<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------
Date of Report (Date of earliest event reported) April 30, 1996
QUALIS CARE, L.P.
(Exact name of registrant as specified in its charter)
Delaware 0-19419 23-2755411
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
351 South Cypress Road
Suite 305
Pompano Beach, Florida 33060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 783-6446
Towers Financial Corporation
(successor following reorganization under United States Bankruptcy Code)
(Former name or former address, if changed since last report)
=============================================================================
<PAGE>
ITEM 3 Bankruptcy or Receivership
On June 14, 1996 (the "Petition Date"), each of Qualis Care, L.P. (the
"Company") and two of its subsidiaries, Qualis Services, Inc. and Qualis
Credit, Inc. (the Company and these subsidiaries are sometimes collectively
referred to herein as the "Debtors"), filed a voluntary chapter 11 petition
with the United States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court"). The Debtors have continued in possession of their
properties and in the management of their businesses as debtors in possession.
On July 30, 1996, the Debtors filed with the Bankruptcy Court their schedules
of assets and liabilities and statements of financial affairs.
The Bankruptcy Court fixed November 1, 1996 as the deadline for the
filing of proofs of claim against the Debtors. Holders of limited partnership
interests in the Company were not required to file proofs of claim or interest
solely on account of the ownership of such limited partnership interests.
The Debtors anticipate filing a plan of reorganization with the
Bankruptcy Court in the near future.
<PAGE>
ITEM 5 Other Events
BUSINESS OF THE COMPANY
General
The Company (formerly known as Healthcare Partners, L.P.) was formed
in March 1994 to carry on certain of the businesses previously conducted by
Towers Financial Corporation ("Towers") and certain of its affiliates,
including its healthcare finance management business, and to provide billing
and accounts receivable management services to providers of medical or other
healthