All executory contracts and unexpired leases that exist between the Debtors and
any Person and are either set forth on the schedule of rejected executory
contracts and unexpired leases filed with the Bankruptcy Court as part of the
Plan Supplement, or which do not appear in the Plan Supplement shall be deemed
rejected as of the Effective Date, except for any executory contract or
unexpired lease that has been assumed or rejected pursuant to an order of the
Bankruptcy Court entered prior to the Confirmation Date.
8.1.3 APPROVAL OF ASSUMPTION OR REJECTION. Entry of the
Confirmation Order shall constitute: (a) the approval, pursuant to Section
365(a) of the Bankruptcy Code, of the assumption of the executory contracts and
unexpired leases assumed pursuant to the Plan or otherwise during the Chapter 11
Cases; and (b) the approval, pursuant to Section 365(a) of the Bankruptcy Code,
of the rejection of the executory contracts and unexpired leases rejected
pursuant to the Plan or otherwise during the Chapter 11 Cases. Notwithstanding
anything contained herein to the contrary, as part of the Plan Supplement the
Debtors shall have the right to add or delete any executory contract or
unexpired lease that is initially an assumed executory contract or an assumed
unexpired lease on the Schedules.
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8.1.4 CURE OF DEFAULTS. On the Effective Date or as soon
thereafter as is practicable, Reorganized Unison shall Cure any defaults under
any executory contract or unexpired lease assumed pursuant to this Plan in
accordance with Section 365(b)(1) of the Bankruptcy Code.
8.1.5 POST-PETITION DATE CONTRACTS AND LEASES. Executory
contracts and unexpired leases entered into and other obligations incurred after
the Petition Date by the Debtors, shall be performed by the Debtors or
Reorganized Unison, as applicable, in the ordinary course of their business.
8.1.6 BAR DATE. All proofs of claims with respect to Claims
arising from the rejection of any executory contract or unexpired lease rejected
pursuant to the Plan shall be filed with the Bankruptcy Court no later than
THIRTY (30) DAYS after the Confirmation Date. Any Claim not filed within such
time shall be forever barred. With respect to any executory contract or
unexpired lease that was rejected by the Debtors prior to the Confirmation Date,
the deadline for filing such Claims shall be as set forth in the Bar Date Order.
8.1.7 INDEMNIFICATION OBLIGATIONS. Any obligations of the
Debtors to indemnify any Person serving as a fiduciary of any employee benefit
plan or employee benefit program of the Debtors, pursuant to charter, by-laws,
contract or applicable state law shall be deemed to be, and shall be treated as,
an executory contract and assumed by Reorganized Unison on the Confirmation
Date. Any obligation of the Debtors to indemnify, reimburse, or limit the
liability of any Person, including but not limited to any officer or director of
any of the Debtors, any Broker Dealer, or any agent, professional, financial
advisor, or underwriter of any securities issued by the Debtors which relate to
any acts or omissions which occurred prior to the Petition Date: (a) shall be
rejected, canceled, and discharged pursuant to the Plan as of the Confirmation
Date; and (b) any and all Claims resulting therefrom shall be disallowed
pursuant to Section 502(e) of the Bankruptcy Code. Notwithstanding any of the
foregoing, nothing contained in the Plan shall impact, impair or prejudice the
rights of any Person covered by any applicable directors and officers liability
insurance policy and/or any applicable errors and omissions policy
(collectively, "D&O Policies") with respect to such policy or policies.
Moreover, Reorganized Unison shall maintain in force for a period of two (2)
years following the Effective Date appropriate D&O Policies covering
pre-Effective Date directors and officers of the Debtors and containing
substantially the same provisions and limits of coverage as the policies that
were in force on the Petition Date, and Reorganized Unison shall also be
responsible for paying the deductible or retention amounts under such policies
for such two-year period.
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ARTICLE 9
CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
In the event that any impaired Class is determined to have rejected the
Plan in accordance with Section 1126 of the Bankruptcy Code, the Debtors may use
the provisions of Section 1129(b) of the Bankruptcy Code to satisfy the
requirements for confirmation of the Plan.
ARTICLE 10
PRESERVATION AND PROSECUTION OF LITIGATION CLAIMS
10.1 PRESERVATION OF LITIGATION CLAIMS. In accordance with Section
1123(b)(3) of the Bankruptcy Code, and except as otherwise expressly provided
herein, all Litigation Claims and Related Party Creditor Defenses (if
applicable) shall be retained and reserved for the benefit of Reorganized Unison
and the holders of Allowed Claims in Class 11. For the avoidance of doubt, the
holders of the Notes, the Notes Indenture Trustee, the holders of the Senior
Notes and the Senior Notes Indenture Trustee shall retain any and all
independent rights of action against any Person except as expressly provided for
otherwise in the Plan.
10.2 PROSECUTION OF LITIGATION CLAIMS. Reorganized Unison shall
prosecute any and all preserved Litigation Claims not otherwise expressly
compromised in the Plan, and will do so in its capacity as a representative of
the Estates pursuant to and in accordance with Section 1123(b)(3)(B) of the
Bankruptcy. The fees and costs to litigate such preserved Litigation Claims
shall come from the post-Effective Date operations of Reorganized Unison.
Reorganized Unison shall have sole discretion in its business judgment as to
what Litigation Claims to pursue, which to settle, and the terms and conditions
of those settlements.
10.3 DISTRIBUTION OF LITIGATION CLAIMS PROCEEDS. All monetary judgments
and awards resulting from the settlement or prosecution of the preserved
Litigation Claims shall be distributed to the holders of Allowed Claims in Class
11 after deduction of the reasonable and necessary fees and costs incurred by
Reorganized Unison in the prosecution and/or settlement of the preserved
Litigation Claims.
10.4 PRESERVATION OF INSURANCE. The Debtors' discharge and release from
Claims as provided herein, except as necessary to be consistent with this Plan,
shall not diminish or impair the enforceability of any insurance policy that may
cover Claims against the Debtors or any other Person.
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ARTICLE 11
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
Reorganized Unison shall issue for distribution, in accordance with the
provisions of the Plan, the New Common Stock, the New Warrants, the New Warrant
Shares, the Debt Instrument evidencing the Signature Claim Payout as defined in
Article 6.3.2(a)(ii), the Britwill Acquisition Promissory Note as defined in
Article 6.2.2(b)(i), and the New Senior Notes required for distribution or sale
pursuant to the provisions of the Plan.
11.1 COMMON STOCK. Principal provisions of the New Common Stock are
summarized as follows:
11.1.1 AUTHORIZATION. The Reorganized Unison Certificate shall
authorize the issuance of ten million (10,000,000) shares of New Common Stock.
On the Effective Date Reorganized Unison shall issue approximately two million
(2,000,000) shares of such New Common Stock pursuant to Article 6.7 which will
represent approximately seventy-nine percent (79%) of the equity in Reorganized
Unison on a Fully Diluted basis if the Class 6 Reserved Stock and Class 7
Reserved Stock is issued in full to the holders of Allowed Claims in Classes 6
and 7; and approximately ninety percent (90%) of the equity in Reorganized
Unison on a Fully Diluted basis if the New Class 6 Reserved Stock and Class 7
Reserved Stock is not issued to holders of Claims in Classes 6 and 7.
11.1.2 PAR VALUE. The New Common Stock shall have a par value
of $.001 per share.
11.1.3 RIGHTS. The New Common Stock shall have such rights
with respect to dividends, liquidation, voting and other matters as are set
forth in the Reorganized Unison Certificate and as provided under applicable
law, including, without limitation, the right to one vote per share.
11.1.4 EXCHANGE LISTING. Reorganized Unison will use its
reasonable best efforts to register the New Common Stock on a national
securities exchange or automated quotation system prior to, or as soon as
practicable after, the distribution to holders of Allowed Claims entitled to
receive New Common Stock.
11.1.5 REGISTRATION RIGHTS. Any Person who receives ten
percent (10%) or more of the New Common Stock on account of its Allowed Claim
under this Plan will be deemed to have entered into the New Common Stock
Registration Agreement with respect to that stock, and shall have the rights
afforded under that agreement.
11.2 NEW WARRANTS. Principal provisions of the New Warrants are as
follows:
11.2.1 AUTHORIZATION. The Plan hereby authorizes (subject to
the provisions of Article 6.9.2 of the Plan) the issuance of New Warrants to
purchase approximately one hundred thousand (100,000) shares of New Common
Stock, which, if and to the extent exercised, shall represent up to
approximately five percent (5%) of the equity of Reorganized Unison on a Fully
Diluted basis.
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11.2.2 EXERCISE PRICE. The New Warrants shall have a per share
exercise price equal to 1.25 times the Initial Price.
11.2.3 EXERCISE; EXPIRATION. The New Warrants shall be
exercisable by the holder thereof at any time on or prior to the fifth
anniversary of the Effective Date, at which time all unexercised New Warrants
shall expire.
11.2.4 RIGHTS. The New Warrants will not be redeemable. The
number of shares purchasable upon exercise of the New Warrants will, in the
aggregate equal a maximum of five percent (5%) of the equity in Reorganized
Unison on a Fully Diluted basis, and will be subject to standard anti-dilution
provisions. The holders of the New Warrants will not have any voting or other
rights as shareholders of Reorganized Unison in respect thereof.
11.3 NEW SENIOR NOTES. Principal provisions of the New Senior Notes are
as follows:
11.3.1 AUTHORIZATION. The Plan hereby authorizes the issuance
of the New Senior Notes in the approximate amount of TWENTY FOUR MILLION DOLLARS
($24,000,000.00), less the Effective Date Excess Cash payment set forth in
Article 11.3.4(a), pursuant to the New Senior Notes Indenture.
11.3.2 SECURITY. The New Senior Notes shall be secured by the
New Senior Notes Collateral.
11.3.3 INTEREST RATE. The New Senior Notes will bear interest,
payable as set forth in Article 11.3.4, in arrears, at a fixed rate equal to
eleven percent (11%) per annum.
11.3.4 MATURITY AND AMORTIZATION. The New Senior Notes will
mature on the fourth anniversary of the Effective Date, and will be payable as
follows:
(a) On the Effective Date, the Effective Date Excess
Cash shall be paid to reduce the principal due and owing on the New
Senior Notes. Under no circumstances will Reorganized Unison be
required to access its New Line Of Credit or otherwise borrow to make
all or any portion of this Effective Date Payment;
(b) If and when the New Senior Notes Collateral or
any portion thereof is sold, the proceeds therefrom (less costs of
sale) shall be used to prepay the New Senior Note, which payment shall
be applied: (i) first to outstanding fees and costs under the New
Senior Note Indenture (if any); (ii) then to accrued interest; and
(iii) then to principal;
(c) Interest only will be payable semi-annually for
the first and second years after issuance;
(d) On the third anniversary of the Effective Date, a
payment equal to accrued interest plus a principal reduction of TWO
MILLION DOLLARS ($2,000,000.00) shall be made; and
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(e) All unpaid interest, fees, costs and principal
shall be fully due and payable on the fourth anniversary of the
Effective Date.
11.3.5 PREPAYMENT PENALTY. The New Senior Notes shall contain
no prepayment penalty.
11.3.6 GUARANTEES. The New Senior Notes shall be guaranteed by
all subsidiaries and Affiliates of Reorganized Unison pursuant to the New Senior
Notes Guarantee other than the Omega New Master Lessees.
11.3.7 OTHER RIGHTS. The holders of the New Senior Notes
received by the holders of the Senior Notes shall have those rights under the
Sharing Agreement with respect to the Indiana Returned Facility Note set forth
in Article 6.1.2(c) of the Plan.
11.4 SECTION 1145 EXEMPTION. In accordance with Section 1145 of the
Bankruptcy Code, the issuance of the New Common Stock, the New Senior Notes, the
Debt Instrument evidencing the Signature Claim Payout as defined in Article
6.3.2(a)(ii), the BritWill Acquisition Promissory Note as defined in Article
6.2.2(b)(i), the New Warrants and the New Warrants Shares under this Plan is
exempt from the registration requirements of Section 5 of the Securities Act, as
amended, and any state or local law requiring registration for offer or sale of
a security or registration or licensing of an issuer of, underwriter of, or
Broker Dealer in such securities and is deemed to be a public offer of such
securities. With respect to the issuance of the New Warrants and the New Warrant
Shares upon exercise of the New Warrants, the issuance of such securities under
the Plan shall be exempt from the registration requirements of Section 5 of the
Securities Act, as amended, and any state or local law requiring registration of
such securities only to the extent the Bankruptcy Court determines, as part of
the Confirmation Hearing and pursuant to the Confirmation Order, that such
issuance is exempt under the provisions of Section 1145 of the Bankruptcy Code.
ARTICLE 12
PROVISIONS GOVERNING DISTRIBUTIONS TO HOLDERS OF ALLOWED EQUITY INTERESTS IN
CLASS 14
12.1 TRANSFER AGENT. With respect to each holder of an Allowed Equity
Interest as of the Distribution Record Date, Reorganized Unison shall distribute
such holder's Pro Rata Share of the New Warrants to the Transfer Agent on the
Distribution Date. As soon as practicable after the Transfer Agent receives such
holder's security pursuant to Article 12.2 below, the Transfer Agent shall
distribute the New Warrants to such holder in accordance with the terms of this
Plan and the New Warrant Agreement.
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12.2 SURRENDER OF SECURITIES. On or before the Distribution Date, or as
soon thereafter as practicable, each holder of a security evidencing an Allowed
Equity Interest shall surrender such security to the Transfer Agent. No
distribution of property hereunder shall be made to or on behalf of any such
holder unless and until such security is received by the Transfer Agent or the
unavailability of such security is reasonably established to the satisfaction of
the Transfer Agent and Reorganized Unison. In the event any holder of Allowed
Equity Interests seeks to establish the unavailability of such security
evidencing such Equity Interests, the Transfer Agent shall, within the first
Business Day thirty (30) days after receipt of the holders' evidence of
unavailability and statement of indemnity of the Transfer Agent and Reorganized
Unison: (a) provide the holder, in writing, with a detailed description
regarding the unacceptability of such evidence and statement of indemnity; or
(b) deliver to Reorganized Unison a notice of compliance and distribute to such
holder its Pro Rata Share of the New Warrants. Any such holder who fails to
surrender or cause to be surrendered such security or fails to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to the
Transfer Agent and Reorganized Unison prior to the first anniversary of the
Effective Date shall be deemed to have forfeited all rights in respect of such
security and shall not participate in any distribution hereunder, and all
property in respect of such forfeited distribution, including dividends accrued
thereon, shall revert to Reorganized Unison notwithstanding any federal or state
escheat laws to the contrary.
12.3 DISTRIBUTION RECORD DATE. At the close of business on the
Distribution Record Date, the stock transfer ledgers of Unison shall be closed,
and there shall be no further changes in the record holders of Equity Interests.
Reorganized Unison and the Transfer Agent shall have no obligation to recognize
any transfer of such Equity Interests occurring after the Distribution Record
Date. Reorganized Unison and the Transfer Agent shall be entitled to recognize
and deal for all purposes hereunder with only those record holders stated on the
stock transfer ledgers as of the close of business on the Distribution Record
Date.
12.4 DELIVERY OF DISTRIBUTIONS. Distributions of the New Warrants will
be made by the Transfer Agent to holders of the Allowed Equity Interests in
accordance with the Plan at the addresses contained in the official stock
transfer records of Reorganized Unison. If any holder's distribution is returned
as undeliverable, no further distributions to such holder shall be made unless
and until the Transfer Agent is notified of such holder's then current address,
at which time all required distributions shall be made to such holder.
Undeliverable distributions shall be returned to Reorganized Unison until such
distributions are claimed. All claims for undeliverable distributions shall be
made on or before the first anniversary of the Effective Date. After such date,
all unclaimed New Warrants shall revert to Reorganized Unison and the Claim of
any holder of an Allowed Equity Interest or successor to such holder with
respect to such New Warrants shall be discharged and forever barred
notwithstanding any federal or state escheat laws to the contrary.
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12.5 FEES AND EXPENSES. All unpaid reasonable fees, costs, charges, and
any other expenses incurred by the Transfer Agent from and after the Unison
Debtors' Petition Date, including any reasonable fees and expenses of
professionals retained by the Transfer Agent as of the Effective Date shall be
paid by the Debtors or Reorganized Unison, as the case may be, to the Transfer
Agent upon approval of the Bankruptcy Court. After the Effective Date, all
reasonable fees, costs, charges and expenses payable to the Transfer Agent,
including any such items incurred by the Transfer Agent in its capacity as
Disbursing Agent for the New Warrants under this Plan, shall be paid by
Reorganized Unison without further Bankruptcy Court approval.
ARTICLE 13
TITLE TO PROPERTY; DISCHARGE; INJUNCTION
13.1 CONDITIONS TO CONFIRMATION. The following are conditions precedent
to confirmation of this Plan:
13.1.1 APPROVAL OF DISCLOSURE STATEMENT. The Bankruptcy Court
shall have entered a Final Order approving the Disclosure Statement with respect
to this Plan.
13.1.2 FORM OF CONFIRMATION ORDER. The Confirmation Order
shall have been entered and be in form and substance reasonably acceptable to
the Debtors and Omega. In the event that Debtors and Omega are unable to reach
an agreement with regard to the form and substance of the Confirmation Order,
the Bankruptcy Court shall resolve all such disputes between the parties.
13.1.3 SUBSTANCE OF CONFIRMATION ORDER. The Confirmation Order
contains the following:
(a) The provisions of the Confirmation Order are nonseverable
and mutually dependent;
(b) All executory contracts or unexpired leases assumed by
Reorganized Unison during the Chapter 11 Cases or under this Plan shall
remain in full force and effect for the benefit of Reorganized Unison
notwithstanding any provision in such contract or lease (including
those described in Sections 365(b)(2) and (f) of the Bankruptcy Code)
that prohibits such assignment or transfer or that enables, permits or
requires termination of such contract or lease;
(c) Except as expressly provided in this Plan, the Debtors are
discharged effective upon the Effective Date from all Claims and any
"debt" (as that term in defined in Section 101(12) of the Bankruptcy
Code) that arose on or before the Effective Date, and the Debtors'
liability in respect thereof is extinguished completely, whether
reduced to judgment or not, liquidated or unliquidated, contingent or
noncontingent, asserted or
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unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, or known or unknown, or that arose from
any agreement of the Debtors that has either been assumed or rejected
in the Chapter 11 Cases or pursuant to this Plan, or obligation of the
Debtors incurred before the Effective Date, or from any conduct of the
Debtors prior to the Effective Date, or that otherwise arose before the
Effective Date, including, without limitation, all interest, if any, on
any such debts, whether such interest accrued before or after the
Petition Date;
(d) The Plan does not provide for the liquidation of all or
substantially all of the property of the Debtors and its confirmation
is not likely to be followed by the liquidation of Reorganized Unison
or the need for further financial reorganizations;
(e) The Confirmation Order, pursuant to Section 1123(b)(3)(B)
of the Bankruptcy Code, specifically appoints Reorganized Unison as a
representative and agent of the Debtors to prosecute, compromise and/or
abandon the Litigation Claims in accordance with the Plan;
(f) The settlement and compromise between the Debtors and the
holders of the BritWill Acquisition Claims and Signature Acquisition
Claims should those Classes vote to accept the Plan as outlined in
Articles 6.2 and 6.3 are approved pursuant to Bankruptcy Rule 9019; and
(g) The Bankruptcy Court has made the following findings of
fact and conclusions of law in the Confirmation Order: (i) the Omega
New Master Lease is a true lease and not any type of financing or joint
venture device; (ii) the Omega New Master Lease covers the facilities
subject to the lease and may not be severed; (iii) there is fair and
adequate consideration under any fraudulent conveyance or transfer
statutes for each of the Omega New Master Lessees to be jointly and
severally liable for all of the obligations of the other lessees under
the Omega New Master Lease and for the obligations of Unison and
BritWill Healthcare under the New Omega Guarantee; (iv) there is
adequate consideration for the Omega New Lease Guarantee and the New
Omega Guarantee, and the collateral pledged or securing each; and (v)
the Omega New Master Lease and the New Omega Guarantee are made in good
faith and not with any actual intent to hinder, delay or defraud either
present or future creditors of any lessee under the Omega New Master
Lease, or otherwise.
13.2 CONDITIONS TO EFFECTIVENESS. The following are conditions
precedent to the occurrence of the Effective Date:
13.2.1 The Confirmation Date shall have occurred;
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13.2.2 The Confirmation Order shall be a Final Order, except
that Debtors reserve the right to cause the Effective Date to occur
notwithstanding the pendency of an appeal of the Confirmation Order, under
circumstances that would moot such appeal;
13.2.3 No request for revocation of the Confirmation Order
under Section 1144 of the Bankruptcy Code shall have been made, or, if made,
shall remain pending;
13.2.4 The Bankruptcy Court in the Confirmation Order shall
have approved the retention of jurisdiction provisions in Article 16 of this
Plan;
13.2.5 All documents necessary to implement the transactions
contemplated by this Plan shall be made in form and substance reasonably
acceptable to the Debtors and Omega;
13.2.6 Sufficient Effective Date Cash exists to make required
distributions to holders of Allowed Claims required on the Distribution Date;
and
13.2.7 The New Line Of Credit has been obtained and is ready
to fund, and the New Line Of Credit Agreement and New Line Of Credit Promissory
Note have been executed by all necessary parties.
13.3 WAIVER OF CONDITIONS. The conditions to Confirmation and the
Effective Date may be waived in whole or in part by the unanimous consent of
each of the Debtors and Omega at any time without notice, an order of the
Bankruptcy Court or any further action other than proceeding to Confirmation and
consummation of the Plan. In the event that Debtors and Omega are unable to
reach an agreement with regard to Articles 13.1.2; 13.1.3 (other than
13.1.3(f)); 13.2.4; or 13.2.6 above, the Bankruptcy Court shall resolve all such
disputes between the parties).
ARTICLE 14
NON-ALLOWANCE OF PENALTIES AND FINES
Except as expressly provided for herein, no distribution shall be made
under this Plan on account of, and no Allowed Claim (whether Secured, Unsecured,
priority or Administrative), will include any fine, penalty, exemplary or
punitive damages relating to or arising from any default or breach by the
Debtors, and any claim on account thereof shall be deemed disallowed, whether or
not objection is filed to it.
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ARTICLE 15
TITLE TO PROPERTY; DISCHARGE; INJUNCTION
15.1 REVESTING OF ASSETS. Subject to the provisions of this Plan, the
property of the Estates of the Debtors shall vest in Reorganized Unison on the
Effective Date. As of the Effective Date, all such property of the Debtors shall
be free and clear of all liens, Claims and Equity Interests of holders thereof,
except as otherwise provided herein. From and after the Effective Date,
Reorganized Unison may operate their business, and may use, acquire and dispose
of their property free of any restrictions of the Bankruptcy Code, including the
employment of and payment to professionals, except as otherwise provided in the
Plan or the Confirmation Order.
15.2 DISCHARGE. Except as provided in the Plan or the Confirmation
Order, the rights afforded under the Plan and the treatment of Claims and Equity
Interests under the Plan shall be in exchange for and in complete satisfaction,
discharge and release of all Claims, including any interest accrued on General
Unsecured Claims from the Petition Date and termination of all Equity Interests.
Except as provided in the Plan or the Confirmation Order, Confirmation shall:
(a) discharge the Debtors and Reorganized Unison from all Claims or other debts
that arose before the Confirmation Date, and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (i) a
proof of claim based on such debt is filed or deemed filed pursuant to Section
501 of the Bankruptcy Code; (ii) a Claim based on such debt is allowed pursuant
to Section 502 of the Bankruptcy Code; or (iii) the holder of a Claim based on
such debt has accepted the Plan; and (b) terminate all Equity Interests and
other rights of Equity Interests in the Debtors except as expressly provided
herein.
15.3 INJUNCTION. Except as provided in the Plan or the Confirmation
Order, as of the Confirmation Date, all entities that have held, currently hold
or may hold a Claim or other debt or liability that is discharged or an Equity
Interest, Equity Interest Related Claim, or other right of an equity security
holder that is terminated pursuant to the terms of the Plan are permanently
enjoined from taking any of the following actions on account of any such
discharged Claims, debts or liabilities or terminated Equity Interests or
rights: (a) commencing or continuing in any manner any action or other
proceeding against the Debtors or Reorganized Unison (including any officer or
director acting as a representative of the Debtors or Reorganized Unison); (b)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors, Reorganized Unison, or their
respective property; (c) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized Unison, or their respective
property; (d) asserting a setoff, right of
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subrogation or recoupment of any kind against any debt, liability or obligation
due to the Debtors, Reorganized Unison, or their respective property; and (e)
commencing or continuing any action, in any manner, in any place, that does not
comply with or is inconsistent with the provisions of the Plan or the Bankruptcy
Code.
15.4 EXCULPATION. Neither the Debtors, Reorganized Unison, the
Creditors Committee, the Ad Hoc Committee, Omega nor any of their respective
officers, directors, employees, advisors, attorneys, or agents, shall have or
incur any liability to any holder of a Claim or Equity Interest, including the
holder of any Equity Interest Related Claim, or any other party in interest, or
any of their respective members or former members, agents, employees,
representatives, financial advisors, attorneys, or Affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the Chapter 11 Cases, the negotiation and pursuit of
confirmation of the Plan, or the consummation of the Plan, or the administration
of the Plan except for their acts or omissions constituting willful misconduct,
as finally determined by a court of competent jurisdiction and in all respects
shall be entitled to reasonably rely upon the advice of counsel with respect to
their duties and responsibilities under the Plan or in the context of the
Chapter 11 Cases. No holder of a Claim, Equity Interest or Equity Interest
Related Claim, or any other party in interest, including their respective
agents, employees, representatives, financial advisors, attorneys or Affiliates,
shall have any right of action against the Debtors, Reorganized Unison, the
Creditors Committee, the Ad Hoc Committee, Omega or any of their respective
officers, directors, employees, advisors, attorneys, or agents, for any act or
omission in connection with, relating to, or arising out of, the Chapter 11
Cases, the negotiation and pursuit of confirmation of the Plan, the consummation
of the Plan, or the administration of the Plan, except for their acts or
omissions constituting willful misconduct as finally determined by a court of
competent jurisdiction.
ARTICLE 16
RETENTION OF JURISDICTION
16.1 JURISDICTION. Notwithstanding the entry of the Confirmation Order
and the occurrence of the Effective Date, the Bankruptcy Court shall retain such
jurisdiction over the Chapter 11 Cases after the Effective Date as is legally
permissible, including jurisdiction to:
16.1.1 Allow, disallow, determine, liquidate, classify,
estimate or establish the priority or secured or unsecured status of any Claim,
including the resolution of any request for payment of any Administrative Claim
and the resolution of any and all objections to the allowance or priority of
Claims;
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16.1.2 Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized pursuant to the Bankruptcy
Code or the Plan;
16.1.3 Resolve any matters related to the assumption,
assumption and assignment or rejection of any executory contract or unexpired
lease to which the Debtors are a party and to hear, determine and, if necessary,
liquidate, any Claims arising therefrom or cure amounts related thereto;
16.1.4 Ensure that distributions to holders of Allowed Claims
are accomplished pursuant to the provisions of the Plan;
16.1.5 Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny any
applications or motions involving the Debtors that may be pending on the
Effective Date;
16.1.6 Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases and other agreements or documents created in connection
with the Plan or the Disclosure Statement, except as otherwise provided herein;
16.1.7 Resolve any cases, controversies, suits or disputes
that may arise in connection with the consummation, interpretation or
enforcement of the Plan or any Person's obligations incurred in connection with
the Plan;
16.1.8 Modify the Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify the Disclosure
Statement or any contract, instrument, release or other agreement or document
created in connection with the Plan or the Disclosure Statement; or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court order,
the Plan, the Disclosure Statement, the Plan Supplement, or any contract,
instrument, release or other agreement or document created in connection with
the Plan, the Disclosure Statement, or the Plan Supplement, in such manner as
may be necessary or appropriate to consummate the Plan, to the extent authorized
by the Bankruptcy Code;
16.1.9 Issue injunctions, enter and implement other orders or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with consummation or enforcement of the Plan, except
as otherwise provided herein;
16.1.10 Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified, stayed,
reversed, revoked or vacated;
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16.1.11 Determine any other matters that may arise in
connection with or relate to the Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release or other agreement or
document created in connection with the Plan, the Disclosure Statement or the
Confirmation Order except as otherwise provided herein;
16.1.12 Approve the Securities Action Settlement Agreement to
the extent it was not approved prior to the Confirmation Date;
16.1.13 Adjudicate any disputes relating to the New Senior
Notes Allocation Schedule as set forth in Article 6.7.1(b);
16.1.14 Adjudicate the issues set forth in Article
6.2.2(c)(iii);
16.1.15 Enter an order closing the Chapter 11 Cases; and
16.1.16 Adjudicate the Avoidance Actions, the Litigation
Claims (including those to be initiated and prosecuted by Reorganized Unison as
the Estates' representative under Section 1123(b)(3)(B) of the Bankruptcy Code),
and any other cause of action or claims of the Debtors, including, but not
limited to, the Related Party Creditor Defenses (if still applicable).
ARTICLE 17
MODIFICATION, AMENDMENT, AND WITHDRAWAL OF PLAN
Prior to the Confirmation Date, the Debtors may alter, amend, or modify
the Plan or the Plan Supplement under Section 1127(a) of the Bankruptcy Code at
any time provided that such modification does not materially adversely affect
the treatment and rights of Omega, the Senior Notes or holders of General
Unsecured Claims (including holders of the Notes) under this Plan. After the
Confirmation Date and prior to substantial consummation of the Plan as defined
in Section 1101(2) of the Bankruptcy Code, the Debtors may, under Section
1127(b) of the Bankruptcy Code, institute proceedings in the Bankruptcy Court to
remedy any defect or omission or reconcile any inconsistencies in the Plan, the
Disclosure Statement, the Plan Supplement, or the Confirmation Order, and such
matters as may be necessary to carry out the purposes and effects of the plan so
long as such proceedings do not materially adversely affect the treatment of
holders of Claims or holders of Equity Interests under the Plan; provided,
however, that prior notice of such proceedings shall be served in accordance
with the Bankruptcy Rules or order of the Bankruptcy Court.
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ARTICLE 18
MISCELLANEOUS
18.1 FILING OF OBJECTIONS TO CLAIMS. After the Effective Date,
objections to Claims shall be made and objections to Claims made previous
thereto shall be pursued by Reorganized Unison or any other party properly
entitled to do so after notice to Reorganized Unison and approval by the
Bankruptcy Court. Any objections made after the Effective Date shall be filed
and served not later than NINETY (90) DAYS after the Effective Date; provided,
however, that such period may be extended by order of the Bankruptcy Court for
good cause shown.
18.2 SETTLEMENT OF OBJECTIONS AFTER EFFECTIVE DATE. From and after the
Effective Date, Reorganized Unison may litigate to judgment, propose settlements
of, or withdraw objections to, all pending or filed Disputed Claims or Disputed
Equity Interests, and Reorganized Unison, may settle or compromise any Disputed
Claim, Disputed Equity Interest, and/or Litigation Claim without notice and a
hearing and without approval of the Bankruptcy Court.
18.3 DISTRIBUTIONS. In order to facilitate distribution of Pro Rata
shares to holders of Allowed Claims, and if and to the extent there are Disputed
Claims in any Class, the Disbursing Agent shall set aside in a separate
designated reserve account the payments or distributions applicable to such
Disputed Claims as if such Disputed Claims were Allowed Claims, pending the
allowance or disallowance of such Disputed Claims. All amounts applicable to
Disputed Claim in Class 11 shall be segregated in a separate interest bearing
account from which shall be deducted the reasonable costs, expenses, and fees
incurred by the: (a) Disbursing Agent in administering distributions; and (b)
Reorganized Unison in objecting to, litigating and settling on Disputed Claims
in Classes 6 and 7 (to the extent applicable) and 11. In the event that
Reorganized Unison wishes to deposit or hold a lesser amount than required
herein and is unable to reach an agreement with the holder of the Disputed Claim
or the Disbursing Agent, as the case may be, on the amount to be deposited or
held, the Bankruptcy Court shall fix the amount after notice and hearing. Upon
Final Order with respect to a Disputed Claim, the holder of such Disputed Claim,
to the extent it has been determined to be an Allowed Claim, shall receive from
the Disbursing Agent that payment or distribution to which it would have been
entitled if the portion of the Claim so Allowed had been Allowed as of the
Effective Date. Such payment or distribution shall be made as soon as practical
after the order Allowing the Claim has become a Final Order. The balance of the
amount held by the Disbursing Agent after such payment applicable to a
previously Disputed Claim that has been disallowed in whole and in part, shall
be returned to Reorganized Unison, except with regard to a previously Disputed
Claim in Class 11, in which event, the balance shall be distributed Pro Rata
amongst
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the holders of Allowed Claims in Class 11 or continue to be held by the
Disbursing Agent with regard to Disputed Claims not yet resolved.
18.4 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; TIMING. Each of the
Debtors is hereby authorized and directed, as the case may be, to execute,
deliver, file or record such contracts, instruments, releases and other
agreements or documents and to take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan, the Plan Supplement and any securities issued pursuant to the Plan. All
transactions that are required to occur on the Effective Date under the terms of
the Plan shall be deemed to have occurred simultaneously. The Debtors and
Reorganized Unison are authorized and directed to do such acts and execute such
documents as are necessary to implement the Plan.
18.5 EXEMPTION FROM TRANSFER TAXES. Pursuant to Section 1146(c) of the
Bankruptcy Code: (a) the issuance, distribution, transfer or exchange of the New
Common Stock, the New Warrants, the New Senior Notes, the Debt Instrument
evidencing the Signature Claim Payout as defined in Article 6.3.2(a)(ii), the
BritWill Acquisition Promissory Note as defined in Article 6.2.2(b)(i), the
Omega New Master Lease, the Signature Sale/Leaseback Transaction or other Estate
property; (b) the creation, modification, consolidation or recording of any deed
of trust or other security interest, the securing of additional indebtedness by
such means or by other means in furtherance of, or connection with this Plan or
the Confirmation Order; (c) the making, assignment, modification or recording of
any lease or sublease; or (d) the making, delivery or recording of a deed or
other instrument of transfer under, in furtherance of, or in connection with,
this Plan, Confirmation Order or any transaction contemplated above, or any
transactions arising out of, contemplated by or in any way related to the
foregoing shall not be subject to any document recording tax, stamp tax,
conveyance fee, intangibles or similar tax, mortgage tax, stamp act or real
estate transfer tax, mortgage recording tax or other similar tax or governmental
assessment and the appropriate state or local government officials or agents
shall be, and hereby are, directed to forego the collection of any such tax or
assessment and to accept for filing or recordation any of the foregoing
instruments or other documents without the payment of any such tax or
assessment.
18.6 REVOCATION OR WITHDRAWAL OF THE PLAN. The Debtors reserve the
right to revoke or withdraw this Plan at any time prior to the Confirmation
Date. If the Plan is withdrawn or revoked, then the Plan shall be deemed null
and void and nothing contained herein shall be deemed to constitute a waiver of
any Claims by or against the Debtors or any other Person in any further
proceedings involving the Debtors. In the event this Plan is withdrawn or
revoked, nothing set forth herein shall be deemed an admission of any sort and
this Plan and any transaction contemplated thereby shall not be admitted into
evidence in any proceeding.
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18.7 BINDING EFFECT. The Plan shall be binding upon, and shall inure to
the benefit of, the Debtors, the holders of all Claims and Equity Interests,
including the holders of Equity Interest Related Claims, and their respective
successors and assigns.
18.8 GOVERNING LAW. Except to the extent that the Bankruptcy Code or
other federal law is applicable or as provided in any document contained in the
Plan Supplement, the rights, duties and obligations of the Debtors and any other
Person arising under the Plan shall be governed by, and construed and enforced
in accordance with, the internal laws of the State of Arizona, without giving
effect to Arizona's choice of law provisions.
18.9 MODIFICATION OF PAYMENT TERMS. Reorganized Unison reserves the
right to modify the treatment of any Allowed Claim or Equity Interest in any
manner adverse only to the holder of such Claim or Equity Interest at any time
after the Effective Date upon the prior written consent of the holder whose
Allowed Claim or Equity Interest treatment is being adversely affected.
18.10 PROVIDING FOR CLAIMS PAYMENTS. Distributions to holders of
Allowed Claims shall be made by the Disbursing Agent: (a) at the addresses set
forth on the proofs of Claim filed by such holders (or at the last known
addresses of such holders if no proof of Claim is filed or if the Debtors have
been notified or a change of address); (b) at the addresses set forth in any
written notices of address changes delivered to the Disbursing Agent after the
date of any related proof of Claim; or (c) at the addresses reflected in the
Schedules if no proof of Claim has been filed and the Disbursing Agent has not
received a written notice of a change of address. If any holder's distribution
is returned as undeliverable, no further distributions to such holder shall be
made unless and until the Disbursing Agent is notified of such holder's then
current address, at which time all missed distributions shall be made to such
holder without interest. Amounts in respect of undeliverable distributions made
through the Disbursing Agent shall be returned to Reorganized Unison until such
distributions are claimed. All claims for undeliverable distributions shall be
made on or before the first anniversary of the Effective Date. After such date,
all unclaimed property shall revert to Reorganized Unison and the Claim of any
holder or successor to such holder with respect to such property shall be
discharged and forever barred notwithstanding any federal or state escheat laws
to the contrary. Nothing contained in this Plan shall require the Debtors,
Reorganized Unison or the Disbursing Agent to attempt to locate any holder of an
Allowed Claim.
18.11 SET OFFS. The Debtor and Reorganized Unison may, but shall not be
required to, set off or recoup against any Claim or Equity Interest and the
payments or other distributions to be made pursuant to the Plan in respect of
such Claim, claims of any nature whatsoever that arose prior to the Petition
Date which the Debtors may have against the holder of such Claim or Equity
Interest to the extent such Claims may be set off or recouped under applicable
law, but neither the
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failure to do so nor the Allowance of any Claim or Equity Interest hereunder
shall constitute a waiver or release by the Debtors or Reorganized Unison of any
such claim that it may have against such holder.
18.12 NOTICES. Any notice required or permitted to be provided under
the Plan shall be in writing and served by either: (a) certified mail, return
receipt requested, postage prepaid; (b) hand delivery; (c) reputable overnight
courier service, freight prepaid; or (d) by telecopy or teletransmission, to be
addressed as follows:
If to the Debtors: UNISON HEALTHCARE CORPORATION
15300 North 90th Street
Suite 100
Scottsdale, Arizona 85260
Attn: Nir E. Margalit, Esq.
Telephone: (602) 423-1954
Fax: (602) 607-4113
with a copy to:
SQUIRE SANDERS & DEMPSEY L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Attn: Thomas J. Salerno, Esq.
Telephone: (602) 528-4000
Fax: (602) 253-8129
If to Omega: OMEGA HEALTHCARE INVESTORS, INC.
905 West Eisenhower Circle
Suite 110
Ann Arbor, Michigan 48103
Attn: F. Scott Kellman
Telephone: (734) 747-9790
Fax: (734) 996-0020
With a copy to: DYKEMA GOSSETT PLLC
1577 North Woodward Avenue
Suite 300
Bloomfield Hills, Michigan 48304-2820
Attn: Fred J. Fechheimer, Esq.
Telephone: (248) 203-0700
Fax: (248) 203-0763
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If to the Notes Indenture
Trustee: U.S. BANK NATIONAL ASSOCIATION,
fka First National Bank Association
c/o First Trust National Association
180 East 5th Street
St. Paul Minnesota 55101
Attn: Christine Robinette
Telephone: (612) 244-8386
Fax: (612) 244-0711
If to the New Senior
Notes Indenture
Trustee or The
Senior Notes
Indenture Trustee IBJ SCHRODER BANK & TRUST COMPANY
One State Street, 11th Floor
New York, New York 10004
Attn: Corporate Finance Trust Services
Telephone: (212) 858-2529
Fax: (212) 858-2952
If to the Ad Hoc
Committee THE AD HOC COMMITTEE OF NOTEHOLDERS OF
UNISON HEALTHCARE CORPORATION
c/o Wachtell Liption Rosen and Katz
51 West 52nd Street
New York, New York 10019
Attn: Chaim J. Fortgang, Esq.
Telephone: (212) 403-1000
Fax: (212) 403-2000
18.12.1 DELIVERY OF NOTICES. If personally delivered, such
communication shall be deemed delivered upon actual receipt; if electronically
transmitted pursuant to this Plan, such communication shall be deemed delivered
by the next noon at point of arrival occurring on a Business Day following
transmission; if sent by overnight courier pursuant to this Plan, such
communication shall be deemed delivered within twenty-four (24) hours of deposit
with such courier or noon of the first Business Day following such deposit,
whichever first occurs; and if sent by U.S. Mail pursuant to this Plan, such
communications shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service; or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any party
to this Plan may change their address for the purposes of this Plan by giving
notice thereof in accordance with this section.
18.13 STATUTORY COMMITTEE/EXAMINER. Any statutory committee or
committees appointed in the Chapter 11 Cases, the Ad Hoc Committee, and the
Examiner shall terminate on the Effective Date and shall thereafter have no
further
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responsibilities in respect of the Chapter 11 Cases, except with respect to
preparation of filing of applications for compensation and reimbursement of
expenses.
18.14 SEVERABILITY. If any provision of this Plan is found by the
Bankruptcy Court to be invalid, illegal or unenforceable or that this Plan is
found by the Bankruptcy Court to be invalid, illegal or unenforceable or that
this Plan is not confirmable pursuant to Section 1129 of the Bankruptcy Code,
the Bankruptcy Court, at the request of the Debtors, shall have the power to
alter and interpret such term to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or
provision held be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. The Confirmation Order shall
constitute a judicial determination and shall provide that each term and
provision of this Plan, as it may have been altered or interpreted in accordance
with the foregone, is valid and enforceable pursuant to its terms.
18.15 WITHHOLDING AND REPORTING REQUIREMENTS. In connection with this
Plan and all instruments and securities issued in connection therewith and
distributions thereon, Reorganized Unison, the Disbursing Agent, the Notes
Indenture Trustee and the New Senior Note Indenture Trustee, as the case may be,
shall comply with all withholding and reporting requirements imposed by any
federal, state, local or foreign taxing authority, and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
Reorganized Unison, the Disbursing Agent, the Notes Indenture Trustee, and the
New Senior Note Indenture Trustee, as the case may be, shall be authorized to
take any and all action that may be necessary to comply with such withholding
and recording requirements. Notwithstanding any other provision of this Plan,
each holder of an Allowed Claim that has received a distribution of New Common
Stock, New Preferred Stock, New Warrants or Cash pursuant to this Plan, shall
have sole and exclusive responsibility for the satisfaction or payment of any
tax obligation imposed by any governmental unit, including income, withholding
and other tax obligation on account of such distribution.
18.16 QUARTERLY FEES TO THE UNITED STATES TRUSTEE. Reorganized Unison
shall pay all quarterly fees payable to the Office of the United States Trustee
for the Debtors after Confirmation, consistent with applicable provisions of the
Bankruptcy Code, Bankruptcy Rules, and 28 U.S.C. Section 1930(a)(6).
18.17 FRACTIONAL SHARES; ODD LOTS; DE MINIMIS DISTRIBUTIONS. No
fractional shares of New Common Stock or New Warrants shall be issued. The
number of shares or warrants issuable under this Plan to any holder of an
Allowed Claim, Equity Interest, and/or Equity Interest Related Claim, as the
case may be, will be rounded to the nearest whole number with shares
representing less than one-half a share being rounded down, and one-half or more
being rounded up.
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18.18 METHOD OF PAYMENT. Payments of Cash required to be made pursuant
to the Plan shall be made by check drawn on a domestic bank or by wire transfer
from a domestic bank at the election of the Person making such payment.
18.19 PAYMENT DATES. Whenever any payment or distribution to be made
under the Plan shall be due on a day other than a Business Day, such payment or
distribution shall instead be made, without interest, on the immediately
following Business Day.
DATED: Phoenix, Arizona
October 15, 1998
Respectfully submitted,
UNISON HEALTHCARE CORPORATION,
a Delaware corporation, and its Subsidiaries
and Affiliates (including the BritWill Debtors)
By /s/ Michael A. Jeffries
Michael A. Jeffries
Its: CEO and President
SQUIRE, SANDERS & DEMPSEY L.L.P.
By: /s/ Thomas J. Salerno
Thomas J. Salerno, one of the attorneys for
The UNISON DEBTORS,
Co-Proponent of the Plan
GALLAGHER & KENNEDY
By: /s/ Charles R. Sterbach
Charles R. Sterbach, one of the attorneys for
the BRITWILL DEBTORS,
Co-Proponent of the Plan
75
<PAGE> 1
EXHIBIT 4.5
UNISON HEALTHCARE CORPORATION
PURCHASE AGREEMENT
November 24, 1997
Unison Healthcare Corporation
13% Senior Notes due 1999
JEFFERIES & COMPANY, INC.
11100 Santa Monica Blvd., 10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
Unison Healthcare Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with you (the "Initial Purchaser"), as
set forth below. Capitalized terms used in this agreement ("Agreement") and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Indenture (as defined below).
1. ISSUANCE OF SECURITIES. Subject to the terms and conditions herein
contained, the Company shall issue and sell to the Initial Purchaser $20,000,000
aggregate principal amount of its 13% Senior Notes due 1999 (the "Notes"). The
Notes are to be issued under an indenture (the "Indenture") to be dated as of
the Closing Date (as defined in Section 3 hereof) by and between the Company and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
Pursuant to the Indenture, certain Subsidiaries of the Company,
jointly and severally, shall fully and unconditionally guarantee, on a senior
unsecured basis, to each holder of Notes and the Trustee, the payment and
performance of the Company's obligations under the Indenture and the Notes (each
such Subsidiary being referred to herein as a "Guarantor" and each such
guarantee being referred to herein as a "Guarantee").
The Notes are being offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on certain exemptions therefrom.
In connection with the offer and sale of the Notes, the Company has
prepared a preliminary offering memorandum dated November 24, 1997 (the
"Preliminary Memorandum"), and a final offering memorandum, dated November 24,
1997 (the "Final Memorandum"), setting forth a description of the terms of the
Notes, the terms of the offering of the Notes and a description of the business
of the Company. "Memorandum" means, as of any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement to either
such document), including exhibits and schedules thereto.
<PAGE> 2
The Company understands from the Initial Purchaser that the Initial
Purchaser proposes to make an offering of the Notes on the terms and in the
manner set forth herein and in the Final Memorandum as soon as the Initial
Purchaser deems advisable after this Agreement has been executed and delivered.
The Company also understands from the Initial Purchaser that, at such time, the
Initial Purchaser intends to make an offering of the Notes (i) to persons in the
United States whom the Initial Purchaser reasonably believes to be qualified
institutional buyers ("QIBs") as defined in Rule 144A under the Act, as such
rule may be amended from time to time ("Rule 144A"), and (ii) to a limited
number of persons whom the Initial Purchaser reasonably believes (based upon
written representations made by such persons to the Initial Purchaser) to be
institutional "accredited investors" ("Accredited Investors") as defined in Rule
501(a)(1), (2), (3) or (7) under the Act.
The Initial Purchaser and its direct and indirect transferees of the
Notes will be entitled to the benefits of a registration rights agreement,
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), pursuant to which the Company shall agree, among other things, to
file a registration statement (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") registering under the Act the Notes,
the Exchange Notes or the Private Exchange Notes (the Exchange Notes, together
with the Private Exchange Notes, shall sometimes be referred to hereinafter as
the "New Notes").
2. REPRESENTATIONS AND WARRANTIES. The Company, on behalf of itself and
each of its Subsidiaries, represents and warrants to and agrees with the Initial
Purchaser that:
(a) Neither the Preliminary Memorandum, the Final Memorandum, nor
any amendment or supplement thereto, including the financial statements included
therein (prepared in conformity with GAAP, except as otherwise specified
therein), as of the date thereof and at all times subsequent thereto, up to the
Closing Date, contained or contains any untrue statement of a material fact, or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance upon and
in conformity with information relating to the Initial Purchaser and furnished
to the Company in writing by the Initial Purchaser or its counsel expressly for
use in the Preliminary Memorandum or the Final Memorandum or any amendment or
supplement thereto. No injunction or order has been issued that either (i)
asserts that any of the transactions contemplated by this Agreement or the
Transaction Documents (as hereinafter defined) is subject to the registration
requirements of the Act or (ii) would prevent or
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<PAGE> 3
suspend the issuance or sale of the Notes or the use of the Preliminary
Memorandum, the Final Memorandum, or any amendment or supplement thereto, in any
jurisdiction. Each of the Preliminary Memorandum and the Final Memorandum, as of
their respective dates, contained, and the Final Memorandum, as amended or
supplemented as of the Closing Date, will contain, all the information specified
in, and meet the requirements of, Rule 144A(d)(4) under the Act. Except as
expressly disclosed in the Final Memorandum, there are no related party
transactions that would be required to be disclosed in the Final Memorandum if
the Final Memorandum were a prospectus included in a registration statement on
Form S-1 filed under the Act.
(b) The Company has the authorized capitalization set forth in the
Final Memorandum, and the authorized capital stock of the Company conforms to
the statements relating thereto contained in the Final Memorandum. All of the
outstanding shares of capital stock of the Company and its Subsidiaries have
been duly authorized and, on the Closing Date, will be validly issued, fully
paid and nonassessable and will not have been issued in violation of any
preemptive or similar rights. Except as disclosed in the Final Memorandum, all
of the outstanding shares of capital stock of each of the Subsidiaries of the
Company are owned, directly or indirectly, by the Company, free and clear of all
liens, security interests, mortgages, pledges, charges, equities, claims,
restrictions on transferability or encumbrances of any kind (collectively,
"Encumbrances"). Except as disclosed in the Final Memorandum, there are no
outstanding (i) options, warrants or other rights to purchase from the Company
or any of its Subsidiaries, (ii) agreements, contracts, arrangements or other
obligations of the Company or any of its Subsidiaries to issue or (iii) other
rights to convert any obligation into or exchange any securities for, in the
case of each of clauses (i), (ii) and (iii), shares of capital stock or any
other Equity Interests of the Company or any of its Subsidiaries. The Company
does not have any Subsidiaries that own, directly or indirectly, any Equity
Interests or any other securities or interests of any kind in any firm,
corporation, limited liability company, partnership, joint venture or other
entity.
(c) Each corporation in which the Company owns fifty percent (50%)
or more of any class of securities and each partnership of which the Company or
any Subsidiary of the Company is a general partner or owns fifty percent (50%)
or more of the partnership interests is listed on Schedule A attached hereto.
Each of the Company and its Subsidiaries is duly incorporated, validly existing
and in good standing as a corporation under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own its
properties and conduct its business as now conducted and as described in the
Preliminary Memorandum, and each of the Company and its Subsidiaries is duly
licensed or qualified to do business as a foreign corporation in good standing
in all other jurisdictions where the ownership or
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<PAGE> 4
leasing of its properties or the conduct of its business requires such licensing
or qualification, except where the failure to be so licensed or qualified would
not, individually or in the aggregate, result in a Material Adverse Effect. For
the purposes of this Agreement, a "Material Adverse Effect" shall mean a
material adverse effect on (i) the general affairs, management, business,
condition (financial or otherwise), prospects or results of operations of the
Company and its Subsidiaries, taken as a whole, or (ii) the Company's ability to
perform any of its material obligations under any of the agreements, documents
or instruments contemplated to be entered into by the Company hereby or by the
Final Memorandum.
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes and each Guarantor
has all requisite corporate power and authority to execute, deliver, and perform
its obligations under its respective Guarantee. The Notes have been duly and
validly authorized by the Company and each Guarantee has been duly and validly
authorized by the Guarantor party thereto and, when executed by the Company or
each Guarantor party thereto and authenticated by the Trustee in accordance with
the provisions of the Indenture and when delivered to and paid for by the
Initial Purchaser in accordance with the terms of this Agreement and the
Indenture, the Notes and each Guarantee will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company or the Guarantor party thereto, as the case may be, entitled to the
benefits of the Indenture and the Registration Rights Agreement (such
agreements, as amended, supplemented or modified, together with all instruments,
documents and agreements contemplated hereby and thereby, collectively,
hereinafter referred to as the "Transaction Documents"), and enforceable against
the Company and its Subsidiaries (including each Guarantor party thereto), in
accordance with their respective terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity (whether applied by a court of law or equity) and the discretion of the
court before which any proceeding therefor may be brought.
(e) The Company and each Guarantor has all requisite corporate power
and authority to execute, deliver and perform each of its obligations under the
Indenture. The Indenture meets the requirements for qualification under the
Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly
and validly authorized by the Company and each Guarantor and, upon the
execution, delivery and performance by the Company and each Guarantor, and
assuming due authorization, performance and delivery of the Trustee, will
constitute a valid and legally binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance with
its
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<PAGE> 5
terms, except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (whether applied by a court of
law or equity) and the discretion of the court before which any proceeding
therefor may be brought.
(f) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement. The Registration Rights Agreement has been duly and validly
authorized by the Company and when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal or state securities laws or public policy considerations.
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly authorized, executed and delivered by the Company. Except for the
consent of the holders of the Company's 12 1/4% Senior Notes due 2006 which the
Company is soliciting pursuant to a Consent Solicitation Statement dated
November 24, 1997 (the "Noteholder Consent"). No consent, approval,
authorization or order of any court or governmental agency or body, or third
party (in each case, a "Consent") is required for the performance of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except such other Consents as have been obtained and other
than such other Consents as may be required under the Act or state securities or
"Blue Sky" laws in connection with the purchase and resale of the Notes by the
Initial Purchaser. Neither the Company nor any of its Subsidiaries is (i) in
violation of its certificate of incorporation or bylaws, (ii) in breach or
violation of any statute, judgment, decree, order, rule or regulation applicable
to it or any of its properties or assets, except for any such breach or
violation which would not, individually or in the aggregate, have a Material
Adverse Effect or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
breach of or default under) or in violation of any of the terms or provisions of
any indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate,
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<PAGE> 6
contract or other agreement or instrument to which the Company or such
Subsidiary is a party or to which the Company or any of its Subsidiaries or any
of its or their respective properties or assets is subject, except as disclosed
in the Final Memorandum and except for any such breach, default, violation or
event which would not, individually or in the aggregate, have a Material Adverse
Effect.
(h) Subject to receipt by the Company of the Noteholder Consent, the
execution, delivery and performance by the Company of this Agreement and by the
Company and each Guarantor of each of the Transaction Documents to which it is a
party and the consummation by the Company and each Guarantor of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof and
thereof, will not conflict with or constitute or result in a breach of or a
default under (or an event which, with notice of passage of time or both, would
constitute a breach of or default under) or violation of (i) any indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate, contract or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or to which the Company
or any of its Subsidiaries or any of its properties or assets is subject other
than as disclosed in the Final Memorandum and other than any such breaches,
defaults, violations or events which would not, individually or in the
aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation
or bylaws of the Company or any of its Subsidiaries, or (iii) assuming
compliance with the Act and all applicable state securities or "Blue Sky" laws,
any statute, judgment, decree, order, rule or regulation applicable to the
Company, any of its Subsidiaries, or any of its or their respective properties
or assets. There is no material contract or other agreement of a character that
would be required to be described in the Preliminary Memorandum or the Final
Memorandum if the Final Memorandum were a prospectus included in a registration
statement on Form S-1 filed under the Act which is not described therein.
(i) The audited consolidated financial statements and related notes
of the Company included in the Final Memorandum present fairly in all material
respects the consolidated financial position, the results of operations and cash
flows of the Company and its Subsidiaries at the dates and for the periods to
which they relate and have been prepared in conformity with GAAP, except as
otherwise stated therein. The unaudited consolidated financial statements and
related notes and schedules of the Company and its subsidiaries included in the
Final Memorandum present fairly the consolidated financial position, results of
operations and cash flows of the Company and its Subsidiaries at the dates and
for the periods to which they relate, subject to year-end audit adjustments, and
have been prepared on a basis consistent with the audited consolidated financial
statements of the Company and its Subsidiaries and in
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<PAGE> 7
conformity with GAAP. The summary and selected historical financial data in the
Final Memorandum present fairly in all material respects the financial
information shown therein and have been prepared and compiled on a basis
consistent with the audited financial statements included therein, except as
otherwise stated therein.
(j) Ernst & Young, LLP, which firm has audited certain of such
financial statements and schedules as set forth in its reports included in the
Final Memorandum, is an independent public accounting firm within the meaning of
the Act.
(k) Except as described in the Final Memorandum, there is not
pending or, to the best knowledge of the Company, threatened or contemplated
against or affecting the Company or any of its Subsidiaries, any action, suit,
proceeding, inquiry or investigation to which the Company or any of its
Subsidiaries is a party, or to which any of the property or assets of the
Company or any of its Subsidiaries are subject, before or brought by any court
or governmental agency or body (i) which, if determined adversely to the Company
or such Subsidiary, would have, individually or in the aggregate, a Material
Adverse Effect or which seeks to restrain, enjoin, prevent the consummation of
or otherwise challenge the issuance or sale of the Notes to be sold hereunder or
the consummation of any other transactions described in the Final Memorandum or
contemplated by the Transaction Documents or (ii) which would be required to be
disclosed in the Preliminary Memorandum or the Final Memorandum if the Final
Memorandum were a prospectus included in a registration statement on Form S-1
filed under the Act.
(l) The Company owns or possesses adequate licenses or other rights
to use all trademarks, service marks, trade names, patents and know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary to conduct the
businesses as presently conducted, proposed to be conducted and as described in
the Final Memorandum, and the consummation of the transactions contemplated by
this Agreement and each of the Transaction Documents will not alter or impair
any of such rights. No claims have been asserted, and the Company has not
received any notice of conflict with (or knows of any such conflict with)
asserted rights of others with respect to the use, validity or effectiveness of
any trademarks, service marks, trade names or know-how which, if such claim or
assertion of conflict were the subject of an unfavorable decision, ruling or
finding would, individually or in the aggregate, have a Material Adverse Effect.
(m) The Company and each of its Subsidiaries possess all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings (collectively, "Permits") with,
all federal, state, local
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<PAGE> 8
and foreign governmental authorities with jurisdiction, all self-regulatory
organizations and all courts and other tribunals, presently required or
necessary for the Company and each of its Subsidiaries to own or lease its
properties, as the case may be, and to possess or operate its properties and to
carry on its business as now conducted or proposed to be conducted as set forth
in the Final Memorandum, except where the failure to obtain such Permits, or to
make all declarations and filings, would not, individually or in the aggregate,
have a Material Adverse Effect. The Company has fulfilled and performed all of
its obligations with respect to such Permits except obligations which the
failure to fulfill or perform would not have a Material Adverse Effect, and no
event has occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof, or results in any material impairment of the
rights of the holder of any such Permit. The Company and each of its
Subsidiaries is in compliance with the terms and conditions of each Permit
issued to the Company or its Subsidiaries, except where the failure to be in
such compliance would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Final Memorandum.
(n) Since the respective dates as of which information is given in
the Final Memorandum, except as described therein or contemplated thereby, (i)
neither the Company nor any of its Subsidiaries has incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) not in the ordinary course of
business and (ii) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock or otherwise.
(o) Each of the Company and its Subsidiaries has duly and timely
filed (with due regard to proper extensions) all necessary federal, state and
foreign income and franchise tax returns that are required to be filed and, when
filed, all such returns were true, correct and complete, except where the
failure to so duly and timely file correct and complete returns would not,
individually or in the aggregate, have a Material Adverse Effect, and, except as
set forth in the Final Memorandum, has paid all taxes, assessments, fees and
other charges (including, without limitation, withholding taxes, penalties and
interest) due or claimed to be due thereon that are due and payable, other than
tax deficiencies which (i) the Company or any of its Subsidiaries is contesting
in good faith and for which the Company or such Subsidiary has provided adequate
reserves in accordance with GAAP, or (ii) the failure to pay would not have a
Material Adverse Effect. There is no tax deficiency or actual or proposed tax
assessment that has been asserted against the Company or any of its Subsidiaries
that would have, individually
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<PAGE> 9
or in the aggregate, a Material Adverse Effect. The Company is not aware of any
probable basis for the imposition of any material additional tax assessment
against the Company or any of its Subsidiaries for any taxable period ending on
or before the date hereof that would individually or in the aggregate have a
Material Adverse Effect. The charges, accruals and reserves on the books of each
of the Company and its Subsidiaries in respect of any tax liability not finally
determined for any taxable period ending on or before the date hereof are
adequate to meet any reasonably foreseeable assessments or re-assessments for
additional tax for any such taxable years.
(p) None of the Company or any agent acting on its behalf has taken
or will take any action that could cause the transactions contemplated by this
Agreement, the Final Memorandum or any of the Transaction Documents to, and none
of the execution, delivery and performance of this Agreement, the application of
the proceeds from the issuance and sale of the Notes and the consummation of the
transactions contemplated by this Agreement and the Transaction Documents will,
violate Section 7 of the Exchange Act or any regulation promulgated thereunder,
including, without limitation, Regulation G, T, U or X promulgated by the Board
of Governors of the Federal Reserve System, in each case, as in effect, or as
the same may hereafter be in effect, on the Closing Date.
(q) Except as disclosed in the Final Memorandum, the Company and its
Subsidiaries have (a) good and marketable title to all real property and other
material assets (personal, tangible, intangible or mixed) described in the Final
Memorandum as owned by them, and, good and marketable title to all leasehold
estates in the real and personal property described in the Final Memorandum as
being leased by them, or purported to be owned by them, and such title will be
free and clear of all Liens, with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such property and (b)
peaceful and undisturbed possession under all leases to which it is a party as
lessee or sublessee, except for such defects in title or lack of possession
that, in the aggregate, would not have a Material Adverse Effect. Each of the
Company and its Subsidiaries operates all real and personal property leased by
it under valid and enforceable leases and, except as disclosed in the Final
Memorandum has performed in all material respects the obligations required to be
performed by it with respect to each such lease, except for such leases and
obligations which, singly or in the aggregate, would not materially interfere
with the use and possession of such real and personal property or where the
failure to perform would not have a Material Adverse Effect. As to leases with
respect to which the Company or any of its Subsidiaries is the lessor, the
lessees and other parties under such leases are in compliance with all material
terms and conditions thereunder and such leases are in full force and effect.
Except as disclosed in the Final Memorandum, neither the
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<PAGE> 10
Company nor any of its Subsidiaries is a lessor with respect to any leases that,
singly or in the aggregate, are material to the management or business
operations of the Company or any Subsidiary. All tangible assets and properties
of the Company and its Subsidiaries are in good working condition (subject to
ordinary wear and tear) and are adequate for the uses to which they are being
put or would be put in the ordinary course of business.
(r) There are no legal or governmental proceedings involving or
affecting the Company or any of its Subsidiaries or any of their respective
properties or assets which would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum, nor are
there any material contracts or other documents which would be required to be
described in a prospectus pursuant to the Act that are not described in the
Final Memorandum.
(s) Except as described in the Final Memorandum, there are no
consensual encumbrances or restrictions on the ability of any Subsidiary of the
Company (x) to pay dividends or make any other distributions on such
Subsidiary's capital stock or to pay any indebtedness owed to the Company or any
other Subsidiary of the Company, (y) to make any loans or advances to, or
investments in, the Company or any other Subsidiary of the Company or (z) to
transfer any of its property or assets to the Company or any other Subsidiary of
the Company.
(t) There are no outstanding claims for services, either in the
nature of a finder's fee, financial advisory fee, origination fee or similar
fee, with respect to the transactions contemplated hereby and by the Transaction
Documents.
(u) Except as described in the Final Memorandum, each of the Company
and its Subsidiaries is in compliance in all respects with all existing and
applicable domestic and foreign laws, rules or regulations relating to pollution
or protection of public or employee health or the environment ("Environmental
Law") and with the terms and conditions of any Permit, issued to the Company or
its Subsidiaries thereunder in connection with the ownership, operation or use
of its business, property and assets, except where the failure to be in such
compliance would not, individually or in the aggregate, have a Material Adverse
Effect. Except as disclosed in the Final Memorandum, none of the Company or its
Subsidiaries is subject to any known liability, absolute or contingent, under
any Environmental Law except for any such liability which would not,
individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in the Final Memorandum, there is no civil, criminal or administrative
action, suit, demand, hearing, notice of violation or deficiency, investigation,
proceeding or notice of potential responsibility or demand letter or request for
information pending or, to the best knowledge of the Company, threatened against
the Company or
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<PAGE> 11
any of its Subsidiaries under any Environmental Law which, if determined
adversely to the Company or any of its Subsidiaries would, individually or in
the aggregate, result in a Material Adverse Effect.
(v) Each of the Company and its Subsidiaries carries insurance
(including self insurance) in such amounts and covering such risks as is
adequate for the conduct of its business and the value of its properties and as
is customary for companies similarly situated within the industry of the
Company.
(w) (i) None of the Company or its Subsidiaries has any liability
for any prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing, 401(k) plan or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and (ii) the fair market value of the assets of any
such employee pension benefit plan equals or exceeds the present value of the
liabilities of such plan (as determined in accordance with the actuarial methods
and assumptions set forth in the latest actuarial report for such employee
pension benefit plan), in each case, to which the Company or any of its
Subsidiaries makes or ever has made a contribution and in which any employee of
the Company or any of its Subsidiaries is or has ever been a participant. With
respect to such plans, the Company and each of its Subsidiaries is in compliance
in all material respects with all applicable provisions of ERISA. The execution
and delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby and by the Transaction Documents will not
involve any prohibited transaction (within the meaning of Section 406 of ERISA).
Neither the Company nor any of its "Affiliates" is a "party in interest" or a
"disqualified person" with respect to any employee benefit plans. No condition
exists or event or transaction has occurred in connection with any employee
benefit plan that could result in the Company or any such "Affiliate" incurring
any liability, fine or penalty that could, singly or in the aggregate, have a
Material Adverse Effect. For purposes of this paragraph (x), the terms "employee
benefit plan," "employee pension benefit plan," and "party in interest" shall
have the meanings assigned to such terms in Section 3 of ERISA, the term
"Affiliate" shall have the meaning assigned to such term in Section 407(d)(7) of
ERISA, and the term "disqualified person" shall have the meaning assigned to
such term in section 4975 of the Internal Revenue Code of 1986, as amended, or
the rules, regulations and published interpretations promulgated thereunder.
(x) The Company is not and, after giving effect to the offering and
sale of the Notes, the Company will not be an "investment company" or a company
"controlled by" an "investment company" or "promoter" or "principal underwriter"
for an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended, and the rules and regulations
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<PAGE> 12
thereunder.
(y) Except as disclosed in the Final Memorandum, no holder of
securities of the Company or any of its Subsidiaries will be entitled to have
such securities registered under the registration statements required to be
filed by the Company pursuant to the Registration Rights Agreement.
(z) Except as disclosed in the Final Memorandum, as of the Closing
Date, and immediately after the consummation of the transactions contemplated by
this Agreement and by the Transaction Documents, the fair value and current fair
saleable value of the assets of the Company (on a consolidated basis) will
exceed the sum of its stated liabilities and identified contingent liabilities.
Except as disclosed in the Final Memorandum, the Company is not, after giving
effect to the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and by the Transaction
Documents, (a) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted and as described in the Final
Memorandum, (b) unable to pay its debts (contingent or otherwise) as they mature
or (c) otherwise insolvent.
(aa) Neither the Company nor any person acting on its behalf (other
than the Initial Purchaser) has offered or sold the Notes by means of any
general solicitation or general advertising within the meaning of Rule 502(c)
under the Act or, with respect to Notes sold outside the United States to
non-U.S. persons (as defined in Rule 902 under the Act), by means of any
directed selling efforts within the meaning of Rule 902 under the Act, and the
Company, any affiliate of the Company and any person acting on its or their
behalf (other than the Initial Purchaser) have complied with and will implement
the "offering restrictions" within the meaning of such Rule 902.
(bb) Except as permitted by the Act, the Company has not distributed
and, prior to the later to occur of the Closing Date and completion of the
distribution of the Notes, will not distribute any offering material in
connection with the offering and sale of the Notes other than the Preliminary
Memorandum and the Final Memorandum.
(cc) Except as disclosed in the Final Memorandum, (a) neither the
Company nor any other person acting on behalf of the Company (other than the
Initial Purchaser) has solicited offers to buy or offered or sold or otherwise
negotiated in respect of any security that is or could be integrated with the
sale of the Notes in a manner that would require the registration under the Act
of any of the Notes, and (b) the Company will take reasonable precautions
designed to insure that any offer or sale, direct or indirect, in the United
States or to any U.S. person (as defined in Rule 902 under the Act) of any Notes
or any substantially
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<PAGE> 13
similar security issued by the Company, within six months subsequent to the date
on which the distribution of the Notes has been completed, is made under
restrictions and other circumstances reasonably designed not to affect the
status of the offer and sale of the Notes in the United States and to U.S.
persons contemplated by this Agreement as transactions exempt from the
registration requirements of the Act.
(dd) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes.
(ee) Assuming the accuracy of and compliance with the
representations and warranties of the Initial Purchaser in Section 8 hereof, it
is not necessary in connection with the offer, sale and delivery of the Notes to
the Initial Purchaser in the manner contemplated by this Agreement to register
any of the Notes under the Act or to qualify the Indenture under the TIA.
(ff) As of the date hereof, no other securities of the Company are
of the same class (within the meaning of Rule 144A under the Act) as the
Securities and listed on a national securities exchange registered under Section
6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation
system.
(gg) None of the Company or its Subsidiaries has taken, nor will any
of them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Notes.
(hh) Neither the Company nor any of its Subsidiaries is a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(ii) Except as described in the Preliminary Memorandum and the Final
Memorandum, (i) neither the Company nor any of its Subsidiaries is engaged in
any unfair labor practice, (ii) there is no unfair labor practice complaint or
other proceeding pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries before the National Labor
Relations Board or any state, local or foreign labor relations board or any
industrial tribunal, and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending or threatened, that
could, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (iii) no strike, labor dispute, slowdown or stoppage is pending
or, to the best knowledge of the Company, threatened against the Company or any
of its Subsidiaries, and (iv) there is no union representation question existing
with respect to the
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<PAGE> 14
employees of the Company or any of its Subsidiaries, and, to the best of the
Company's knowledge, no union organizing activities are taking place that could,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(jj) Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
material transactions are executed in accordance with management's general or
specific authorization, (ii) material transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP, and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
material differences.
(kk) This Agreement, the Notes and each of the Transaction Documents
conform in all material respects to the descriptions thereof in the Preliminary
Memorandum and, as of the Closing Date, the Final Memorandum.
3. PURCHASE, SALE AND DELIVERY OF THE NOTES. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, $20,000,000 aggregate principal amount of Notes at a
purchase price equal to 100% of the aggregate principal amount of Notes being
issued and sold. One or more certificates in definitive form for the Notes that
the Initial Purchaser has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as the Initial Purchaser
requests upon notice to the Company at least 24 hours prior to the Closing Date,
shall be delivered by or on behalf of the Company to the Initial Purchaser,
against payment by or on behalf of the Initial Purchaser of the purchase price
therefor. Such delivery of and payment for the Notes shall be made at the
offices of Anderson Kill & Olick, P.C., 1251 Avenue of the Americas, New York,
New York 10020 at 10:00 a.m., New York City time, on December 1, 1997, or at
such other place, time or date as the Initial Purchaser, on the one hand, and
the Company, on the other hand, may agree upon, such time and date of delivery
against payment being herein referred to as the "Closing Date". With respect to
Notes to be delivered in definitive certificated form, the Company will make
certificates for such Notes available for checking and packaging by the Initial
Purchaser at the offices of Jefferies & Company, Inc. in Los Angeles, California
or at such other place as the Initial Purchaser may designate, on the business
day next preceding the Closing Date. Notes to be represented by one or more
definitive global Notes in book-entry form will be deposited on the Closing
Date, by or on behalf of
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<PAGE> 15
the Company, with The Depository Trust Company ("DTC") or its designated
custodian, and registered in the name of Cede & Co.
4. OFFERING BY THE INITIAL PURCHASER. The Initial Purchaser proposes to
make an offering of the Notes, at the price and upon the terms set forth in the
Final Memorandum, as soon as practicable after this Agreement is entered into
and as in the judgment of the Initial Purchaser is advisable.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Initial Purchaser that:
(a) The Company shall not make any amendment or supplement to the
Final Memorandum of which the Initial Purchaser shall not previously have been
advised and furnished a copy for a reasonable period of time prior to the
proposed amendment or supplement and as to which the Initial Purchaser shall not
have given its consent. The Company shall promptly, upon the reasonable request
of the Initial Purchaser, make any amendments or supplements to the Preliminary
Memorandum or the Final Memorandum that may be necessary or advisable in
connection with the resale of the Notes by the Initial Purchaser.
(b) The Company shall use its best efforts, in cooperation with the
Initial Purchaser, to arrange for the qualification of the Notes for offering
and sale under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may designate and shall continue such qualifications in effect
for as long as may be necessary to complete the resale of the Notes.
(c) If, at any time prior to the completion of the initial resale of
the Notes by the Initial Purchaser to persons other than affiliates of the
Initial Purchaser (as determined by the Initial Purchaser), any event occurs as
a result of which the Final Memorandum as then amended or supplemented would
include any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Final Memorandum to comply with
applicable law, the Company will promptly notify the Initial Purchaser thereof
and will prepare, at the expense of the Company, an amendment or supplement to
the Final Memorandum that corrects such statement or omission or effects such
compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the Final
Memorandum or any amendment or supplement thereto as the Initial Purchaser or
such counsel may reasonably request.
(e) For so long as any of the Notes remain
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<PAGE> 16
outstanding, the Company will furnish to the Initial Purchaser copies of all
reports and other communications (financial or otherwise) furnished by the
Company to the Trustee or the holders of the Notes and, as soon as available,
copies of any reports or financial statements furnished to or filed by the
Company with the Commission or any national securities exchange on which any
class of securities of the Company may be listed.
(f) Except as described in the Final Memorandum, none of the Company
or any of its affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Act) which
could be integrated with the sale of the Notes in a manner which would require
the registration of the Notes under the Act.
(g) The Company will not solicit any offer to buy or offer to sell
the Notes by means of any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Act.
(h) For so long as any of the Notes remain outstanding, the Company
will make available, upon request, to any seller or prospective purchaser of
such Notes, the information specified in Rule 144A(d)(4) under the Act, unless
the Company is then subject to Section 13 or 15(d) of the Exchange Act.
(i) The Company will use its best efforts to (i) permit the Notes to
be designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to trading in the Private Offering, Resales and
Trading through Automated Linkages market (the "PORTAL Market") and (ii) permit
the Notes to be eligible under Rule 144A for clearance and settlement through
DTC.
(j) (i) During the period beginning from the date hereof and
continuing until the date 180 days after the Closing Date, except as
contemplated by the Final Memorandum, the Company will not offer, sell, grant
any option to purchase, contract to sell or otherwise dispose of (or announce
any offer, sale, grant of any option to purchase or other disposition), except
as provided hereunder, any securities that are similar to the Notes, including
but not limited to, any securities that are convertible into or exchangeable
for, or that represent the right to receive any such securities similar to the
Notes, and the Company shall not offer, sell, contract to sell or otherwise
dispose of securities of the Company after such 180 day period if such
transaction would cause the initial offer and sale by the Company and resale by
the Initial Purchaser of the Notes not to be exempt from the registration
requirements of the Act.
(k) During the two year period after the Closing Date
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<PAGE> 17
(or such shorter period as may be provided for in Rule 144(k) under the Act, as
the same may be in effect from time to time), the Company will not, and will not
permit any of its subsidiaries or other affiliates (as defined in Rule 144A
under the Act) controlled by it to, resell any of the Notes which constitute
"restricted securities" under Rule 144 that have been acquired by any of them,
except pursuant to an effective registration statement under the Act.
(l) The Company shall pay all stamp, documentary and transfer taxes
and other duties, if any, which may be imposed by the United States or any
political subdivision thereof or taxing authority thereof or therein with
respect to the issuance of the Notes or the sale thereof to the Initial
Purchaser.
(m) For so long as the Initial Purchaser shall hold any Notes the
Company shall notify the Initial Purchaser promptly in writing if the Company or
any of its "Affiliates" becomes a "party in interest" or a "disqualified person"
with respect to any "employee benefit plan." The terms "Affiliates," "party in
interest," "disqualified person" and "employee benefit plan" shall have the
meanings as set forth in Section 2(x) hereof.
(n) The Company will cooperate with the Initial Purchaser and with
its counsel in connection with the qualification of the Notes for offering and
sale by the Initial Purchaser and by dealers under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchaser may designate and will file
such consents to service of process or other documents necessary or appropriate
in order to effect such qualification; provided that in no event shall the
Company be obligated to qualify to do business or qualify as a broker-dealer in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits or to taxation in any
jurisdiction where it is not now so qualified or subject.
(o) The Company agrees to use its best efforts to comply with all of
the terms and conditions of the Registration Rights Agreement, and all
agreements set forth in the representation letter of the Company to DTC relating
to the approval of the Notes by DTC for "book entry" transfer.
(p) Except as stated in this Agreement, the Company has not taken,
nor will it take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Notes to facilitate the sale or resale of the Notes.
(q) The Company agrees not to sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Notes in a manner that would
require the
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<PAGE> 18
registration under the Act of the sale by the Company to the Initial Purchaser
or by the Initial Purchaser to purchasers of the Notes.
(r) The Company agrees that, until the date on which all principal
of and premium, if any, and interest (including any Additional Interest (as
defined in the Registration Rights Agreement)) on the Notes has been paid in
full, it will not make any payments of principal, premium, if any, or interest
on any of the promissory notes listed on Exhibit 5(r) hereto (such promissory
notes shall be collectively referred to herein as (the "Affiliate Notes").
6. EXPENSES. The Company agrees to pay all costs and expenses incident to
the performance of its obligations under this Agreement and the Transaction
Documents, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses related or incident to (i) the printing, word processing or
other production of documents with respect to the transactions contemplated
hereby, including any costs of printing the Preliminary Memorandum and the Final
Memorandum and any amendment or supplement thereto, (ii) all arrangements
relating to the delivery to the Initial Purchaser of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) the preparation,
issuance and delivery to the Initial Purchaser of the Notes, (v) the
qualification for the Notes under state securities and "Blue Sky" laws,
including filing fees and fees and disbursements of counsel incurred by the
Initial Purchaser relating thereto, (vi) all reasonable fees and expenses
incurred by the Initial Purchaser, including, without limitation, the reasonable
fees and disbursements of Anderson Kill & Olick, P.C., counsel to the Initial
Purchaser, incurred in connection with the transactions contemplated by the
Transaction Documents, (vii) expenses in connection with any meetings with
prospective investors in the Notes, (viii) fees and expenses of the Trustee,
including reasonable fees and expenses of its counsel incurred by any of them
and (ix) all expenses and listing fees incurred in connection with the
application for quotation of the Notes on the PORTAL Market. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder other
than solely by reason of a default by the Initial Purchaser on its obligations
hereunder after all conditions hereunder have been satisfied in accordance
herewith, the Company agrees to promptly reimburse the Initial Purchaser upon
request for all expenses (including reasonable fees and disbursements of
Anderson Kill & Olick, P.C., counsel
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<PAGE> 19
for the Initial Purchaser) that shall have been incurred by the Initial
Purchaser in connection with the proposed purchase and sale of the Notes.
7. CONDITIONS OF THE INITIAL PURCHASER'S OBLIGATIONS. The obligation of
the Initial Purchaser to purchase and pay for the Notes shall be subject to the
satisfaction or waiver of the following conditions on or prior to the Closing
Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Squire, Sanders & Dempsey LLP, counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchaser, substantially
to the effect that:
(i) Each of the Company and its Subsidiaries (including each
of the Guarantors) is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Final
Memorandum.
(ii) Each of the Company and its Subsidiaries (including each
of the Guarantors) is duly qualified as a foreign corporation and is in
good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse
Effect.
(iii) Except as disclosed in the Final Memorandum, all of the
outstanding shares of capital stock of the Subsidiaries of the Company are
owned, directly or indirectly, by the Company, free and clear of all
Encumbrances.
(iv) Except as set forth in the Final Memorandum, (A) no
options, warrants or other rights to purchase from the Company any Equity
Interests in the Company are outstanding, (B) no agreements, contracts,
arrangements or other obligations of the Company to issue, or other rights
granted by the Company to cause the Company to convert, any obligation
into, or exchange any securities for, any Equity Interests in the Company
are outstanding and (C) the Company is not obligated to have any of its
securities registered under a registration statement filed by the Company
under the Act with respect to any of the Notes.
(v) The Company has all requisite corporate power and
authority to execute, deliver and perform its
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<PAGE> 20
obligations under the Indenture and the Notes. Each of the Guarantors has
all requisite corporate power and authority to execute, deliver and
perform its respective obligations under the Indenture and the Guarantee
to which it is a party. The Indenture, the Notes and each of the
Guarantees have been duly and validly authorized and executed by the
Company and each Guarantor party thereto and, when duly authenticated by
the Trustee in accordance with the Indenture and when delivered by the
Company and paid for by the Initial Purchaser in accordance with the terms
of this Agreement, (a) the Indenture, the Notes and each of the Guarantees
will constitute the valid and legally binding obligations of the Company
and each Guarantor party thereto, enforceable against the Company and each
Guarantor party thereto, in accordance with their respective terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency
(including all laws relating to fraudulent transfer), reorganization,
receivership, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity (whether applied by a court of law or equity) and the discretion of
the court before which any proceeding therefor may be brought, and (b) the
holders of the Notes will be entitled to the benefits of the Indenture and
each of the Guarantees except as such benefits may be limited by (i)
bankruptcy, insolvency (including all laws relating to fraudulent
transfer), reorganization, receivership, moratorium, fraudulent conveyance
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (whether applied by
a court of law or equity) and the discretion of the court before which any
proceeding therefor may be brought.
(vi) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has been
duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency
(including all laws relating to fraudulent transfer), reorganization,
receivership, moratorium, fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may
be brought and (iii) federal or state securities laws or principles of
public policy affecting enforcement of rights to indemnity or
contribution.
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<PAGE> 21
(vii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly and validly authorized, executed
and delivered by the Company and constitutes the valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency (including all laws relating to fraudulent
transfer), reorganization, receivership, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally (ii)
general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may
be brought and (iii) federal or state securities laws or principles of
public policy affecting enforcement of rights to indemnity or
contribution.
(viii) The statements set forth in the Final Memorandum under
the caption "Description of Notes", fairly summarize in all material
respects the legal matters and documents referred to therein.
(ix) The statements in the Final Memorandum, insofar as they
are descriptions of contracts, agreements or other legal documents, are
accurate in all material respects and present fairly the information
required to be shown.
(x) The Indenture, the Notes, the Guarantees (when issued in
accordance with the Indenture), and the Registration Rights Agreement
conform in all material respects to the descriptions thereof contained in
the Final Memorandum.
(xi) Except as set forth in the Final Memorandum, no legal or
governmental actions, suits or proceedings are pending or, to the
knowledge of such counsel, threatened to which the Company or any of its
Subsidiaries is a party or to which the property or assets of the Company
or any of its Subsidiaries is subject (i) which, if determined adversely
to the Company or such Subsidiary, would result, individually or in the
aggregate, in a Material Adverse Effect, or which seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or
sale of the Notes to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum or (ii) which would be
required to be disclosed in the Final Memorandum if the Final Memorandum
were a prospectus included in a registration statement on Form S-1 filed
under the Act.
(xii) Assuming that the New Notes have been duly authorized by
all necessary corporate action of the Company,
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<PAGE> 22
such New Notes when duly authenticated by the Trustee in accordance with
the Indenture and duly executed and delivered by the Company in accordance
with the terms of the Registration Rights Agreement and the Indenture,
will constitute the valid and legally binding obligations of the Company
and each of the Guarantors, entitled to the benefits of the Indenture and
enforceable against the Company and each of the Guarantors in accordance
with their terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency (including all laws relating to fraudulent
transfer), reorganization, receivership, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity (whether applied by a court of law or
equity) and the discretion of the court before which any proceeding
therefor may be brought.
(xiii) Except as set forth in the Final Memorandum, the
execution and delivery of this Agreement and each of the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and sale of the Notes
to the Initial Purchaser) will not conflict with or constitute or result
in a material breach or violation of or a default under (or an event which
with notice or passage of time or both would constitute a material default
under) (i) any of the terms or provisions of (A) any indenture, mortgage,
deed of trust, loan agreement, note, or (B) any lease, license, franchise
agreement, Permit, certificate, contract or other agreement or instrument
to which the Company or any of its Subsidiaries is a party or to which
they or their respective properties or assets are subject, except, with
respect to each of clauses (A) and (B) hereof, for any such conflict,
breach, violation, default or event which would not, individually or in
the aggregate, have a Material Adverse Effect, (ii) the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries, or
(iii) any statute, judgment, decree, order, law, rule or regulation, or
any judgment, order or decree of any court, governmental agency or body or
arbitrator applicable to the Company, its Subsidiaries or any of their
respective properties or assets.
(xiv) No consent, approval, authorization or order of any
domestic governmental authority is required for the issuance and sale by
the Company of the Notes to the Initial Purchaser or the other
transactions contemplated hereby, except as have previously been obtained
and as may be required under applicable state securities or Blue Sky laws.
(xv) Based upon the representations, warranties and agreements
of the Company in Sections 1 and 5 of this
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<PAGE> 23
Agreement and of the Initial Purchaser in Section 8 of this Agreement, it
is not necessary in connection with the offer, sale and delivery of the
Notes to the Initial Purchaser under this Agreement or in connection with
the initial resale of such Notes by the Initial Purchaser in accordance
with Section 4 of this Agreement to register the Notes under the
Securities Act, it being understood that no opinion is expressed as to any
subsequent resale of any of the Notes. The Indenture is in sufficient form
for qualification under the TIA. Prior to the commencement of the Exchange
Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the TIA.
(xvi) Neither the consummation of the transactions
contemplated by this Agreement or any of the Transaction Documents nor the
sale, issuance, execution or delivery of the Notes will violate Section 7
of the Exchange Act or any regulation promulgated thereunder, including,
without limitation, Regulation G, T, U or X promulgated by the Board of
Governors of the Federal Reserve System.
Such counsel shall also state that it has reviewed and participated
in discussions concerning the preparation of the Final Memorandum with certain
officers and employees of the Company, with its counsel and its auditors, and
with representatives of the Initial Purchaser and their counsel. The limitations
inherent in the independent verification of factual matters and in the role of
outside counsel are such, however, that such counsel will not assume any
responsibility for the accuracy, completeness or fairness of any of the
statements made in the Final Memorandum, except as set forth in subparagraph
(viii), (ix) and (x) of this Section 7(a). Such counsel shall advise the Initial
Purchaser that, subject to the limitations set forth above, on the basis of the
information such counsel gained in the course of performing the services
referred to above, (i) no facts came to such counsel's attention which gave such
counsel reason to believe that the Final Memorandum (other than the financial
statements and related notes thereto and the other financial, statistical, and
other accounting data, as to which counsel need express no opinion) of its date
or the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. In rendering such opinion, such counsel may (i) rely with
respect to matters of fact upon the representations and warranties of the
Company and its Subsidiaries set forth herein, upon certificates of officers of
the Company and its Subsidiaries and upon information obtained from public
officials, (ii) assume that all documents submitted to such counsel as originals
are authentic, that all copies submitted to such counsel conform to the
originals thereof, and
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<PAGE> 24
that the signatures on all documents examined by such counsel are genuine, (iii)
state that such counsel's opinion is limited to the federal law of the United
States and the laws of the State of New York and the General Corporation Law of
the State of Delaware and (iv) may make such other assumptions and
qualifications as may be reasonably acceptable to the Initial Purchaser and its
counsel. The opinion of Squire, Sanders & Dempsey LLP described in this Section
7(a) shall be rendered at the request of the Company to, and may be relied upon
solely by, the Initial Purchaser and shall so state therein.
References to the Final Memorandum in this subsection (a) shall include
any amendment or supplement thereto prepared in accordance with the provisions
of this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received
opinion(s) in form and substance satisfactory to the Initial Purchaser, dated as
of the Closing Date and addressed to the Initial Purchaser of local counsel to
the Company and its Subsidiaries as to certain regulatory matters with respect
to the Company and its Subsidiaries.
(c) On the Closing Date, the Initial Purchaser shall have received
an opinion, in form and substance satisfactory to the Initial Purchaser, dated
as of the Closing Date and addressed to the Initial Purchaser, of Anderson Kill
& Olick P.C., counsel for the Initial Purchaser, with respect to certain legal
matters relating to this Agreement and such other related matters as the Initial
Purchaser may require. In rendering such opinion, Anderson Kill & Olick P.C.
shall have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(d) The Initial Purchaser shall have received from the Independent
Accountants a comfort letter dated the date hereof, in form and substance
satisfactory to the Initial Purchaser and its counsel.
(e) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date (except for the representations and warranties which were true and
correct as of a certain specified date which shall continue to be true and
correct as of such date). The statements of the Company's officers made pursuant
to any certificate delivered in accordance with the provisions hereof shall be
true and correct in all material respects on and as of the date made and on and
as of the Closing Date. The Company shall have complied in all material respects
with all agreements and satisfied all conditions to be performed or satisfied
hereunder at or prior to the Closing Date. Except as described in the Final
Memorandum
-24-
<PAGE> 25
(exclusive of any amendment or supplement thereto after the date hereof),
subsequent to the date of the most recent financial statements in such Final
Memorandum, there shall have been no development that, singly or in the
aggregate, is reasonably likely to have a Material Adverse Effect.
(f) The sale of the Notes hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(g) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto after
the date hereof), other than as described in such Final Memorandum or
contemplated hereby or thereby, neither the Company nor any of its Subsidiaries
shall have incurred any liabilities or obligations, direct or contingent not in
the ordinary course of business that are material to the Company and its
Subsidiaries, taken as a whole, or entered into any transactions not in the
ordinary course of business that are material to the business, condition
(financial or other) or results of operations or prospects of the Company, taken
as a whole, and there shall not have been any adverse change in the capital
stock or long-term indebtedness of the Company or any of its Subsidiaries that
is material to the business, condition (financial or otherwise) or results of
operations or prospects of the Company and its Subsidiaries, taken as a whole.
(h) Subsequent to the date of the most recent financial statements
in the Final Memorandum and except as stated therein (exclusive of any amendment
or supplement thereto after the date hereof), the conduct of the business and
operations of the Company shall not have been interfered with by strike, fire,
flood, hurricane, accident or other calamity (whether or not insured) or by any
court or governmental action, order or decree, and the properties of the Company
shall not have sustained any loss or damage (whether or not insured) as a result
of any such occurrence, except any such interference, loss or damage which would
not, individually or in the aggregate, have a Material Adverse Effect.
(i) The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed on behalf of the Company by the Chairman
of the Board, President or Chief Executive Officer and their Treasurer, to the
effect that:
(i) the representations and warranties of the Company and its
Subsidiaries contained in this Agreement are true and correct in all
material respects as of the date hereof and as of the Closing Date (except
for the representations and warranties which were true and correct as of a
certain specified date which shall continue to be true and correct as of
such date), and the Company and its Subsidiaries have performed all
covenants and agreements and
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<PAGE> 26
satisfied hereunder all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date;
(ii) at the Closing Date, since the date hereof or since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date hereof),
no event or events have occurred, no information has become known nor does
any condition exist that, individually or in the aggregate, would have a
Material Adverse Effect;
(iii) since the date hereof or since the date of the most
recent financial statements in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), other than as
described in the Final Memorandum or contemplated hereby, neither the
Company nor any of its Subsidiaries has incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business,
that are material to the Company and its Subsidiaries, taken as a whole,
or entered into any transactions not in the ordinary course of business
that are material to the business, condition (financial or otherwise) or
results of operations or prospects of the Company and its Subsidiaries,
taken as a whole, and there has not been any change in the capital stock
or long-term indebtedness of the Company or any of its Subsidiaries that
is material to the business, condition (financial or otherwise) or results
of operations or prospects of the Company and its Subsidiaries, taken as a
whole; and
(iv) the sale of the Notes hereunder has not been enjoined
(temporarily or permanently).
(j) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by the Company and such agreement
shall be in full force and effect at all times from and after the Closing Date.
(k) On the Closing Date, the Initial Purchaser shall have received
Forbearance Agreements, each in form and substance satisfactory to the Initial
Purchaser duly executed by each of the holders of the Affiliate Notes, and such
agreements shall be in full force and effect at all times from and after the
Closing Date until payment in full of all principal, premium, if any, and
interest (including any Additional Interest) on the Notes.
(l) On the Closing Date, the Company will pay or cause to be paid
the reasonable fees and expenses of (i) Squire, Sanders & Dempsey LLP, counsel
to the Company, and (ii) Anderson Kill & Olick, P.C., counsel to the Initial
Purchaser.
On or before the Closing Date, the Initial Purchaser
-26-
<PAGE> 27
and counsel for the Initial Purchaser shall each have received such further
documents, opinions, certificates, letters and schedules or instruments relating
to the business, corporate, legal and financial affairs of the Company and its
subsidiaries as they shall have heretofore reasonably requested from the Company
and its Subsidiaries.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provision
hereof only if they are reasonably satisfactory in all respects to the Initial
Purchaser and counsel for the Initial Purchaser. The Company shall furnish to
the Initial Purchaser such conformed copies of such documents, opinions,
certificates, letters, schedules and instruments in such quantities as the
Initial Purchaser shall reasonably request.
8. REPRESENTATIONS AND WARRANTIES BY THE INITIAL PURCHASER. The Initial
Purchaser represents and warrants (as to itself only) that it is a QIB with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Notes. The
Initial Purchaser agrees with the Company (as to itself only) that (a) it has
not and will not solicit offers for, or offer or sell, the Notes by any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act and the rules and regulations promulgated
thereunder, and (b) it has and will solicit offers for the Notes only from, and
will offer and sell the Notes only to (A) in the case of offers inside the
United States, (i) persons whom the Initial Purchaser reasonably believes to be
QIBs or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented in writing to the Initial Purchaser that each such account is a QIB,
to whom notice has been given that such sale or delivery is being made in
reliance on Rule 144A, and, in each case, in transactions under Rule 144A or
(ii) a limited number of other institutional investors reasonably believed by
the Initial Purchaser to be Accredited Investors that, prior to their purchase
of the Notes, deliver to the Initial Purchaser a letter containing the
representations and agreements set forth in Appendix A to the Final Memorandum
and (B) in the case of offers outside the United States, persons other than U.S.
persons, which term shall include dealers or other professional fiduciaries in
the United States acting on a discretionary basis for foreign beneficial owners
(other than an estate or trust); provided, however, that, in the case of this
clause (b), in purchasing such Notes, such persons are deemed to have
represented and agreed as provided under the caption "Notice to Investors"
contained in the Final Memorandum. The Initial Purchaser acknowledges and agrees
that it will not offer, sell or deliver any Notes in any jurisdiction outside of
the United
-27-
<PAGE> 28
States, its territories or possessions except under circumstances that will
result in compliance with the provisions of Regulation S under the Act and the
applicable laws of such jurisdiction.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchaser, and each person, if any, who controls the Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or liabilities of any kind to which the Initial
Purchaser or such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as any such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto;
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or
(iii) any breach by the Company or any of its Subsidiaries of their
respective representations, warranties and agreements set forth herein.
and, subject to the provisions hereof, will reimburse, as incurred, the Initial
Purchaser and each such controlling person for any legal or other expenses
incurred by the Initial Purchaser or such controlling person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action in respect
thereof; provided, however, the Company will not be liable in any such case to
the extent (but only to the extent) that any such loss, claim, damage or
liability is finally judicially determined by a court of competent jurisdiction
in a final, unappealable judgment, to have resulted primarily from any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Memorandum or any amendment or supplement thereto in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to the Company by the Initial Purchaser specifically for use therein. This
indemnity agreement will be in addition to any liability that the Company may
otherwise have to the indemnified parties. The Company shall not be liable under
this Section 9 for any settlement of any claim or action effected without its
prior written consent, which shall not be unreasonably withheld, and provided,
further, however, that this indemnity, as to the Preliminary Memorandum, shall
not inure to the benefit of the
-28-
<PAGE> 29
Initial Purchaser (or any person controlling such Initial Purchaser) on account
of any loss, claim, damage or liability arising from the sale of Notes to any
person by such Initial Purchaser if such Initial Purchaser failed to send or
give a copy of the Final Memorandum (as the same may be supplemented or amended)
to such person at or prior to the written confirmation of the sale of the to
such person, and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact in such Preliminary Memorandum was corrected
in the Final Memorandum, unless such failure resulted from noncompliance by the
Company with Section 5(c).
(b) The Initial Purchaser agrees to indemnify and hold harmless each
of the Company, its directors, officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) are finally judicially
determined by a court of competent jurisdiction in a final, unappealable
judgment, to have resulted solely from (x) (i) any untrue statement or alleged
untrue statement of any material fact contained in any Memorandum or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in any Memorandum or any
amendment or supplement thereto or necessary to make the statements therein in
light of the circumstances under which they were made not misleading, in each
case to the extent (but only to the extent), that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Initial
Purchaser, furnished to the Company by the Initial Purchaser specifically for
use therein or (y) any breach by the Initial Purchaser of its representations,
warranties and agreements set forth in Section 8 hereof. Notwithstanding the
provisions of this Section 9, the Initial Purchaser's indemnification
obligations shall be limited to the amount of the commission received by the
Initial Purchaser applicable to the Notes purchased by the Initial Purchaser
hereunder.
(c) As promptly as reasonably practical after receipt by an
indemnified party under this Section 9 of notice of the commencement of any
action for which such indemnified party is entitled to indemnification under
this Section 9, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 9, notify the
indemnifying party of the commencement thereof in writing; but the omission to
so notify the indemnifying party (i) will not relieve such indemnifying party
from any liability under paragraph (a) or (b) above unless and only to the
extent it is materially prejudiced as a result thereof and (ii) will not, in
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<PAGE> 30
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraphs (a) and (b) above. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may determine, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the defendants in
any such action include both the indemnified party and the indemnifying party,
and the indemnified party shall have been advised in writing by counsel that
there may be one or more legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, or (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after receipt by the indemnifying
party of notice of the institution of such action, then, in each such case, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties at the expense of the indemnifying
party. After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by the Initial Purchaser in the case of paragraph (a) of this Section
9 or the Company in the case of paragraph (b) of this Section 9, representing
the indemnified parties under such paragraph (a) or paragraph (b), as the case
may be, who are parties to such action or actions) or (ii) the indemnifying
party has authorized in writing the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the prior
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<PAGE> 31
written consent of the indemnifying party (which consent shall not be
unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) No indemnifying party shall be liable under this Section 9 for
any settlement of any claim or action (or threatened claim or action) effected
without its written consent, which shall not be unreasonably withheld, but if a
claim or action settled with its written consent, or if there be a final
judgment for the plaintiff with respect to any such claim or action, each
indemnifying party jointly and severally agrees, subject to the exceptions and
limitation set forth above, to indemnify and hold harmless each indemnified
party from and against any and all losses, claims, damages or liabilities (and
legal and other expenses as set forth above) incurred by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of any
pending or threatened proceeding in respect of which the indemnified party is or
could have been a party, or indemnity could have been sought hereunder by the
indemnified party, unless such settlement (A) includes an unconditional written
release of the indemnified party, in form and substance satisfactory to the
indemnified party, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of the indemnified party.
(e) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to, or insufficient
to hold harmless, an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contributions, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Notes or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Company on the one hand and the
Initial Purchaser on the other shall be deemed to be in the same proportion as
the total proceeds from the offering of the Notes (before deducting expenses)
received by the Company bear to the total discounts and
-31-
<PAGE> 32
commissions received by such Initial Purchaser. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand, or such Initial Purchaser on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or alleged statement or omissions, and any other
equitable considerations appropriate under the circumstances.
(f) The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution determined pursuant to the
immediately preceding paragraph (e) were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the first sentence of the
immediately preceding paragraph (e). Notwithstanding any other provision of the
immediately preceding paragraph (e), the Initial Purchaser shall not be
obligated to make contributions hereunder that in the aggregate exceed the total
discounts, commissions and other compensation received by such Initial Purchaser
under this Agreement, less the aggregate amount of any damages that such Initial
Purchaser has otherwise been required to pay by reason of the untrue or alleged
untrue statements or the omissions or alleged omissions to state a material
fact. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of the
immediately preceding paragraph (e), each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director of the Company, each officer of the Company and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
10. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company and its
Subsidiaries, any of their respective officers or directors, the Initial
Purchaser or any controlling person referred to in Section 9 hereof and shall
survive delivery of and payment for the Notes. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 14
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. TERMINATION. (a) This Agreement may be terminated in
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<PAGE> 33
the sole discretion of the Initial Purchaser by notice to the Company given
prior to the Closing Date in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Closing Date:
(i) the Company shall have sustained any loss or interference
with respect to its businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any strike, labor dispute, slow down or work stoppage or any legal or
governmental proceeding, which loss or interference, in the sole judgment
of the Initial Purchaser, has had, has or is reasonably likely to have a
Material Adverse Effect or there shall have been, in the sole judgment of
the Initial Purchaser, any event or development involving or reasonably
likely to cause or result in a Material Adverse Effect (including without
limitation a change in management or control of the Company), except in
each case as described in the Final Memorandum (exclusive of any amendment
or supplement thereto);
(ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the NASDAQ National Market shall have
been suspended or minimum or maximum prices shall have been established on
any such exchange or market;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial markets
or the markets for high yield debt securities of the United States which,
in the case of clause (A), (B) or (C) and in the sole judgment of the
Initial Purchaser, makes it impracticable or inadvisable to proceed with
the private offering or the delivery of the Notes as contemplated by the
Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. INFORMATION SUPPLIED BY THE INITIAL PURCHASER. The statements set
forth in the last paragraph on the front cover page and in the first, fifth and
seventh paragraphs under the heading "Plan of Distribution" in the Memorandum
(solely to the
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<PAGE> 34
extent such statements relate to the Initial Purchaser) constitute the only
information furnished by the Initial Purchaser to the Company or its
Subsidiaries for the purposes of Sections 2(a) and 9 hereof.
13. NOTICES. All communications hereunder shall be in writing and, if sent
to the Initial Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to (i) Jefferies & Company, Inc., 11100 Santa Monica
Boulevard, 10th Floor, Los Angeles, California 90025, Attention: Jerry Gluck,
Telecopy No. (310) 575-5166; a copy to Anderson Kill & Olick, P.C., 1251 Avenue
of the Americas, New York, New York 10020, Attention: Ronald S. Brody, Esq., and
if sent to the Company, shall be mailed or delivered or telecopied and confirmed
in writing to it at 8800 North Gainey Center Drive, Suite 245, Scottsdale,
Arizona 85258, Attention: Treasurer, Telecopy No. (602) 481-6479; with a copy to
Squire, Sanders & Dempsey LLP, Two Renaissance Squire, 40 North Central Avenue,
Suite 2700 Phoenix, Arizona 85004, Attention: Christopher D. Johnson, Esq.,
Telecopy No. (602) 253-8129.
All such notices and communications shall be deemed to have been
duly given: (a) when delivered by hand, if personally delivered; (b) five
business days after being deposited in the United States mail, postage prepaid,
if mailed; (c) one business day after being timely delivered to a next-day air
courier; and (d) when receipt is acknowledged by the addressed, if telecopied.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person, except that (i) the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company, their respective
officers and any person or persons who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Notes
from the Initial Purchaser will be deemed a successor because of such purchase.
15. APPLICABLE LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT SHALL BE
CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE
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<PAGE> 35
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE COMPANY AT THE ADDRESS SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE INITIAL
PURCHASER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE,
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 36
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among the Company and the
Initial Purchaser.
Very truly yours,
UNISON HEALTHCARE CORPORATION
By: _______________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
JEFFERIES & COMPANY, INC.
By: _______________________________
Name:
Title:
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<PAGE> 37
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
-37-
<PAGE> 1
Exhibit 4.6
UNISON HEALTHCARE CORPORATION, as Issuer,
THE GUARANTORS (as defined herein), as Guarantors,
and
IBJ Schroder Bank & Trust Company, as Trustee
INDENTURE
Dated as of December 1, 1997
$20,000,000
13% Senior Notes due 1999
<PAGE> 2
Reconciliation and Tie between Trust Indenture Act
of 1939 and Indenture, dated as of December 1, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
----------- -------
<S> <C>
Section 310 (a)(1).............................................................. 7.10
(a)(2).............................................................. 7.10
(a)(3).............................................................. N.A.
(a)(4).............................................................. N.A.
(b)................................................................. 7.8; 13.2
(b)(1).............................................................. 7.10
(b)(9).............................................................. 7.10
(c)................................................................. N.A.
Section 311 (a)................................................................. 7.11
(b)................................................................. 7.11
(c)................................................................. N.A.
Section 312 (a)................................................................. 2.5
(b)................................................................. 11.3
(c)................................................................. 11.3
Section 313 (a)................................................................. 7.6
(b)(1).............................................................. N.A.
(b)(2).............................................................. 7.6
(c)................................................................. 7.6; 11.2
(d)................................................................. 7.6
Section 314 (a)................................................................. 4.2; 4.4; 11.2
(b)................................................................. N.A.
(c)(1).............................................................. 11.4; 11.5
(c)(2).............................................................. 11.4; 11.5
(c)(3).............................................................. 11.4; 11.5
(d)................................................................. N.A.
(e)................................................................. 11.5
(f)................................................................. N.A.
Section 315 (a)................................................................. 7.1; 7.2
(b)................................................................. 7.5; 11.2
(c)................................................................. 7.1
(d)................................................................. 6.5; 7.1; 7.2
(e)................................................................. 6.11
Section 316 (a)(last sentence).................................................. 11.6
(a)(1)(A)........................................................... 6.5
(a)(1)(B)........................................................... 6.4
(a)(2).............................................................. 8.2
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
----------- -------
<S> <C>
(b).................................................................... 6.7
(c).................................................................... 8.04
Section 317 (a)(1).............................................................. 6.8
(a)(2)................................................................. 6.9
(b).................................................................... 7.12
Section 318 (a)................................................................. 11.1
</TABLE>
N.A. means Not Applicable.
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 4
INDENTURE, dated as of December 1, 1997 among UNISON
HEALTHCARE CORPORATION, a Delaware corporation, as Issuer (the "Company"), the
GUARANTORS listed on Schedule 1 hereto and IBJ SCHRODER BANK & TRUST COMPANY, as
Trustee (the "Trustee").
The Company and the Guarantors have duly authorized the
execution and delivery of this Indenture to provide for the issuance of the
Senior Notes (as hereinafter defined) to be issued as provided for in this
Indenture.
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's 13%
Senior Notes due 1999, unconditionally guaranteed by the Guarantors (the "Senior
Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Subsidiary or assumed in connection
with an Asset Acquisition from such Person.
"Acquisition Indebtedness" means Indebtedness incurred by the
Company or by a Subsidiary after the Issue Date the proceeds of which are used
for an Asset Acquisition not prohibited by Section 4.18.
"Additional Interest" means additional interest on the Senior
Notes which the Company agrees to pay pursuant to Section 4 of the Registration
Rights Agreement.
"Adjusted Net Assets" of a Guarantor at any date shall mean
the lesser of the amount by which (x) the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities (including, without limitation, any guarantees of
Indebtedness)), but excluding liabilities under the Guarantee, of such Guarantor
at such date and (y) the present fair salable value of the assets of such
Guarantor at such date exceeds the total amount of its debts (after giving
effect to all other fixed and contingent liabilities (including, without
limitation, any guarantees of Indebtedness), and after giving effect to any
collection from any Subsidiary of such Guarantor in respect of the obligations
of such Subsidiary under the Guarantee), excluding Indebtedness in respect of
the Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control"
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<PAGE> 5
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Affiliate Indebtedness" means (i) Indebtedness of the Company
to any Affiliate of the Company and (ii) Indebtedness of the Company evidenced
by Affiliate Notes.
"Affiliate Notes" means Indebtedness of the Company to any
Affiliate evidenced by promissory notes or similar instruments and issued and
outstanding on the Issue Date.
"Agent" means any Registrar, Paying Agent, co-registrar or
agent for service of notices and demands.
"Asset Acquisition" means (a) an Investment by the Company or
any Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company, or shall be merged with or into the
Company or any Subsidiary of the Company, (b) the acquisition by the Company or
any Subsidiary of the Company of the assets of any Person (other than a
Subsidiary of the Company) which constitute all or substantially all of the
assets of such Person or (c) the acquisition by the Company or any Subsidiary of
the Company of any division or line of business of any Person (other than a
Subsidiary of the Company).
"Asset Sale" means the direct or indirect sale, transfer,
issuance, conveyance, lease (other than operating leases entered into in the
ordinary course of business pursuant to ordinary business terms, it being
understood that the lease of a healthcare facility shall not be considered to be
in the ordinary course but that leases of portions of a healthcare facility to
service providers shall be considered to be in the ordinary course), assignment
or other disposition (including, without limitation, by eminent domain,
condemnation or similar governmental proceeding) and any merger or consolidation
of any Subsidiary of the Company with or into another Person (other than the
Company or any Wholly-Owned Subsidiary of the Company whereby such Subsidiary
shall cease to be a Wholly-Owned Subsidiary of the Company) in any single
transaction or series of related transactions (separate eminent domain,
condemnation or similar governmental proceedings to each be considered a single
transaction but not to be considered together as a series of related
transactions) involving property or assets with a fair market value in excess of
$250,000 of (a) any Equity Interest in any Subsidiary, (b) real property owned
by the Company or any Subsidiary thereof, or a division, line of business or
healthcare facility or comparable business segment of the Company or any
Subsidiary thereof or (c) other property, assets or rights (including, without
limitation, leasehold rights) of the Company, any Subsidiary thereof or any
division, line of business or healthcare facility of the Company or any
Subsidiary thereof, provided, however, that Asset Sales shall not include (i)
sales, leases, conveyances, transfers or other dispositions to the Company or to
a Subsidiary thereof or to any other Person if after giving effect to such sale,
lease, conveyance, transfer or other disposition such other Person becomes a
Wholly-Owned Subsidiary of the Company, (ii) transactions complying with Section
5.1 (except as otherwise provided in Section 4.8 hereof), and (iii) sales,
transfers, issuances, conveyances, leases,
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<PAGE> 6
assignments or other dispositions to the Company or any Wholly-Owned Subsidiary
of the Company.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(i) cash received by the Company or any Subsidiary thereof from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Subsidiary as a result of such Asset Sale, (d) payments made to retire
Indebtedness secured by the assets subject to such Asset Sale and (e) deduction
of appropriate amounts to be provided by the Company or a Subsidiary thereof as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the Company or a
Subsidiary thereof after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other non-cash consideration received by the Company or any Subsidiary thereof
from such Asset Sale or other disposition upon the liquidation or conversion of
such notes or non-cash consideration into cash.
"Attributable Indebtedness" when used with respect to any
Sale-Lease-Back Transaction or an operating lease with respect to a long-term
care facility means, as at the time of determination, the present value
(discounted at a rate equivalent to the interest rate implicit in the lease,
compounded on a semi-annual basis) of the total obligations of the lessee for
rental payments (after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, utilities and other similar expenses
payable by the lessee pursuant to the terms of the lease) during the remaining
term of the lease included in any such Sale and Lease-Back Transaction or such
operating lease or until the earliest date on which the lessee may terminate
such lease without penalty or upon payment of a penalty (in which case the
rental payments shall include such penalty); provided, that the Attributable
Indebtedness with respect to a Sale and Lease-Back Transaction shall be no less
than the fair market value (as determined reasonably and in good faith by the
Board of Directors of the Person incurring the Attributable Indebtedness) of the
property subject to such Sale and Lease-Back Transaction.
"Board of Directors" means, as to any Person, the board of
directors or any duly authorized committee thereof of such Person or, if such
Person is a partnership (or other non-corporate Person), of the managing general
partner or partners (or Persons serving an analogous function) of such Person.
"Board Resolution" means, as to any Person, a copy of a
resolution certified pursuant to an Officers' Certificate to have been duly
adopted by the Board of Directors of such Person, and to be in full force and
effect, and, if required hereunder, delivered to the Trustee.
"Capitalized Lease Obligations" means Indebtedness represented
by obligations
-3-
<PAGE> 7
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP, and the amount of such Indebtedness shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Change of Control" means (i) any sale, merger or
consolidation with or into any Person or any transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" other than an Excluded Person is or becomes the "beneficial
owner" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), directly or indirectly, of more than
50% of the total voting power in the aggregate normally entitled to vote in the
election of the Board of Directors, of the transferee or surviving entity, (ii)
any "person" or "group" other than an Excluded Person is or becomes the
"beneficial owner" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), directly or indirectly,
of more than 50% of the total voting power in the aggregate of all classes of
Equity Interests of the Company then outstanding normally entitled to vote in
elections of the Board of Directors or (iii) during any period of 12 consecutive
months after the Issue Date, individuals who at the beginning of any such
12-month period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose nomination
for election by the shareholders of the Company was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
"Common Equity Interest" of any Person means all Equity
Interests of such Person that are generally entitled to (i) vote in the election
of directors of such Person or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Company Request" means any written request signed in the name
of the Company by any two of the following: the Chief Executive Officer; the
President; any Vice President; the Chief Financial Officer; the Treasurer; or
the Secretary or any Assistant Secretary (but not both the Secretary and any
Assistant Secretary) of the Company.
"Consolidated Cash Flow Available for Fixed Charges" means,
with respect to any Person for any period, on a consolidated basis in accordance
with GAAP, the sum of, without duplication, the amounts for such period, taken
as a single accounting period, of (A) (i) Consolidated Net Income, (ii)
Consolidated Non-cash Charges, (iii) Consolidated Interest Expense, (iv)
Consolidated Income Tax Expense, and (v) one-third of Consolidated
Rental Payments less (B) any non-cash items increasing Consolidated Net Income
for such period.
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<PAGE> 8
"Consolidated Fixed Charge Coverage Ratio" means with respect
to any Person, the ratio of the aggregate amount of Consolidated Cash Flow
Available for Fixed Charges of such Person for the four full fiscal quarters
immediately preceding the date of the transaction (the "Transaction Date")
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (such four full fiscal quarter period being referred to herein as the
"Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated Cash Flow
Available for Fixed Charges" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
such Person or any of its Subsidiaries (and the application of the net proceeds
thereof) during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation (and the application of the net proceeds
thereof), as if such incurrence (and application) occurred on the first day of
the Four Quarter Period (it being understood that with respect to Indebtedness
incurred under a revolving facility used primarily to finance working capital,
the average daily principal amount outstanding during the Reference Period shall
be deemed to be the amount incurred during the Reference Period), and (b) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Subsidiaries (including any Person who becomes a Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness) occurring during the Four Quarter Period, as
if such Asset Sale or Asset Acquisition occurred on the first day of the Four
Quarter Period. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (ii) if interest on
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period. In calculating the Consolidated Fixed Charge Coverage Ratio
and giving pro forma effect to the incurrence of Indebtedness during a Reference
Period, pro forma effect shall be given to use of proceeds thereof to
permanently repay or retire Indebtedness. If such Person or any of its
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
for purposes of determining the "Consolidated Fixed Charge Coverage Ratio,"
effect shall be given to the incurrence of such guaranteed Indebtedness as if
such Person or such Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any Person
for any period, the sum of, without duplication, the amounts for such period of
(i) Consolidated Interest Expense, (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Disqualified Equity Interests of
-5-
<PAGE> 9
such Person and its Subsidiaries on a consolidated basis and (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory income tax rate of such
Person, expressed as a decimal and (iii) one-third of Consolidated Rental
Payments.
"Consolidated Income Tax Expense" means, with respect to any
Person for any period, the provision for federal, state, local and foreign
income taxes of such Person and its Subsidiaries for each period as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
Person, on a consolidated basis in accordance with GAAP, for any period, the sum
of, without duplication, (a) the aggregate amount of interest which, in
conformity with GAAP, would be set forth opposite the caption "interest expense"
or any like caption on an income statement for such Person and its Subsidiaries
on a consolidated basis, (b) imputed interest included in Capitalized Lease
Obligations, (c) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (d) the net
costs associated with Interest Rate Agreements, (e) amortization of other
financing fees and expenses, (f) the interest portion of any deferred payment
obligation, (g) amortization of discount or premium, if any, (h) all other
non-cash interest expense (other than interest amortized to cost of sales), (i)
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP and (j) all
interest incurred or paid under any guarantee of Indebtedness (including a
guarantee of principal, interest or any combination thereof) of any Person.
"Consolidated Net Income" means, with respect to any Person,
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP, plus the amount of any dividends or distributions received by such
Person from Unrestricted Subsidiaries; provided, however, that (a) the Net
Income of any Person (the "other Person") in which the Person in question or any
of its Subsidiaries has less than a 100% interest (which interest does not cause
the net income of such other Person to be consolidated into the net income of
the Person in question in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions paid to the Person in
question or the Subsidiary, (b) the Net Income of any Subsidiary of the Person
in question that is subject to any restriction or limitation (whether by terms
of its charter, agreement or applicable law) on the payment of dividends or the
making of other distributions shall be excluded to the extent such restriction
or limitation would prevent such Subsidiary from being able to pay dividends or
make other distributions out of its Net Income, (c)(i) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition and (ii) any net gain (but not loss) resulting from
an Asset Sale by the Person in question or any of its Subsidiaries other than in
the ordinary course of business shall be excluded, (d) extraordinary gains and
losses (including any related tax effects) shall be excluded and (e) the
cumulative effect of changes in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at
any date, the
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<PAGE> 10
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Disqualified Equity Interests of such
Person and its Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any
Person for any period, the aggregate depreciation, amortization and other
non-cash expenses of such Person and its Subsidiaries reducing Consolidated Net
Income of such Person and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which required an
accrual of or a reserve for cash charges for any future period).
"Consolidated Rental Payments" of any Person means, for any
period, the aggregate rental obligations of such Person and its consolidated
Subsidiaries (not including taxes, utilities, insurance, maintenance and repairs
and other similar expenses that the lessee is obligated to pay under the terms
of the relevant leases), determined on a consolidated basis in accordance with
GAAP, payable in respect of such period (net of income from subleases thereof,
not including taxes, utilities, insurance, maintenance and repairs and other
similar expenses that the sublessee is obligated to pay under the terms of such
sublease), whether or not such obligations are reflected as liabilities or
commitments on a consolidated balance sheet of such Person and its Subsidiaries
or in the notes thereto, excluding, however, in any event, (i) that portion of
Consolidated Interest Expense of such Person representing payments by such
Person or any of its consolidated Subsidiaries in respect of Capitalized Lease
Obligations (net of payments to such Person or any of its consolidated
Subsidiaries under subleases qualifying as capitalized lease subleases to the
extent that such payments would be deducted in determining Consolidated Interest
Expense) and (ii) the aggregate amount of amortization of obligations of such
Person and its consolidated Subsidiaries in respect of such Capitalized Lease
Obligations for such period (net of payments to such Person or any of its
consolidated Subsidiaries and subleases qualifying as capitalized lease
subleases to the extent that such payments could be deducted in determining such
amortization amount).
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at IBJ Schroder Bank & Trust Company, One State Street, 11th Floor, New York,
New York 10001, Attention: Corporate Finance Trust Services.
"Default" means any event that is, or after notice or passage
of time of notice or both would be, an Event of Default.
"Depository" means, with respect to the Senior Notes issued in
the form of one or more Global Notes, The Depository Trust Company or another
Person designated as Depository by the Company, which Person must be a clearing
agency registered under the Exchange Act.
"Disqualified Equity Interests" means any Equity Interest
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at
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<PAGE> 11
the option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date of the Senior Notes, for cash or securities
constituting Indebtedness. Without limitation of the foregoing, Disqualified
Equity Interests shall be deemed to include (i) any Preferred Equity Interests
of a Subsidiary of the Company and (ii) any Preferred Equity Interests of the
Company, with respect to either of which, under the terms of such Preferred
Equity Interests, by agreement or otherwise, such Subsidiary or the Company is
obligated to pay current dividends or distributions in cash during the period
prior to the Maturity Date; provided, however, that Preferred Equity Interests
of the Company or any Subsidiary thereof that are issued with the benefit of
provisions requiring a change of control offer to be made for such Preferred
Equity Interest in the event of a Change of Control of the Company or such
Subsidiary, which provisions have substantially the same effect as the
provisions described in Section 4.22, shall not be deemed to be Disqualified
Equity Interests solely by virtue of such provisions.
"Equity Interests" means, with respect to any Person, any and
all shares or other equivalents (however designated) of capital stock,
partnership interests or any other participation, right or other interests in
the nature of an equity interest in such Person or any option, warrant or other
security convertible into or exchangeable for any of the foregoing; provided
that the contingent obligations to the former BritWill shareholders shall not be
deemed to be an Equity Interest.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Person" means all or any of Bruce H. Whitehead,
David A. Kremser, and their Related Parties.
"fair market value" or "fair value" means, with respect to any
assets or property, the price which could be negotiated in an arm's-length free
market transaction, for cash, between a willing seller and a fully informed,
willing and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction, all as reasonably determined by a majority of the
Board of Directors acting in good faith, such determination to be evidenced by a
Board Resolution delivered to the Trustee. No such determination need be
supported by an appraisal or expert opinion.
"GAAP" means generally accepted accounting principles
consistently applied as in effect in the United States from time to time.
"Guarantee" means, as the context may require, individually, a
guarantee, or collectively, any and all guarantees, of the Obligations of the
Company with respect to the Senior Notes by each Guarantor pursuant to the terms
of Article 10 hereof, substantially in the form set forth as part of Exhibit A.
"Guarantor" means (i) each of the Subsidiaries of the Company
on the Issue Date and (ii) each Subsidiary of the Company that hereafter becomes
a Guarantor pursuant to
-8-
<PAGE> 12
Section 4.12 and 10.5 hereof, and "Guarantors" means such entities,
collectively.
"Holder" or "Noteholder" means the Person in whose name a
Senior Note is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become, directly or indirectly,
liable in respect of such Indebtedness or other obligation or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "incurrence," "incurred,"
"incurrable," and "incurring" shall have meanings correlative to the foregoing);
provided, however, that a change in GAAP that results in an obligation of such
Person that exists at such time becoming Indebtedness shall not be deemed an
incurrence of such Indebtedness. Any Indebtedness or Equity Interests of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be incurred by such
Person at the time it becomes a Subsidiary. Indebtedness consisting of
reimbursement obligations in respect of a letter of credit will be deemed to be
incurred when the letter of credit is issued or renewed.
"Indebtedness" means (without duplication), with respect to
any Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute accounts payable or trade payables, and other liabilities arising in
the ordinary course of business) and shall also include, to the extent not
otherwise included (i) any Capitalized Lease Obligations, (ii) obligations
secured by a Lien to which the property or assets owned or held by such Person
is subject, whether or not the obligation or obligations secured thereby shall
have been assumed, (iii) all Indebtedness of others of the type described in the
other clauses of this definition (including all dividends of other Persons) the
payment of which is guaranteed, directly or indirectly, by such Person or that
is otherwise its legal liability or which such Person has agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to supply
or advance funds (whether or not such items would appear upon the balance sheet
of the guarantor), (iv) all obligations for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction, (v)
Disqualified Equity Interests, (vi) obligations of any such Person under any
Interest Rate Agreement applicable to any of the foregoing, and (vii)
Attributable Indebtedness. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided, however, that (i) the amount outstanding at any time of
any Indebtedness issued with original issue discount, including the Senior
Notes, is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, and (ii) Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable
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<PAGE> 13
arising from the purchase of goods or materials or for services obtained in the
ordinary course of business shall not be deemed to be "Indebtedness" of the
Company or any Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Indenture" means this Indenture as amended, restated or
supplemented from time to time.
"Independent Financial Advisor" means an accounting,
appraisal, investment banking or consulting firm of nationally recognized
standing that is, in the reasonable and good faith judgment of the Board of
Directors of the Company, qualified to perform the task for which such firm has
been engaged and is disinterested and independent with respect to the Company
and its Affiliates.
"Initial Purchaser" means Jefferies & Company, Inc.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) promulgated under the Securities Act.
"interest" when used with respect to any Senior Note, means
the amount of all interest accruing on such Senior Note, including all interest
accruing subsequent to the occurrence of any events specified in Sections 6.1(7)
and (8) or which would have accrued but for any such event and any Additional
Interest.
"Interest Payment Date" means each March 1, June 1, September
1 and December 1 commencing on March 1, 1998.
"Interest Rate Agreement" means, for any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance,
account receivable (other than an account receivable arising in the ordinary
course of business, including accounts receivable arising in the ordinary course
of business and acquired as part of the assets acquired by the Company in
connection with an acquisition of assets which is otherwise permitted by the
terms of this Indenture), loan or capital contribution to (by means of transfers
of property to others, payments for property or services for the account or use
of others or otherwise), the purchase of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities of, the acquisition,
by purchase or otherwise, of all or substantially all of the business or stock
or other evidence of beneficial ownership of, any Person, the guarantee or
assumption of the Indebtedness of any other Person (except for an assumption of
Indebtedness for which the assuming Person receives consideration with a fair
market value at least equal to the principal amount of the Indebtedness
assumed), the designation of a Subsidiary as an Unrestricted Subsidiary or the
making of any investment in any Person and all other items that
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<PAGE> 14
would be classified as investments on a balance sheet of such Person prepared in
accordance with GAAP. Investments shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the closing date for the sale and original
issuance of the Senior Notes.
"Lien" means, with respect to any property or assets of any
Person, any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same economic
effect as any of the foregoing).
"Maturity Date" means December 1, 1999.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person for any period,
the net income (loss) of such Person determined in accordance with GAAP.
"Net Investments" means the excess of (i) the aggregate of all
Investments made by the Company or a Subsidiary thereof on or after the Issue
Date (in the case of an Investment made other than in cash, the amount shall be
the fair market value of such Investment as determined in good faith by the
Board of Directors of the Company) over (ii) the sum of (A) the aggregate amount
returned in cash on such Investments whether through interest payments,
principal payments, dividends or other distributions and (B) the net cash
proceeds received by the Company or such Subsidiary from the disposition of all
or any portion of such Investments (other than to a Subsidiary of the Company),
provided, however, that with respect to all Investments made in Unrestricted
Subsidiaries the sum of clauses (A) and (B) above with respect to such
Investments shall not exceed the aggregate amount of all Investments made in all
Unrestricted Subsidiaries.
"Net Proceeds" means (a) in the case of any sale of Equity
Interests by the Company, the aggregate net proceeds received by the Company,
after payment of expenses, commissions and the like incurred in connection
therewith, whether such proceeds are in cash or in property (valued at the fair
market value thereof, as determined in good faith by the Board of Directors of
the Company, at the time of receipt), and (b) in the case of any exchange,
exercise, conversion or surrender of outstanding securities of any kind for or
into Equity Interests of the Company which are not Disqualified Equity
Interests, the net book value of such outstanding securities on the date of such
exchange, exercise, conversion or surrender (plus any additional amount required
to be paid by the holder to the Company upon such exchange, exercise, conversion
or surrender, less any and all payments made to the holders, e.g., on account of
fractional shares and less all expenses incurred by the Company in connection
therewith).
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<PAGE> 15
"Non-U.S. Person" means a person who is not a U.S. person, as
defined in Regulation S.
"Obligations" means, with respect to any Indebtedness, any
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
damages and other expenses payable under the documentation governing such
Indebtedness.
"Offering" means the offering and sale of the Senior Notes as
described in the Offering Memorandum.
"Offering Memorandum" means the Offering Circular dated
November 24, 1997 pursuant to which the Senior Notes were offered.
"Officer" means, with respect to any Person, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer or the Treasurer of such Person, the Controller or the Secretary of the
Company or a Guarantor, or any other officer designated by the Board of
Directors of such Person, as the case may be (or, in the case of a Person that
is a partnership (or other non-corporate Person), of a general partner (or
analogous individuals) of such Person in such capacity).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person (or,
in the case of a Person that is a partnership (or other non-corporate Person),
of a general partner (or analogous individuals) of such Person in such capacity)
that shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal
counsel which counsel is reasonably acceptable to the Trustee.
"Pari Passu Notes" means those Original Notes whose record
holders did not consent to the contractual subordination of the payment of
principal, premium and interest on such Original Notes to the Senior Notes.
"Original Indenture" means the Indenture governing the
Original Notes dated as of October 31, 1996 as heretofore supplemented and as
may be further supplemented on or prior to the Issue Date, among the Company,
the guarantors party thereto and First Bank National Association, as trustee.
"Original Notes" means the Company's 12 1/4% Senior Notes due
2006.
"Permitted Indebtedness" means:
(i) Indebtedness (plus interest, premium, fees and other
obligations associated therewith) of the Company or any Subsidiary
thereof arising under or in connection with Permitted Secured
Indebtedness;
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<PAGE> 16
(ii) Indebtedness under the Senior Notes;
(iii) Interest Rate Agreements;
(iv) Additional Indebtedness of the Company, including
Indebtedness incurred in connection with or arising out of Capitalized
Lease Obligations, in an aggregate principal amount outstanding at any
time not to exceed the greater of (x) $10.0 million and (y) 10% of the
Company's Consolidated Net Worth;
(v) Indebtedness of a Subsidiary issued to and held by the
Company or a Subsidiary or Indebtedness of the Company to a Subsidiary
in respect of intercompany advances or transactions;
(vi) Indebtedness outstanding on the Issue Date (including the
Original Notes) after giving effect to the application of the proceeds
of the Offering; and
(vii) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments
made on or after the date of this Indenture consisting of:
(i) Temporary Cash Investments;
(ii) (A) Investments in the Company or a Subsidiary of the
Company, (B) Investments in any Person, if (1) as a result of such
Investment (y) such Person becomes a Wholly-Owned Subsidiary of the
Company or (z) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Wholly-Owned Subsidiary thereof
and (2) after giving effect to such Investment the Company is in
compliance with Section 4.18 hereof and (C) Net Investments in any
Person, provided, however, that the aggregate amount of all such Net
Investments made pursuant to this clause (C) shall not exceed $1
million at any one time outstanding;
(iii) Investments represented by accounts receivable created
or acquired in the ordinary course of business;
(iv) Advances to employees in the ordinary course of business
not to exceed an aggregate of $250,000 outstanding at any one time;
(v) Investments under or pursuant to Interest Rate Agreements;
(vi) An investment that is made by the Company or a Subsidiary
thereof in the form of any Equity Interests, Indebtedness or securities
that are issued by any Person solely as partial consideration for the
consummation of an Asset Sale that is otherwise permitted under Section
4.8 hereof;
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<PAGE> 17
(vii) Investments in the Senior Notes;
(viii) Investments existing on the Issue Date; and
(ix) Investments in connection with a Permitted Mortgage
Financing.
"Permitted Liens" means, without duplication, (i) Liens
existing on the date of this Indenture, (ii) Liens in favor of the Company or
any Subsidiary thereof, (iii) Liens on property of a Person existing at the time
such Person becomes a Subsidiary of, or is acquired by, merged into or
consolidated with the Company or any Subsidiary thereof, provided, however, that
such Liens (a) were not created in connection with or in anticipation of such
acquisition, merger or consolidation or such Person becoming a Subsidiary and
(b) are not applicable to any other property of the Company or any of the other
Subsidiaries of the Company, (iv) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted, provided, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor, (v)
landlords', carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business and with respect to
amounts which are not yet delinquent or are being contested in good faith by
appropriate proceedings, (vi) pledges or deposits made in the ordinary course of
business in connection with (a) leases, performance bonds and similar
obligations, (b) workers' compensation, unemployment insurance and other social
security legislation, or (c) securing the performance of surety bonds and appeal
bonds required (1) in the ordinary course of business or in connection with the
enforcement of rights or claims of the Company or a Subsidiary thereof or (2) in
connection with judgments that do not give rise to an Event of Default and which
do not exceed $3 million in the aggregate, (vii) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
encumbrances which, in the aggregate, do not materially detract from the value
of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or any Subsidiary in connection
therewith, (viii) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under this Indenture, provided, however, that (a) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including sales and excise
taxes, installation and delivery charges and other direct costs of, and other
direct expenses paid or charged in connection with, such purchase or
construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (ix) Liens securing Permitted Secured Indebtedness,
(x) Liens securing Capitalized Lease Obligations permitted to be incurred under
clause (iv) of the definition of "Permitted Indebtedness," provided, however,
that such Lien does not extend to any property other than that subject to the
underlying lease, (xi) Liens pursuant to leases and subleases of real property
which do not interfere with the ordinary conduct of the business of the Company
or any of its Subsidiaries and which are made on customary and usual terms
applicable to similar properties and in the case of any lease of a healthcare
facility do not extend to any property of the Company or a Subsidiary other than
the personal property
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<PAGE> 18
located at such facility, (xii) Liens securing reimbursement obligations under
commercial letters of credit, but only in or upon the goods the purchase of
which were financed by such letters of credit, (xiii) Liens securing Acquisition
Indebtedness, provided that such Liens do not extend to or cover any property
other than the property directly or indirectly acquired with the proceeds of
such Acquisition Indebtedness and any improvements thereto (unless such Liens
are otherwise Permitted Liens), (xiv) Liens securing Refinancing Indebtedness,
provided, however, that such Liens extend only to the assets securing the
Indebtedness being extended, refinanced, renewed or replaced, and such
Indebtedness was previously secured by such asset and provided, further, the
terms of such Liens are no less favorable to the holders of the Senior Notes
than the Liens being extended, refinanced, renewed or replaced, (xv) Liens
securing a Permitted Mortgage Financing and (xvi) Liens in favor of the Trustee.
"Permitted Mortgage Financing" means a transaction in which
(i) the Company and/or certain of its Subsidiaries would transfer certain assets
to one or more Unrestricted Subsidiaries, (ii) in consideration for such
transfer of assets, the Company would retain, directly or indirectly, 100% of
the Equity Interests in such Unrestricted Subsidiary or Subsidiaries (iii) such
Unrestricted Subsidiary or Subsidiaries would use the assets contributed by the
Company and/or its Subsidiaries as security for a mortgage refinancing and (iv)
all net proceeds received by such Unrestricted Subsidiary or Subsidiaries in
such mortgage refinancing would be dividended or otherwise transferred to the
Company and applied to redeem the Senior Notes in the manner contemplated in
this Indenture.
"Permitted Secured Indebtedness" means any Indebtedness other
than Affiliate Indebtedness (plus interest, premium, fees and other obligations
associated therewith), and any refinancing, refunding, replacement, renewal or
extension of, under agreements evidencing any Indebtedness which is secured by
assets of the Company or its Subsidiaries, provided, however, that the aggregate
amount of all such Indebtedness outstanding (or committed to be advanced under
the agreements to which such Indebtedness relates) at any time, other than
Indebtedness outstanding on the Issue Date (after giving effect to the Offering
and the application of the net proceeds therefrom), shall not exceed the greater
of (i) $30 million or (ii) the sum of 60% of the Company's inventory and 90% of
the Company's accounts receivable as set forth in the Company's consolidated
financial statements most recently delivered pursuant to Section 4.2 of this
Indenture.
"Person" means any individual, corporation, partnership,
limited liability company or partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government (including
any agency or political subdivision thereof).
"Preferred Equity Interest" means any Equity Interest of a
Person, however designated, which entitles the holder thereof to a preference
with respect to dividends, distributions or liquidation proceeds of such Person
over the holders of any other Equity Interest issued by such Person.
"principal" of a debt security means the principal amount of
the security plus, when appropriate, the premium, if any, on the security.
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<PAGE> 19
"Private Placement Legend" means the legend initially set
forth on the Senior Notes in the form set forth on Exhibit A.
"Property" or "property" of any Person means all types of
real, personal, tangible, intangible or mixed property owned by such Person
whether or not included in the most recent consolidated balance sheet of such
Person and its Subsidiaries under GAAP.
"Purchase Agreement" means the Purchase Agreement dated
November 24, 1997 between the Company and the Initial Purchaser with respect to
the Senior Notes.
"Purchase Money Indebtedness" means any Indebtedness incurred
in the ordinary course of business by a Person to finance the cost (including
the cost of construction) of an item of Property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
The acquisition of a healthcare facility shall not be considered to be in the
ordinary course.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A promulgated under the Securities Act.
"Redemption Date" when used with respect to any Senior Note to
be redeemed means the date fixed for such redemption pursuant to this Indenture.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, renews, replaces or extends any Indebtedness of the Company or its
Subsidiaries outstanding on the Issue Date or other Indebtedness permitted to be
incurred by the Company or its Subsidiaries pursuant to the terms of this
Indenture, whether involving the same or any other lender or creditor or group
of lenders or creditors, but only to the extent that (i) the Refinancing
Indebtedness is subordinated to the Senior Notes to at least the same extent as
the Indebtedness being refunded, refinanced or extended, if at all, (ii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Senior Notes, (iii) except where such Refinancing Indebtedness is
Attributable Indebtedness, such Refinancing Indebtedness has a weighted average
life to maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the weighted average life to maturity of the
Indebtedness being refunded, refinanced or extended, (iv) except where such
Refinancing Indebtedness is Attributable Indebtedness, such Refinancing
Indebtedness is in an aggregate principal amount that is less than or equal to
the aggregate principal then outstanding under the Indebtedness being refunded,
refinanced or extended and (v) such Refinancing Indebtedness is incurred by the
same Person that initially incurred the Indebtedness being refunded, refinanced
or extended, except that the Company may incur Refinancing Indebtedness to
refund, refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the
Company.
"Registration Rights Agreement" means the Registration Rights
Agreement dated December 1, 1997 among the Company, the Guarantors, and the
Initial Purchaser.
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<PAGE> 20
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Related Party" with respect to an Excluded Person means (i)
any spouse or immediate family member of such Excluded Person or (ii) any trust,
corporation, partnership, or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a controlling interest of which
consist such Excluded Person and/or such other Persons referred to in the
immediately preceding clause (i).
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or any other distribution or payment on
Equity Interests of the Company or any Subsidiary thereof (including, without
limitation, any payment in connection with any merger or consolidation including
the Company) or any payment made to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Subsidiary thereof
(other than (a) dividends or distributions payable solely in Equity Interests
(other than Disqualified Equity Interests) or in options, warrants or other
rights to purchase Equity Interests (other than Disqualified Equity Interests)
or (b) in the case of Subsidiaries of the Company, dividends or distributions
payable to the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the
purchase, redemption or other acquisition or retirement for value of any Equity
Interest of the Company or any Subsidiary thereof (other than Equity Interests
owned by the Company or a Wholly-Owned Subsidiary, excluding Disqualified Equity
Interests), (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness, (iv) the making of any Investment or
guarantee of any Investment in any Person other than a Permitted Investment or
(v) forgiveness of any Indebtedness of an Affiliate of the Company to the
Company or a Subsidiary of the Company. For purposes of determining the amount
expended for Restricted Payments, cash distributed or invested shall be valued
at the face amount thereof and property other than cash shall be valued at its
fair market value.
"Restricted Security" has the meaning set forth in Rule
144(a)(3) promulgated under the Securities Act; provided that the Trustee shall
be entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Senior Note is a Restricted Security.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Sale and Lease-Back Transaction" means any arrangement with
any Person providing for the leasing by the Company or any Subsidiary of the
Company of any real or tangible personal Property, which Property (i) has been
or is to be sold, conveyed or transferred by the Company or such Subsidiary to
such Person in contemplation of such leasing and (ii) would constitute an Asset
Sale if such Property had been sold in an outright sale thereof.
"S&P" means Standard & Poor's Ratings Group and its
successors.
"SEC" means the United States Securities and Exchange
Commission as
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<PAGE> 21
constituted from time to time or any successor performing substantially the same
functions.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the securities that are issued under this
Indenture, as amended or supplemented from time to time pursuant to this
Indenture, including, without limitation, any notes issued in accordance with
Section 2.2 hereof.
"Senior Subordinated Notes" means those Original Notes whose
record holders consented to the contractual subordination of the payment of
principal, premium and interest on such Original Notes to the Senior Notes.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Equity Interests
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof is held by such first-named
Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or cause
the direction of the management and policies of such entity by contract or
otherwise or if in accordance with GAAP such entity is consolidated with the
first-named Person for financial statement purposes. Notwithstanding the
foregoing, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the
Company other than for purposes of the definition of Unrestricted Subsidiary,
unless the Company shall have designated such Unrestricted Subsidiary as a
"Subsidiary" by written notice to the Trustee. An Unrestricted Subsidiary may be
designated as a Subsidiary at any time by the Company by written notice to the
Trustee, provided, however, that (i) no Default or Event of Default shall have
occurred and be continuing or would arise therefrom and (ii) if such
Unrestricted Subsidiary is an obligor of any Indebtedness, any such designation
shall be deemed to be an incurrence as of the date of such designation by the
Company of such Indebtedness and immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.6 of this Indenture.
"Subordinated Indebtedness" means Indebtedness of any Person
which is expressly subordinated in right of payment to any other Indebtedness of
such Person.
"Temporary Cash Investments" means (i) Investments in
marketable, direct obligations issued or fully guaranteed by the United States
of America, or of any governmental agency or political subdivision thereof,
backed by the full faith and credit of the United States and maturing within one
year of the date of purchase; (ii) Investments in time deposits, certificates of
deposit, bankers acceptances or commercial paper issued by a bank (or any parent
company of such bank) organized under the laws of the United States of America
or any State thereof or the District of Columbia, in each case having capital,
surplus and undivided profits totalling more than $500 million and rated at
least A by S&P and A-2 by Moody's, maturing within one year of purchase; (iii)
commercial paper that is rated at least A- by S&P
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<PAGE> 22
or P-1 by Moody's, issued by a company that is incorporated under the laws of
the United States or of any State and directly issues its own commercial paper,
and has a remaining term to maturity of not more than one year; (iv) a
repurchase agreement with (A) any commercial bank that is organized under the
laws of any State or any national banking association and that has total assets
of at least $500 million, or (B) any investment bank that is organized under the
laws of any State and that has total assets of at least $500 million, which
agreement is secured by any one or more of the securities and obligations
described in clauses (i), (ii) or (iii) of this definition of Temporary Cash
Investments, which shall have a market value (exclusive of accrued interest and
valued at least monthly) at least equal to the principal amount of such
investments; or (v) Investments in money market funds that invest substantially
all of such funds' assets in the Investments described in the preceding clauses
(i), (ii), (iii) and (iv).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of this Indenture (except as
provided in Section 8.3 hereof).
"Trust Officer" when used with respect to the Trustee, means
any officer or assistant officer of the Trustee assigned to the Corporate Trust
Administration department or similar department performing corporate trust work
of the Trustee or any successor to such department or, in the case of a
successor Trustee, any officer of such successor Trustee performing corporate
trust functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of an
Unrestricted Subsidiary and (ii) any Subsidiary of the Company which shall have
been designated after the Issue Date as an Unrestricted Subsidiary by a
resolution adopted by the Board of Directors of the Company; provided that a
Subsidiary organized or acquired after the Issue Date may be so classified as an
Unrestricted Subsidiary only if such classification is in compliance with
Section 4.14 hereof and an Unrestricted Subsidiary may be designated as a
Subsidiary (but only if such classification is in compliance with the definition
of "Subsidiary" contained in this Section 1.1). The Trustee shall be given
prompt written notice by the Company of each resolution adopted by the Board of
Directors of the Company under this provision, together with a copy of each such
resolution adopted.
"U.S. Government Obligations" means (i) securities that are
direct obligations of the United States of America for the payment of which its
full faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities
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<PAGE> 23
Act) as custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or a specific payment of principal or interest on
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt.
"Wholly-Owned Subsidiary" means any Subsidiary all of the
outstanding Equity Interests (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
Section 1.2 Other Definitions.
The definitions of the following terms may be found in the
sections indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Affiliate Transaction"......................................... 4.9
"Agent Members"................................................. 2.15
"Bankruptcy Law"................................................ 6.1
"Base Period.................................................... 4.7
"Business Day".................................................. 11.8
"Change of Control Offer"....................................... 4.22
"Change of Control Payment Date"................................ 4.22
"Change of Control Purchase Price".............................. 4.22
"Covenant Defeasance"........................................... 9.3
"Custodian"..................................................... 6.1
"Event of Default".............................................. 6.1
"Excess Proceeds"............................................... 4.8
"Excess Proceeds Offer"......................................... 4.8
"Exchange Notes"................................................ 2.2
"Global Notes".................................................. 2.1
"Legal Defeasance".............................................. 9.2
"Legal Holiday"................................................. 11.8
"Paying Agent".................................................. 2.3
"Physical Notes"................................................ 2.1
"Registrar"..................................................... 2.3
"Reinvestment Date"............................................. 4.8
"Required Filing Date".......................................... 4.2
"transfer"...................................................... 5.1
</TABLE>
Section 1.3 Incorporation by Reference of Trust Indenture Act.
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<PAGE> 24
Whenever this Indenture refers to a provision of the TIA, the
portion of such provision required to be incorporated herein in order for this
Indenture to be qualified under the TIA is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"Commission" means the SEC.
"indenture securities" means the Senior Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
the Trustee.
"obligor on the indenture securities" means the
Company, the Guarantors or any other obligor on the Senior Notes.
All other terms used in this Indenture that are defined by the
TIA, defined in the TIA by reference to another statute or defined by SEC rule
have the meanings therein assigned to them.
Section 1.4 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether
defined expressly or by reference;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) words used herein implying any gender shall apply to every
gender; and
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or Subdivision, unless expressly stated otherwise.
ARTICLE 2
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THE SENIOR NOTES
Section 2.1 Dating; Incorporation of Form in Indenture.
The Senior Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A which is
incorporated in and made part of this Indenture. The Senior Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company may use "CUSIP" numbers in issuing the Senior Notes. The
Company shall approve the form of the Senior Notes. Each Senior Note shall be
dated the date of its authentication.
The Senior Notes offered and sold in reliance on Rule 144A
shall be issued initially in the form of one or more permanent Global Notes in
registered form, substantially in the form set forth in Exhibit A ("Global
Notes"), deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter provided
and shall bear the legend set forth on Exhibit B. The aggregate principal amount
of any Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided.
Senior Notes offered and sold in reliance on any other
exemption from registration under the Securities Act other than as described in
the preceding paragraph shall be issued, and Senior Notes offered and sold in
reliance on Rule 144A may be issued, in the form of certificated Senior Notes in
registered form in substantially the form set forth in Exhibit A (the "Physical
Notes").
Section 2.2 Execution and Authentication.
The Senior Notes shall be executed on behalf of the Company by
two Officers of the Company or an Officer and an Assistant Secretary of the
Company. Such signatures may be either manual or facsimile.
If an Officer whose signature is on a Senior Note no longer
holds that office at the time the Trustee authenticates the Senior Note or at
any time thereafter, the Senior Note shall be valid nevertheless.
A Senior Note shall not be valid until the Trustee manually
signs the certificate of authentication on the Senior Note. Such signature shall
be conclusive evidence that the Senior Note has been authenticated under this
Indenture.
The Trustee or an authenticating agent shall authenticate
Senior Notes for original issue in the aggregate principal amount of $20,000,000
upon a Company Request. The aggregate principal amount of Senior Notes
outstanding at any time may not exceed such amount except as provided in Section
2.7 hereof. Upon receipt of the Company Request and an Officers' Certificate
certifying that a Notes Registration Statement (as defined in the Registration
Rights Agreement), is effective and, in the case of an Exchange Offer (as
defined
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in the Registration Rights Agreement) all conditions precedent to the Exchange
Offer specified in the Registration Rights Agreement have been met, the Trustee
shall authenticate an additional series of Senior Notes for issuance in an
aggregate principal amount not to exceed $20,000,000. The Senior Notes shall be
issuable only in registered form without coupons and only in denominations of
$1,000 and integral multiples thereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Senior Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Senior Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. Such authenticating agent shall
have the same right as the Trustee in dealing with the Company or an Affiliate.
Section 2.3 Registrar and Paying Agent.
The Company shall appoint a registrar, which shall maintain an
office or agency where Senior Notes may be presented for registration of
transfer or for exchange ("Registrar"), and a paying agent, which shall maintain
an office or agency located in the Borough of Manhattan, City of New York, State
of New York where Senior Notes may be presented for payment ("Paying Agent") and
shall maintain an office or agency where notices and demands to or upon the
Company in respect of the Senior Notes and this Indenture may be served. The
Registrar shall keep a register of the Senior Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. Neither the Company nor any Affiliate may act as
Paying Agent. The Company may change any Paying Agent, Registrar or co-registrar
without notice to any Noteholder.
The Company shall enter into an appropriate agency agreement
with any Registrar or Paying Agent not a party to this Indenture. The agreement
shall implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or agent for service
of notices and demands, or fails to give the foregoing notice, the Trustee shall
act as such and shall be entitled to appropriate compensation pursuant to
Section 7.7. The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Senior
Notes.
Section 2.4 Paying Agent to Hold Money in Trust.
On or before each due date of the principal of, premium if
any, and interest (including any Additional Interest) on any Senior Notes, the
Company shall deposit with the Paying Agent a sum sufficient to pay such
principal, premium if any, and interest (including any Additional Interest) so
becoming due. Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal of or interest on the Senior Notes (whether such money has been paid
to it by the Company or any other obligor on the Senior Notes), and the Company
and the Paying Agent shall notify the Trustee of any default by the Company (or
any other obligor on the Senior Notes) in making any such payment. Money held in
trust by the Paying Agent need not be
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segregated except as required by law and in no event shall the Paying Agent be
liable for any interest on any money received by it hereunder. The Company at
any time may require a Paying Agent to pay all money held by it to the Trustee,
and the Trustee may at any time during the continuance of any Event of Default
specified in Section 6.1(1) or (2), upon written request to a Paying Agent,
require such Paying Agent to forthwith pay to the Trustee all sums so held in
trust by such Paying Agent together with a complete accounting of such sums.
Upon doing so, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
Section 2.5 Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee on or prior to the fifth Business Day before each
Interest Payment Date, and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Noteholders, including the aggregate
principal amount of Senior Notes held by each such Noteholder.
Section 2.6 Transfer and Exchange.
Subject to Section 2.16, when a Senior Note is presented to
the Registrar with a request to register the transfer thereof, the Registrar
shall register the transfer as requested if the requirements of applicable law
are met and, when Senior Notes are presented to the Registrar with a request to
exchange them for an equal principal amount of Senior Notes of other authorized
denominations, the Registrar shall make the exchange as requested, provided that
every Senior Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Registrar duly executed by
the Holder thereof or his attorney, duly authorized in writing. To permit
registration of transfers and exchanges, upon surrender of any Senior Note for
registration of transfer at the office or agency maintained pursuant to Section
2.3 hereof, the Company shall issue and execute and the Trustee shall
authenticate Senior Notes at the Registrar's request. Any exchange or transfer
shall be without any service charge to the Noteholder, except that the Company
may require payment by the Noteholder of a sum sufficient to cover any tax or
the governmental charge that may be imposed in relation to a transfer or
exchange, but this provision shall not apply to any exchange pursuant to Section
2.9, 3.6, 4.8, 4.22 or 8.5 hereof. The Trustee shall not be required to register
transfers of Senior Notes or to exchange Notes for a period of 15 days before
selection of any Senior Notes to be redeemed. The Trustee shall not be required
to exchange or register transfers of any Senior Notes called or being called for
redemption in whole or in part, except the unredeemed portion of any Senior Note
being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of the beneficial interests in such Global
Note may be effected only through a book entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Global Note shall be required to be reflected in a book
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entry.
Each Holder of a Senior Note agrees to indemnify the Company
and the Trustee against any liability that may result from the transfer,
exchange or assignment of such Holder's Senior Note in violation of any
provision of this Indenture and/or applicable U.S. Federal or state securities
law.
Except as expressly provided herein, neither the Trustee nor
the Registrar shall have any duty to monitor the Company's compliance with or
have any responsibility with respect to the Company's compliance with any
Federal or state securities laws.
Section 2.7 Replacement Senior Notes.
If a mutilated Senior Note is surrendered to the Registrar or
Trustee or if the Holder of a Senior Note presents evidence to the satisfaction
of the Company and the Trustee that the Senior Note has been lost, destroyed or
wrongfully taken and of the ownership thereof, the Company shall issue and the
Trustee shall authenticate a replacement Senior Note if the Holder of such
Senior Note furnishes to the Company and the Trustee evidence reasonably
acceptable to them of the ownership and destruction, loss or theft of such
Senior Note. An indemnity bond may be required by the Company or the Trustee
that is sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee or any Agent from any loss which any of them may suffer if
a Senior Note is replaced. The Company and the Trustee each may charge for its
expenses (including reasonable attorneys' fees and expenses) in replacing a
Senior Note. Every replacement Senior Note is an additional obligation of the
Company.
Section 2.8 Outstanding Senior Notes.
Senior Notes outstanding at any time are all Senior Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, and those described in this Section 2.8 as not
outstanding.
If a Senior Note is replaced pursuant to Section 2.7, it
ceases to be outstanding until the Company and the Trustee receive proof
satisfactory to each of them that the replaced Senior Note is held by a bona
fide purchaser in whose hands such obligation is a legal, valid and binding
obligation of the Company.
If a Paying Agent holds on a Redemption Date or Maturity Date
money sufficient to pay the principal of, premium, if any, and all accrued
interest with respect to Senior Notes payable on that date and is not prohibited
from paying such money to the Holders thereof pursuant to the terms of this
Indenture, then on and after that date such Senior Notes cease to be outstanding
and interest on them ceases to accrue.
Subject to Section 11.6, a Senior Note does not cease to be
outstanding solely because the Company or an Affiliate holds the Senior Note.
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Section 2.9 Temporary Senior Notes.
Until definitive Senior Notes are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Senior Notes.
Temporary Senior Notes shall be substantially in the form, and shall carry all
rights, benefits and privileges, of definitive Senior Notes but may have
variations that the Company considers appropriate for temporary Senior Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Senior Notes in exchange for temporary Senior Notes
presented to it.
Section 2.10 Cancellation.
The Company at any time may deliver Senior Notes to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Senior Notes surrendered to them for transfer, exchange or
payment. The Trustee shall cancel and retain or may destroy (subject to the
record-retention requirements of the Exchange Act) or return to the Company, in
accordance with its normal practice, all Senior Notes surrendered for transfer,
exchange, payment or cancellation and if such Senior Notes are destroyed,
deliver a certificate of destruction to the Company. Subject to Section 2.7
hereof, the Company may not issue new Senior Notes to replace Senior Notes in
respect of which it has previously paid all principal, premium and interest
accrued thereon, or delivered to the Trustee for cancellation.
Section 2.11 Defaulted Interest.
If the Company defaults in a payment of any interest
(including Additional Interest) on the Senior Notes, it shall pay the defaulted
amounts, plus (to the extent permitted by law) any interest payable on defaulted
amounts pursuant to Section 4.1 hereof, to the persons who are Noteholders on a
subsequent special record date.
The Company shall fix the special record date and payment date
in a manner satisfactory to the Trustee and provide the Trustee at least 20 days
notice of the proposed amount of default interest to be paid and the special
payment date. At least 15 days before the special record date, the Company shall
mail or cause to be mailed to each Noteholder at his address as it appears on
the Senior Notes register maintained by the Registrar a notice that states the
special record date, the payment date (which shall be not less than five nor
more than ten days after the special record date), and the amount to be paid. In
lieu of the foregoing procedures, the Company may pay defaulted interest in any
other lawful manner satisfactory to the Trustee.
Section 2.12 Deposit of Moneys.
Prior to 10:00 a.m., New York City time, on each Interest
Payment Date and Maturity Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Maturity Date, as the case may be, in
a timely manner which permits the Trustee to remit payment to the Holders on
such Interest Payment Date or Maturity Date, as the case may be. The principal
and interest on Global Notes shall be payable to the Depository or its nominee,
as the case may
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be, as the sole registered owner and the sole holder of the Global Notes
represented thereby. The principal and interest on Physical Notes shall be
payable at the office of the Paying Agent.
Section 2.13 CUSIP Number.
The Company in issuing the Senior Notes may use a "CUSIP"
number (or numbers), and if so, the Trustee may use the CUSIP number(s) in
notices of redemption or exchange as a convenience to Holders, provided that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number(s) printed in the notice or on the Senior Notes,
and that reliance may be placed only on the other identification numbers printed
on the Senior Notes. The Company will promptly notify in writing the Trustee of
any such CUSIP number used by the Company in connection with the Senior Notes
and any change in such CUSIP number.
Section 2.14 Wire Payments to Holders.
Notwithstanding any provisions of this Indenture and the
Senior Notes to the contrary, at the request of a Holder, all payments with
respect to any of the Senior Notes, may be made by the Paying Agent upon receipt
from the Company of immediately available funds prior to 11:30 a.m., New York
City time, directly to the Holder of such Senior Note (whether by federal funds,
wire transfer or otherwise), provided, however, that no such federal funds, wire
transfer or other such direct payment shall be made to any Holder under this
Section 2.14 unless such Holder has delivered written instructions to the
Trustee prior to the relevant record date for such payment requesting that such
payment will be so made and designating the bank account to which such payments
shall be so made and in the case of payments of principal, surrenders the Senior
Note to the Trustee in exchange for a Senior Note or Senior Notes aggregating
the same principal amount as the unredeemed principal amount of the Senior Notes
surrendered. The Trustee shall be entitled to rely on the last instruction
delivered by the Holder pursuant to this Section 2.14 unless a new instruction
is delivered prior to the relevant record date for a payment date. The Company
will indemnify and hold the Trustee harmless against any loss, liability or
expense (including attorneys' fees and expenses) resulting from any act or
omission to act on the part of the Company or any such Holder in connection with
any such agreement or which the Paying Agent may incur as a result of making any
payment in accordance with any such agreement.
Section 2.15 Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Note, and the Depository may
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be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Senior Note.
(b) Transfers of Global Notes shall be limited to transfer in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depository and the provisions of Section 2.16. In addition, Physical Notes
shall be transferred to all beneficial owners in exchange for their beneficial
interests in Global Notes if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for any Global Note and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall upon receipt of a written order from the
Company authenticate and make available for delivery, one or more Physical Notes
of like tenor and amount.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in writing in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount of
Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph
(b), (c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and
(c) of Section 2.16, bear the legend regarding transfer restrictions applicable
to the Physical Notes set forth in Exhibit A.
(f) The Holder of any Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture, the Senior Notes or the Guarantees.
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Section 2.16 Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Senior Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Senior
Note constituting a Restricted Security, whether or not such Senior
Note bears the Private Placement Legend, if (x) the requested transfer
is after December 1, 1999 or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C hereto
or (2) in the case of a transfer to a Non-U.S. Person (including a
QIB), the proposed transferor has delivered to the Registrar a
certificate substantially in the form of Exhibit D hereto; provided
that, in the case of a transfer of a Senior Note not bearing a Private
Placement Legend, the Registrar has received an Officers' Certificate
from the Company authorizing such transfer; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the
Registrar's procedures, whereupon (a) the Registrar shall reflect on
its books and records the date and (if the transfer does not involve a
transfer of outstanding Physical Notes) a decrease in the principal
amount of a Global Note in an amount equal to the principal amount of
the beneficial interest in a Global Note to be transferred, and (b) the
Company shall execute and the Trustee shall authenticate and make
available for delivery one or more Physical Notes of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Senior Note
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on the form of Senior Note stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Senior Note
stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Senior Note for its own account or
an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning
of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule
144A; and
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(ii) if the proposed transferee is an Agent Member, and the
Senior Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Global Note in an amount equal to the principal
amount of the Physical Notes to be transferred, and the Trustee shall
cancel the Physical Notes so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Senior Notes not bearing the Private Placement Legend, the
Registrar shall deliver Senior Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Senior Notes bearing the
Private Placement Legend, the Registrar shall deliver only Senior Notes that
bear the Private Placement Legend unless (i) the circumstances contemplated by
paragraph (a)(i)(x) of this Section 2.16 exist, (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Senior Note has been sold or exchanged pursuant to
an effective registration statement under the Securities Act and the Registrar
has received an Officers' Certificate from the Company to such effect.
(d) General. By its acceptance of any Senior Note bearing the
Private Placement Legend, each Holder of such a Senior Note acknowledges the
restrictions on transfer of such Senior Note set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Senior Note
only as provided in this Indenture.
The Registrar may retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable notice to the Registrar.
ARTICLE 3
REDEMPTION
Section 3.1 Notices to Trustee.
If the Company elects or is required to redeem Senior Notes
pursuant to Section 3.7 or 3.8 hereof, (i) at least 60 days prior to the
Redemption Date in the case of a partial redemption, (ii) at least 45 days prior
to the Redemption Date in the case of a total redemption or (iii) during such
other period as the Trustee may agree to in writing, the Company shall notify
the Trustee in writing of the Redemption Date, the principal amount of Senior
Notes to be redeemed and the redemption price, and deliver to the Trustee an
Officers' Certificate stating that such redemption will comply with the
conditions contained in Section 3.7 or 3.8 hereof, as appropriate.
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Section 3.2 Selection by Trustee of Senior Notes to Be Redeemed.
In the event that fewer than all of the Senior Notes are to be
redeemed, the Trustee shall select the Senior Notes to be redeemed, if the
Senior Notes are listed on a national securities exchange, in accordance with
the rules of such exchange or, if the Senior Notes are not so listed, on either
a pro rata basis or by lot, or such other method as it shall deem fair and
equitable. The Trustee shall promptly notify the Company of the Senior Notes
selected for redemption and, in the case of any Senior Notes selected for
partial redemption, the principal amount thereof to be redeemed. The Trustee may
select for redemption portions of the principal of the Senior Notes that have
denominations larger than $1,000. Senior Notes and portions thereof the Trustee
selects shall be redeemed in amounts of $1,000 or whole multiples of $1,000. For
all purposes of this Indenture unless the context otherwise requires, provisions
of this Indenture that apply to Senior Notes called for redemption also apply to
portions of Senior Notes called for redemption.
Section 3.3 Notice of Redemption
At least 30 days, but no more than 60 days, before a
Redemption Date, the Company shall mail, or cause to be mailed, a notice of
redemption by first-class mail to each Holder of Senior Notes to be redeemed at
his or her last address as the same appears on the registry books maintained by
the Registrar pursuant to Section 2.3 hereof.
The notice shall identify the Senior Notes to be redeemed
(including the CUSIP number(s) thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest,
if any, to be paid;
(3) if any Senior Note is being redeemed in part, the portion
of the principal amount of such Senior Note to be redeemed and that,
after the Redemption Date and upon surrender of such Senior Note, a new
Senior Note or Senior Notes in principal amount equal to the unredeemed
portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Senior Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(6) that unless the Company defaults in making the redemption
payment, interest on Senior Notes called for redemption ceases to
accrue on and after the Redemption Date and that the only remaining
right of the Holders of such Senior Notes is to receive payment of the
Senior Notes redemption price upon surrender to the Paying Agent of the
Senior Notes redeemed;
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(7) the Section hereof (Section 3.7 or 3.8) pursuant to which
the Senior Notes called for redemption are being redeemed; and
(8) the aggregate principal amount of Senior Notes that are
being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense.
Section 3.4 Effect of Notice of Redemption.
Once the notice of redemption described in Section 3.3 is
mailed, Senior Notes called for redemption become due and payable on the
Redemption Date and at the redemption price, including any premium, plus
interest accrued to the Redemption Date. Upon surrender to the Paying Agent,
such Senior Notes shall be paid at the redemption price, including any premium,
plus interest accrued to the Redemption Date, provided that if the Redemption
Date is after a regular interest payment record date and on or prior to the
Interest Payment Date, the accrued interest shall be payable to the Holder of
the redeemed Senior Notes registered on the relevant record date, and provided,
further, that if a Redemption Date is a Legal Holiday, payment shall be made on
the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.
Section 3.5 Deposit of Redemption Price.
On or prior to 10:00 A.M., New York City time, on each
Redemption Date, the Company shall deposit with the Paying Agent in immediately
available funds money sufficient to pay the redemption price of and accrued
interest on all Senior Notes to be redeemed on that date other than Senior Notes
or portions thereof called for redemption on that date which have been delivered
by the Company to the Trustee for cancellation.
On and after any Redemption Date, if money sufficient to pay
the redemption price of and accrued interest on Senior Notes called for
redemption shall have been made available in accordance with the preceding
paragraph and payment thereof is not prohibited pursuant to the terms of this
Indenture, the Senior Notes called for redemption will cease to accrue interest
and the only right of the Holders of such Senior Notes will be to receive
payment of the redemption price of and, subject to the first proviso in Section
3.4, accrued and unpaid interest on such Senior Notes to the Redemption Date. If
any Senior Note called for redemption shall not be so paid, interest will be
paid, from the Redemption Date until such redemption payment is made, on the
unpaid principal of the Senior Note and any interest not paid on such unpaid
principal, in each case, at the rate and in the manner provided in the Senior
Notes.
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Section 3.6 Senior Notes Redeemed in Part.
Upon surrender of a Senior Note that is redeemed in part, the
Trustee shall authenticate for a Holder a new Senior Note equal in principal
amount to the unredeemed portion of the Senior Note surrendered.
Section 3.7 Optional Redemption.
The Company may redeem the Senior Notes, in whole or in part,
at any time at a redemption price equal to 102% of the principal amount thereof,
plus any accrued and unpaid interest to the Redemption Date.
Section 3.8 Mandatory Redemption.
In the event that the Company receives any net proceeds in
connection with a Permitted Mortgage Financing, the Company shall apply all of
such proceeds on a date no later than 60 days after the receipt thereof to
redeem Senior Notes at 102% of the principal amount thereof, plus any accrued
and unpaid interest thereon to the Redemption Date.
ARTICLE 4
COVENANTS
Section 4.1 Payment of Senior Notes.
The Company shall pay the principal of, premium, if any, and
interest (including all Additional Interest as provided in the Registration
Rights Agreement, which shall be deemed to be included in the term "interest"
for purposes of this Indenture and the Senior Notes) on the Senior Notes on the
dates and in the manner provided in the Senior Notes and this Indenture. An
installment of principal, premium, if any, or interest shall be considered paid
on the date it is due if the Trustee or Paying Agent holds on that date money
designated for and sufficient to pay such installment.
The Company shall pay interest on overdue principal (including
post-petition interest in a proceeding under any Bankruptcy Law) and overdue
interest, to the extent lawful, at the rate equal to .5% per annum; and the per
annum interest rate of such additional interest will increase by an additional
.25% per annum for each subsequent 90-day period during which such overdue
principal and installments of interest remain unpaid, up to a maximum additional
interest rate of 2.0% per annum.
Section 4.2 Reports.
(a) The Company will file with the SEC all information,
documents and reports to be filed with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act, whether or not the Company is subject to such filing
requirements, so long as the SEC will accept such
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filings on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been or is required to so file such documents. The
Company (at its own expense) shall also in any event within 15 days after each
Required Filing Date (i) transmit by mail to all Holders, at their addresses
appearing in the register of Senior Notes maintained by the Registrar and (ii)
file with the Trustee within 15 days after the Required Filing Date, copies of
the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company files with the SEC pursuant to Section
13 or 15(d) of the Exchange Act or would be required to file with the SEC if it
were subject to Section 13 or 15(d) of the Exchange Act. Upon qualification of
this Indenture under the TIA, the Company shall also comply with the provisions
of TIA Section 314(a). Delivery of such reports, information and documents to
the Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(b) The Company will, upon request, provide to any Holder of
Senior Notes or any prospective transferee of any such Holder and to the Trustee
any information concerning the Company (including financial statements)
necessary in order to permit such Holder to sell or transfer Senior Notes in
compliance with Rule 144A under the Securities Act; provided, however, that the
Company shall not be required to furnish such information in connection with any
request made on or after the date which is two years from the later of (i) the
date such Senior Note (or any predecessor Senior Note) was acquired from the
Company or (ii) the date such Senior Note (or any predecessor Senior Note) was
last acquired from an "affiliate" of the Company within the meaning of Rule 144
under the Securities Act.
Section 4.3 Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead (as a
defense or otherwise) or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury law or other law which
would prohibit or forgive the Company or such Guarantor, as the case may be,
from paying all or any portion of the principal of, premium, if any, and/or
interest on the Senior Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company and each Guarantor hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
Section 4.4 Compliance Certificate.
(a) The Company and each Guarantor shall deliver to the
Trustee, within 120 days after the end of each fiscal year and on or before 50
days after the end of the first, second and third quarters of each fiscal year,
an Officers' Certificate (one of the signers of which shall be the principal
executive officer, principal financial officer or principal accounting
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officer of the Company or such Guarantor, as the case may be) stating that a
review of the activities of the Company or such Guarantor, as the case may be,
during such fiscal year or fiscal quarter, as the case be, has been made under
the supervision of the signing Officers with a view to determining whether the
Company or such Guarantor, as the case may be, has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company or such Guarantor, as the case may be, has kept, observed, performed
and fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all or such Defaults or Events of Default of which he or she may have
knowledge and what action the Company or such Guarantor, as the case may be, is
taking or proposes to take with respect thereto).
(b) So long as (and to the extent) not contrary to the then
current recommendations of the American Institute of Certified Public
Accountants, the year-end financial statements delivered pursuant to Section 4.2
above shall be accompanied by a written statement of the Company's independent
public accountants (who shall be a firm of established national reputation) that
in making the examination necessary for certification of such financial
statements nothing has come to their attention which would lead them to believe
that the Company has violated any provisions of this Article 4 or Article 5 of
this Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly for any failure to obtain knowledge of any such
violation.
(c) The Company and each Guarantor will, so long as any of the
Senior Notes are outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company or such
Guarantor, as the case may be, is taking or proposes to take with respect
thereto.
Section 4.5 Taxes.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon it or its Subsidiaries' or
Unrestricted Subsidiaries' income, profits or property and (b) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a Lien
upon their property; provided, however, that the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate negotiations or proceedings and for which disputed
amounts adequate reserves (in the good faith judgment of the Officers of the
Company) have been made.
Section 4.6 Limitation on Additional Indebtedness.
The Company and the Guarantors will not, and will not permit
any of their Subsidiaries to, directly or indirectly, incur (as defined herein)
any Indebtedness (including
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Acquired Indebtedness) other than Permitted Indebtedness; provided, however,
that the Company or its Subsidiaries may incur Indebtedness (including Acquired
Indebtedness) (a) if (i) after giving effect on a pro forma basis to the
incurrence of such Indebtedness and to the extent set forth in the definition of
Consolidated Fixed Charge Coverage Ratio the receipt and application of the
proceeds thereof, the Company's Consolidated Fixed Charge Coverage Ratio would
be greater than (x) 2.0 to 1 if such Indebtedness is to be incurred on or before
December 31, 1997 and (y) 2.25 to 1 if such Indebtedness is to be incurred after
December 31, 1997; and (ii) no Default or Event of Default shall have occurred
and be continuing at the time or as a consequence of the incurrence of such
Indebtedness or (b) in connection with a Permitted Mortgage Financing.
The Company and the Guarantors will not, directly or
indirectly, incur any Indebtedness that by its terms (or by the terms of any
agreement governing such Indebtedness) is expressly made subordinate to any
other Indebtedness of the Company or any Guarantor unless such Indebtedness is
also expressly by its terms (or by the terms of any agreement governing such
Indebtedness) subordinated to the same extent and in the same manner to the
Senior Notes; provided, however, that no Indebtedness of the Company shall be
deemed to be subordinated to any other Indebtedness of the Company or any
Guarantor solely because such other Indebtedness is secured.
Section 4.7 Limitation on Restricted Payments.
The Company and the Guarantors will not, and will not permit
any of their Subsidiaries to, directly or indirectly, make, any Restricted
Payment unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving pro forma effect to such
Restricted Payment, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under Section 4.6 hereof; and
(c) immediately after giving effect to such Restricted
Payment, the aggregate of all Restricted Payments declared or made after the
Issue Date through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (1) 50% of the Company's Consolidated Net
Income (or in the event such Consolidated Net Income shall be a deficit, minus
100% of such deficit) during the Base Period, (2) 100% of the aggregate Net
Proceeds, including the fair market value of securities or other property
received by the Company from the issue or sale, during the Base Period, of
Equity Interests (other than Disqualified Equity Interests or Equity Interests
of the Company issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or exercisable
or exchangeable for Equity Interests (other than Disqualified Equity Interests)
of the Company which has been so converted or exercised or exchanged, as the
case may be, and (3) $1,000,000. For purposes of determining under this clause
(c) the amount expended for Restricted Payments, cash distributed shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value.
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The provisions of this Section 4.7 shall not prohibit (i) the
agreement or commitment to make any payment or distribution permitted under this
Indenture or the payment or distribution so agreed or committed to be made as
long as such payment or distribution is made on the date of such agreement or
commitment or within 60 days thereof, provided, however, that on the date of
such agreement or commitment such payment would comply with the foregoing
provisions, it being understood that the agreement or commitment to make such
payment or distribution shall constitute Permitted Indebtedness, (ii) the
retirement of any Equity Interests of the Company or Subordinated Indebtedness
of the Company by conversion into, or by or in exchange for, Equity Interests
(other than Disqualified Equity Interests), or out of, the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than Disqualified Equity
Interests); provided, that the Net Proceeds of such Equity Interests so used
shall not be included under clause (2) of paragraph (c) above, (iii) the
redemption or retirement of Subordinated Indebtedness of the Company that is
subordinated to the Senior Notes in exchange for, by conversion into, or out of
the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company
that is contractually subordinated in right of payment to the Senior Notes to at
least the same extent as the Subordinated Indebtedness being redeemed or retired
and (iv) the retirement of any Disqualified Equity Interests by conversion into,
or by exchange for, shares of Disqualified Equity Interests, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Disqualified Equity Interests, provided, however, that in the
case of the immediately preceding clauses (ii) and (iii), no Default or Event of
Default shall have occurred and be continuing at the time of such Restricted
Payment or would occur as a result thereof.
In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date for purposes of subparagraph (c) above,
amounts expended pursuant to clauses (i) and (ii) of the immediately preceding
paragraph shall be included, but without duplication, in such calculation.
For purposes of calculating the Net Proceeds received by the
Company from the issuance or sale of its Equity Interests either upon the
conversion of, or in exchange for, Indebtedness of the Company or any
Subsidiary, such amount will be deemed to be an amount equal to the difference
of (a) the sum of (i) the principal amount or accreted value (whichever is less)
of such Indebtedness on the date of such conversion or exchange and (ii) the
additional cash consideration, if any, received by the Company upon such
conversion or exchange, less any payment on account of fractional shares, minus
(b) all expenses incurred in connection with such issuance or sale. In addition,
for purposes of calculating the Net Proceeds received by the Company from the
issuance or sale of its Equity Interests upon the exercise of any options or
warrants of the Company, such amount will be deemed to be an amount equal to the
difference of (a) the additional cash consideration, if any, received by the
Company upon such exercise, minus (b) all expenses incurred in connection with
such issuance or sale.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted
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and setting forth the basis upon which the calculations required by this Section
4.7 were computed, which calculations may be based upon the Company's latest
available financial statements, and, where required, that no Default or Event of
Default exists and is continuing and no Default or Event of Default will occur
immediately after giving effect to such Restricted Payment.
Section 4.8 Limitation on Certain Asset Sales.
The Company will not, and will not permit any of its
Subsidiaries to, consummate an Asset Sale other than a sale of either the stock
or all or substantially all of the assets of Sunbelt Therapy Management
Services, Inc., an Arizona corporation, and its Subsidiaries for consideration
at the time of such sale (i) which is at least equal to the fair market value
thereof (as reasonably determined in good faith by the Company's Board of
Directors); (ii) which does not include any assumed liabilities or obligations
by the Company or the Subsidiary, as the case may be, from such Asset Sale and
(iii) at least 90% of which is in the form of cash or cash equivalents (i.e.,
items allowed under "Temporary Cash Investments"). Any Asset Sale Proceeds
received by the Company or such Subsidiary may be applied, to the extent the
Company elects, to repay and permanently reduce any outstanding Indebtedness
which was secured by the assets that were the subject of the Asset Sale;
provided, however, that any such repayment shall occur within 60 days following
the receipt of such Asset Sale Proceeds. Any Asset Sale Proceeds that are not
applied as permitted by the preceding sentence shall constitute "Excess
Proceeds." If at any time there exist any Excess Proceeds, the Company shall
offer (an "Excess Proceeds Offer") to purchase from all Holders, pursuant to the
procedures set forth in this Indenture, the maximum principal amount of Senior
Notes that may be purchased with such Excess Proceeds at a purchase price in
cash equal to 102% of the principal amount thereof plus accrued interest, if
any, to the date of repurchase. To the extent that the aggregate amount of
Senior Notes tendered pursuant to such Excess Proceeds Offer is less than the
amount of Excess Proceeds, the Company may use such portion of the Excess
Proceeds that is not used to purchase Senior Notes so tendered for general
corporate purposes not inconsistent with the Senior Notes or this Indenture. If
the aggregate principal amount of Senior Notes tendered pursuant to such Excess
Proceeds Offer is more than the amount of the Excess Proceeds, the Senior Notes
tendered will be repurchased on a pro rata basis or by such other method as the
Trustee shall deem fair and appropriate. Upon the completion of any Excess
Proceeds Offer and the closing of any repurchase of Senior Notes tendered
pursuant to such Excess Proceeds Offer, the amount of Excess Proceeds shall be
deemed to be zero.
If the Company is required to make an Excess Proceeds Offer,
the Company shall mail, within 30 days following the date on which the Company
receives any Excess Proceeds, notice to the holders of the Senior Notes stating,
among other things: (1) that such holders have the right to require the Company
to apply the Excess Proceeds to repurchase such Senior Notes at a purchase price
in cash equal to 102% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase; (2) the purchase date, which shall be
no earlier than 30 days and not later than 60 days from the date such notice is
mailed; (3) the instructions, determined by the Company, that each holder of
Senior Notes must follow in order to have such Senior Notes repurchased; and (4)
the calculations used in determining the
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amount of Excess Proceeds to be applied to the repurchase of such Senior Notes.
In the event of the transfer of substantially all (but not
all) of the assets of the Company or any Subsidiary of the Company or
substantially all (but not all) of the assets of any division or line of
business of the Company or any Subsidiary of the Company as an entirety to a
Person in a transaction or series of related transactions permitted under
Section 5.1 hereof, the successor corporation shall be deemed to have sold the
assets of the Company, the Subsidiary or the division or line of business, as
the case may be, not so transferred for purposes of this covenant, and shall
comply with the provisions of this covenant with respect to such deemed sale as
if it were an Asset Sale. In addition, the fair market value of such assets of
the Company, the Subsidiary or the division or line of business, as the case may
be, deemed to be sold shall be deemed to be Asset Sale Proceeds for purposes of
this covenant.
Any Excess Proceeds Offer will be made in substantially the
same manner as a Change of Control Offer. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent such laws and regulations are applicable to an
Excess Proceeds Offer.
Section 4.9 Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company (including any Affiliate in which the Company or any
Subsidiary thereof owns a minority interest) or holder of 10% or more of the
Company's Equity Interests (each such transaction, an "Affiliate Transaction")
or extend, renew, waive or otherwise modify the terms of any Affiliate
Transaction entered into prior to the Issue Date unless (i) such Affiliate
Transaction is solely between or among the Company and its Wholly-Owned
Subsidiaries; (ii) such Affiliate Transaction is solely between or among
Wholly-Owned Subsidiaries of the Company; (iii) such Affiliate Transaction is
for reasonable fees and compensation paid to, and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Subsidiary thereof as reasonably determined in good faith by the Board of
Directors (when required as described below) or senior management of the Company
or of such Subsidiary having no interest in such Affiliate Transaction; or (iv)
the terms of such Affiliate Transaction are fair and reasonable to the Company
or such Subsidiary, as the case may be, and the terms of such Affiliate
Transaction are at least as favorable as the terms which could be obtained by
the Company or such Subsidiary, as the case may be, in a comparable transaction
made on an arm's-length basis between unaffiliated parties. In any Affiliate
Transaction involving an amount or having a value in excess of $1 million in any
one year which is not permitted under clause (i) or (ii) above, the Company or
such Subsidiary, as the case may be, must obtain a resolution of an independent
committee of its Board of Directors certifying that such Affiliate Transaction
complies with clause (iii) or (iv) above, as the case may be. In transactions
with a value in excess of $3 million which are not permitted under clause (i) or
(ii) above, the Company or such Subsidiary, as the case may be, must obtain a
written opinion as to the fairness of such a transaction, from a financial point
of view, from an Independent Financial Advisor.
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(b) The foregoing provisions will not apply to (i) the payment
of reasonable annual compensation to directors or executive officers of the
Company, (ii) dividends on Equity Interests made in compliance with Section 4.7
hereof, (iii) the purchase in the ordinary course of business of, supplies,
services and the like from the Company or any Subsidiary; and (iv) the continued
performance of transactions with Affiliates disclosed in the Offering
Memorandum.
Section 4.10 Limitations on Liens.
The Company will not, and will not permit any of its
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any Subsidiary or any shares of stock or debt of any
Subsidiary which owns property or assets, now owned or hereafter acquired, or
any income or profits therefrom, unless (i) if such Lien secures Indebtedness
which is pari passu with the Senior Notes, then the Senior Notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien or (ii) if such Lien secures
Subordinated Indebtedness, any such Lien shall be subordinated to a Lien on such
property or asset or shares of stock or debt granted to the Holders of the
Senior Notes to the same extent as such Subordinated Indebtedness is
subordinated to the Senior Notes.
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Section 4.11 Limitations on Investments.
The Company will not, and will not permit any of its
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with
Section 4.7 hereof.
Section 4.12 Limitation on Creation of Subsidiaries.
The Company shall not create or acquire, nor permit any of its
Subsidiaries to create or acquire, any Subsidiary other than (i) an Unrestricted
Subsidiary; or (ii) a Subsidiary that, at the time it has either assets or
shareholder's equity in excess of $5,000, executes a Guarantee, in the form
included as part of Exhibit A to this Indenture and reasonably satisfactory in
form and substance to the Trustee (and with such documentation relating thereto
as the Trustee shall require, including, without limitation, a supplement or
amendment to this Indenture and an Opinion of Counsel as to the enforceability
of such Guarantee).
Section 4.13 Limitation on Indebtedness of Subsidiaries.
The Company and the Guarantors will not permit any of their
Subsidiaries to incur any Indebtedness except (i) Indebtedness to and held by
the Company or a Wholly-Owned Subsidiary of the Company or a Guarantor,
provided, however, that any subsequent issuance or transfer of any Equity
Interest that results in such Subsidiary ceasing to be a Wholly-Owned Subsidiary
of the Company or a Guarantor or any transfer of such Indebtedness to any Person
other than the Company or a Guarantor shall be deemed to be the incurrence of
such Indebtedness by the Company, (ii) Permitted Secured Indebtedness, (iii)
Acquired Indebtedness, provided, however, that such Acquired Indebtedness was
not incurred in connection with, or in anticipation of, such Person becoming a
Subsidiary, and (iv) Indebtedness incurred by a Guarantor which the Company
would be permitted to incur in compliance with the restrictions under Section
4.6 hereof.
Section 4.14 Limitation on Subsidiaries and Unrestricted Subsidiaries.
(a) The Company may by written notice to the Trustee designate
any Subsidiary (including a newly acquired or newly formed Subsidiary (including
any such Subsidiary formed in connection with a Permitted Mortgage Financing))
to be an Unrestricted Subsidiary, provided, however, that other than with
respect to a Subsidiary formed in connection with a Permitted Mortgage Financing
(i) no Default or Event of Default shall have occurred and be continuing or
would arise therefrom, (ii) such designation is at that time permitted under
Section 4.7 hereof and (iii) immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.6 hereof. For purposes of
Section 4.7 hereof:
(i) an "Investment" shall be deemed to have been made at the
time any Subsidiary is designated as an Unrestricted Subsidiary in an
amount (proportionate to the Company's percentage Equity Interest in
such Subsidiary) equal to the net worth of such Subsidiary at the time
that such Subsidiary is designated as an Unrestricted
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Subsidiary;
(ii) at any date the aggregate of all Restricted Payments made
as Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to the Company's percentage Equity Interest in
such Subsidiary) equal to the net worth of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a
Subsidiary, not to exceed, in the case of any such redesignation of an
Unrestricted Subsidiary as a Subsidiary, the amount of Investments
previously made by the Company and its Subsidiaries in such
Unrestricted Subsidiary (for purposes of clauses (a)(i) and (a)(ii)
hereof, "net worth" shall be calculated based upon the fair market
value of the assets of such Subsidiary as of any such date of
designation); and
(iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer.
(b) Notwithstanding clause (a) above, the Board of Directors
of the Company may not designate any Subsidiary of the Company to be an
Unrestricted Subsidiary if, after such designation:
(i) the Company or any Subsidiary provides credit support for,
or a guarantee of, any Indebtedness or other obligation (contingent or
otherwise) of such Subsidiary (including any understanding, agreement
or instrument evidencing such Indebtedness or obligation) or is
otherwise subject to recourse or obligated thereunder or therefor;
(ii) a default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to
take enforcement action against such Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of
the Company or any Subsidiary of the Company to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated
or payable prior to its final scheduled maturity;
(iii) such Subsidiary owns any Equity Interests in, or owns or
holds any Lien on any property of, any Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated;
(iv) such Subsidiary has any contract, arrangement, agreement
or understanding with the Company, or any Subsidiary of the Company,
whether written or oral, other than a transaction having terms no less
favorable to the Company or such Subsidiary of the Company than those
which might be obtained at the time from persons who are not Affiliates
of the Company; or
(v) the Company or any Subsidiary of the Company has any
obligation to subscribe for any Equity Interest in such Subsidiary or
to maintain or preserve such Subsidiary's financial condition or to
cause such Subsidiary to achieve specified levels of operating results.
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Section 4.15 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any of its Subsidiaries to (a) pay dividends or make any other
distributions in cash or otherwise to the Company or any Subsidiary on its
Equity Interests, (b) pay any Indebtedness owed to the Company or any
Subsidiary, (c) make loans or advances to the Company or any Subsidiary thereof,
(d) transfer any of its properties or assets to the Company or any Subsidiary
thereof (other than customary restrictions on transfer of property subject to a
Permitted Lien under the term of the agreements creating such Permitted Lien
(other than a Lien on cash not constituting proceeds of non-cash property
subject to a Permitted Lien) which would not materially adversely affect the
Company's ability to satisfy its obligations under the Senior Notes), or (e)
guarantee any Indebtedness of the Company or any Subsidiary of the Company,
except, in each case, for such encumbrances or restrictions existing under or
contemplated by reason of (i) the Senior Notes or this Indenture, (ii) any
restrictions existing under or contemplated by agreements evidencing any
Permitted Secured Indebtedness, (iii) any restrictions which are in existence on
the Issue Date (including any restrictions pursuant to the Original Notes or the
Original Indenture) or which exist with respect to a Person that becomes a
Subsidiary on or after the Issue Date, which are in existence at the time such
Person becomes a Subsidiary of the Company (but not created in connection with
or contemplation of such Person becoming a Subsidiary of the Company and which
encumbrance or restriction is not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired) and any agreement that refinances or replaces the same,
provided, however, that the terms and conditions of any such restrictions are
not materially less favorable in the aggregate to the holders of the Senior
Notes than those under or pursuant to the agreement being replaced or the
agreement evidencing the Indebtedness refinanced or replaced and (iv) customary
non-assignment provisions in any contract or licensing agreement entered into by
the Company or any Subsidiary of the Company in the ordinary course of business
or in any lease governing any leasehold interest of the Company or a Subsidiary.
Section 4.16 Restriction on Sale and Issuance of Subsidiary Equity
Interests.
The Company and its Subsidiaries will not issue or sell, and
will not permit any of their Subsidiaries to issue or sell, any Equity Interests
of any Subsidiary to any person other than the Company or a Wholly-Owned
Subsidiary of the Company, except for Common Equity Interests with no
preferences or special rights or privileges and with no redemption or prepayment
provisions.
Section 4.17 Limitation on Sale and Lease-Back Transactions.
The Company will not, and will not permit any of its
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the fair market value of the property sold and (ii) immediately prior to and
after giving effect to the Attributable Indebtedness in respect of such
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Sale and Lease-Back Transaction, the Company could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.6 hereof.
Section 4.18 Line of Business.
The Company will not, and will not permit any of its
Subsidiaries to, engage in any business other than the provision of healthcare
and health fitness services, including without limitation, the ownership,
operation or management of healthcare facilities, the provision of services or
supplies to the healthcare business, providing care and/or housing for the
elderly (including independent living, assisted living or home healthcare),
managed care or any other business determined by the Company's Board of
Directors, in good faith, to be reasonably related to the foregoing.
Section 4.19 Limitation on Status as Investment Company.
Neither the Company nor any of its Subsidiaries shall take any
action or suffer to exist any condition that would require the Company or any of
its Subsidiaries to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or otherwise become subject
to regulation as an investment company.
Section 4.20 Payments for Consent.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Senior Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Senior Notes unless such consideration is
offered to be paid or agreed to be paid to all Holders of the Senior Notes which
so consent, waive or agree to amend within any time period set forth in the
solicitation documents relating to such consent, waiver or agreement.
Section 4.21 Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, and the corporate, partnership or other existence of each
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of each Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders.
Section 4.22 Change of Control.
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(a) Within 30 days of the occurrence of a Change of Control,
the Company shall notify the Trustee in writing of such occurrence and shall
make an offer to purchase (the "Change of Control Offer") the outstanding Senior
Notes at a purchase price equal to 101% of the principal amount thereof plus any
accrued and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth herein.
(b) Within 30 days of the occurrence of a Change of Control,
the Company also shall (i) cause a notice of the Change of Control Offer to be
sent at least once to the Dow Jones News Service or similar business news
service in the United States and (ii) send by first-class mail, postage prepaid,
to the Trustee and to each Holder of the Senior Notes, at the address appearing
in the register maintained by the Registrar of the Senior Notes, a notice
stating:
(1) that the Change of Control Offer is being made pursuant
hereto and that all Senior Notes tendered will be accepted for payment,
and otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 20 Business Days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Senior Note not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Senior Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that Holders accepting the offer to have their Senior
Notes purchased pursuant to a Change of Control Offer will be required
to surrender the Senior Notes to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their acceptance
if the Paying Agent receives, not later than the close of business on
the third Business Day next preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Senior Notes
delivered for purchase, and a statement that such Holder is withdrawing
its election to have such Senior Notes purchased;
(7) that Holders whose Senior Notes are being purchased only
in part will be issued new Senior Notes equal in principal amount to
the unpurchased portion of the Senior Notes surrendered, provided that
each Senior Note purchased and each such
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new Senior Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof;
(8) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
(c) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (i) accept for payment all Senior Notes or portions
thereof or beneficial interests under a Global Note properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Senior Notes or portions thereof or
beneficial interests, so tendered and (iii) deliver or cause to be delivered to
the Trustee Senior Notes so accepted together with an Officers' Certificate
stating the Senior Notes or portions thereof tendered to the Company. The Paying
Agent shall promptly (1) mail to each Holder of Senior Notes so accepted and (2)
cause to be credited to the respective accounts of the Holders under a Global
Note of beneficial interests so accepted payment in an amount equal to the
Change in Control Purchase Price for such Senior Notes, and the Company shall
execute and issue, and the Trustee shall promptly authenticate and mail to such
Holder, a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Notes surrendered and shall issue a Global Note equal in principal
amount to any unpurchased portion of beneficial interest so surrendered;
provided, however, that each such new Senior Note shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof.
(d) If any Permitted Secured Indebtedness is outstanding, at
the time of the occurrence of a Change of Control, prior to the mailing of the
notice to Holders described in the preceding paragraphs, but in any event within
30 days following any Change of Control, the Company covenants to (i) repay in
full all obligations and terminate all commitments under such Permitted Secured
Indebtedness or offer to repay in full all obligations and terminate all
commitments under such Permitted Secured Indebtedness of each lender who has
accepted such offer or (ii) obtain the requisite consent under such Permitted
Secured Indebtedness to permit the repurchase of the Senior Notes as described
above. The Company must first comply with the covenant described in the
preceding sentence before it shall be required to purchase Senior Notes in the
event of a Change of Control, provided, however, that the Company's failure to
comply with the covenant described in the preceding sentence constitutes an
Event of Default described in clause (iii) under Section 6.1 hereof.
(e) If the Company or any Subsidiary thereof has issued any
outstanding (i) Subordinated Indebtedness or (ii) Preferred Equity Interests,
and the Company or such Subsidiary is required to make a Change of Control Offer
or to make a distribution with respect to such Subordinated Indebtedness or
Preferred Equity Interests in the event of a Change of Control, the Company and
such Subsidiary shall not consummate any such offer or distribution with respect
to such Subordinated Indebtedness or Preferred Equity Interests until such time
as the Company shall have paid the Change of Control Purchase Price in full
to the holders of Senior Notes that have accepted the Company's Change of
Control Offer and shall
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otherwise have consummated the Change of Control Offer made to holders of the
Senior Notes.
(f) The Company will not issue Subordinated Indebtedness or
Preferred Equity Interests with change of control provisions requiring the
payment of such Subordinated Indebtedness or Preferred Equity Interests prior to
the payment of the Senior Notes in the event of a Change in Control hereunder.
(g) In the event that a Change of Control occurs and the
Holders of Senior Notes exercise their right to require the Company to purchase
Senior Notes, if such purchase constitutes a "tender offer" for purposes of Rule
14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase.
Section 4.23 Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the
City of New York an office or agency where Senior Notes may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Senior Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee as set forth in Section 11.2.
The Company may also from time to time designate one or more
other offices or agencies where the Senior Notes may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations. The Company shall give prompt written notice to the Trustee of
such designation or rescission and of any change in the location of any such
other office or agency; provided, however, that no such designation or
rescission shall relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes.
The Company hereby initially designates the Corporate Trust
Office of the Trustee as such office of the Company.
Section 4.24 Maintenance of Properties and Insurance;
Books and Records; Compliance with Laws.
(a) The Company shall, and shall cause its Subsidiaries to, at
all times, cause all material properties used or useful to the conduct of their
business be maintained and kept in good condition, repair and working order
(reasonable wear and tear excepted) and supplied with all equipment deemed
necessary in the good faith judgment of the Officers of the Company and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, provided, however, that the Company or any
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Subsidiary shall not be prevented hereby from discontinuing the operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is in the good faith judgment of the Board of
Directors of the Company or the Subsidiary concerned, as the case may be,
desirable in the conduct of the business of the Company or such Subsidiary, as
the case may be, and is not adverse in any material respect to the Holders.
(b) The Company and each of its Subsidiaries shall provide or
cause to be provided, for itself and each of their respective Subsidiaries,
insurance (including appropriate self-insurance) that is adequate and
appropriate for the conduct of the business of the Company and such Subsidiaries
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary for
businesses similarly situated in the industry.
(c) The Company shall and shall cause each of its subsidiaries
to keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Company and each Subsidiary of the Company, in accordance with GAAP consistently
applied to the Company and its Subsidiaries taken as a whole.
(d) The Company shall and shall cause each of its Subsidiaries
to comply with all statutes, laws, ordinances, or government rules and
regulations to which they are subject, non-compliance with which would
materially adversely affect the business, prospects, earnings, properties,
assets or condition (financial or otherwise) of the Company and its Subsidiaries
taken as a whole.
Section 4.25 Payment of Affiliate Indebtedness.
Notwithstanding any provision contained in this Indenture to
the contrary, the Company will not pay any principal of or premium, if any, or
interest on any Affiliate Note until such time as the Company has paid in full
all principal of, premium, if any and interest (including any Additional
Interest) on all outstanding Senior Notes; provided, however, that the Company
will be permitted to repay certain Affiliate Notes that were issued and
outstanding on the Issue Date in accordance with their terms (as in effect on
the Issue Date) to the extent that the aggregate amount of outstanding
Indebtedness on any such Affiliate Note does not exceed $800,000 and that the
aggregate amount of Indebtedness on all such Affiliate Notes does not exceed
$2,700,000.
Section 4.26 Further Assurance to the Trustee.
The Company shall, upon request of the Trustee, execute and
deliver such further instruments and do such further acts as may reasonably be
necessary or proper to carry out more effectively the provisions of this
Indenture.
Section 4.27 Delivery of Certain Legal Opinions.
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On or prior to the date which is 30 days after the Issue Date,
the Company shall cause to be delivered to the Initial Purchaser, the legal
opinions referred to in Section 7(1) of the Purchase Agreement, which opinions
shall be in form and substance reasonably acceptable to the Initial Purchaser.
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.1 Merger, Consolidation or Sale of Assets.
(a) The Company will not and will not permit any of its
Subsidiaries to consolidate with, merge with or into, or sell, assign, lease,
convey, transfer or otherwise dispose of (a "transfer") all or substantially all
of its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless: (i) the Company or
such Subsidiary, as the case may be, shall be the continuing Person, or the
Person (if other than the Company or such Subsidiary) formed by such
consolidation or into which the Company or such Subsidiary, as the case may be,
is merged or to which the properties and assets of the Company or such
Subsidiary, as the case may be, are transferred shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Company or such Subsidiary, as the case may be, under
the Senior Notes and this Indenture, and the obligations under this Indenture
shall remain in full force and effect; (ii) immediately before and immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iii) immediately after giving effect to
such transaction on a pro forma basis the Company or such Person could incur at
least $1.00 additional Indebtedness (other than Permitted Indebtedness) pursuant
to Section 4.6 hereof; and (iv) immediately thereafter, the Company, such
Subsidiary or the other surviving entity, as the case may be, shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company or such Subsidiary, as the case may be, immediately prior to such
transaction.
(b) In connection with any consolidation, merger or transfer
of assets contemplated by this Section 5.1, the Company shall deliver or cause
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this Section 5.1 and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
Section 5.2 Successor Person Substituted.
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Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company or any Guarantor in accordance
with Section 5.1 above, the successor corporation formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor under this Indenture with the same effect as if
such successor corporation had been named as the Company or such Guarantor
herein, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Senior Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.
An "Event of Default" occurs if:
(1) there is a default in the payment of any principal of, or
premium, if any, on the Senior Notes when the same becomes due and
payable;
(2) default for 30 days in the payment of any interest on the
Senior Notes after such interest becomes due and payable;
(3) the Company fails to comply with any of the terms or
provisions of Sections 3.8, 4.8, 4.22, 4.25, 4.27 or 5.1 hereof;
(4) the Company defaults in the observance or performance of
any other provision in the Senior Notes or this Indenture for 30 days
after written notice from the Trustee or the holders of not less than
25% in aggregate principal amount of the Senior Notes then outstanding;
(5) there is a failure to pay when due principal, interest or
premium in an aggregate amount of $3 million or more with respect to
any Indebtedness of the Company or any Subsidiary thereof, or the
acceleration prior to its express maturity of any such Indebtedness
aggregating $3 million or more;
(6) a court of competent jurisdiction renders a final judgment
or judgments which can no longer be appealed for the payment of money
in excess of $3 million (which are not paid or covered by third party
insurance by financially sound insurers that have not disclaimed or
threatened to disclaim coverage) against the Company or any Subsidiary
thereof and such judgment remains undischarged for a period of 60
consecutive days during which a stay of enforcement of such judgment
shall not be in effect;
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(7) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law;
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors or shall admit in writing its inability to pay its debt, or
(E) generally is not paying its debts as they become
due; or
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Subsidiary in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any
Subsidiary or for all or substantially all of the property of the Company or any
Subsidiary, or
(C) orders the liquidation of the Company or any
Subsidiary, and, in each case, the order or decree remains unstayed and in
effect for 60 consecutive days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors as in effect from time to
time. The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Subject to the provisions of Sections 7.1 and 7.2, the Trustee
shall not be charged with knowledge of any Default or Event of Default unless
written notice thereof shall have been given to a Trust Officer at the Corporate
Trust Office by the Company or any other Person.
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Section 6.2 Acceleration.
If an Event of Default (other than an Event of Default arising
under Section 6.1(7) or (8) with respect to the Company) occurs and is
continuing, the Trustee by notice to the Company or the Holders of not less than
25% in aggregate principal amount of the Senior Notes then outstanding by
written notice to the Company and the Trustee may declare to be immediately due
and payable the entire principal amount of all the Senior Notes then outstanding
plus premium, if any, and accrued interest to the date of acceleration;
provided, however, that after such acceleration but before a judgment or decree
based on such acceleration is obtained by the Trustee, the Holders of a majority
in aggregate principal amount of the outstanding Senior Notes may rescind and
annul such acceleration if all existing Events of Default, other than nonpayment
of accelerated principal, premium, if any, or interest, have been cured or
waived as provided in this Indenture and if the rescission would not conflict
with any judgment or decree. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
In case an Event of Default specified in Section 6.1(7) or (8)
with respect to the Company occurs, the principal, premium, if any, and interest
amount with respect to all of the Senior Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or the Holders of the Senior Notes.
Section 6.3 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, or premium, if any, and interest on the Senior Notes or
to enforce the performance of any provision of the Senior Notes or this
Indenture and may take any necessary action requested of it as Trustee to
settle, compromise, adjust or otherwise conclude any proceedings to which it is
a party.
The Trustee may maintain a proceeding even if it does not
possess any of the Senior Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Noteholder in exercising
any right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative
to the extent permitted by law.
Section 6.4 Waiver of Defaults and Events of Default.
Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of a
majority in principal amount of the Senior Notes then outstanding have the right
to waive any existing or future Default or Event of Default or compliance with
any provision of this Indenture or the Senior Notes. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto except as specifically set forth therein.
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Section 6.5 Control by Majority.
The Holders of a majority in principal amount of the Senior
Notes then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee by this Indenture. The Trustee, however, may
refuse to follow any direction that conflicts with law or this Indenture or that
the Trustee determines may be unduly prejudicial to the rights of another
Noteholder not taking part in such direction, and the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, determines that the action so directed may not lawfully be taken or if
the Trustee in good faith shall determine that the proceedings so directed may
involve it in personal liability unless the Trustee has asked for and received
indemnification reasonably satisfactory to it against any loss, liability or
expense caused by its following such direction; provided that the Trustee may
take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
Section 6.6 Limitation on Suits.
Subject to Section 6.7 below, a Noteholder may not institute
any proceeding or pursue any remedy with respect to this Indenture or the Senior
Notes unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount
of the Senior Notes then outstanding make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer, and if requested, provide to
the Trustee indemnity reasonably satisfactory to the Trustee against
any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60 day period by the Holders of a
majority in aggregate principal amount of the Senior Notes then
outstanding.
A Noteholder may not use this Indenture to prejudice the
rights of another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Senior Note to receive payment of principal of, or
premium, if any, and interest of the Senior Note on or after the respective due
dates expressed in the Senior Note, or to bring suit for the enforcement of any
such payment on or after such respective dates, is absolute and
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unconditional and shall not be impaired or affected without the consent of the
Holder.
Section 6.8 Collection Suit by Trustee.
If an Event of Default in payment of principal, premium or
interest specified in Section 6.1(1) or (2) hereof occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or the Guarantors (or any other obligor on the Senior Notes)
for the whole amount of unpaid principal and accrued interest remaining unpaid,
together with interest on overdue principal and, to the extent that payment of
such interest is lawful, interest on overdue installments of interest, in each
case at the rate then borne by the Senior Notes, and such further amounts as
shall be sufficient to cover the costs and expenses of collection, including the
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, including all sums due and owing to the Trustee pursuant to the
Indenture including Section 7.7.
Section 6.9 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and the Noteholders allowed in
any judicial proceedings relative to the Company or the Guarantors (or any other
obligor upon the Senior Notes), their respective creditors or property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same after
deduction of its reasonable charges and expenses to the extent that any such
charges and expenses are not paid out of the estate in any such proceedings and
any custodian in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under the Indenture, including without
limitation Section 7.7 hereof. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Noteholder any plan or reorganization, arrangement, adjustment or
composition affecting the Senior Notes or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Noteholder in
any such proceedings.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under the Indenture,
including without limitation, Section 7.7 hereof;
SECOND: to Noteholders for amounts due and unpaid on the
Senior Notes for principal, premium, if any, and interest as to each, ratably,
without preference or priority of
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any kind, according to the amounts due and payable on the Senior Notes; and
THIRD: to the Company or, to the extent the Trustee collects
any amount from any Guarantor, to such Guarantor.
The Trustee may fix a record date and payment date for any payment
to Noteholders pursuant to this Section 6.10. The Trustee shall give the Company
prior notice of any such record date and payment date; provided, however, that
the failure to give any such notice shall not affect the establishment of such
record date or payment date or any payment to Noteholders pursuant to this
Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.7 hereof or a suit by Holders of more than 10% in
principal amount of the Senior Notes then outstanding.
Section 6.12 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE 7
TRUSTEE
Section 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the same circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
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(1) The Trustee need perform only those duties that
are specifically set forth in this Indenture and no others and no
implied covenants or obligations shall be read into this Indenture
against the Trustee.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture but, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.1.
(2) In the absence of bad faith on its part, the
Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.2 and 6.5 hereof.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it.
(e) Whether or not therein expressly so provided, paragraphs
(a), (b), (c), (d), (f) and (g) of this Section 7.1 shall govern every provision
of this Indenture that in any way relates to the Trustee or any Agent.
(f) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity reasonably satisfactory to it
against any loss, liability, expense or fee.
(g) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company or
any Guarantor. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by the law.
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Section 7.2 Rights of Trustee.
Subject to Section 7.1 hereof:
(1) The Trustee may rely on and shall be protected in
acting or refraining from acting upon any document reasonably believed
by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in
the document.
(2) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of Counsel, or
both, which shall conform to the provisions of Section 11.5 hereof. The
Trustee shall be protected and shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion.
(3) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent (other
than the negligence or willful misconduct of an agent who is an
employee of the Trustee) appointed by it with due care.
(4) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided that the Trustee's
conduct does not constitute negligence or bad faith.
(5) The Trustee may consult with counsel of its
selection, and the advice or opinion of such counsel as to matters of
law shall be full and complete authorization and protection from
liability in respect of any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of
such counsel.
Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Senior Notes and may make loans to, accept deposits
from, perform services for or otherwise deal with the Company or any Guarantor,
or any Affiliates thereof, with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. The Trustee, however, shall
be subject to Sections 7.10 and 7.11 hereof.
Section 7.4 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Senior Notes, it shall not be accountable for
the Company's use of the proceeds from the sale of Senior Notes or any money
paid to the Company pursuant to the terms of this Indenture and it shall not be
responsible for any statement in the Senior Notes or any document used in
connection with the sale of the Senior Notes other than its certificate of
authentication.
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Section 7.5 Notice of Defaults.
If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each Noteholder notice of the Default
within 90 days after it occurs. Except in the case of a Default in payment of
principal or premium, if any, or interest on the Senior Notes, or that resulted
from the failure of the Company to comply with Sections 4.8 or 5.1, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines it to be in the best interests of the holders of the
Senior Notes to do so.
Section 7.6 Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after May 15
of any year, commencing the May 15 following the date of this Indenture, the
Trustee shall mail to each Noteholder a brief report dated as of such May 15
that complies with TIA Section 313(a); provided that no such report need be
transmitted if no such events listed in TIA Section 313(a) have occurred within
such period. The Trustee also shall comply with TIA Section 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA Section
313(c) and TIA Section 313(d).
A copy of each report at the time of its mailing to
Noteholders shall be filed with the SEC and each stock exchange on which the
Senior Notes are listed. The Company shall promptly notify the Trustee when the
Senior Notes are listed on any stock exchange and the Trustee shall comply with
TIA Section 313(d).
Section 7.7 Compensation and Indemnity.
The Company and the Guarantors (on a joint and several basis)
shall pay to the Trustee from time to time such compensation as shall be agreed
in writing between the Company and the Trustee (or in the absence of such an
agreement, reasonable compensation) for its services hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust). The Company and the Guarantors
(on a joint and several basis) shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances incurred or made by it in
connection with its duties under this Indenture, including the compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company and the Guarantors (on a joint and several basis)
shall indemnify each of the Trustee and any predecessor Trustee for, and hold
them harmless against, any and all loss, damage, claim, liability, expense
(including but not limited to attorneys' fees and expenses) or taxes (other than
taxes based on the income of the Trustee) incurred by it in connection with the
acceptance or performance of its duties under this Indenture including the costs
and expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder
(including, without limitation, settlement costs). The Trustee shall notify the
Company and the Guarantors in writing promptly of any claim asserted against the
Trustee for which it may seek indemnity.
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However, the failure by the Trustee to so notify the Company and the Guarantors
shall not relieve the Company or the Guarantors of their obligations hereunder.
Notwithstanding the foregoing, the Company and the Guarantors
need not reimburse the Trustee for any expense or indemnify it against any loss
or liability incurred by the Trustee through its negligence or bad faith. To
secure the payment obligations of the Company and the Guarantors in this
Indenture, including without limitation, Sections 7.7 and 9.5, the Trustee and
any predecessor Trustee shall have a lien prior to the Senior Notes on all money
or property held or collected by the Trustee in its capacity as such, except
such money or property held in trust to pay principal of and interest on
particular Senior Notes. The obligations of the Company and the Guarantors under
this Section 7.7 to compensate and indemnify the Trustee and each predecessor
Trustee and to pay or reimburse the Trustee and each predecessor Trustee for
expenses, disbursements and advances shall be joint and several liabilities of
the Company and each of the Guarantors and shall survive the satisfaction and
discharge of this Indenture, including the termination or rejection hereof in
any bankruptcy proceeding to the extent permitted by law.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(7) or (8) hereof occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
The Trustee may resign by so notifying the Company and the
Guarantors in writing, such resignation to become effective upon the appointment
of a successor Trustee. The Holders of a majority in principal amount of the
outstanding Senior Notes may remove the Trustee by notifying the removed Trustee
in writing and may appoint a successor Trustee with the Company's written
consent which consent shall not be unreasonably withheld. The Company may remove
the Trustee at its election if:
(1) the Trustee fails to comply with Section 7.10
hereof;
(2) the Trustee is adjudged a bankrupt or an
insolvent;
(3) a receiver or other public officer takes charge
of the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 25% in principal amount of the outstanding
Senior Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
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If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.7 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.8, the Company's obligations under Section
7.7 hereof shall continue for the benefit of the retiring Trustee.
Section 7.9 Successor Trustee by Consolidation, Merger or Conversion.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation or national banking association, subject to Section 7.10 hereof, the
successor corporation or national banking association without any further act
shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b), including the provision in Section 310(b)(1);
provided that there shall be excluded from the operation of TIA Section
310(b)(1) any indenture or indentures under which other securities, or conflicts
of interest or participation in other securities, of the Company or the
Guarantors are outstanding if the requirements for exclusion set forth in TIA
Section 310(b)(1) are met.
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
Section 7.12 Paying Agents.
The Company shall cause each Paying Agent other than the
Trustee to execute and deliver to it and the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
7.12:
(A) that it will hold all sums held by it as agent
for the payment of
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principal of, or premium, if any, or interest on, the Senior Notes
(whether such sums have been paid to it by the Company or by any
obligor on the Senior Notes) in trust for the benefit of Holders of the
Senior Notes or the Trustee;
(B) that it will at any time during the continuance
of any Event of Default, upon written request from the Trustee, deliver
to the Trustee all sums so held in trust by it together with a full
accounting thereof; and
(C) that it will give the Trustee written notice
within three (3) Business Days of any failure of the Company (or by any
obligor on the Senior Notes) in the payment of any installment of the
principal of, premium, if any, or interest on, the Senior Notes when
the same shall be due and payable.
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.1 Without Consent of Holders
The Company and/or one or more Guarantors and the Trustee may
modify, waive, amend or supplement this Indenture or the Senior Notes without
notice to or consent of any Noteholder:
(1) to comply with Section 5.1 hereof;
(2) to provide for uncertificated Senior Notes in
addition to or in place of certificated Senior Notes;
(3) to comply with any requirements of the SEC under
the TIA;
(4) to cure any ambiguity, defect or inconsistency,
or to make any other change that does not materially and adversely
affect the rights of any Noteholder;
(5) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Senior
Notes.
The Trustee is hereby authorized to join with the Company and
the Guarantors, if any, in the execution of any supplemental indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which adversely affects its own rights, duties or immunities under this
Indenture.
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Section 8.2 With Consent of Holders.
The Company and/or one or more Guarantors and the Trustee may
modify, amend, waive or supplement this Indenture or the Senior Notes with the
written consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Senior Notes without notice to any
Noteholder. The Holders of not less than a majority in aggregate principal
amount of the outstanding Senior Notes may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Senior
Notes. Subject to Section 8.4, without the consent of each Noteholder affected,
however, an amendment, supplement or waiver, including a waiver pursuant to
Section 6.4, may not:
(1) reduce the amount of Senior Notes whose Holders
must consent to an amendment, modification, supplement or waiver to
this Indenture or the Senior Notes;
(2) reduce the rate of or change the time for payment
of interest on any Senior Note;
(3) reduce the principal of or premium on or change
the stated maturity of any Senior Note;
(4) make any Senior Note payable in money other than
that stated in the Senior Note or change the place of payment from New
York, New York;
(5) change the amount or time of any payment required
by the Senior Notes or reduce the premium payable upon any redemption
of the Senior Notes, or change the time before which no such redemption
may be made;
(6) waive a default in the payment of the principal
of, or interest on, or redemption payment with respect to any Senior
Note;
(7) subordinate in right of payment, or otherwise
subordinate, the Senior Notes or the Guarantees to any other
Indebtedness or obligation of the Company or the Guarantors;
(8) amend, alter, change or modify the obligation of
the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate an Excess Proceeds
Offer or waive any Default in the performance of any such offers or
modify any of the provisions or definitions with respect to any such
offers;
(9) take any other action otherwise prohibited by
this indenture to be taken without the consent of each Holder affected
thereby; or
(10) modify this Section 8.2, Section 4.20, Section
6.4 or 6.7. After a modification, amendment, supplement or waiver under
this Section 8.2 becomes effective, the Company shall mail to the
Holders a notice briefly describing the
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modification, amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however,
in any way impair or affect the validity of any such modification,
amendment, supplement or waiver.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
modification, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
Section 8.3 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Senior Notes shall comply with the TIA as then in effect.
Section 8.4 Revocation and Effect of Consents.
Until a modification, amendment, supplement, waiver or other
action becomes effective, a consent to it by a Holder of a Senior Note is a
continuing consent conclusive and binding upon such Holder and every subsequent
Holder of the same Senior Note or portion thereof, and of any Senior Note issued
upon the transfer thereof or in exchange therefor or in place thereof, even if
notation of the consent is not made on any such Senior Note. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Senior Note or
portion of a Senior Note, if the Trustee receives the notice of revocation
before the date the modification, amendment, supplement, waiver or other action
becomes effective. Notwithstanding the foregoing, nothing in this paragraph
shall impair the right of any Holder under TIA Section 316(b).
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
modification, amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such modification, amendment, supplement, or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date unless the consent of the requisite
number of Holders has been obtained.
After a modification, amendment, supplement, waiver or other
action becomes effective, it shall bind every Holder and every subsequent
Holder.
Section 8.5 Notation on or Exchange of Senior Notes.
If a modification, amendment, supplement or waiver changes the
terms of a Senior Note, the Trustee may request the Holder of the Senior Note to
deliver it to the Trustee. In such case, the Trustee shall place an appropriate
notation on the Senior Note about the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Senior Note shall issue and the Trustee shall
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authenticate a new security that reflects the changed terms. Failure to make the
appropriate notation or issue a new Senior Note shall not affect the validity
and effect of such modification, amendment, supplement or waiver.
Section 8.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any modification, amendment, supplement
or waiver authorized pursuant to this Article 8 if the modification, amendment,
supplement or waiver does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such modification, amendment, supplement or
waiver, the Trustee shall be entitled to receive and, subject to Section 7.1
hereof, shall be fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel stating that such modification, amendment, supplement or
waiver is authorized or permitted by this Indenture and such supplemental
indenture constitutes the legal, valid and binding obligation of the Company and
the Guarantors enforceable against each of them in accordance with its terms
(subject to customary exceptions). The Company or any Guarantor may not sign a
modification, amendment or supplement until the Board of Directors of the
Company or such Guarantor, as appropriate, approves it.
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.1 Discharge of Indenture.
The Company and the Guarantors, if any, may terminate their
obligations under the Senior Notes, the Guarantees, if any, and this Indenture,
except the obligations referred to in the last paragraph of this Section 9.1, if
there shall have been cancelled by the Trustee or delivered to the Trustee for
cancellation all Senior Notes theretofore authenticated and delivered (other
than any Senior Notes that are asserted to have been destroyed, lost or stolen
and that shall have been replaced as provided in Section 2.7 hereof) and the
Company has paid all sums payable by it hereunder or deposited all required sums
with the Trustee.
After such delivery the Trustee upon request shall acknowledge
in writing the discharge of the Company's and the Guarantors' obligations under
the Senior Notes, the Guarantees and this Indenture except for those surviving
obligations specified below.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company in Sections 2.7, 7.7, 9.5, 9.6 and 9.8
hereof shall survive.
Section 9.2 Legal Defeasance.
The Company may at its option, by Board Resolution, be
discharged from its obligations with respect to the Senior Notes and the
Guarantors, if any, discharged from their obligations under the Guarantees, if
any, on the date the conditions set forth in Section 9.4
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below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Senior Notes and to have
satisfied all its other obligations under such Senior Notes and this Indenture
insofar as such Senior Notes are concerned (and the Trustee, at the expense of
the Company, shall, subject to Section 9.6 hereof, execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
outstanding Senior Notes to receive solely from the trust funds described in
Section 9.4 hereof and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Senior Notes
when such payments are due, (B) the Company's obligations with respect to such
Senior Notes under Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 4.23 hereof, (C)
the rights, powers, trusts, duties, and immunities of the Trustee hereunder
(including claims of, or payments to, the Trustee under or pursuant to Section
7.7 hereof) and (D) this Article 9. Subject to compliance with this Article 9,
the Company may exercise its option under this Section 9.2 with respect to the
Senior Notes notwithstanding the prior exercise of its option under Section 9.3
below with respect to the Senior Notes.
Section 9.3 Covenant Defeasance.
At the option of the Company, pursuant to a Board Resolution,
the Company and the Guarantors, if any, shall be released from their respective
obligations under Sections 4.2 through 4.4 hereof, inclusive, Sections 4.6
through 4.18 hereof, inclusive, Sections 4.20 through 4.22 hereof, inclusive,
Sections 4.24 and 4.25 and clause (a)(iii) of Section 5.1 hereof with respect to
the outstanding Senior Notes on and after the date the conditions set forth in
Section 9.4 hereof are satisfied (hereinafter, "Covenant Defeasance") and the
Senior Notes shall thereafter be deemed to not be outstanding for purposes of
any direction, waiver, consent, declaration or act of the Holders (and the
consequences thereof) in connection with such covenants but shall continue to be
outstanding for all other purposes hereunder. For this purpose, such Covenant
Defeasance means that the Company and the Guarantors, if any, may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Senior Notes shall be
unaffected thereby.
Section 9.4 Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of
Section 9.2 or Section 9.3 hereof to the outstanding Senior Notes:
(1) the Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 7.10 hereof who shall agree to comply with
the provisions of this Article 9 applicable to it) as funds in trust
for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Senior
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Notes, (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than the
due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall
be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of, premium, if any, and accrued interest on
the outstanding Senior Notes at the maturity date of such principal,
premium, if any, or interest, or on dates for payment and redemption of
such principal, premium, if any, and interest selected in accordance
with the terms of this Indenture and of the Senior Notes;
(2) no Event of Default or Default with respect to
the Senior Notes shall have occurred and be continuing on the date of
such deposit, or shall have occurred and be continuing at any time
during the period ending on the 91st day after the date of such deposit
or, if longer, ending on the day following the expiration of the
longest preference period under any Bankruptcy Law applicable to the
Company in respect of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period);
(3) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute default
under any other agreement or instrument to which the Company is a party
or by which it is bound;
(4) the Company shall have delivered to the Trustee
an Opinion of Counsel stating that, as a result of such Legal
Defeasance or Covenant Defeasance, neither the trust nor the Trustee
will be required to register as an investment company under the
Investment Company Act of 1940, as amended;
(5) in the case of an election under Section 9.2
above, the Company shall have delivered to the Trustee an Opinion of
Counsel stating that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling to the effect
that or (ii) there has been a change in any applicable Federal income
tax law with the effect that, and such opinion shall confirm that, the
Holders of the outstanding Senior Notes or persons in their positions
will not recognize income, gain or loss for Federal income tax purposes
solely as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner, including
as a result of prepayment, and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(6) in the case of an election under Section 9.3
hereof, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the outstanding Senior Notes
will not recognize income, gain or loss for Federal income tax purposes
as a result of such Covenant Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
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(7) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that
(a) all conditions precedent provided for relating to either the Legal
Defeasance under Section 9.2 above or the Covenant Defeasance under
Section 9.3 hereof (as the case may be) have been complied with and (b)
if any other Indebtedness of the Company shall then be outstanding,
such legal defeasance or covenant defeasance will not violate the
provisions of the agreements or instruments evidencing such
Indebtedness; and
(8) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit under clause (1) was
not made by the Company with the intent of defeating, hindering,
delaying or defrauding any creditors of the Company or others.
Section 9.5 Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 9.4 hereof in
respect of the outstanding Senior Notes shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Senior Notes and this
Indenture, to the payment, either directly or through any Paying Agent as the
Trustee may determine, to the Holders of such Senior Notes, of all sums due and
to become due thereon in respect of principal, premium, if any, and accrued
interest, but such money need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no duty to invest such money
or U.S. Government Obligations.
The Company and the Guarantors shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
U.S. Government Obligations deposited pursuant to Section 9.4 hereof or the
principal, premium, if any, and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of the outstanding Senior Notes.
Subject to Sections 7.1 and 7.2 hereof, anything in this
Article 9 to the contrary notwithstanding, the Trustee shall deliver or pay to
the Company from time to time upon Company Request any money or U.S. Government
Obligations held by it as provided in Section 9.4 hereof which, in the opinion
of a nationally-recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
Section 9.6 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 9.1, 9.2 or 9.3 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the obligations of the
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Company and any Guarantor under this Indenture, the Senior Notes and the
Guarantees, if any, shall be revived and reinstated as though no deposit had
occurred pursuant to this Article 9 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 9.1 hereof; provided, however, that if the Company or
any Guarantors have made any payment of principal of, premium, if any, or
accrued interest on any Senior Notes because of the reinstatement of their
obligations, the Company or such Guarantors, as the case may be, shall be
subrogated to the rights of the Holders of such Senior Notes to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
Section 9.7 Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon demand of the Company, be paid to the Trustee, or if
sufficient moneys have been deposited pursuant to Section 9.4 hereof, to the
Company (or, if such moneys had been deposited by any Guarantors, to such
Guarantors), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
Section 9.8 Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or
then held by the Company or any Guarantors in trust for the payment of the
principal of, premium, if any, or interest on any Senior Note that are not
applied but remain unclaimed by the Holder of such Senior Note for two years
after the date upon which the principal of, or premium, if any, or interest on
such Senior Note shall have respectively become due and payable shall be repaid
to the Company (or, if appropriate, the Guarantors) upon Company Request, or if
such moneys are then held by the Company or any Guarantors in trust, such moneys
shall be released from such trust; and the Holder of such Senior Note entitled
to receive such payment shall thereafter, as an unsecured general creditor, look
only to the Company and the Guarantors, if any, for the payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Trustee or any such Paying
Agent, before being required to make any such repayment, may, at the expense of
the Company and the Guarantors, if any, either mail to each Noteholder affected,
at the address shown in the register of the Senior Notes maintained by the
Registrar pursuant to Section 2.3 hereof, or cause to be published once a week
for two successive weeks, in a newspaper published in the English language,
customarily published each Business Day and of general circulation in The City
of New York, New York, a notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such mailing or publication, any unclaimed balance of such moneys then
remaining will be repaid to the Company. After payment to the Company or the
Guarantors, if any, or the release of any money held in trust by the Company or
any Guarantors, as the case may be, Noteholders entitled to the money must look
only to the Company and any Guarantors for payment as general creditors unless
applicable abandoned property law designates another person.
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ARTICLE 10
GUARANTEE OF SENIOR NOTES
Section 10.1 Guarantee.
Subject to the provisions of this Article 10, each Guarantor
hereby jointly and severally unconditionally and irrevocably guarantee to each
Holder and to the Trustee, on behalf of the Holders, (i) the due and punctual
payment of the principal of, premium, if any, and interest (including Additional
Interest) on each Senior Note, when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal of, and premium, if any, and
interest on the Senior Notes, to the extent lawful, and the due and punctual
performance of all other Obligations of the Company to the Holders or the
Trustee all in accordance with the terms of such Senior Note and this Indenture,
and (ii) in the case of any extension of time of payment or renewal of any
Senior Notes or any of such other Obligations, that the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor, by
execution of the Guarantee, agrees that its obligations thereunder and hereunder
shall be absolute and unconditional, irrespective of, and shall be unaffected
by, any invalidity, irregularity or unenforceability of any such Senior Note or
this Indenture, any failure to enforce the provisions of any such Senior Note or
this Indenture, any waiver, modification or indulgence granted to the Company
with respect thereto by the Holder of such Senior Note or the Trustee, or any
other circumstances which may otherwise constitute a legal or equitable
discharge of a surety or such Guarantor.
Each Guarantor, by execution of the Guarantee, waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of merger or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest or notice with respect to any such Senior
Note or the Indebtedness evidenced thereby and all demands whatsoever, and
covenants that the Guarantee will not be discharged as to any such Senior Note
except by payment in full of the principal thereof, premium if any, and interest
thereon and as provided in Section 9.1 hereof. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or any Guarantor or
any Custodian, trustee, liquidator or other similar official acting in relation
to either the Company or any Guarantor, any amount paid by either the Company or
any Guarantor to the Holder or Trustee, each Guarantor's Guarantee, to the
extent therefor discharged, shall be reinstated in full force and effect. Each
Guarantor, by execution of the Guarantee, further agrees that, as between such
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(i) the maturity of the Obligations guaranteed by the Guarantee may be
accelerated as provided in Article 6 hereof for the purposes of the Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed thereby, and (ii) in the
event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof,
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such Obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of the Guarantee. In addition, without
limiting the foregoing provisions, upon the effectiveness of an acceleration
under Article 6 hereof, the Trustee shall promptly make a demand for payment on
the Senior Notes under the Guarantee provided for in this Article 10 and not
discharged. Failure to make such demand shall not affect the validity or
enforceability of the Guarantee upon any Guarantor.
A Guarantee shall not be valid or become obligatory for any
purpose with respect to a Senior Note unless the certificate of authentication
on such Senior Note shall have been signed by or on behalf of the Trustee.
Each Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorney's fees) incurred by the Trustee as any
Holder in enforcing any rights under this section.
Section 10.2 Execution and Delivery of Guarantees.
To evidence the Guarantee set forth in this Article 10, each
Guarantor shall execute a Guarantee in the form included as part of Exhibit A
hereto and hereby agrees that a notation of such Guarantee shall be placed on
each Senior Note authenticated and made available for delivery by the Trustee
and that this Guarantee shall be executed on behalf of each Guarantor by the
manual or facsimile signature of an Officer of each Guarantor.
Each Guarantor hereby agrees that the Guarantee set forth in
Section 10.1 shall remain in full force and effect notwithstanding any failure
to endorse on each Senior Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on the
Guarantee no longer holds that office at the time the Trustee authenticates the
Senior Note on which the Guarantee is endorsed, the Guarantee shall be valid
nevertheless.
The delivery of any Senior Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in this Indenture on behalf of each Guarantor.
Section 10.3 Limitation of Guarantee.
The obligations of each Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Guarantor.
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Section 10.4 Release of Guarantor.
A Guarantor shall be released from all of its obligations
under its Guarantee if:
(i) the Guarantor has sold all or substantially all of its
assets or the Company and its Subsidiaries have sold all of the Equity Interests
of the Guarantor owned by them, in each case in a transaction in compliance with
Sections 4.8 and 5.1 hereof to the extent applicable; or
(ii) the Guarantor merges with or into or consolidates with,
or transfers all or substantially all of its assets to, the Company or another
Guarantor in a transaction in compliance with Section 5.1 hereof;
and in each such case, the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with.
Section 10.5 Additional Guarantors.
The Company covenants and agrees that it will cause any Person
which becomes obligated to guarantee the Notes, pursuant to the terms of Section
4.12 hereof, to execute a Guarantee satisfactory in form and substance to the
Trustee pursuant to which such Subsidiary shall guarantee the obligations of the
Company under the Senior Notes and this Indenture in accordance with this
Article 10 with the same effect and to the same extent as if such Person had
been named herein as a Guarantor.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
Section 11.2 Notices.
Any notice or communication shall be given in writing and
delivered in person, sent by facsimile, delivered by commercial courier service
or mailed by first-class mail, postage prepaid, addressed as follows:
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If to the Company or any Guarantor:
Unison HealthCare Corporation
7272 E. Indian School Road, Suite 214
Scottsdale, AZ 85251
Attention: Treasurer
Fax Number: (602) 481-6479
Phone Number: (602) 423-1954
Copy to:
Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, AZ 85004
Attention: Christopher D. Johnson, Esq.
Fax Number: (602) 253-8129
Phone Number: (602) 528-4000
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
11th Floor
New York, New York 10004
Attention: Corporate Finance Trust Services
Fax Number: (212) 858-2952
Phone Number: (212) 858-2529
Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.
The Company, any Guarantors or the Trustee by written notice
to the others may designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Holder shall be mailed
to him by first-class mail, postage prepaid, at his address shown on the
register kept by the Registrar. If a notice or communication to a Holder is
mailed in the manner provided above, it shall be deemed duly given on the date
so deposited in the mail, whether or not the addressee receives it.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
In case, by reason of the suspension of regular mail service,
or by reason of any
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other cause, it shall be impossible to mail any notice as required by this
Indenture, then such method of notification as shall be made with the approval
of the Trustee shall constitute a sufficient mailing of such notice.
Section 11.3 Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Senior
Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else
shall have the protection of TIA Section 312(c).
Section 11.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any
Guarantor to the Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate (which shall include the
statements set forth in Section 11.5 below) in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
(2) an Opinion of Counsel (which shall include the
statements set forth in Section 11.5 below) in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
such counsel, all such conditions precedent have been complied with;
and
(3) where applicable, a certificate or opinion by an
independent certified public accountant satisfactory to the Trustee
that complies with TIA Section 314(c).
Section 11.5 Statements Required in Certificate and Opinion.
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person,
it or he has made such examination or investigation as is necessary to
enable it or him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
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(4) a statement as to whether or not, in the opinion
of such Person, such covenant or condition has been complied with.
Section 11.6 When Treasury Senior Notes Disregarded.
In determining whether the Holders of the required aggregate
principal amount of Senior Notes have concurred in any direction, waiver or
consent, Senior Notes owned by the Company, any Guarantor or any other obligor
on the Senior Notes or by any Affiliate of any of them shall be disregarded as
though they were not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Senior Notes which the Trustee actually knows are so owned
shall be so disregarded. Senior Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to the Senior Notes and
that the pledgee is not the Company, a Guarantor or any other obligor upon the
Senior Notes or any Affiliate of any of them.
Section 11.7 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
meetings of Holders. The Registrar and Paying Agent may make reasonable rules
for their functions.
Section 11.8 Business Days; Legal Holidays.
A "Business Day" is a day that is not a Legal Holiday. A
"Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day
on which banking institutions are not required to be open in the State of New
York. If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
Section 11.9 Governing Law.
THIS INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SENIOR NOTES.
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Section 11.10 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan, security or debt agreement of the Company or any Subsidiary thereof. No
such indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 11.11 No Recourse Against Others.
No recourse for the payment of the principal of or premium, if
any, or interest on any of the Senior Notes, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company or any Guarantor in this Indenture or in
any supplemental indenture, or in any of the Senior Notes, or because of the
creation of any Indebtedness represented thereby, shall be had against any
stockholder, officer, director, partner, affiliate, beneficiary or employee, as
such, past, present or future, of the Company or of any successor corporation or
against the property or assets of any such stockholder, officer, employee,
partner, affiliate, beneficiary or director, either directly or through the
Company or any Guarantor, or any successor corporation thereof, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the Senior Notes are solely obligations of the Company and the
Guarantors, and that no such personal liability whatever shall attach to, or is
or shall be incurred by, any stockholder, officer, employee, partner, affiliate,
beneficiary or director, as such, of the Company or any Guarantor, or any
successor corporation thereof, because of the creation of the indebtedness
hereby authorized, or under or by reason of the obligations, covenants or
agreements contained in this Indenture or the Senior Notes or implied therefrom,
and that any and all such personal liability of, and any and all claims against
every stockholder, officer, employee, partner, affiliate, beneficiary and
director, as such, are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issuance of
the Senior Notes. It is understood that this limitation on recourse is made
expressly for the benefit of any such shareholder, employee, officer, partner,
affiliate, beneficiary or director and may be enforced by any one or all of
them.
Section 11.12 Successors.
All agreements of the Company and the Guarantors in this
Indenture and the Senior Notes shall bind their respective successors. All
agreements of the Trustee, any additional trustee and any Paying Agents in this
Indenture shall bind its successor.
Section 11.13 Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture.
Each signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
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Section 11.14 Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 11.15 Separability.
Each provision of this Indenture shall be considered separable
and if for any reason any provision which is not essential to the effectuation
of the basic purpose of this Indenture or the Senior Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed, and the Company's corporate seal to be hereunto affixed and
attested, all as of the date and year first written above.
UNISON HEALTHCARE CORPORATION
By: ________________________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By: ________________________________________
Name:
Title:
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SUNQUEST SPC, INC. CHRISTOPHER NURSING CENTER,INC.
an Arizona corporation a Colorado corporation
BRITWILL HEALTHCARE COMPANY AMBERWOOD COURT, INC.
a Delaware corporation a Colorado corporation
BRITWILL INVESTMENTS - I, INC. THE ARBORS HEALTH CARE CENTER, INC
a Delaware corporation an Arizona corporation
BRITWILL INVESTMENTS - II, INC. LOS ARCOS, INC.
a Delaware corporation a Colorado corporation
BRITWILL FUNDING CORPORATION PUEBLO NORTE, INC.
a Delaware corporation a Colorado corporation
EMORY CARE CENTER, INC. RIO VERDE NURSING CENTER, INC.
a Texas corporation a Colorado corporation
MEMPHIS CLINICAL SIGNATURE MANAGEMENT GROUP, INC.
LABORATORY, INC. a Colorado corporation
a Tennessee corporation
AMERICAN PROFESSIONAL CORNERSTONE CARE, INC.
HOLDINGS, INC. a Colorado corporation
a Utah corporation
ARKANSAS, INC. DOUGLAS MANOR, INC.
a Colorado corporation a Colorado corporation
AMPRO MEDICAL SERVICES, INC. GAMMA LABORATORIES, INC.
a Texas corporation a Missouri corporation
SAFFORD CARE, INC. SIGNATURE HEALTH CARE CORPORATION
a Colorado corporation a Delaware corporation
REHABWEST, INC. BROOKSHIRE HOUSE, INC.
a Colorado corporation a Colorado corporation
CEDAR CARE, INC. SHERWOOD HEALTHCARE CORP.
an Indiana corporation an Indiana corporation
By: __________________________________
Name: Michael A. Jeffries
Title: President
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DECATUR SPORTS FIT & WELLNESS CENTER, INC.
an Alabama corporation
THERAPY HEALTH SYSTEMS, INC.
a Mississippi corporation
HENDERSON & ASSOCIATES REHABILITATION, INC.
An Alabama corporation
By: __________________________________
Name: Michael A. Jeffries
Title: Vice President
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
an Alabama corporation
By: __________________________________
Name: Michael A. Jeffries
Title: President
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
an Arizona corporation
QUEST PHARMACIES, INC.
an Arizona corporation
By: __________________________________
Name: Michael A. Jeffries
Title: Vice President
BRITWILL INDIANA PARTNERSHIP
an Arizona general partnership
By: BRITWILL INVESTMENTS - I, INC.
its General Partner
By: __________________________________
Name: Michael A. Jeffries
Title: President
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SCHEDULE 1
SUNQUEST SPC, INC. LOS ARCOS, INC.
an Arizona corporation a Colorado corporation
BRITWILL HEALTHCARE COMPANY PUEBLO NORTE, INC.
a Delaware corporation a Colorado corporation
BRITWILL INVESTMENTS - I, INC. RIO VERDE NURSING CENTER, INC.
a Delaware corporation a Colorado corporation
BRITWILL INVESTMENTS - II, INC. SIGNATURE MANAGEMENT GROUP, INC.
a Delaware corporation a Colorado corporation
BRITWILL FUNDING CORPORATION CORNERSTONE CARE, INC.
a Delaware corporation a Colorado corporation
EMORY CARE CENTER, INC. ARKANSAS, INC.
a Texas corporation a Colorado corporation
MEMPHIS CLINICAL LABORATORY, DOUGLAS MANOR, INC.
INC. a Colorado corporation
a Tennessee corporation
AMERICAN PROFESSIONAL SAFFORD CARE, INC.
HOLDINGS, INC. a Colorado corporation
a Utah corporation
AMPRO MEDICAL SERVICES, INC. REHABWEST, INC.
a Texas corporation a Colorado corporation
GAMMA LABORATORIES, INC. CEDAR CARE, INC.
a Missouri corporation an Indiana corporation
SIGNATURE HEALTH CARE SHERWOOD HEALTHCARE CORP.
CORPORATION an Indiana corporation
a Delaware corporation
BROOKSHIRE HOUSE, INC. QUEST PHARMACIES, INC.
a Colorado corporation an Arizona corporation
CHRISTOPHER NURSING CENTER, SUNBELT THERAPY MANAGEMENT
INC. SERVICES, INC.
a Colorado corporation an Arizona Corporation
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THE ARBORS HEALTH CARE DECATUR SPORTS FIT & WELLNESS
CENTER, INC. CENTER, INC.
an Arizona corporation an Alabama corporation
THERAPY HEALTH SYSTEMS, INC.
a Mississippi corporation
BRITWILL INDIANA PARTNERSHIP
an Arizona general partnership
HENDERSON & ASSOCIATES
REHABILITATION, INC.
an Alabama corporation
SUNBELT THERAPY MANAGEMENT
CENTER SERVICES, INC.
an Alabama corporation
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EXHIBIT A
FORM OF NOTE
(FACE OF NOTE)
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE EXEMPTION PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT MAY BE AVAILABLE TO PERMIT SALE OR TRANSFER
OF THIS NOTE TO "QUALIFIED INSTITUTIONAL BUYERS" (WITHIN THE MEANING OF RULE
144A) WITHOUT REGISTRATION. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR"), (2) AGREES THAT PRIOR
TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ISSUE DATE AND THE LAST
DATE THAT THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE
(OR ANY PREDECESSOR THERETO), THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED FROM, ONLY (a) TO THE COMPANY, (b) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (c) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (d)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 502 UNDER THE SECURITIES ACT FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (e) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE OF THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT OR (f) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S OR
THE TRUSTEE'S RIGHT TO RECEIVE PRIOR TO TRANSFER UNDER CLAUSE (f) THE LEGAL
OPINIONS AND PRIOR TO TRANSFER UNDER CLAUSE (d) THE CERTIFICATES, IN EACH CASE
AS REQUIRED BY THE INDENTURE (FORMS OF WHICH ARE EXHIBITS TO THE INDENTURE, AND
SUBJECT, IN ANY EVENT, TO THE COMPLETION AND DELIVERY TO THE TRUSTEE OF THE
CERTIFICATE OF TRANSFER APPEARING ON THE REVERSE OF THIS NOTE AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
A-2
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CUSIP NUMBER
UNISON HEALTHCARE CORPORATION
13% SENIOR NOTE DUE 1999
Unison HealthCare Corporation, a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to ________________________ or registered assigns the principal sum of
___________________ Dollars, on December 1, 1999.
Interest Payment Dates: March 1, June 1, September 1 and December 1,
commencing March 1, 1998
Record Dates: February 15, May 15, August 15 and November 15
Reference is made to the further provisions of this Senior Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Senior Note to be
signed manually or by facsimile by its duly authorized officers.
UNISON HEALTHCARE CORPORATION
By: _________________________________
By: _________________________________
Certificate of Authentication:
This is one of the 13% Senior
Notes due 1999 referred to in
the within-mentioned Indenture
Dated:
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
By: ___________________________________
Authorized Signatory
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(REVERSE SIDE)
UNISON HEALTHCARE CORPORATION
13% SENIOR NOTE DUE 1999
1. INTEREST.
Unison HealthCare Corporation, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note quarterly on March
1, June 1, September 1, and December 1 of each year (each an "Interest Payment
Date"), commencing on March 1, 1998. Prior to June 1, 1998, interest on the
Senior Notes will accrue at the rate of 13% per annum. Commencing on June 1,
1998 and on each September 1, December 1 and March 1 thereafter until the
Maturity Date, the rate of interest on the Notes shall increase by .5%. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Senior Notes. Under certain circumstances, holders of
the Senior Notes are entitled to receive Additional Interest. See paragraph 9
herein.
The Company shall pay interest on overdue principal, and on overdue
premium, if any, and overdue interest, to the extent lawful, at the rate equal
to .5% per annum; and the per annum interest rate of such additional interest
will increase by an additional .25% per annum for each subsequent 90-day period
during which such overdue principal and installments of interest remain unpaid,
up to a maximum additional interest rate of 2.0% per annum.
2. METHOD OF PAYMENT.
The Company will pay interest on this Note provided for in Paragraph 1
above (except defaulted interest) to the person who is the registered Holder of
this Note at the close of business on the February 15, May 15, August 15 or
November 15 preceding the Interest Payment Date (whether or not such day is a
Business Day). The Holder must surrender this Note to a Paying Agent to collect
principal payments. The Company will pay principal, premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts; provided, however, that the
Company may pay principal, premium, if any, and interest by check payable in
such money. It may mail an interest check to the Holder's registered address.
Notwithstanding the foregoing, all payments with respect to the Senior Notes,
the Holders of which have given wire transfer instructions to the Paying Agent
on or before the relevant record date, shall be made by wire transfer of
immediately available funds to the accounts specified by such Holders.
3. PAYING AGENT AND REGISTRAR.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders of the Senior Notes. Neither the Company
nor any of its Subsidiaries or Affiliates may act as Paying Agent but may act as
registrar or co-registrar.
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4. INDENTURE; RESTRICTIVE COVENANTS.
The Company issued this Senior Note under an Indenture dated as of
December 1, 1997 (as such may be amended, supplemented, waived and modified from
time to time, the "Indenture") by and among the Company, the Guarantors party
thereto and the Trustee. The terms of this Senior Note include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the
date of the Indenture. This Senior Note is subject to all such terms, and the
Holder of this Senior Note is referred to the Indenture and said Trust Indenture
Act for a statement of them. All capitalized terms in this Senior Note, unless
otherwise defined, have the meanings assigned to them by the Indenture.
The Senior Notes are general unsecured senior obligations of the
Company limited to up to $20,000,000 aggregate principal amount. The Indenture
imposes certain restrictions on, among other things, (i) the incurrence of
additional indebtedness; (ii) certain restricted payments, including the payment
of dividends on the redemption of equity interests by the Company; (iii) the
issuance of equity interests in subsidiaries; (iv) the creation of liens; (v)
restrictions on the ability of subsidiaries to pay dividends, make certain
payments and transfer property to the Company; (vi) transactions with
affiliates; (vii) the transfer or sale of assets; and (viii) the Company's
ability to consolidate or merge with or into, or to transfer all or
substantially all of its assets to, another person.
5. OPTIONAL REDEMPTION.
The Company may redeem the Senior Notes, in whole or in part, at any
time at a redemption price equal to 102% of the principal amount thereof,
together with accrued and unpaid interest to the Redemption Date.
6. MANDATORY REDEMPTION
In the event that the Company receives any net proceeds in connection with
a Permitted Mortgage Financing, the Company shall be required to apply all of
such proceeds on a date no later than 60 days after the receipt thereof to
redeem Senior Notes at 102% of the principal amount thereof, plus any accrued
and unpaid interest thereon to the Redemption Date.
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7. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at least 30
days but not more than 60 days prior to the Redemption Date to each Holder of
Senior Notes to be redeemed at its registered address as it shall appear on the
register of the Senior Notes maintained by the Registrar. On and after any
Redemption Date, interest will cease to accrue on the Senior Notes or portions
thereof called for redemption unless the Company shall default in making the
redemption payment thereon.
8. OFFERS TO PURCHASE.
The Indenture requires that certain proceeds from Asset Sales be used
to make an offer to purchase certain amounts of Senior Notes at a purchase price
equal to 102% of the principal amount thereof, plus accrued and unpaid interest
thereon to the purchase date in accordance with the procedures set forth in the
Indenture. The Company is also required to make an offer to purchase Senior
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the purchase date upon occurrence of a
Change of Control in accordance with procedures set forth in the Indenture.
9. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement by and among the Company
and Jefferies & Company, Inc. as initial purchaser of the Senior Notes, the
Company will be obligated to consummate an exchange offer pursuant to which the
Holder of this Senior Note shall have the right to exchange this Senior Note for
Senior Notes of a separate series issued under the Indenture which have been
registered under the Securities Act, in like principal amount and having
substantially identical terms as the Senior Notes. The Holders shall be entitled
to receive certain payments of Additional Interest in the event such exchange
offer is not consummated and upon certain other conditions, all pursuant to and
in accordance with the terms of the Registration Rights Agreement.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Senior Notes are in registered form without coupons in
denominations of $1,000 and integral multiples thereof. A Holder may register
the transfer or exchange of Senior Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Senior Note selected for redemption or register the transfer
of or exchange any Senior Note for a period of 15 days before a selection of
Senior Notes to be redeemed or any Senior Note after it is called for redemption
in whole or in part, except the unredeemed portion of any Senior Note being
redeemed in part.
11. PERSONS DEEMED OWNERS.
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The registered Holder of this Senior Note may be treated as the owner
of it for all purposes.
12. UNCLAIMED MONEY.
If money for the payment of principal, premium or interest on any
Senior Note remains unclaimed for two years, the Trustee or Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to money must look to the Company for payment as general creditors unless an
"abandoned property" law designates another person.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Senior Notes may be
modified, amended or supplemented by the Company, the Guarantors and the Trustee
with the consent of the Holders of at least a majority in principal amount of
the Senior Notes then outstanding and any existing default or compliance with
any provision may be waived in a particular instance with the consent of the
Holders of a majority in principal amount of the Senior Notes then outstanding.
Without the consent of Holders, the Company, the Guarantors and the Trustee may
amend the Indenture or the Senior Notes or supplement the Indenture for certain
specified purposes including providing for uncertificated Senior Notes in
addition to certificated Senior Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any Holder.
14. SUCCESSOR ENTITY.
When a successor corporation assumes all the obligations of its
predecessor under the Senior Notes and the Indenture and immediately before and
thereafter no Default exists and certain other conditions are satisfied, the
predecessor corporation will be released from those obligations.
15. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event of
Default (other than an Event of Default pursuant to Section 6.1(7) or (8) of the
Indenture with respect to the Company) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of not less than 25% in aggregate
principal amount of the Senior Notes then outstanding by written notice to the
Company and the Trustee, may declare to be immediately due and payable the
entire principal amount of all the Senior Notes then outstanding plus accrued
but unpaid interest to the date of acceleration and such amounts shall become
immediately due and payable. In case an Event of Default specified in Section
6.1(7) or (8) of the Indenture with respect to the Company occurs, such
principal amount, together with premium, if any, and interest with respect to
all of the Senior Notes, shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the Holders of the Notes.
The Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal, premium, if any, or interest) if it determines
that withholding notice is in their interests.
16. TRUSTEE DEALINGS WITH THE COMPANY.
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The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, any Guarantor or their Affiliates, and may otherwise deal with the
Company, any Guarantor or their Affiliates, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee, partner, affiliate, beneficiary or stockholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Senior Notes or the Indenture or for any
claim based on, in respect or by reason of, such obligations or their creation.
The Holder of this Senior Note by accepting this Senior Note waives and releases
all such liability. The waiver and release are part of the consideration for the
issuance of this Senior Note.
18. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Senior Note and for defeasance of certain covenants in the
Indenture upon compliance by the Company with certain conditions set forth in
the Indenture.
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Senior Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of the Senior Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
21. GOVERNING LAW.
THE INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SENIOR NOTES.
THE COMPANY WILL FURNISH TO ANY HOLDER OF A SENIOR NOTE UPON
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WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE
TO: UNISON HEALTHCARE CORPORATION, 7272 E. Indian School Road, Suite 214,
Scottsdale, AZ 85251, Attention: Treasurer.
22. AUTHENTICATION
This Senior Note shall not be valid until the Trustee manually signs
the Certificate of Authentication on the other side of this Senior Note.
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ASSIGNMENT
I or we assign and transfer this Senior Note to:
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee) and irrevocably appoint:
________________________________________________________________________________
________________________________________________________________________________
Agent to transfer this Senior Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[_](a) this Senior Note is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
[_](b) this Senior Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Senior Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Senior Note in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Date: _______________________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:____________________________________________________________
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TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Senior Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: ____________________
_________________________________________________________
NOTICE: To be executed by an executive officer
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Senior Note
purchased by the Company pursuant to Section 4.8 or Section 4.22 of the
Indenture, check the appropriate box:
[_] Section 4.8 [_] Section 4.22
If you want to have only part of the Senior Note purchased by the
Company pursuant to Section 4.8 or Section 4.22 of the Indenture, state the
amount you elect to have purchased:
$____________________
(multiple of $1,000)
Date: _______________
Your Signature: ___________________________________________
(Sign exactly as your name appears on the face of this Note)
___________________________________________
Signature Guaranteed
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[FORM OF NOTATION ON SENIOR NOTE RELATING TO GUARANTEE]
GUARANTEE
Each guarantor (each a "Guarantor" and collectively the "Guarantors"
including any successor Person under the Indenture) has unconditionally
guaranteed, jointly and severally, to the extent set forth in the Indenture and
subject to the provisions of the Indenture, (a) the due and punctual payment of
the principal of, premium, if any and interest on the Senior Notes, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on overdue principal, and, to the extent permitted by law, interest, and the due
and punctual performance of all other obligations of the Company to the
Noteholders or the Trustee all in accordance with the terms set forth in Article
10 of the Indenture, and (b) in case of any extension of time of payment or
renewal of any Senior Notes or any of such other obligations, that the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
10 of the Indenture and reference is hereby made to the Indenture for the
precise terms and limitations of this Guarantee.
[NAMES OF GUARANTORS]
By:____________________________________
Name:
Title:
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EXHIBIT B
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN
THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF
THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[Date]
IBJ Schroder Bank & Trust Company
One State Street
11th Floor
New York, New York 10004
Re: Unison HealthCare Corporation (the "Company")
13% Senior Notes due 1999 (the "Senior Notes")
Dear Sirs:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Senior Notes, we confirm that:
1. We understand that any subsequent transfer of the Senior Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of December 1, 1997 relating to the Senior Notes and the undersigned agrees
to be bound by, and not to resell, pledge or otherwise transfer the Senior Notes
except in compliance with, such restrictions and conditions and the Securities
Act of 1933, as amended (the "Securities Act").
2. We understand that the Senior Notes have not been registered under
the Securities Act, and that the Senior Notes may not be offered, sold, pledged
or otherwise transferred except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell or otherwise transfer such
securities prior to the date which is two years after the later of the Issue
Date and the last date that the Company or any affiliate of the Company was the
owner of such Senior Notes (or any predecessor thereto) only (a) to the Company,
(b) pursuant to a registration statement that has been declared effective under
the Securities Act, (c) for so long as the securities are eligible for resale
pursuant to Rule 144A, to a person it reasonably believes is a QIB that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) to an
Institutional Accredited Investor that is purchasing for its own account or for
the account of such an Institutional Accredited Investor, (e) pursuant to offers
and sales that occur outside of the United States within the meaning of
Regulation S under the Securities Act or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
its property or the property of such investor account or accounts be at all
times within its or their control. If any resale or other transfer of any Senior
Note is proposed to be made pursuant to clause (d) above while these transfer
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restrictions are in force, the transferor shall deliver a letter from the
transferee to the Company and the Trustee, which shall provide, among other
things, that the transferee is an Institutional Accredited Investor and that it
is acquiring such securities for investment purposes and not for distribution in
violation of the Securities Act. We further agree to provide to any person
purchasing any of the Senior Notes from us a notice advising such purchaser that
resales of the Senior Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Senior Notes, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Senior Notes purchased by us will bear a legend to
the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Senior Notes, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
5. We are acquiring the Senior Notes purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: _____________________________________
Authorized Signature
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EXHIBIT D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[Date]
IBJ Schroder Bank & Trust Company
One State Street
11th Floor
New York, New York 10004
Attention:
Re: Unison HealthCare Corporation (the "Company")
13% Senior Notes due 1999 (the "Senior Notes")
Dear Sirs:
In connection with our proposed sale of $___________ aggregate
principal amount of the Senior Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Senior Notes was not made to a U.S. person or to a
person in the United States;
(2) either (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or (b)
the transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our behalf
knows that the transaction has been pre-arranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Senior Notes.
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You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ______________________________________
Authorized Signature
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TABLE OF CONTENTS
<TABLE>
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE............................................................................ 1
Section 1.1 Definitions.................................................................................... 1
Section 1.2 Other Definitions.............................................................................. 20
Section 1.3 Incorporation by Reference of Trust Indenture Act.............................................. 20
Section 1.4 Rules of Construction.......................................................................... 21
ARTICLE 2
THE SENIOR NOTES...................................................................................................... 22
Section 2.1 Dating; Incorporation of Form in Indenture..................................................... 22
Section 2.2 Execution and Authentication................................................................... 22
Section 2.3 Registrar and Paying Agent..................................................................... 23
Section 2.4 Paying Agent to Hold Money in Trust............................................................ 23
Section 2.5 Noteholder Lists............................................................................... 24
Section 2.6 Transfer and Exchange.......................................................................... 24
Section 2.7 Replacement Senior Notes....................................................................... 25
Section 2.8 Outstanding Senior Notes....................................................................... 25
Section 2.9 Temporary Senior Notes......................................................................... 26
Section 2.10 Cancellation................................................................................... 26
Section 2.11 Defaulted Interest............................................................................. 26
Section 2.12 Deposit of Moneys.............................................................................. 27
Section 2.13 CUSIP Number................................................................................... 27
Section 2.14 Wire Payments to Holders....................................................................... 27
Section 2.15 Book-Entry Provisions for Global Notes......................................................... 28
Section 2.16 Special Transfer Provisions.................................................................... 29
ARTICLE 3
REDEMPTION............................................................................................................ 31
Section 3.1 Notices to Trustee............................................................................. 31
Section 3.2 Selection by Trustee of Senior Notes to Be Redeemed............................................ 31
Section 3.3 Notice of Redemption........................................................................... 31
Section 3.4 Effect of Notice of Redemption................................................................. 32
Section 3.5 Deposit of Redemption Price.................................................................... 32
Section 3.6 Senior Notes Redeemed in Part.................................................................. 33
Section 3.7 Optional Redemption............................................................................ 33
Section 3.8 Mandatory Redemption........................................................................... 33
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<TABLE>
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ARTICLE 4
COVENANTS............................................................................................................. 33
Section 4.1 Payment of Senior Notes........................................................................ 33
Section 4.2 Reports........................................................................................ 34
Section 4.3 Waiver of Stay, Extension or Usury Laws........................................................ 34
Section 4.4 Compliance Certificate......................................................................... 35
Section 4.5 Taxes.......................................................................................... 36
Section 4.6 Limitation on Additional Indebtedness.......................................................... 36
Section 4.7 Limitation on Restricted Payments.............................................................. 36
Section 4.8 Limitation on Certain Asset Sales.............................................................. 38
Section 4.9 Limitation on Transactions with Affiliates..................................................... 39
Section 4.10 Limitations on Liens........................................................................... 40
Section 4.11 Limitations on Investments..................................................................... 41
Section 4.12 Limitation on Creation of Subsidiaries......................................................... 41
Section 4.13 Limitation on Indebtedness of Subsidiaries..................................................... 41
Section 4.14 Limitation on Subsidiaries and Unrestricted Subsidiaries....................................... 41
Section 4.15 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries............................................................ 43
Section 4.16 Restriction on Sale and Issuance of Subsidiary Equity Interests................................ 43
Section 4.17 Limitation on Sale and Lease-Back Transactions................................................. 43
Section 4.18 Line of Business............................................................................... 44
Section 4.19 Limitation on Status as Investment Company..................................................... 44
Section 4.20 Payments for Consent........................................................................... 44
Section 4.21 Corporate Existence............................................................................ 44
Section 4.22 Change of Control.............................................................................. 45
Section 4.24 Maintenance of Properties and Insurance; Books and
Records; Compliance with Laws.................................................................. 47
Section 4.25 Payment of Affiliate Indebtedness.............................................................. 48
Section 4.26 Further Assurance to the Trustee............................................................... 48
Section 4.27 Delivery of Certain Legal Opinions............................................................. 48
ARTICLE 5
SUCCESSOR CORPORATION................................................................................................. 49
Section 5.1 Merger, Consolidation or Sale of Assets........................................................ 49
Section 5.2 Successor Person Substituted................................................................... 49
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<TABLE>
<S> <C>
ARTICLE 6
DEFAULTS AND REMEDIES................................................................................................. 50
Section 6.1 Events of Default.............................................................................. 50
Section 6.2 Acceleration................................................................................... 51
Section 6.3 Other Remedies................................................................................. 52
Section 6.4 Waiver of Defaults and Events of Default....................................................... 52
Section 6.5 Control by Majority............................................................................ 52
Section 6.6 Limitation on Suits............................................................................ 53
Section 6.7 Rights of Holders to Receive Payment........................................................... 53
Section 6.8 Collection Suit by Trustee..................................................................... 53
Section 6.9 Trustee May File Proofs of Claim............................................................... 54
Section 6.10 Priorities..................................................................................... 54
Section 6.11 Undertaking for Costs.......................................................................... 54
Section 6.12 Restoration of Rights and Remedies............................................................. 55
ARTICLE 7
TRUSTEE............................................................................................................... 55
Section 7.1 Duties of Trustee.............................................................................. 55
Section 7.2 Rights of Trustee.............................................................................. 56
Section 7.3 Individual Rights of Trustee................................................................... 57
Section 7.4 Trustee's Disclaimer........................................................................... 57
Section 7.5 Notice of Defaults............................................................................. 57
Section 7.6 Reports by Trustee to Holders.................................................................. 58
Section 7.7 Compensation and Indemnity..................................................................... 58
Section 7.8 Replacement of Trustee......................................................................... 59
Section 7.9 Successor Trustee by Consolidation, Merger or Conversion....................................... 60
Section 7.10 Eligibility; Disqualification.................................................................. 60
Section 7.11 Preferential Collection of Claims Against Company.............................................. 60
Section 7.12 Paying Agents.................................................................................. 60
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS................................................................................... 61
Section 8.1 Without Consent of Holders..................................................................... 61
Section 8.2 With Consent of Holders........................................................................ 61
Section 8.3 Compliance with Trust Indenture Act............................................................ 63
Section 8.4 Revocation and Effect of Consents.............................................................. 63
Section 8.5 Notation on or Exchange of Senior Notes........................................................ 63
Section 8.6 Trustee to Sign Amendments, etc................................................................ 63
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE.................................................................................... 64
Section 9.1 Discharge of Indenture......................................................................... 64
Section 9.2 Legal Defeasance............................................................................... 64
Section 9.3 Covenant Defeasance............................................................................ 65
Section 9.4 Conditions to Legal Defeasance or Covenant Defeasance.......................................... 65
Section 9.5 Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions................................................................. 67
Section 9.6 Reinstatement.................................................................................. 67
Section 9.7 Moneys Held by Paying Agent.................................................................... 68
Section 9.8 Moneys Held by Trustee......................................................................... 68
ARTICLE 10
GUARANTEE OF SENIOR NOTES............................................................................................. 69
Section 10.1 Guarantee...................................................................................... 69
Section 10.2 Execution and Delivery of Guarantees........................................................... 70
Section 10.3 Limitation of Guarantee........................................................................ 70
Section 10.4 Release of Guarantor........................................................................... 71
Section 10.5 Additional Guarantors.......................................................................... 71
ARTICLE 11
MISCELLANEOUS......................................................................................................... 71
Section 11.1 Trust Indenture Act Controls................................................................... 71
Section 11.2 Notices........................................................................................ 71
Section 11.3 Communications by Holders with Other Holders................................................... 73
Section 11.4 Certificate and Opinion as to Conditions Precedent............................................. 73
Section 11.5 Statements Required in Certificate and Opinion................................................. 73
Section 11.6 When Treasury Senior Notes Disregarded......................................................... 74
Section 11.7 Rules by Trustee and Agents.................................................................... 74
Section 11.8 Business Days; Legal Holidays.................................................................. 74
Section 11.9 Governing Law.............................................................................. 74
Section 11.10 No Adverse Interpretation of Other Agreements.................................................. 74
Section 11.11 No Recourse Against Others..................................................................... 75
Section 11.12 Successors................................................................................. 75
Section 11.13 Multiple Counterparts.......................................................................... 75
Section 11.14 Table of Contents, Headings, etc............................................................... 75
Section 11.15 Separability................................................................................... 76
SCHEDULE 1............................................................................................................ 80
</TABLE>
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<TABLE>
<S> <C>
EXHIBIT A............................................................................................................. 81
EXHIBIT B............................................................................................................. 94
EXHIBIT C............................................................................................................. 95
EXHIBIT D............................................................................................................. 97
</TABLE>
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<PAGE> 1
Exhibit 4.7
UNISON HEALTHCARE CORPORATION
$20,000,000 13% SENIOR NOTES DUE 1999
December 1, 1997
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Ladies and Gentlemen:
UNISON HEALTHCARE CORPORATION, a Delaware corporation (the
"Issuer") is issuing and selling to Jefferies & Company, Inc. (the "Initial
Purchaser"), upon the terms set forth in the Purchase Agreement, dated November
24, 1997 between the Issuer and the Initial Purchaser (the "Purchase
Agreement"), $20,000,000 aggregate principal amount of the Issuer's 13% Senior
Notes due 1999 (collectively, the "Notes"). As an inducement to the Initial
Purchaser to enter into the Purchase Agreement, the Issuer agrees with the
Initial Purchaser, for the benefit of the Holders (as defined below) of the
Securities (as defined below), as follows:
1. Definitions
Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to them in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
ADDITIONAL INTEREST: See Section 4(a).
ADVICE: See last paragraph of Section 6.
AGREEMENT: This Registration Rights Agreement dated as of the Closing
Date, between the Issuer and the Initial Purchaser.
APPLICABLE PERIOD: See Section 2(e).
BUSINESS DAY: A day that is not a Saturday, a Sunday or a day on which
banking institutions in the City of New York or the State of Arizona are
authorized or required by law
<PAGE> 2
or executive order to be closed.
CLOSING DATE: December 1, 1997.
DAY: Unless otherwise expressly provided, a calendar day.
EFFECTIVENESS DATE: The 180th day after the Closing Date.
EFFECTIVENESS PERIOD: See Section 3(a)
ELIGIBLE SHELF NOTES: See Section 3.
EVENT DATE: See Section 4(b)
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
EXCHANGE NOTE: 13% Senior Notes due 1999 of the Issuer, including the
guarantees endorsed thereon, identical in all material respects to the Notes,
except for the transfer restrictions relating to the Notes.
EXCHANGE OFFER: See Section 2(a).
EXCHANGE REGISTRATION STATEMENT: See Section 2(a).
FILING DATE: The 90th day after the Closing Date.
GUARANTEE: Shall have the meaning set forth in the Indenture.
GUARANTOR: Shall have the meaning set forth in the Indenture.
HOLDER: Any registered holder of Registrable Notes.
INDEMNIFIED PARTY: See Section 8(c).
INDEMNIFYING PARTY: See Section 8(c).
INDENTURE: The Indenture, dated as of the Closing Date, among the
Issuer, the Guarantors and IBJ Schroder Bank & Trust Company, as Trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time.
INITIAL PURCHASER: See the first introductory paragraph to this
Agreement.
INITIAL SHELF REGISTRATION STATEMENT: See Section 3(a).
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<PAGE> 3
INSPECTORS: See Section 6(o).
ISSUER: See the first introductory paragraph to this Agreement.
NASD: National Association of Securities Dealers, Inc.
NOTES: See the first introductory paragraph to this Agreement.
NOTES PROSPECTUS: The prospectus included in any Notes Registration
Statement with respect to the terms of the offering of any portion of the
Securities covered by such Notes Registration Statement (including, without
limitation, a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as such prospectus may be
amended or supplemented, including, without limitation, as such prospectus may
be amended pursuant to Rule 424(b) promulgated under the Securities Act.
NOTES REGISTRATION STATEMENT: Any registration statement of the Issuer
that covers any of the Registrable Notes that is filed with the SEC under the
Securities Act (including, but not limited to, the Exchange Registration
Statement, the Initial Shelf Registration Statement and any Subsequent Shelf
Registration Statement) in accordance with the provisions of this Agreement,
including any amendments to such registration statement, including
post-effective amendments, all supplements to the Notes Prospectus contained
therein and all exhibits thereto.
PARTICIPATING BROKER-DEALER: See Section 2(e).
PERSON: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm, government or agency or political subdivision
thereof, or other legal entity.
PRIVATE EXCHANGE: See Section 2(f).
PRIVATE EXCHANGE NOTES: See Section 2(f).
PURCHASE AGREEMENT: See the first introductory paragraph to this
Agreement.
RECORDS: See Section 6(o).
REGISTRABLE NOTES: (i) Notes, (ii) Private Exchange Notes and (iii) any
Exchange Notes received in the Exchange Offer, in each case, that may not be
sold without restriction under federal or state securities laws.
RULE 144: Rule 144 promulgated under the Securities Act, as such Rule
may be
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<PAGE> 4
amended from time to time.
RULE 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time.
RULE 415: Rule 415 promulgated under the Securities Act, as such Rule
may be amended from time to time.
SEC: The Securities and Exchange Commission.
SECURITIES: The Notes, the Private Exchange Notes and the Exchange
Notes.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(j).
SHELF REGISTRATION STATEMENT: See Section 3(b).
SUBSEQUENT SHELF REGISTRATION STATEMENT: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as such act may be amended from
time to time.
TRUSTEE: The trustee under the Indenture.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
(a) The Issuer shall (and shall cause each Guarantor to) use
its best efforts to (i) prepare and file with the SEC on or prior to the Filing
Date, a registration statement (the "Exchange Registration Statement") on an
appropriate form under the Securities Act with respect to an offer (the
"Exchange Offer") to the Holders of Notes to issue and deliver to such Holders,
in exchange for the Notes, a like aggregate principal amount of Exchange Notes,
(ii) cause the Exchange Registration Statement to become effective as promptly
as practicable after the filing thereof but in no event later than the
Effectiveness Date, (iii) commence the Exchange Offer promptly following the
declaration of effectiveness of the Exchange Registration Statement, (iv) issue,
within 30 days after the date on which the Exchange Offer is commenced, Exchange
Notes in exchange for all Notes tendered prior thereto in the Exchange Offer,
and (v) keep the Exchange Registration Statement effective until the
consummation of the Exchange Offer in accordance with its terms and for the
Applicable Period. The Exchange Offer shall not be subject to any conditions,
other than the Exchange
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<PAGE> 5
Offer does not violate applicable law or any applicable interpretation of the
staff of the SEC.
(b) The Exchange Notes shall be issued under, and entitled to
the benefits of the Indenture.
(c) Interest on each Exchange Note and Private Exchange Note
will accrue from the last interest payment due date on which interest was paid
on the Notes surrendered in exchange therefor or, if no interest has been paid
on the Notes, from the date of original issuance of the Notes. Each Exchange
Note and Private Exchange Note shall bear interest at the rate set forth
thereon.
(d) The Issuer may require each Holder who participates in the
Exchange Offer to represent that (i) any Exchange Notes received by it will be
acquired in the ordinary course of its business, (ii) at the time of the
commencement of the Exchange Offer and at the time of the consummation of the
Exchange Offer such Holder has not entered into any arrangement or understanding
with any Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the provisions of the
Securities Act, (iii) if such Holder is an affiliate of the Issuer within the
meaning of the Securities Act, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable
to it, (iv) if such Holder is not a broker-dealer, it is not engaged in the
distribution of the Notes and that it does not intend to engage in the
distribution of the Exchange Notes, and (v) if such Holder is a Participating
Broker-Dealer, it will deliver a Notes Prospectus in connection with any resale
of the Exchange Notes.
(e) The Issuer shall include within the Notes Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution," in form and substance acceptable to the Initial Purchaser, which
shall contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange
Offer for its own account in exchange for Notes that were acquired by it as a
result of market-making or other trading activity (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the staff
of the SEC. Such "Plan of Distribution" section shall also allow, to the extent
permitted by applicable policies and regulations of the SEC, the use of the
Notes Prospectus by all Persons subject to the prospectus delivery requirements
of the Securities Act, including, to the extent so permitted, all Participating
Broker Dealers, and shall include a statement describing the manner in which
Participating Broker-Dealers may resell the Exchange Notes. The Issuer shall use
its best efforts to keep the Exchange Registration Statement effective and to
amend and supplement the Notes Prospectus contained therein, in order to permit
such Notes Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act for such period of time
as such Persons must comply with such requirements in order to resell the
Exchange Notes (the "Applicable Period").
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<PAGE> 6
(f) If, upon consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the Issuer (upon the written request from
such Initial Purchaser) shall, simultaneously with the delivery of the Exchange
Notes in the Exchange Offer, issue pursuant to the Indenture and deliver to the
Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by
the Initial Purchaser, a like principal amount of debt securities of the Issuer,
guaranteed by any then existing Guarantors, that are identical in all material
respects to the Exchange Notes except for the existence of restrictions on
transfer thereof under the Securities Act and all applicable federal and state
securities laws of the several states of the U.S. (the "Private Exchange
Notes"). The Private Exchange Notes shall bear the same CUSIP number as the
Exchange Notes.
(g) In connection with the Exchange Offer, the Issuer
shall:
(1) mail to each Holder a copy of the Notes
Prospectus forming part of the Exchange Registration Statement,
together with an appropriate letter of transmittal (as an exhibit
thereto) and related documents;
(2) utilize the services of a depository for the
Exchange Offer with an address in the Borough of Manhattan, the City of
New York, which may be the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Notes at any
time prior to the close of business, New York time, on the last
Business Day on which the Exchange Offer shall remain open; and
(4) otherwise comply with all applicable laws.
(h) As soon as practicable after the close of the Exchange
Offer or the Private Exchange, as the case may be, the Issuer shall:
(1) accept for exchange all Notes validly tendered
pursuant to the Exchange Offer or the Private Exchange, as the case may
be, and not validly withdrawn;
(2) deliver to the Trustee for cancellation all Notes
so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver
promptly to each Holder tendering such Notes, Exchange Notes or Private
Exchange Notes, as the case may be, equal in principal amount to the
Notes of such Holder so accepted for exchange.
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<PAGE> 7
(i) The Exchange Notes and the Private Exchange Notes shall be
issued under the Indenture which will provide that the Exchange Notes will not
be subject to the transfer restrictions set forth in the Indenture and that the
Exchange Notes, the Private Exchange Notes and the Notes, if any, will be deemed
one class of security (subject to the provisions of the Indenture) and entitled
to the benefits of any Guarantee on an equal and ratable basis.
(j) If, (i) prior to the consummation of the Exchange Offer,
either the Issuer or the Holders of a majority in aggregate principal amount of
the outstanding Registrable Notes determines in its or their reasonable judgment
that (A) the Exchange Notes would not, upon receipt, be tradeable by the Holders
thereof without restriction under the Securities Act, the Exchange Act or
applicable Blue Sky or state securities laws or (B) the interests of the Holders
under this Agreement, taken as a whole, would be adversely affected by the
consummation of the Exchange Offer, (ii) because of any change in law or
applicable interpretations of the staff of the SEC, the consummation of the
Exchange Offer by the Issuer would not be permitted prior to the Effectiveness
Date, (iii) the Exchange Offer is not consummated by the Effectiveness Date for
any reason, (iv) any Holder of Private Exchange Notes so requests in writing to
the Issuer within 120 days after the consummation of the Exchange Offer or (v)
in the case of any Holder not permitted to participate in the Exchange Offer or
any Holder that participates in the Exchange Offer but does not receive Exchange
Notes on the date of the exchange that may be sold without restriction under
state and federal securities laws (other than due solely to the status of such
Holder as an affiliate of the Issuer within the meaning of the Securities Act)
and so notifies the Issuer within six months of consummation of the Exchange
Offer, then the Issuer (and any then existing Guarantor) shall promptly deliver
to the Holders and the Trustee written notice thereof (the "Shelf Notice") and
shall file an Initial Shelf Registration Statement pursuant to Section 3.
3. Shelf Registration
If a Shelf Notice is delivered pursuant to Section 2(j)(i),
(ii) or (iii), then this Section 3 shall apply to all Registrable Notes.
Otherwise, upon consummation of the Exchange Offer in accordance with Section 2,
the provisions of this Section 3 shall apply solely with respect to (A)(i) Notes
held by any Holder thereof not permitted to participate in the Exchange Offer
and (ii) Exchange Notes that are not freely tradeable as contemplated by Section
2(j)(v) hereof, provided that the relevant Holder has duly notified the Issuer
within six months of the consummation of the Exchange Offer as required by
Section 2(j)(v) and (B) Private Exchange Notes, provided that the relevant
Holder has duly notified the Issuer within 120 days of the consummation of the
Exchange Offer as required by Section 2(j)(iv). The Registrable Notes to which
this Section 3 shall apply shall be hereinafter referred to as ("Eligible Shelf
Notes").
(a) Initial Shelf Registration. Within the time periods set
forth in this Section 3(a), the Issuer shall (and shall cause any Guarantor to)
file with the SEC a Notes Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415
-7-
<PAGE> 8
covering all of the Eligible Shelf Notes (the "Initial Shelf Registration
Statement"). If the Issuer (and any then existing Guarantor) has not filed an
Exchange Registration Statement, the Issuer shall (and shall cause any Guarantor
to) file with the SEC the Initial Shelf Registration Statement on or prior to
the Filing Date and shall use its best efforts to cause such Initial Shelf
Registration Statement to be declared effective under the Securities Act on or
prior to the Effectiveness Date. Otherwise, the Issuer shall use its best
efforts to (and shall cause any Guarantor to) file with the SEC the Initial
Shelf Registration Statement within 20 days of the delivery of the Shelf Notice
and shall use its best efforts to cause such Shelf Registration Statement to be
declared effective under the Securities Act as promptly as practicable
thereafter. The Initial Shelf Registration Statement shall be on Form S-1 or
another appropriate form permitting registration of such Registrable Notes for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuer (and any
Guarantors) shall not permit any securities other than the Eligible Shelf Notes
to be included in any Shelf Registration Statement. No Holder of Eligible Shelf
Notes shall be entitled to include any of its Eligible Shelf Notes in any Shelf
Registration Statement pursuant to this Agreement unless such Holder furnishes
to the Issuer and the Trustee in writing, such information, representations and
warranties as the Issuer may reasonably request for inclusion in any Shelf
Registration Statement or Notes Prospectus included therein. No Holder shall be
entitled to any Additional Interest pursuant to Section 4 hereof if such
Holder's Registrable Notes are excluded from a Shelf Registration Statement
because such Holder failed to furnish the Issuer in writing such information,
representations and warranties reasonably requested by the Issuer for use in
connection with the Shelf Registration Statement or any Notes Prospectus
contained therein. The Issuer shall use its best efforts to keep the Initial
Shelf Registration Statement continuously effective under the Securities Act
until the date which is 24 months from the Closing Date (the "Effectiveness
Period"), or such shorter period ending when (i) all Eligible Shelf Notes
covered by the Initial Shelf Registration Statement have been sold in the manner
set forth and as contemplated in the Initial Shelf Registration Statement or
(ii) a Subsequent Shelf Registration Statement covering all of the Eligible
Shelf Notes has been declared effective under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the Registrable Notes registered thereunder),
the Issuer shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof, and in any event shall within 5
Business Days of such cessation of effectiveness amend such Shelf Registration
Statement in a manner to obtain the withdrawal of the order suspending the
effectiveness thereof, or file (and cause any Guarantor to file) an additional
"shelf" Notes Registration Statement pursuant to Rule 415 covering all of the
Eligible Shelf Notes (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Issuer shall use its best
efforts to cause the Subsequent Shelf Registration Statement to be declared
effective as soon as practicable after such filing and to keep such Subsequent
Shelf Registration Statement continuously effective for a period equal to the
number of days in the Effectiveness Period less the aggregate number of days
during which the Initial Shelf
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<PAGE> 9
Registration Statement or any Subsequent Shelf Registration Statement were
previously continuously effective. As used herein, the term "Shelf Registration
Statement" means the Initial Shelf Registration Statement and any Subsequent
Shelf Registration Statements.
(c) Supplements and Amendments. The Issuer shall promptly
supplement and amend any Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if requested
by the Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Shelf Registration Statement or by any underwriter of such
Eligible Shelf Notes.
4. Additional Interest
(a) Additional cash interest (the "Additional Interest") with
respect to the Registrable Notes or the Eligible Shelf Notes, as indicated
below, shall be assessed as follows if any of the following events occurs (each
such event in clauses (i) through (iii) below, a "Registration Default"):
(i) if neither the Exchange Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the Filing
Date, then commencing on the day after the Filing Date, Additional
Interest shall accrue on the Registrable Notes over and above the
stated interest rate at a rate of 0.25% per annum for the first 90 days
immediately following the Filing Date, such Additional Interest rate
increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the
Initial Shelf Registration is declared effective on or prior to the
Effectiveness Date, then commencing on the day after the Effectiveness
Date, Additional Interest shall accrue on the Registrable Notes over
and above the stated interest rate at a rate of 0.25% per annum for the
first 90 days immediately following the Effectiveness Date, such
Additional Interest rate increasing by an additional 0.25% per annum at
the beginning of each subsequent 90-day period;
(iii) if (A) the Issuer has not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 210th day after the Closing Date, (B) the
Exchange Offer Registration Statement ceases to be effective at any
time prior to the time that the Exchange Offer is consummated or at any
time during the Applicable Period, (C) a Shelf Registration Statement
has been declared effective and such Shelf Registration Statement
ceases to be effective at any time during the Effectiveness Period and
is not declared effective again within five Business Days, or (D)
pending the announcement of a material corporate transaction, the
Issuer issues a written notice pursuant to Section 6(e)(v) or (vi) that
a Shelf Registration Statement or Exchange Registration Statement is
unusable and the aggregate number of days in any 365-day period for
which all such notices issued or
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<PAGE> 10
required to be issued, have been, or were required to be, in effect
exceeds 120 days in the aggregate or 30 days consecutively, in the case
of a Shelf Registration Statement, or 15 days in the aggregate in the
case of an Exchange Registration Statement, then Additional Interest
shall accrue on the Registrable Notes in the case of (A), (B) and (D)
(but in the case of (D) only to the extent the Registration Default
relates to an Exchange Registration Statement) or on the Eligible Shelf
Notes in the case of (C) or (D) (but in the case of (D) only to the
extent the Registration Default relates to a Shelf Registration
Statement) over and above the stated interest rate at a rate of 0.25%
per annum for the first 90 days commencing on (w) the 210th day after
the date hereof, in the case of (A) above, (x) the date on which such
Exchange Registration Statement ceases to be effective without being
declared effective again within five Business Days in the case of (B)
above, (y) the date on which such Shelf Registration Statement ceases
to be effective without being declared effective again within five
Business Days in the case of (C) above or (z) the date on which such
Exchange Registration Statement or Shelf Registration Statement ceases
to be usable in case of clause (D) above, the rate of such Additional
Interest increasing by an additional 0.25% per annum at the beginning
of each such subsequent 90-day period;
provided, however, that the Additional Interest shall only accrue with respect
to one Registration Default at a time and the maximum increase in the interest
rate on the Registrable Notes may not exceed 2.0% per annum in the aggregate;
and provided further, Additional Interest on such Registrable Notes or Eligible
Shelf Notes shall cease to accrue upon the earlier of (x) the date on which all
applicable Registration Defaults have been cured with respect to Registrable
Notes or Eligible Shelf Notes, or (y) the date on which all such Registrable
Notes or Eligible Shelf Notes become freely transferable by Holders other than
affiliates of the Issuer without further registration under the Securities Act.
(b) The Issuer shall notify the Trustee within two Business
Days after each and every date on which Registration Default occurs. Any
Additional Interest accruing on the Registrable Notes or the Eligible Shelf
Notes pursuant to this Section 4 will be payable in cash on the regular interest
payment dates with respect to the Registrable Notes or the Eligible Shelf Notes
to the Holders of record on the applicable record date. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the aggregate principal amount of the Registrable Notes or Eligible
Shelf Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed), and the denominator
of which is 360.
5. Hold-Back Agreements
The Issuer agrees that it will not effect any public or
private sale or distribution (including a sale pursuant to Regulation D under
the Securities Act) of any securities that are the same as or similar to those
covered by a Notes Registration Statement filed pursuant to
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<PAGE> 11
Section 2 or 3 hereof, or any securities convertible into or exchangeable or
exercisable for such securities, during the 10 days prior to, and during the
90-day period beginning on, the effective date of any Notes Registration
Statement filed pursuant to Sections 2 and 3 hereof, unless the Holders of a
majority in the aggregate principal amount of the Registrable Notes to be
included in such Notes Registration Statement consent.
6. Notes Registration Procedures
In connection with the filing of any Notes Registration
Statement pursuant to Section 2 or 3 hereof, the Issuer shall effect such
registrations to permit the sale of such securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Notes Registration Statement filed
by the Issuer hereunder, the Issuer shall:
(a) prepare and file with the SEC within the time periods set
forth herein the Exchange Registration Statement and/or a Shelf Registration
Statement and use its best efforts to cause each such Notes Registration
Statement to become effective and remain effective as provided herein; provided
that, if (1) a Shelf Registration Statement is filed pursuant to Section 3, or
(2) a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, before filing any Notes Registration Statement or Notes
Prospectus or any amendments or supplements thereto, the Issuer shall, if
requested, furnish to and afford the Holders of the Registrable Notes to be
registered pursuant to such Shelf Registration Statement, each Participating
Broker-Dealer, their respective counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed (in each case at least five business days prior to
such filing). The Issuer shall not file any such Notes Registration Statement or
Notes Prospectus or any amendments or supplements thereto if the holders of a
majority in aggregate principal amount of the Registrable Notes covered by such
Notes Registration Statement, or any such Participating Broker-Dealer, as the
case may be, their counsel, or the managing underwriters, if any, shall
reasonably object;
(b) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Notes Registration Statement; and in
connection therewith, to effect any changes to the Indenture as may be required
for the Indenture to be so qualified in accordance with the terms of the TIA;
and execute, and cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely manner;
(c) prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange
Registration Statement, as the case may be, as may be necessary to keep such
Notes Registration Statement continuously effective for the Effectiveness Period
or the Applicable Period, as the case may be; cause the
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<PAGE> 12
related Notes Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant to Rule
424, or any similar provisions then in effect, in each case as promulgated under
the Securities Act; and comply with the provisions of the Securities Act and the
Exchange Act applicable to it with respect to the disposition of all securities
covered by such Notes Registration Statement as so amended or in such Notes
Prospectus as so supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any such Notes
Prospectus. The Issuer shall not, during the Applicable Period, take any action
that would result in selling Holders of the Registrable Notes covered by a Notes
Registration Statement or Participating Broker-Dealers seeking to sell Exchange
Notes not being able to sell such Registrable Notes or such Exchange Notes
during that period;
(d) furnish to such selling Holders and Participating
Broker-Dealers who so request (i) a copy of the order of the SEC declaring such
Registration Statement and any post-effective amendment thereto effective and
(ii) such number of copies of such Notes Registration Statement and of each
amendment and supplement thereto (in each case, if requested, including any
documents incorporated therein by reference and any exhibits thereto), (iii)
such number of copies of any Notes Prospectus included in such Notes
Registration Statement and (iv) such other documents, (including any amendments
required to be filed pursuant to clause (c) of this Section), as any such Person
may reasonably request. The Issuer hereby consents to the use of the Notes
Prospectus by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or agents,
if any, and dealers (if any), in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating Broker-Dealers of the
Exchange Notes pursuant to, such Notes Prospectus and any amendment or
supplement thereto;
(e) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker- Dealer who seeks to sell Exchange
Notes during the Applicable Period, notify in writing the selling Holders of
Registrable Notes, or each such Participating Broker-Dealer, as the case may be,
their counsel and the managing underwriters, if any, promptly (but in any event
within two Business Days) (i) when a Notes Prospectus or any Notes Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Notes Registration Statement or any post-effective amendment, when the same has
become effective (including in such notice a written statement that any Holder
may, upon request, obtain, without charge, one conformed copy of such Notes
Registration Statement or post-effective amendment), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Notes Registration
Statement or of any order preventing or suspending the use of any Notes
Prospectus or the initiation of any proceedings for that purpose, (iii) if at
any time when a Notes Prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Notes the representations
and warranties of the Issuer contained in any agreement (including any
underwriting agreement) contemplated by Section 6(n) hereof cease to be true and
correct, (iv) of the receipt by the Issuer of any notification with respect to
the suspension of the
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<PAGE> 13
qualification or exemption from qualification of a Notes Registration Statement
or any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Notes Registration
Statement or related Notes Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires the making of any changes in, or amendments or supplements to, such
Notes Registration Statement, Notes Prospectus or documents so that, in the case
of the Notes Registration Statement and the Notes Prospectus, it will not
contain any 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,
in light of the circumstances under which they were made, not misleading, and
(vi) of any determination by the Issuer that a post-effective amendment to a
Notes Registration Statement would be appropriate;
(f) use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Notes Registration Statement or of any order
preventing or suspending the use of a Notes Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in
any jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible date;
(g) if (A) a Shelf Registration Statement is filed pursuant to
Section 3 or (B) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker- Dealer who seeks to sell Exchange
Notes during the Applicable Period or (C) requested by the managing
underwriters, if any, or the Holders of a majority in aggregate principal amount
of the Registrable Notes being sold in connection with an underwritten offering,
(i) promptly incorporate in a prospectus supplement or post-effective amendment
such information or revisions to information therein relating to such
underwriters or selling Holders as the managing underwriters, if any, or such
Holders or any of their respective counsel reasonably request to be included or
made therein and (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after the Issuer has
received notification from the managing underwriters, if any, or from the
Holders of a majority in aggregate principal amount of the Registrable Notes
being sold of the matters to be incorporated in such prospectus supplements or
post-effective amendment;
(h) prior to any public offering of Registrable Notes or any
delivery of a Notes Prospectus contained in the Exchange Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to cooperate
with all selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable Notes or
Exchange Notes, as the case may be,
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<PAGE> 14
for offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating Broker-Dealer, or
any managing underwriter or underwriters, if any, request in writing; provided
that where Exchange Notes held by Participating Broker-Dealers or Registrable
Notes are offered other than through an underwritten offering, the Issuer agrees
to cause its counsel to perform Blue Sky investigations and file any
registrations and qualifications required to be filed pursuant to this Section
6(h); keep each such registration or qualification (or exemption therefrom)
effective during the period such Notes Registration Statement is required to be
kept effective and do any and all other acts or things best necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided that neither the Issuer nor any
Guarantor shall be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject;
(i) if (A) a Shelf Registration Statement is filed pursuant to
Section 3 or (B) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is requested to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, cooperate with the selling Holders of Registrable Notes
and the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or such Holders may request;
(j) use its best efforts to cause the Registrable Notes
covered by any Notes Registration Statement to be registered with or approved by
such governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter, if any, to consummate the
disposition of such Registrable Notes;
(k) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker- Dealer who seeks to sell Exchange
Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 6(e)(v) or 6(e)(vi) hereof, as promptly as practicable
prepare and file with the SEC, at the expense of the Issuer, a supplement or
post-effective amendment to the Notes Registration Statement or a supplement to
the related Notes Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Notes being sold
thereunder or to the purchasers of the Exchange Notes to whom such Notes
Prospectus will be delivered by a Participating Broker-Dealer, such Notes
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be
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<PAGE> 15
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(l) use its reasonable efforts to cause the Registrable Notes
covered by a Notes Registration Statement to be rated with the appropriate
rating agencies, if so requested by the Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Notes Registration
Statement or the managing underwriter or underwriters, if any;
(m) prior to the initial issuance of the Exchange Notes, (i)
provide the Trustee with one or more certificates for the Registrable Notes in a
form eligible for deposit with The Depository Trust Company and (ii) provide a
CUSIP number for the Exchange Notes;
(n) if a Shelf Registration Statement is filed pursuant to
Section 3, enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings of debt
securities similar to the Notes, as may be appropriate in the circumstances) and
take all such other actions in connection therewith (including those reasonably
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Registrable Notes being sold) in order to
expedite or facilitate the registration or the disposition of such Registrable
Notes, and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders and
the underwriters, if any, with respect to the business of the Issuer and its
subsidiaries, and the Notes Registration Statement, Notes Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings of debt securities similar to
the Notes, as may be appropriate in the circumstances, and confirm the same if
and when required; (ii) obtain opinions of counsel to the Issuer and updates
thereof (which counsel and opinions, in form, scope and substance shall be
reasonably satisfactory to the managing underwriters, if any, and the Holders of
a majority in aggregate principal amount of the Registrable Notes being sold),
addressed to each selling Holder and each of the underwriters, if any, covering
the matters customarily covered in opinions of counsel to the Issuer requested
in underwritten offerings of debt securities similar to the Notes, as may be
appropriate in the circumstances; (iii) obtain "cold comfort" letters and
updates thereof (which letters and updates, in form, scope and substance shall
be reasonably satisfactory to the managing underwriters and their counsel) from
the independent certified public accountants of the Issuer (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Issuer or of any business acquired by the Issuer for which financial statements
and financial data are, or are required to be, included in the Notes
Registration Statement), addressed to each of the underwriters and each selling
Holder, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings of debt securities similar to the Notes, as may be appropriate in the
circumstances, and such other matters as reasonably requested by underwriters or
the Holders of a majority in aggregate principal amount of the
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<PAGE> 16
Registrable Notes being sold; and (iv) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority in aggregate
principal amount of the Registrable Notes being sold and the managing
underwriters, if any, to evidence the continued validity of the representations
and warranties of the Issuer and its subsidiaries made pursuant to clause (i)
above and to evidence compliance with any conditions contained in the
underwriting agreement or other similar agreement entered into by the Issuer;
(o) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker- Dealer who seeks to sell Exchange
Notes during the Applicable Period, make available for inspection by any selling
Holder of such Registrable Notes being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Notes, if any, and any attorney, accountant or other
agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, all financial and other records and pertinent corporate documents of the
Issuer and its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Issuer
and its subsidiaries to supply all information reasonably requested by any such
Inspector in connection with such Notes Registration Statement. Such Records
shall be kept confidential by each Inspector and shall not be disclosed by the
Inspector unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in such Notes Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction, (iii) the information in such Records is
public or has been made generally available to the public other than as a result
of a disclosure or failure to safeguard by such Inspector or (iv) disclosure of
such information is, in the opinion of counsel for any Inspector, reasonably
necessary or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector and
arising out of, based upon, related to, or involving this agreement, or any
transaction contemplated hereby or arising hereunder. Each selling Holder of
such Registrable Notes and each such Participating Broker-Dealer will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Issuer unless and
until such is made generally available to the public. Each selling Holder of
such Registrable Notes and each such Participating Broker-Dealer will be
required to further agree that, except as otherwise required by law or legal
process, it will, as promptly as practicable upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Issuer and, to the extent practicable, use its reasonable efforts to allow the
Issuer, at its expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential at their expense;
(p) comply with all applicable rules and regulations of the
SEC and make generally available to the security holders of the Issuer earnings
statements satisfying the
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<PAGE> 17
provisions of section 11(a) of the Securities Act and Rules 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 3-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Issuer after the effective date of a Notes Registration Statement, which
statements shall cover said periods;
(q) upon consummation of an Exchange Offer or Private
Exchange, obtain an opinion of counsel to the Issuer (in form, scope and
substance reasonably satisfactory to the Initial Purchaser and its counsel),
addressed to the Trustee for the benefit of all Holders participating in the
Exchange Offer or Private Exchange, as the case may be, to the effect that (i)
the Issuer and any Guarantors have duly authorized, executed and delivered the
Exchange Notes or the Private Exchange Notes, as the case may be, and the
Indenture, (ii) the Exchange Notes or the Private Exchange Notes, as the case
may be, and the Indenture constitute legal, valid and binding obligations of the
Issuer and the existing Guarantors, enforceable against the Issuer and the
existing Guarantors in accordance with their respective terms, except as such
enforcement may be subject to customary exceptions;
(r) if the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by the Holders to the Issuer
(or to such other Person as directed by the Issuer) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Issuer shall mark,
or caused to be marked, on such Registrable Notes that such Registrable Notes
are being cancelled in exchange for the Exchange Notes or the Private Exchange
Notes, as the case may be; provided that in no event shall such Registrable
Notes be marked as paid or otherwise satisfied;
(s) cooperate with each seller of Registrable Notes covered by
any Notes Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the NASD; and
(t) use its best efforts to take all other steps reasonably
necessary to effect the registration of the Registrable Notes covered by a Notes
Registration Statement contemplated hereby.
The Issuer may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes as the Issuer may,
from time to time, reasonably request. The Issuer may exclude from such
registration the Registrable Notes of any seller who fails to furnish such
information within a reasonable time (which time in no event shall exceed 60
days) after receiving such request from the Issuer.
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<PAGE> 18
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Issuer of the happening of any event of the kind
described in Section 6(e)(ii), (iv), (v), or (vi), such Holder will forthwith
discontinue disposition of such Registrable Notes covered by a Notes
Registration Statement and such Participating Broker-Dealer will forthwith
discontinue disposition of such Exchange Notes pursuant to any Notes Prospectus
and, in each case, forthwith discontinue dissemination of such Notes Prospectus
until such Holder's or Participating Broker-Dealer's receipt of the copies of
the supplemented or amended Notes Prospectus contemplated by Section 6(k), or
until it is advised in writing (the "Advice") by the Issuer that the use of the
applicable Notes Prospectus may be resumed, and has received copies of any
amendments or supplements thereto and, if so directed by the Issuer, such Holder
or Participating Broker-Dealer, as the case may be, will deliver to the Issuer
all copies, other than permanent file copies, then in such Holder's or
Participating Broker-Dealer's possession, of the Notes Prospectus covering such
Registrable Notes current at the time of the receipt of such notice. In the
event the Issuer shall give any such notice, the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the Business Day when each
Participating Broker-Dealer shall have received (x) the copies of the
supplemented or amended Notes Prospectus contemplated by Section 6(k) or (y) the
Advice.
7. Registration Expenses
(a) All fees and expenses (other than underwriting discounts
or commissions) incident to the performance of or compliance with this Agreement
shall be borne by the Issuer, whether or not the Exchange Offer or a Shelf
Registration Statement is filed or becomes effective, including, without
limitation, (i) all registration and filing fees, including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with any underwritten offering and (B) fees and expenses of compliance with
state securities or Blue Sky laws as provided in Section 6(h) hereof, (ii)
printing expenses, including, without limitation, expenses of printing Notes
Prospectuses if the printing of Notes Prospectuses is requested by the managing
underwriter or underwriters, if any, or by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Notes
Registration Statement or by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) messenger, telephone and delivery
expenses incurred in connection with the performance of its obligations
hereunder, (iv) fees and disbursements of counsel for the Issuer, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 6(o)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, (vii) Securities Act liability insurance, if the Issuer
desires such insurance, (viii) fees and expenses of all other Persons retained
by the Issuers, (ix) internal expenses of the Issuer (including, without
limitation, all salaries and expenses of officers and employees of the Issuer
performing legal or accounting duties), (x) the expense of any annual audit,
(xi) the
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fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange and (ii) the expenses
relating to printing, word processing and distributing all Notes Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Issuer shall reimburse the Holders for the reasonable
fees and disbursements of not more than one counsel (in addition to appropriate
local counsel) chosen by the Holders of a majority in aggregate principal amount
of the Registrable Notes to be included in any Notes Registration Statement. The
Issuer shall pay all documentary, stamp, transfers or other transactional taxes
attributable to the issuance or delivery of the Exchange Notes or Private
Exchange Notes in exchange for the Notes; provided that the Issuer shall not be
required to pay taxes payable in respect of any transfer involved in the
issuance or delivery of any Exchange Note or Private Exchange Note in a name
other than that of the Holder of the Note in respect of which such Exchange Note
or Private Exchange Note is being issued.
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<PAGE> 20
8. Indemnification
(a) Indemnification by the Issuer. The Issuer shall (and shall
cause each Guarantor, jointly and severally, to) without limitation as to time,
indemnify and hold harmless each Holder of Registrable Notes, Exchange Notes, or
Private Exchange Notes and each Participating Broker-Dealer selling Exchange
Notes during the Applicable Period, each Person, if any, who controls each such
Holder (within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act) and the officers, directors and partners of each such
Holder, Participating Broker-Dealer and controlling person, to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable costs of
preparation and reasonable attorneys' fees and disbursements as provided in this
Section 8) and expenses (including, without limitation, costs and expenses
incurred in connection with investigating, preparing, pursuing or defending
against any of the foregoing)(collectively, "Losses"), as incurred, directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue or alleged untrue statement of a material fact contained in any
Notes Registration Statement, Notes Prospectus or form of prospectus, or in any
amendment or supplement thereto, or in any preliminary prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
Losses are solely based upon information relating to such Holder or
Participating Broker-Dealer and furnished in writing to the Issuer by such
Holder or Participating Broker-Dealer or its counsel expressly for use therein;
provided, however, that the Issuer will not be liable to any Indemnified Party
under this Section 8 to the extent Losses were solely caused by an untrue
statement or omission or alleged untrue statement or omission that was contained
or made in any preliminary prospectus and corrected in the Notes Prospectus or
any amendment or supplement thereto if (i) the Notes Prospectus does not contain
any other untrue statement or omission or alleged untrue statement or omission
of a material fact that was the subject matter of the related proceeding, (ii)
any such Losses resulted from an action, claim or suit by any Person who
purchased Registrable Notes or Exchange Notes which are the subject thereof from
such Indemnified Party and (iii) it is established in the related proceeding
that such Indemnified Party failed to deliver or provide a copy of the Notes
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable law, unless such failure to deliver or
provide a copy of the Notes Prospectus (as amended or supplemented) was a result
of noncompliance by the Issuer with Section 6 of this Agreement. The Issuer
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each Person who controls such
Persons (within the meaning of Section 5 of the Securities Act or Section 20(a)
of the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders or the Participating Broker-Dealer.
(b) Indemnification by Holders. In connection with any Notes
Registration
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Statement, Notes Prospectus or form of prospectus, any amendment or supplement
thereto, or any preliminary prospectus in which a Holder is participating, such
Holder shall furnish to the Issuer in writing such information as the Issuer
reasonably requests for use in connection with any Notes Registration Statement,
Notes Prospectus or form of prospectus, any amendment or supplement thereto, or
any preliminary prospectus and shall, without limitation as to time, indemnify
and hold harmless the Issuer, its directors and each Person, if any, who
controls the Issuer (within the meaning of Section 15 of the Securities Act and
Section 20(a) of the Exchange Act), and the directors, officers, and partners of
such controlling persons, to the fullest extent lawful, from and against all
Losses arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Notes Registration Statement, Notes Prospectus or
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading to the extent (but only to the extent) that such Losses are finally
judicially determined by a court of competent jurisdiction (which determination
is not subject to appeal) to have resulted solely from an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact contained in or omitted from any information so furnished in
writing by such Holder to the Issuer expressly for use therein. Notwithstanding
the foregoing, in no event shall the liability of any selling Holder be greater
in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder upon the sale of the Registrable Notes giving
rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the party
or parties from which such indemnity is sought (the "Indemnifying Parties") in
writing; provided, that the failure to so notify the Indemnifying Parties shall
not relieve the Indemnifying Parties from any obligation or liability except to
the extent (but only to the extent) that it shall be finally determined by a
court of competent jurisdiction (which determination is not subject to appeal)
that the Indemnifying Parties have been prejudiced materially by such failure.
The Indemnifying Party shall have the right, exercisable by
giving written notice to an Indemnified Party, within 20 Business Days after
receipt of written notice from such Indemnified Party of such proceeding, to
assume, at its expense, the defense of any such proceeding, provided, that an
Indemnified Party shall have the right to employ separate counsel in any such
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or parties
unless: (1) the Indemnifying Party has agreed to pay such fees and expenses; or
(2) the Indemnifying Party shall have failed promptly to assume the defense of
such proceeding or shall have failed to employ counsel satisfactory to such
Indemnified Party; or (3) the named parties to any such proceeding (including
any impleaded parties) include both such Indemnified Party and the Indemnifying
Party or any of its affiliates or controlling persons, and such Indemnified
Party shall have been advised by counsel that there may be one or more defenses
available to such
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<PAGE> 22
Indemnified Party that are in addition to, or in conflict with, those defenses
available to the Indemnifying Party or such affiliate or controlling person (in
which case, if such Indemnified Party notifies the Indemnifying Parties in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Parties, the Indemnifying Parties shall not have the right to
assume the defense and the reasonable fees and expenses of such counsel shall be
at the expense of the Indemnifying Party; it being understood, however, that,
the Indemnifying Party shall not, in connection with any one such Proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses or more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such Indemnified
Party).
No Indemnifying Party shall be liable for any settlement of
any such proceeding effected without its written consent, which shall not be
unreasonably withheld, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such proceeding, each Indemnifying Party
jointly and severally agrees, subject to the exceptions and limitations set
forth above, to indemnify and hold harmless each Indemnified Party from and
against any and all Losses by reason of such settlement or judgment. The
Indemnifying Party shall not consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to each Indemnified Party of a release, in form and
substance satisfactory to the Indemnified Party, from all liability in respect
of such proceeding for which such Indemnified Party would be entitled to
indemnification hereunder (whether or not any Indemnified Party is a party
thereto).
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 8
would otherwise apply by its terms (other than by reason of exceptions provided
in this Section 8), then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall have a joint and several obligation
to contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party, on the one hand,
and Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such statement or omission. The amount paid or payable by
an Indemnified Party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
proceeding, to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in Section 8(a) or 8(b) was
available to such party.
The parties hereto agree that it would not be just and
equitable if contribution
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<PAGE> 23
pursuant to this Section 8(d) were determined by pro rata allocation or by other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 8(d), a selling Holder shall not be required to
contribute, in the aggregate, any amount in excess of such Holder's Maximum
Contribution Amount. A selling Holder's "Maximum Contribution Amount" shall
equal the excess of (i) the aggregate proceeds received by such Holder pursuant
to the sale of such Registrable Notes or Exchange Notes over (ii) the aggregate
amount of damages that such Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
9. Rules 144 and 144A
The Issuer covenants that it shall (a) file the reports
required to be filed by it (if so required) under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Issuer is not required
to file such reports, it will, upon the request of any Holder of Registrable
Notes, make publicly available other information necessary to permit sales
pursuant to Rule 144 and Rule 144A and (b) take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell Registrable Notes without registration under the
Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A.
Upon the request of any Holder, the Issuer shall deliver to such Holder a
written statement as to whether it has complied with such informational and
other requirements.
10. Underwritten Registrations of Registrable Notes
If any of the Registrable Notes covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering; provided,
however, that such investment banker or investment bankers and manager or
managers must be reasonably acceptable to the Issuer.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
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<PAGE> 24
11. Miscellaneous
(a) No Inconsistent Agreements. The Issuer has not entered, as
of the date hereof, and the Issuer shall not enter, after the date of this
Agreement, into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Issuer has not
entered and will not enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back rights with respect to a
Notes Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Issuer shall
not, directly or indirectly, take any action with respect to the Registrable
Notes that would adversely affect the ability of the Holders to include such
Registrable Notes in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of (A) in circumstances that would adversely affect any
Holders of Registrable Notes, the Holders of not less than a majority in
aggregate principal amount of the then outstanding Registrable Notes and (B) in
circumstances that would adversely affect Participating Broker-Dealers, the
Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
provided, however, that Section 8 and this Section 11(c) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any Person who was a Participating
Broker-Dealer, Holder of Registrable Notes or Holder of Exchange Notes, as the
case may be, disposed of pursuant to any Notes Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Notes whose securities are being tendered pursuant to the
Exchange Offer or sold pursuant to a Notes Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Notes may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Notes being tendered
or being sold by such Holders pursuant to such Notes Registration Statement.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(1) if to a Holder of Securities or to any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar of the Notes, with a copy in like manner to
the Initial Purchaser as follows:
JEFFERIES & COMPANY, INC.
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<PAGE> 25
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Facsimile No.: (310) 575-5166
Attention: Andrew Whittaker
(2) if to the Initial Purchaser, at the address
specified in Section 11(d)(1);
(3) if to the Issuer, as follows:
UNISON HEALTHCARE CORPORATION
8800 North Gainey Center Drive, Suite 245
Scottsdale, Arizona 85258
Facsimile No.: (602) 253-8129
Attention: Treasurer
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five Business
Days after being deposited in the United States mail, postage prepaid, if
mailed, one Business Day after being timely delivered to a next-day air courier
guaranteeing overnight delivery, and when receipt is acknowledged by the
addressee, if telecopied.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee
under the Indenture at the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Securities.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAW. THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK
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<PAGE> 26
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE ISSUER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY TO DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE ISSUER IRREVOCABLY
CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE ISSUER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE ISSUER IN ANY OTHER
JURISDICTION.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuer or Its Affiliates. Whenever
the consent or approval of holders of a specified percentage of Securities is
required hereunder, Securities held by the Issuer or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders of Securities and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Purchase
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<PAGE> 27
Agreement and the Indenture is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and all prior
oral or written agreements, representations, or warranties, contracts,
understanding, correspondence, conversations and memoranda between the Initial
Purchaser on the one hand and the Issuer on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof and
thereof are merged herein and replaced hereby.
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<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
UNISON HEALTHCARE CORPORATION
By: ______________________________
Name:
Title:
ACCEPTED AND AGREED TO:
JEFFERIES & COMPANIES, INC.
By: ______________________________
Name:
Title:
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<PAGE> 1
Exhibit 10.66
PROMISSORY NOTE
$500,000 September 25, 1997
FOR VALUE RECEIVED, UNISON HEALTHCARE CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to ELK MEADOWS INVESTMENTS, L.L.C.
(the "Lender"), or registered assigns, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000) or such lesser portion thereof as may be advanced by
the Lender, and to pay interest on the unpaid principal amount of this note
(this "Note") for each day that such unpaid principal amount is outstanding at
the Interest Rate, with all principal and interest on this Note due and payable
on or before October 7, 1997. This Note is issued pursuant to that Loan and
Security Agreement dated as of April 21, 1997, by and among the Borrower, the
Lender, and BritWill Investments Company, Ltd., as modified by a Modification
Agreement dated as of September 24, 1997 (as modified, the "Loan and Security
Agreement"). Capitalized terms used but not defined in this Note shall have the
meanings ascribed to them in the Loan and Security Agreement.
The Borrower agrees to an effective rate of interest that is the
rate stated above plus any additional rate of interest, if any, resulting from
any other charges in the nature of interest paid or to be paid or on behalf of
the Borrower, or any benefit received or to be received by the Lender, in
connection with this note. Notwithstanding any other provisions contained in
this Note, if at any time the rate of interest payable by the Borrower under
this Note, when combined with any and all other charges provided for in this
Note or in any other document (to the extent such other charges would constitute
interest for the purpose of any applicable law limiting interest that may be
charged on this Note), exceeds the highest rate of interest permissible under
applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful
Rate would be exceeded, the rate of interest under this Note shall be equal to
the Maximum Lawful Rate. If at any time thereafter the rate of interest payable
under this Note is less than the Maximum Lawful Rate, the Borrower shall
continue to pay interest under this Note at the Maximum Lawful Rate until such
time as the total interest paid by the Borrower is equal to the total interest
that would have been paid had applicable law not limited the interest rate
payable under Note. In no event shall the total interest received by the Lender
under this Note exceed the amount which the Lender could lawfully have received
had the interest due under this Note been calculated since the date of this Note
at the Maximum Lawful Rate.
Payments of the principal of and interest on this Note shall be made
by the Borrower to the holder hereof in immediately available funds in the
manner and at the address specified for such purposes in the Loan and Security
Agreement, or in such manner or at such other address as the holder of this Note
shall have specified in writing to the
1
<PAGE> 2
Borrower for such purpose, without the presentation or surrender of this Note or
the making of any notation on this Note.
The Borrower expressly waives presentment, demand, diligence,
protest and all notices of any kind whatsoever with respect to this Note.
The holder hereof may, as provided in Section 13.2 of the Loan and
Security Agreement, sell, assign, transfer, negotiate, grant participants in or
otherwise dispose of all or any portion of this Note and the indebtedness
evidenced by this Note.
The Note is secured by the security interests granted to the Lender
pursuant to Article VIII of the Loan and Security Agreement and pursuant to the
Stock Pledge Agreement. The holder of this Note is entitled to the benefits of
the Loan and Security Agreement and may enforce the agreements of the Borrower
contained in the Loan and Security Agreement and exercise remedies provided for,
by, or otherwise available in respect of, the Loan and Security Agreement, all
in accordance with the terms of the Loan and Security Agreement. If an Event of
Default shall occur and be continuing, the unpaid balance of the principal of
this Note, together with all accrued Interest and Fees, may be declared and
become due and payable in the manner and with the effect provided in the Loan
and Security Agreement.
This Note is made and delivered in Scottsdale, Arizona, and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provision) of the State of Arizona.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed
and delivered by its duly authorized officer as of the date set forth above.
UNISON HEALTHCARE CORPORATION
By: /s/ Michael A. Jeffries
----------------------------------------
Its: President and CEO
----------------------------------------
2
<PAGE> 1
Exhibit 10.66.1
PROMISSORY NOTE
$500,000 September 25, 1997
FOR VALUE RECEIVED, UNISON HEALTHCARE CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to BRITWILL INVESTMENTS COMPANY,
LTD. (the "Lender"), or registered assigns, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000) or such lesser portion thereof as may be advanced by
the Lender, and to pay interest on the unpaid principal amount of this note
(this "Note") for each day that such unpaid principal amount is outstanding at
the Interest Rate, with all principal and interest on this Note due and payable
on or before October 7, 1997. This Note is issued pursuant to that Loan and
Security Agreement dated as of April 21, 1997, by and among the Borrower, the
Lender, and Elk Meadows Investments, LLC, as modified by a Modification
Agreement dated as of September 24, 1997 (as modified, the "Loan and Security
Agreement"). Capitalized terms used but not defined in this Note shall have the
meanings ascribed to them in the Loan and Security Agreement.
The Borrower agrees to an effective rate of interest that is the
rate stated above plus an additional rate of interest, if any, resulting from
any other charges in the nature of interest paid or to be paid or on behalf of
the Borrower, or any benefit received or to be received by the Lender, in
connection with this note. Notwithstanding any other provisions contained in
this Note, if at any time the rate of interest payable by the Borrower under
this Note, when combined with any and all other charges provided for in this
Note or in any other document (to the extent such other charges would constitute
interest for the purpose of any applicable law limiting interest that may be
charged on this Note), exceeds the highest rate of interest permissible under
applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful
Rate would be exceeded, the rate of interest under this Note shall be equal to
the Maximum Lawful Rate. If at any time thereafter the rate of interest payable
under this Note is less than the Maximum Lawful Rate, the Borrower shall
continue to pay interest under this Note at the Maximum Lawful Rate until such
time as the total interest paid by the Borrower is equal to the total interest
that would have been paid had applicable law not limited the interest rate
payable under Note. In no event shall the total interest received by the Lender
under this Note exceed the amount which the Lender could lawfully have received
had the interest due under this Note been calculated since the date of this Note
at the Maximum Lawful Rate.
Payments of the principal of and interest on this Note shall be made
by the Borrower to the holder hereof in immediately available funds in the
manner and at the address specified for such purposes in the Loan and Security
Agreement, or in such manner or at such other address as the holder of this Note
shall have specified in writing to the
1
<PAGE> 2
Borrower for such purpose, without the presentation or surrender of this Note or
the making of any notation on this Note.
The Borrower expressly waives presentment, demand, diligence,
protest and all notices of any kind whatsoever with respect to this Note.
The holder hereof may, as provided in Section 13.2 of the Loan and
Security Agreement, sell, assign, transfer, negotiate, grant participants in or
otherwise dispose of all or any portion of this Note and the indebtedness
evidenced by this Note.
The Note is secured by the security interests granted to the Lender
pursuant to Article VIII of the Loan and Security Agreement and pursuant to the
Stock Pledge Agreement. The holder of this Note is entitled to the benefits of
the Loan and Security Agreement and may enforce the agreements of the Borrower
contained in the Loan and Security Agreement and exercise remedies provided for,
by, or otherwise available in respect of, the Loan and Security Agreement, all
in accordance with the terms of the Loan and Security Agreement. If an Event of
Default shall occur and be continuing, the unpaid balance of the principal of
this Note, together with all accrued Interest and Fees, may be declared and
become due and payable in the manner and with the effect provided in the Loan
and Security Agreement.
This Note is made and delivered in Scottsdale, Arizona, and shall be
governed by, and construed in accordance with, the internal laws (without
application of its conflict of laws provision) of the State of Arizona.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed
and delivered by its duly authorized officer as of the date set forth above.
UNISON HEALTHCARE CORPORATION
By: /s/ Michael A. Jeffries
----------------------------------------
Its: President and CEO
----------------------------------------
2
<PAGE> 1
Exhibit 10.77
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 1997, between UNISON HEALTHCARE
CORPORATION, a Delaware corporation ("Unison") and CLAYTON KLOEHR ("Kloehr").
Unison wishes to employ Kloehr and Kloehr wishes to be employed by
Unison, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. Employment and Duties. Unison hereby employs Kloehr as its Senior
Vice President and Treasurer, and Kloehr hereby accepts such employment. Kloehr,
who shall devote all his business time and attention to the business of Unison,
shall have general responsibility for the treasury, accounts receivable,
purchasing and financial analysis functions within Unison and shall perform such
additional duties and exercise such additional authority as may be assigned to
him from time to time by the Chief Executive Officer (the "CEO"), the Chief
Financial Officer (the "CFO") or the Board of Directors (the "Board") of Unison.
2. Term. The term of this Agreement shall commence on the date
hereof and continue until June 30, 1999.
3. Compensation. (a) Base Salary. Unison shall pay Kloehr a salary,
before deducting all applicable withholdings, at the annual rate of $140,000,
payable in accordance with Unison's standard executive payroll policies as in
effect from time to time. Unison shall consider increases in the annual rate of
such salary to be effective on January 1 of each year commencing January 1,
1998.
(b) Incentive Bonus. Kloehr shall be entitled to participate on
terms no less favorable than are extended to any other participant in such cash
and stock incentive compensation programs for key employees as may be adopted
from time to time by the Board. In case of the Board's failure to adopt or
maintain any such programs, Kloehr shall be entitled, in any event, to be
considered no less frequently than annually for a cash bonus of up to 40% of his
then annual base salary based on Unison's overall financial performance and
Kloehr's overall performance
<PAGE> 2
2
during each fiscal year (being the calendar year) commencing with 1997. Any such
bonus shall be payable as soon as practicable following the end of the fiscal
year, but in no event earlier than the date that follows by 30 days the filing
of Unison's annual report on Form 10-K for such year.
(c) Stock Options. Kloehr shall be granted not later than August 27,
1997, options to acquire 25,000 shares of the Common Stock of Unison. Such
options, which shall be in addition to and not in lieu of any options as would
otherwise be granted to Kloehr under any compensation program referred to in
Section 3(b), shall vest 12,500 on June 30, 1998, and 12,500 on June 30, 1999,
or, if earlier, on the date of any Change of Control (as defined in Section
6(b)) and shall otherwise be subject to Unison's standard terms of grant.
4A. Expenses. (a) Interim Living Expenses. Unison acknowledges that
for a period commencing on the date hereof and continuing until Kloehr relocates
to Scottsdale, Arizona, but not later than December 31, 1997, (the "Interim
Period"), Kloehr intends to continue to live in Arlington, Texas. During the
Interim Period, Kloehr shall commute to Scottsdale from Arlington each week.
Kloehr shall be entitled to be reimbursed by Unison for, all reasonable expenses
incurred by him during the Interim Period in connection with his transportation
between Arlington and Scottsdale and lodging and meals while in Scottsdale.
Kloehr shall use his reasonable best efforts to minimize the amount of such
expenses by, for example and when practicable, purchasing airline tickets at
least 21 days in advance of travel.
(b) Moving Expenses. Unison shall pay or reimburse Kloehr for the
reasonable costs of Kloehr's relocation of his principal residence to the
Scottsdale area, provided such relocation occurs no later than December 31,
1997, consistent with Unison's standard relocation assistance policy.
(c) Other Reimbursable Expenses. Unison shall also, upon receipt of
standard documentation, reimburse Kloehr each month for his reasonable travel
and lodging (outside the Scottsdale area) and other ordinary and necessary
business expenses consistent with Unison's expense reimbursement policies as in
effect from time to time.
4B. Benefits. Unison shall provide Kloehr and his dependents with
health, medical and life insurance, and make payments for Kloehr's account to
such retirement plan or plans as
<PAGE> 3
3
it may from time to time adopt, in each case, in a manner consistent with its
treatment from time to time of other senior executive officers.
5. Vacation. Kloehr shall be entitled to vacation with pay in
accordance with Unison's vacation policy as in effect from time to time and to
such paid holidays as Unison may approve for its executive personnel.
6. Termination. The Board may terminate Kloehr's employment
hereunder prior to the expiration of the term hereof in the manner provided in
either Section 6(a) or Section 6(b). Kloehr may terminate his employment
hereunder at any time effective upon Unison's receipt of at least 30 days'
advance notice to such effect.
(a) For Cause. Unison may terminate this Agreement for cause upon
notice to Kloehr stating the facts constituting such cause, provided that Kloehr
shall have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for cause hereunder. Cause shall
include material neglect of duties, willful failure to abide by legal and
ethical instructions or policies from or set in good faith by the Board, CEO or
CFO, commission of a felony or serious misdemeanor offense or pleading guilty or
nolo contendere to same, the commission by Kloehr of an act of dishonesty or
moral turpitude involving Unison, Kloehr's breach of this Agreement in any
material respect, the filing of bankruptcy proceedings by or against Kloehr or
breach by Kloehr of any other material obligation to Unison.
(b) Without Cause. Unison may terminate this Agreement at any time
immediately, without cause, effective upon Kloehr's receipt of notice to such
effect. Upon termination under this Section 6(b), Unison shall pay to Kloehr:
(i) forthwith, the base salary due him through the date of termination, (ii) in
equal semimonthly installments over the following 12 months, an amount equal to
his then base salary for one year and (iii) within 90 days following the end of
the fiscal year in which termination occurs, a bonus in an amount determined in
the manner described in Section 3(b), in each case, less applicable
withholdings.
The provisions of this Section 6(b) shall also apply if Kloehr's
employment with Unison is terminated, for any reason or
<PAGE> 4
4
for no reason, after a Change in Control. The provisions of this Section 6(b)
shall not apply, however, if, absent a Change of Control, Kloehr elects to
terminate his employment hereunder as contemplated by the second sentence of
Section 6 or should die or become disabled.
A Change of Control shall be deemed to have occurred if (i) a merger
or consolidation of Unison with any other corporation results in effective
control of Unison becoming vested in a corporation which is not under the
control of Unison's Board as constituted immediately prior to effectiveness of
such merger or consolidation, (ii) a complete or partial liquidation of Unison
is completed, or (iii) all or substantially all of Unison's assets are sold or
otherwise disposed of.
(c) Disability. If during the term of this Agreement, Kloehr fails
to perform his duties hereunder because of illness or other incapacity for a
period of three consecutive months, Unison shall have the right to terminate
this Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Kloehr shall be entitled to receive a bonus payment as provided in
Section 6(b).
(d) Death. If Kloehr dies during the term of this Agreement, this
Agreement shall terminate immediately, and Kloehr's legal representatives shall
be entitled to receive the base salary due Kloehr for 60 days following death,
and any other death benefits generally applicable to executive employees. In
addition, within 90 days after the end of the fiscal year in which Kloehr's
death occurs, Kloehr's legal representative shall also be entitled to receive a
bonus payment as provided in Section 6(b).
7. Confidential Information; Non-Solicitation. (a) Confidential
Information. Kloehr acknowledges that Kloehr may receive, or contribute to the
production of, Confidential Information. For purposes of this Agreement, Kloehr
agrees that "Confidential Information" shall mean information or material
proprietary to Unison or designated as confidential information by Unison and
not generally known by non-Unison personnel, which Kloehr develops or to which
Kloehr obtains knowledge or access to
<PAGE> 5
5
through or as a result of Kloehr's relationship with Unison (including
information conceived, originated, discovered or developed in whole or in part
by Kloehr). Confidential Information includes, but is not limited to , the
following types of information and other information of a similar nature
(whether or not reduced to writing) related to Unison's business: discoveries,
inventions, ideas, concepts, research, development, processes, procedures,
"know-how", formulae, marketing techniques and materials, marketing and
development plans, business plans, customer names and other information related
to customers, price lists, pricing policies, methods of operation, financial
information, employee compensation, and computer programs and systems. Kloehr
acknowledges that the Confidential Information derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use. Information publicly known without breach of
this Agreement that is generally employed by the trade at or after the time
Kloehr first learns of such information, or generic information or knowledge
which Kloehr would have learned in the course of his employment or work
elsewhere in the trade, shall not be deemed part of the Confidential
Information. Kloehr further agrees:
(1) To furnish Unison on demand, at any time during or after
employment, a complete list of the names and addresses of all present, former
and potential suppliers, financing or leasing sources, patients, customers and
other contacts gained while an employee of Unison in Kloehr's possession,
whether or not in the possession or within the knowledge of Unison.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Unison, and Kloehr agrees to turn over all copies of such
materials in Kloehr's control to Unison upon request or upon termination of
Kloehr's employment with Unison.
(3) That while employed by Unison and thereafter Kloehr will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Kloehr's work for Unison.
<PAGE> 6
6
(4) That any idea in whole or in part conceived of or made by Kloehr
during the term of his employment, consulting or similar relationship with
Unison which relates directly or indirectly to Unison's current or planned lines
of business and is made through the use of any of the Confidential Information
of Unison or any of Unison's equipment, facilities, trade secrets or time, or
which results from any work performed by Kloehr for Unison, shall belong
exclusively to Unison and shall be deemed a part of the Confidential Information
for purposes of this Agreement. Kloehr hereby assigns and agrees to assign to
Unison all rights in and to such Confidential Information whether for purposes
of obtaining patent or copyright protection or otherwise. Kloehr shall
acknowledge and deliver to Unison (but at its expense) such written instruments
and do such other acts, including giving testimony in support of Kloehr's
authorship or inventorship, as the case may be, necessary in the opinion of
Unison to obtain patents or copyrights or to otherwise protect or vest in Unison
the entire right and title in and to the Confidential Information.
(b) Non-Solicitation. During the term of Kloehr's employment by
Unison and for a period of one year thereafter, Kloehr agrees that he shall not
(for the purpose of or which results in competition with Unison or any of its
affiliates or subsidiaries) either solicit any past or existing customers,
leasing or financing sources, patients, clients, suppliers, or business
patronage of Unison or any of its predecessors, affiliates or subsidiaries or
use any Confidential Information; nor will he solicit for any purpose the
employment of any employees of Unison or any of its affiliates or subsidiaries.
(c) Injunctions. It is agreed that the restrictions contained in
this Section 7 are reasonable, but it is recognized that damages in the event of
the breach of any of the restrictions will be difficult or impossible to
ascertain; and, therefore, Kloehr agrees that, in addition to and without
limiting any other right or remedy Unison may have, Unison shall have the right
to an injunction against Kloehr issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Unison.
(d) Part of Consideration. Kloehr also agrees, acknowledges,
convenants, represents and warrants that he is fully and completely aware that,
and further understands that, the foregoing restrictive covenants are an
essential part of the
<PAGE> 7
7
consideration for Unison entering into this Agreement and that Unison is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(e) Time and Territory Reduction. If the period of time and/or
territory affected by the provisions of this Section 7 are held to be in any
respect an unreasonable restriction, it is agreed that the court so holding may
reduce the territory to which the restriction pertains or the period of time in
which it operates or may reduce both such territory and such period, to the
minimum extent necessary to render such provision enforceable.
(f) Survival. The obligations described in this Section 7 shall
survive any termination of this Agreement or any termination of the employment
relationship created hereunder.
8. Governing Law and Venue. Arizona law shall govern the
construction and enforcement of this Agreement and the parties agree that any
litigation pertaining to this Agreement shall be in courts located in Maricopa
County, Arizona.
9. Construction. The language in all parts at this Agreement shall
in all cases be construed as a whole according to its fair meaning and not
strictly for or against any party. The section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require. The parties agree that each party has reviewed this Agreement and
has had the opportunity to have counsel review the same and that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply in the interpretation of this Agreement or any
amendment hereto.
10. Nondelagability of Kloehr's Rights and Unison's Assignment
Rights. The obligations, rights and benefits of Kloehr hereunder are personal
and may not be delegated, assigned or transferred in any manner whatsoever, nor
are such obligations, rights or benefits subject to involuntary alienation,
assignment or transfer. This Agreement shall be assigned automatically to any
entity merging with or acquiring Unison or its business.
<PAGE> 8
8
11. Severability. In the event any term or provision of this
Agreement is declared by a court of competent jurisdiction to be invalid or
unenforceable for any reason, this Agreement shall remain in full force and
effect, and either (a) the invalid or unenforceable provision shall be modified
to the minimum extent necessary to make it valid and enforceable or (b) if such
a modification is not possible, this Agreement shall be interpreted as if such
invalid or unenforceable provision were not a part hereof.
12. Attorneys' Fees. Except as otherwise provided herein, in the
event any party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Unison: Unison HealthCare Corporation
8800 N. Gainey Center Drive, Suite 245
Scottsdale, Arizona 85258
Attention: General Counsel
If to Kloehr: Clayton Kloehr
Unison HealthCare Corporation
8800 N. Gainey Center Drive, Suite 245
Scottsdale, Arizona 85258
or to such other address as either party may provide to the other in accordance
with this Section.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous understandings or agreements in regard
thereto. No waiver of any rights under this Agreement shall be valid unless in
writing and signed by the party to be charged with such waiver. No waiver of any
term or condition contained in this Agreement shall be deemed
<PAGE> 9
9
or construed as a further or continuing waiver of such term or condition unless
the waiver specifically provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
UNISON: KLOEHR:
UNISON HEALTHCARE CORPORATION ________________________
Clayton Kloehr
By: __________________________
David A. Kremser
Chairman of the Executive
Committee
<PAGE> 1
Exhibit 10.78
EMPLOYMENT AGREEMENT
AGREEMENT dated as of November 15, 1997, but effective as of
February 7, 1998 (the "Effective Date"), between UNISON HEALTHCARE
CORPORATION, a Delaware corporation ("Unison"), and TERRY TROXELL
("Employee").
Unison wishes to employ Employee and Employee wishes to be
employed by Unison, in each case, pursuant to the terms and subject to the
conditions hereof.
Accordingly, the parties hereto hereby agree as follows:
1. Employment and Duties. Unison hereby employs Employee,
initially, as its Senior Vice President-Clinical Operations, and Employee
hereby accepts such employment. Employee, who shall devote all her business
time and attention to the business of Unison, shall, initially, have
responsibility for quality care and services, programs, protocols and
compliance and, in such capacity, shall report to the Chief Executive Officer
of Unison. Employee's title and duties may be changed from time to time in
the discretion of the Board of Directors of Unison (the "Board") so long as
she is maintained in an executive capacity.
2. Term. The term of this Agreement shall commence on the
Effective Date and continue for a period of one year, unless earlier
terminated as set forth in Section 6.
3. Compensation. (a) Base Salary. Unison shall pay Employee
a salary, before deducting all applicable withholdings, at the annual rate of
$120,000, in accordance with Unison's standard executive payroll policies as
in effect from time to time. Unison shall consider increases in the annual
rate of pay to be effective January 1 of each year, commencing on January 1,
1999.
(b) Incentive Bonus. The Board's compensation committee
shall design and present to the Board for review, adjustment and adoption an
incentive compensation program for key employees. Such program may include
cash and stock option incentives and will provide for participation by
Employee.
(c) Reimbursable Expenses. In addition to the
compensation referred to above, Unison shall, upon receipt of
<PAGE> 2
2
appropriate documentation, reimburse Employee each month for her reasonable
travel, lodging and other ordinary and necessary business expenses consistent
with Unison's policies as in effect from time to time.
4. Benefits. Unison shall, while Employee is employed
hereunder, pay for and provide Employee and her dependents with the same
amount and type of health, medical and life insurance as provided from time
to time to executive officers of Unison.
5. Vacation. Employee shall be entitled to vacation with pay
in accordance with Unison's vacation policy as in effect from time to time.
In addition, Employee shall be entitled to such holidays as Unison may
approve for its executive personnel.
6. Termination. The Board may terminate Employee's employment
hereunder prior to the expiration of the term hereof in the manner provided
in either Section 6(a), Section 6(b) or Section 6(c). Employee may terminate
her employment hereunder at any time effective upon Unison's receipt of at
least 30 days' advance notice to such effect.
(a) For Cause. Unison may terminate this Agreement for
cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 15 days following such notice to
cure any conduct or act, if curable, alleged to provide grounds for
termination for cause hereunder. Cause shall include material neglect of
duties, willful failure to abide by ethical and good faith instructions or
policies from or set by the Chief Executive Officer of Unison or the Board,
commission of a felony or serious misdemeanor offense or pleading guilty or
nolo contendere to same, the commission by Employee of an act of dishonesty
or moral turpitude involving Unison, Employee's breach of this Agreement, the
filing of bankruptcy proceedings by or against Employee, or breach by
Employee of any other material obligation to Unison.
(b) Without Cause. Unison may terminate this Agreement
at any time immediately, without cause, effective upon Employee's receipt of
notice to such effect. Except as provided in Section 6(c), upon a
termination without cause, Unison shall pay to Employee the base salary due
her through the date of termination and, in addition, shall continue
Employee's salary over the following three-month period at the regular
payment intervals.
<PAGE> 3
3
(c) Without Cause After a Change in Control. The
provisions of this Section 6(c) shall apply if Employee's employment with
Unison is terminated, for any reason or for no reason, by Unison after a
change of control. A change of control shall be deemed to have occurred if
(i) a merger or consolidation of Unison with any other corporation results in
effective control of Unison becoming vested in a corporation which is not
under the control of the Board as constituted immediately prior to the
effectiveness of such consolidation or merger, (ii) a complete or partial
liquidation of Unison is completed, or (iii) all or substantially all of
Unison's assets are sold or otherwise disposed of. Upon a termination under
this Section 6(c), Unison shall pay to Employee forthwith the base salary due
her through the date of termination plus an amount equal to three months'
base salary, less applicable withholdings.
(d) Disability. If during the term of this Agreement,
Employee fails to perform her duties hereunder because of illness or other
incapacity for a period of three consecutive months, Unison shall have the
right to terminate this Agreement without further obligation except for any
amounts payable pursuant to disability plans generally applicable to
executive employees. Unison shall establish and maintain during the term of
employment of the Employee a disability insurance program which provides for
monthly disability payments for a period of at least two years from the date
of determination of a disability.
(e) Death. If the Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and Employee's legal
representatives shall be entitled to receive the base salary due Employee
through the date of death.
7. Confidential Information; Non-solicitation. (a)
Confidential Information. Employee acknowledges that Employee may receive,
or contribute to the production of, Confidential Information. For purposes
of this Agreement, Employee agrees that "Confidential Information" shall mean
information or material proprietary to Unison or designated as Confidential
Information by Unison and not generally known by non-Unison personnel, which
Employee develops or of or to which Employee may obtain knowledge or access
through or as a result of Employee's relationship with Unison (including
information conceived, originated, discovered or developed in whole or in
part by Employee). Confidential Information includes, but is not limited to,
the following types of information and other information of a
<PAGE> 4
4
similar nature (whether or not reduced to writing) related to Unison's business:
discoveries, inventions, ideas, concepts, research, development, processes,
procedures, "know-how", formulae, marketing techniques and materials, marketing
and development plans, business plans, customer names and other information
related to customers, price lists, pricing policies, methods of operation,
financial information, employee compensation, and computer programs and systems.
Confidential Information also includes any information described above which
Unison obtains from another party and which Unison treats as proprietary or
designates as Confidential Information, whether or not owned by or developed by
Unison. Employee acknowledges that the Confidential Information derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use. Information publicly known
without breach of this Agreement that is generally employed by the trade at or
after the time Employee first learns of such information, or generic information
or knowledge which Employee would have learned in the course of similar
employment or work elsewhere in the trade, shall not be deemed part of the
Confidential Information. Employee further agrees:
(1) To furnish Unison on demand, at any time during or
after employment, a complete list of the names and addresses of all present,
former and potential suppliers, financing or leasing sources, patients,
customers and other contacts gained while an employee of Unison in Employee's
possession, whether or not in the possession or within the knowledge of
Unison.
(2) That all notes, memoranda, documentation and records
in any way incorporating or reflecting any Confidential Information shall
belong exclusively to Unison, and Employee agrees to turn over all copies of
such materials in Employee's control to Unison upon request or upon
termination of Employee's employment with Unison.
(3) That while employed by Unison and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report,
publish, disclose or transfer any of the Confidential Information for any
purpose, except in the course of Employee's work for Unison.
<PAGE> 5
5
(4) That any idea in whole or in part conceived of or
made by Employee during the term of her employment, consulting, or similar
relationship with Unison which relates directly or indirectly to Unison's
current or planned lines of business and is made through the use of any of
the Confidential Information of Unison or any of Unison's equipment,
facilities, trade secrets or time, or which results from any work performed
by Employee for Unison, shall belong exclusively to Unison and shall be
deemed a part of the Confidential Information for purposes of this
Agreement. Employee hereby assigns and agrees to assign to Unison all rights
in and to such Confidential Information whether for purposes of obtaining
patent or copyright protection or otherwise. Employee shall acknowledge and
deliver to Unison, without charge to Unison (but at its expense) such written
instruments and do such other acts, including giving testimony in support of
Employee's authorship or inventorship, as the case may be, necessary in the
opinion of Unison to obtain patents or copyrights or to otherwise protect or
vest in Unison the entire right and title in and to the Confidential
Information.
(b) Non-solicitation. During the term of Employee's
employment by Unison and for a period of one year thereafter, Employee agrees
that she shall not (for the purpose of or which results in competition with
Unison or any of its affiliates or subsidiaries) either solicit any past or
existing customers, leasing or financing sources, patients, clients,
suppliers or business patronage of Unison or any of its predecessors,
affiliates or subsidiaries or use any Confidential Information (as defined in
Section 7(a)), nor will she solicit for any purpose the employment of any
employees of Unison or any of its affiliates or subsidiaries.
(c) Injunctions. It is agreed that the restrictions
contained in this Section 7 are reasonable, but it is recognized that damages
in the event of the breach of any of the restrictions will be difficult or
impossible to ascertain; and, therefore, Employee agrees that, in addition to
and without limiting any other right or remedy Unison may have, Unison shall
have the right to an injunction against Employee issued by a court of
competent jurisdiction enjoining any such breach without showing or proving
any actual damage to Unison.
(d) Part of Consideration. Employee also agrees,
acknowledges, covenants, represents and warrants that she is fully and
completely aware that, and further understands that,
<PAGE> 6
6
the foregoing restrictive covenants are an essential part of the consideration
for Unison entering into this Agreement and that Unison is entering into this
Agreement in full reliance on these acknowledgments, covenants, representations
and warranties.
(e) Time and Territory Reduction. If the period of time
and/or territory described above are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce
the territory to which the restriction pertains or the period of time in
which it operates or may reduce both such territory and such period, to the
minimum extent necessary to render such provision enforceable.
(f) Survival. The obligations described in this Section
7 shall survive any termination of this Agreement or any termination of the
employment relationship created hereunder.
8. Governing Law and Venue. Arizona law shall govern the
construction and enforcement of this Agreement and the parties agree that any
litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
9. Construction. The language in all parts of this Agreement
shall in all cases be construed as a whole according to its fair meaning and
not strictly for nor against any party. The Section headings contained in
this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement. All terms used in one
number or gender shall be construed to include any other number or gender as
the context may required. The parties agree that each party has reviewed
this Agreement and has had the opportunity to have counsel review the same
and that any rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not apply in the interpretation of
this Agreement or any amendment or any exhibits thereof.
10. Nondelegability of Employee's Rights and Unison's
Assignment Rights. The obligations, rights and benefits of Employee
hereunder are personal and may not be delegated, assigned or transferred in
any manner whatsoever, nor are such obligations, rights or benefits subject
to involuntary alienation, assignment or transfer. Upon reasonable notice to
Employee, Unison may transfer Employee to an affiliate of Unison, which
affiliate shall assume the obligations of Unison under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring Unison or its business.
<PAGE> 7
7
11. Severability. In the event any term or provision of this
Agreement is declared by a court of competent jurisdiction to be invalid or
unenforceable for any reason, this Agreement shall remain in full force and
effect, and either (a) the invalid or unenforceable provision shall be
modified to the minimum extent necessary to make it valid and enforceable or
(b) if such a modification is not possible, this Agreement shall be
interpreted as if such invalid or unenforceable provision were not a part
hereof.
12. Attorneys' Fees. Except as otherwise provided herein, in
the event any party hereto institutes an action or other proceeding to
enforce any rights arising out of this Agreement, the party prevailing in
such action or other proceeding shall be paid all reasonable costs and
attorneys' fees by the non-prevailing party, such fees to be set by the court
and not by a jury and to be included in any judgment entered in such
proceeding.
13. Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed duly given upon receipt if either
personally delivered, sent by certified mail, return receipt requested, or
sent by a nationally-recognized overnight courier service, addressed to the
parties as follows:
If to Unison: Unison HealthCare Corporation
8800 N. Gainey Center Drive, Suite 245
Scottsdale, Arizona 85258
Attention: General Counsel
If to Employee: Terry Troxell
Unison HealthCare Corporation
8800 N. Gainey Center Drive, Suite 245
Scottsdale, Arizona 85258
or to such other address as any party may provide to the other in accordance
with this Section.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous understandings or agreements in
regard thereto. No modification or addition to this Agreement shall be valid
unless in writing, specifically referring to this Agreement and signed by all
parties hereto. No waiver of any rights under this Agreement
<PAGE> 8
8
shall be valid unless in writing and signed by the party to be charged with such
waiver. No waiver of any term or condition contained in this Agreement shall be
deemed or construed as a further or continuing waiver of such term or condition,
unless the waiver specifically provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
UNISON: EMPLOYEE:
UNISON HEALTHCARE CORPORATION ______________________________
Terry Troxell
By: _________________________
Michael A. Jeffries
President and Chief
Executive Officer
<PAGE> 1
Exhibit 10.79
EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 31, 1997, between UNISON HEALTHCARE
CORPORATION, a Delaware corporation ("Unison"), and NIR E. MARGALIT
("Margalit").
Unison wishes to employ Margalit and Margalit wishes to be employed by
Unison, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. Employment and Duties. Unison hereby employs Margalit as its Executive
Vice President, General Counsel and Secretary, and Margalit hereby accepts such
employment. In addition Unison shall, at the next regular or special meeting of
its Board of Directors (the "Board") held after the date hereof, cause Margalit
to be elected Executive Vice President, General Counsel and Secretary to fill
the vacancy created by the resignation of James A. Rice. Margalit, who shall
devote all his business time and attention to the business of Unison, shall have
general responsibility for the overall legal function of all of Unison.
2. Term. The term of this Agreement shall commence on the date hereof and
continue until February 15, 2001.
3. Compensation. (a) Base Salary. Unison shall pay Margalit a salary,
before deducting all applicable withholdings, at the annual rate of $170,000,
payable in accordance with Unison's standard executive payroll policies as in
effect from time to time. Unison shall consider increases in the annual rate of
such salary to be effective on February 15 of each year commencing February 15,
1999.
(b) Incentive Bonus. The Board's compensation committee shall design and
present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program will include cash and stock
option incentives and will provide for participation by Margalit. The program
shall, as it relates to cash compensation, provide that Margalit shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1998, for which Unison achieves a net income
before income taxes of at least 90% of budgeted net income before taxes for such
fiscal year. Such bonus shall be in an amount, expressed as a percentage of
Margalit's then annual base salary, equal to:
If net income before income taxes:
50% Greater than 100% of budget
40% Equal to or Greater than 95% Less than or equal to 100% of budget
30% Equal to or Greater than 90% Less than 95% of budget
<PAGE> 2
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Unison's annual report on Form 10-K for such year.
(c) Stock Options. Margalit shall be granted as of the date hereof options
to acquire 105,000 shares of the Common Stock of Unison. Such options, which
shall be in addition to and not in lieu of any options as would otherwise be
granted to Margalit under any compensation program referred to in Section 3(b),
shall vest as follows:
52,500 shares February 15, 1999
26,250 shares February 15, 2000
26,250 shares February 15, 2001
or, if earlier, on the date of any Change of Control (as defined in Section
6(b)) occurring after the first year of the term hereof and shall otherwise be
subject to Unison's standard terms of grant; provided, however, that if such
Change of Control should occur after the first year of the term hereof but prior
to February 15, 2000, only 62,250 of such shares shall be deemed to have vested;
and provided further, however, that nothing in this Section 3 (c) shall be
deemed to extend the term of this Agreement as provided in Section 2.
4A. Expenses. (a) Reimbursable Expenses. Unison shall also, upon receipt
of customary documentation, reimburse Margalit for his reasonable travel and
lodging (outside the Scottsdale area) and other ordinary and necessary business
expenses consistent with Unison's expense reimbursement policies as in effect
from time to time.
4B. Benefits. Unison shall provide Margalit and his dependents with
health, medical and life insurance, and make payments for Margalit's account to
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
5. Vacation, Etc. Margalit shall be entitled to vacation with pay in
accordance with Unison's vacation policy as in effect from time to time and to
such paid holidays as Unison may approve for its executive personnel. Margalit
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Unison should terminate for unutilized
vacation or personal days.
6. Termination. The Board may terminate Margalit's employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Margalit may terminate his employment hereunder at
any time effective upon Unison's receipt of at least 30 days' advance notice to
such effect.
(a) For Cause. Unison may terminate this Agreement for cause upon notice
to Margalit stating the facts constituting such cause, provided that Margalit
shall have 30 days
<PAGE> 3
following such notice to cure any conduct or act, if curable, alleged to provide
grounds for termination for cause hereunder. Cause shall include material
neglect of duties, willful failure to abide by legal and ethical instructions or
policies from or set in good faith by the Board, commission of a felony or
serious misdemeanor offense or pleading guilty or nolo contendere to same, the
commission by Margalit of an act of dishonesty or moral turpitude involving
Unison, Margalit's breach of this Agreement in any material respect, the filing
of bankruptcy proceedings by or against Margalit or breach by Margalit of any
other material obligation to Unison.
(b) Without Cause. Unison may terminate this Agreement at any time
immediately, without cause, effective upon Margalit's receipt of notice to such
effect. Upon termination under this Section 6(b), Unison shall pay to Margalit:
(i) forthwith, the base salary due him through the date of termination, (ii) in
equal semimonthly installments over the following six or twelve months, as the
case may be, an amount equal to his then base salary for six months, if
termination occurs within the first year of the term hereof, or one year, if
termination occurs after the first year of the term hereof, and (iii) within 90
days following the end of the fiscal year in which termination occurs, a bonus
in an amount determined in the manner described in Section 3(b) (except, if
termination occurs prior to the end of a fiscal year, prorated for the period
during which Margalit was employed hereunder), in each case, less applicable
withholdings.
The provisions of this Section 6(b) shall also apply if Margalit's
employment with Unison is terminated, for any reason or for no reason, after a
Change in Control. The provisions of this Section 6(b) shall not apply, however,
if, absent a Change of Control, Margalit elects to terminate his employment
hereunder as contemplated by the second sentence of Section 6 or should die or
become disabled.
A Change of Control shall be deemed to have occurred if (i) a merger or
consolidation of Unison with any other corporation results in effective control
of Unison becoming vested in a corporation which is not under the control of
Unison's Board as constituted immediately prior to effectiveness of such merger
or consolidation, (ii) a complete or partial liquidation of Unison is completed
or (iii) all or substantially all of Unison's assets are sold or otherwise
disposed of and (iv) for purposes only of the provisions of Section 3(b) dealing
with accelerated vesting of stock options, Margalit is not offered continued
employment in a senior executive capacity with equivalent duties,
responsibilities and authority.
(c) Disability. If during the term of this Agreement, Margalit fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Unison shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Margalit shall be entitled to receive a bonus payment as provided
in Section 6(b).
<PAGE> 4
(d) Death. If Margalit dies during the term of this Agreement, this
Agreement shall terminate immediately, and Margalit's legal representative shall
be entitled to receive the base salary due Margalit for 60 days following death
as well as any other death benefits generally applicable to executive employees.
In addition, within 90 days after the end of the fiscal year in which Margalit's
death should occur, Margalit's legal representative shall also be entitled to
receive a bonus payment as provided in Section 6(b).
7. Confidential Information; Non-Solicitation. (a) Confidential
Information. Margalit acknowledges that Margalit may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Margalit agrees that "Confidential Information" shall mean information or
material proprietary to Unison or designated as confidential information by
Unison and not generally known by non-Unison personnel, which Margalit develops
or to which Margalit obtains knowledge or access to through or as a result of
Margalit's relationship with Unison (including information conceived,
originated, discovered or developed in whole or in part by Margalit).
Confidential Information includes, but is not limited to , the following types
of information and other information of a similar nature (whether or not reduced
to writing) related to Unison's business: discoveries, inventions, ideas,
concepts, research, development, processes, procedures, "know-how", formulae,
marketing techniques and materials, marketing and development plans, business
plans, customer names and other information related to customers, price lists,
pricing policies, methods of operation, financial information, employee
compensation, and computer programs and systems. Margalit acknowledges that the
Confidential Information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use. Information publicly known without breach of this
Agreement that is generally employed by the trade at or after the time Margalit
first learns of such information, or generic information or knowledge which
Margalit would have learned in the course of his employment or work elsewhere in
the trade, shall not be deemed part of the Confidential Information. Margalit
further agrees:
(1) To furnish Unison on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Unison in Margalit's possession, whether or not in
the possession or within the knowledge of Unison.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Unison, and Margalit agrees to turn over all copies of such
materials in Margalit's control to Unison upon request or upon termination of
Margalit's employment with Unison.
(3) That while employed by Unison and thereafter Margalit will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Margalit's work for Unison.
<PAGE> 5
(4) That any idea in whole or in part conceived of or made by Margalit
during the term of his employment, consulting or similar relationship with
Unison which relates directly or indirectly to Unison's current or planned lines
of business and is made through the use of any of the Confidential Information
of Unison or any of Unison's equipment, facilities, trade secrets or time, or
which results from any work performed by Margalit for Unison, shall belong
exclusively to Unison and shall be deemed a part of the Confidential Information
for purposes of this Agreement. Margalit hereby assigns and agrees to assign to
Unison all rights in and to such Confidential Information whether for purposes
of obtaining patent or copyright protection or otherwise. Margalit shall
acknowledge and deliver to Unison (but at its expense) such written instruments
and do such other acts, including giving testimony in support of Margalit's
authorship or inventorship, as the case may be, necessary in the opinion of
Unison to obtain patents or copyrights or to otherwise protect or vest in Unison
the entire right and title in and to the Confidential Information.
(a) Non-Solicitation. During the term of Margalit's employment by Unison
and for a period of one year thereafter, Margalit agrees that he shall not (for
the purpose of or which results in competition with Unison or any of its
affiliates or subsidiaries) either solicit any past or existing customers,
patients or clients of Unison or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
purpose the employment of any employees of Unison or any of its affiliates or
subsidiaries.
(b) Injunctions. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Margalit agrees that, in addition to and without limiting any
other right or remedy Unison may have, Unison shall have the right to an
injunction against Margalit issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Unison.
(c) Part of Consideration. Margalit also agrees, acknowledges, convenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Unison entering into this Agreement and that Unison is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(d) Time and Territory Reduction. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(e) Survival. The obligations described in this Section 7 shall survive
any termination of this Agreement or any termination of the employment
relationship created hereunder.
<PAGE> 6
8. Governing Law and Venue. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. Construction. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
10. Nondelagability of Margalit's Rights and Unison's Assignment Rights.
The obligations, rights and benefits of Margalit hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Unison or its business.
11. Severability. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
12. Attorneys' Fees. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Unison: Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
Attention: Michael A. Jeffries
<PAGE> 7
If to Margalit: Nir E. Margalit
Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
or to such other address as either party may provide to the other in accordance
with this Section.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
UNISON: MARGALIT:
UNISON HEALTHCARE CORPORATION ______________________________
Nir E. Margalit
By:_________________________________________
Michael A. Jeffries
President and Chief Executive Officer
<PAGE> 1
Exhibit 10.80
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 1, 1998, between UNISON HEALTHCARE
CORPORATION, a Delaware corporation ("Unison"), and JIMMY L. FIELDS ("Fields").
Unison wishes to employ Fields and Fields wishes to be employed by Unison,
in each case, pursuant to the terms and subject to the conditions hereof.
Accordingly, the parties hereto hereby agree as follows:
1. Employment and Duties. Unison hereby employs Fields as Executive Vice
President, Chief Financial Officer, and Fields hereby accepts such employment.
In addition Unison shall, at the next regular or special meeting of its Board of
Directors (the "Board") held after the date hereof, cause Fields to be elected
Executive Vice President, Chief Financial Officer. Fields, who shall devote all
his business time and attention to the business of Unison, shall have general
responsibility for the overall accounting and finance function of all of Unison.
2. Term. The term of this Agreement shall commence on the date hereof and
continue until April 1, 2001.
3. Compensation. (a) Base Salary. Unison shall pay Fields a salary, before
deducting all applicable withholdings, at the annual rate of $170,000, payable
in accordance with Unison's standard executive payroll policies as in effect
from time to time. Unison shall consider increases in the annual rate of such
salary to be effective on April 1 of each year commencing April 1, 1999.
(b) Incentive Bonus. The Board's compensation committee shall design and
present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program will include cash and stock
option incentives and will provide for participation by Fields. The program
shall, as it relates to cash compensation, provide that Fields shall be entitled
to receive a cash bonus in respect of any fiscal year, commencing with the
fiscal year ending December 31, 1998, for which Unison achieves net income
before income taxes of at least 90% of budgeted net income before taxes for such
fiscal year and in which the Company has sufficient cash flows to pay bonuses.
Such bonus shall be in an amount, expressed as a percentage of Fields's then
annual base salary, equal to:
If net income before income taxes:
50% Greater than or 100% of budget
40% Equal to or greater than 95% Less than or equal to 100% of budget
30% Equal to or greater than 90% Less than 95% of budget
Any such bonus shall be payable as soon as practicable following the end
of the fiscal year, but in no event earlier than the date that follows by 30
days the filing of Unison's annual report on Form 10-K for such year.
<PAGE> 2
4A. Expenses. (a) Reimbursable Expenses. Unison shall also, upon receipt
of customary documentation, reimburse Fields for his reasonable travel and
lodging (outside the Scottsdale area) and other ordinary and necessary business
expenses consistent with Unison's expense reimbursement policies as in effect
from time to time.
4B. Benefits. Unison shall provide Fields and his dependents with health,
medical and life insurance, and make payments for Fields's account to such
retirement plan or plans as it may from time to time adopt, in each case, in a
manner consistent with its treatment from time to time of other senior executive
officers.
5. Vacation, Etc.. Fields shall be entitled to vacation with pay in
accordance with Unison's vacation policy as in effect from time to time and to
such paid holidays as Unison may approve for its executive personnel. Fields
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Unison should terminate for unutilized
vacation or personal days.
6. Termination. The Board may terminate Fields's employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Fields may terminate his employment hereunder at
any time effective upon Unison's receipt of at least 30 days' advance notice to
such effect.
(a) For Cause. Unison may terminate this Agreement for cause upon notice
to Fields stating the facts constituting such cause, provided that Fields shall
have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for cause hereunder. Cause shall
include material neglect of duties, willful failure to abide by legal and
ethical instructions or policies from or set in good faith by the Board,
commission of a felony or serious misdemeanor offense or pleading guilty or nolo
contendere to same, the commission by Fields of an act of dishonesty or moral
turpitude involving Unison, Fields's breach of this Agreement in any material
respect, the filing of bankruptcy proceedings by or against Fields or breach by
Fields of any other material obligation to Unison.
(b) Without Cause. Unison may terminate this Agreement at any time
immediately, without cause, effective upon Fields's receipt of notice to such
effect. Upon termination under this Section 6(b), Unison shall pay to Fields:
(i) forthwith, the base salary due him through the date of termination, (ii) in
equal semimonthly installments over the following six or twelve months, as the
case may be, an amount equal to his then base salary for six months, if
termination occurs within the first year of the term hereof, or one year, if
termination occurs after the first year of the term hereof, and (iii) within 90
days following the end of the fiscal year in which termination occurs, a bonus
in an amount determined in the manner described in Section 3(b) (except, if
termination occurs prior to the end of a fiscal year, prorated for the period
during which Fields was employed hereunder), in each case, less applicable
withholdings.
The provisions of this Section 6(b) shall also apply if Fields's
employment with Unison is terminated, for any reason or for no reason, after a
Change in Control. The provisions of this
<PAGE> 3
Section 6(b) shall not apply, however, if, absent a Change of Control, Fields
elects to terminate his employment hereunder as contemplated by the second
sentence of Section 6 or should die or become disabled.
A Change of Control shall be deemed to have occurred if (i) a merger or
consolidation of Unison with any other corporation results in effective control
of Unison becoming vested in a corporation which is not under the control of
Unison's Board as constituted immediately prior to effectiveness of such merger
or consolidation, (ii) a complete or partial liquidation of Unison is completed
or (iii) all or substantially all of Unison's assets are sold or otherwise
disposed of and (iv) for purposes only of the provisions of Section 3(b) dealing
with accelerated vesting of stock options, Fields is not offered continued
employment in a senior executive capacity with equivalent duties,
responsibilities and authority.
(c) Disability. If during the term of this Agreement, Fields fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Unison shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Fields shall be entitled to receive a bonus payment as provided in
Section 6(b).
(d) Death. If Fields dies during the term of this Agreement, this
Agreement shall terminate immediately, and Fields's legal representative shall
be entitled to receive the base salary due Fields for 60 days following death as
well as any other death benefits generally applicable to executive employees. In
addition, within 90 days after the end of the fiscal year in which Fields's
death should occur, Fields's legal representative shall also be entitled to
receive a bonus payment as provided in Section 6(b).
7. Confidential Information; Non-Solicitation. (a) Confidential
Information. Fields acknowledges that Fields may receive, or contribute to the
production of, Confidential Information. For purposes of this Agreement, Fields
agrees that "Confidential Information" shall mean information or material
proprietary to Unison or designated as confidential information by Unison and
not generally known by non-Unison personnel, which Fields develops or to which
Fields obtains knowledge or access to through or as a result of Fields's
relationship with Unison (including information conceived, originated,
discovered or developed in whole or in part by Fields). Confidential Information
includes, but is not limited to , the following types of information and other
information of a similar nature (whether or not reduced to writing) related to
Unison's business: discoveries, inventions, ideas, concepts, research,
development, processes, procedures, "know-how", formulae, marketing techniques
and materials, marketing and development plans, business plans, customer names
and other information related to customers, price lists, pricing policies,
methods of operation, financial information, employee compensation, and computer
programs and systems. Fields acknowledges that the Confidential Information
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use.
Information publicly known without breach of this Agreement
<PAGE> 4
that is generally employed by the trade at or after the time Fields first learns
of such information, or generic information or knowledge which Fields would have
learned in the course of his employment or work elsewhere in the trade, shall
not be deemed part of the Confidential Information. Fields further agrees:
(1) To furnish Unison on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Unison in Fields's possession, whether or not in the
possession or within the knowledge of Unison.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Unison, and Fields agrees to turn over all copies of such
materials in Fields's control to Unison upon request or upon termination of
Fields's employment with Unison.
(3) That while employed by Unison and thereafter Fields will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Fields's work for Unison.
(4) That any idea in whole or in part conceived of or made by Fields
during the term of his employment, consulting or similar relationship with
Unison which relates directly or indirectly to Unison's current or planned lines
of business and is made through the use of any of the Confidential Information
of Unison or any of Unison's equipment, facilities, trade secrets or time, or
which results from any work performed by Fields for Unison, shall belong
exclusively to Unison and shall be deemed a part of the Confidential Information
for purposes of this Agreement. Fields hereby assigns and agrees to assign to
Unison all rights in and to such Confidential Information whether for purposes
of obtaining patent or copyright protection or otherwise. Fields shall
acknowledge and deliver to Unison (but at its expense) such written instruments
and do such other acts, including giving testimony in support of Fields's
authorship or inventorship, as the case may be, necessary in the opinion of
Unison to obtain patents or copyrights or to otherwise protect or vest in Unison
the entire right and title in and to the Confidential Information.
(a) Non-Solicitation. During the term of Fields's employment by Unison and
for a period of one year thereafter, Fields agrees that he shall not (for the
purpose of or which results in competition with Unison or any of its affiliates
or subsidiaries) either solicit any past or existing customers, patients or
clients of Unison or any of its predecessors, affiliates or subsidiaries or use
any Confidential Information; nor will he solicit for any purpose the employment
of any employees of Unison or any of its affiliates or subsidiaries.
(b) Injunctions. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Fields agrees that, in addition to and without limiting any
other right or remedy Unison may have, Unison shall have the right to an
<PAGE> 5
injunction against Fields issued by a court of competent jurisdiction enjoining
any such breach without showing or proving any actual damage to Unison.
(c) Part of Consideration. Fields also agrees, acknowledges, convenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Unison entering into this Agreement and that Unison is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(d) Time and Territory Reduction. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(e) Survival. The obligations described in this Section 7 shall survive
any termination of this Agreement or any termination of the employment
relationship created hereunder.
8. Governing Law and Venue. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. Construction. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
10. Nondelagability of Fields's Rights and Unison's Assignment Rights. The
obligations, rights and benefits of Fields hereunder are personal and may not be
delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Unison or its business.
11. Severability. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
<PAGE> 6
12. Attorneys' Fees. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Unison: Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
Attention: Michael A. Jeffries
If to Fields: Jimmy L. Fields
Unison HealthCare Corporation
8800 N. Gainey Center Drive
Suite 245
Scottsdale, Arizona 85258
or to such other address as either party may provide to the other in accordance
with this Section.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UNISON: FIELDS:
UNISON HEALTHCARE CORPORATION ______________________________
Jimmy L. Fields
By:_____________________________________
Michael A. Jeffries
President and Chief Executive Officer
<PAGE> 1
UNISON HEALTHCARE CORPORATION EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period (1) 6,079 4,214 1,789
Sale of common stock in public offering -- -- 71
Conversion of debentures 103 105 12
Common stock issued for acquisitions 189 259 --
Exercise of stock purchase warrants -- 96 --
Exercise of stock options -- 2 --
-------- -------- --------
Weighted average number of shares outstanding 6,371 4,676 1,872
======== ======== ========
Net income (loss) $(47,211) $(23,438) $ 117
======== ======== ========
Basic earnings (loss) per share $ (7.41) $ (5.01) $ 0.06
======== ======== ========
FOR DILUTED EARNINGS PER SHARE
Weighted average number of shares used
in primary calculation 6,371 4,676 1,872
Dilutive effect of outstanding stock options -- -- 3
Dilutive effect of stock purchase warrants -- -- 195
Assumed conversion of noninterest-bearing
convertible debentures -- -- 210
Assumed conversion of convertible notes
and debentures 480 259 --
Additional dilutive effect of stock options
and warrants -- -- 2
-------- -------- --------
Weighted average number of shares fully diluted 6,851 4,935 2,282
======== ======== ========
Net income $(47,211) $(23,438) $ 117
Interest on convertible notes and debentures,
net of tax effect 99 154 --
-------- -------- --------
Net income (loss), as adjusted (47,112) (23,284) 117
-------- -------- --------
Diluted earnings per share (2) $ (6.88) $ (4.72) $ 0.05
======== ======== ========
</TABLE>
(1) Shares used in these tables are weighted based on the number of days the
shares were outstanding or assumed to be outstanding during each period.
(2) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to Statement of Financial Accounting
Standards No. 128 because it produces an antidilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNISON'S
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,295
<SECURITIES> 0
<RECEIVABLES> 40,278
<ALLOWANCES> 7,423
<INVENTORY> 1,819
<CURRENT-ASSETS> 45,918
<PP&E> 32,581
<DEPRECIATION> 6,993
<TOTAL-ASSETS> 192,167
<CURRENT-LIABILITIES> 196,986
<BONDS> 172,797
0
0
<COMMON> 5
<OTHER-SE> (34,039)
<TOTAL-LIABILITY-AND-EQUITY> 192,167
<SALES> 0
<TOTAL-REVENUES> 224,366
<CGS> 0
<TOTAL-COSTS> 198,664
<OTHER-EXPENSES> 53,278
<LOSS-PROVISION> 2,039
<INTEREST-EXPENSE> 20,076
<INCOME-PRETAX> (49,691)
<INCOME-TAX> (2,480)
<INCOME-CONTINUING> (47,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,211)
<EPS-PRIMARY> (7.41)
<EPS-DILUTED> 0
</TABLE>
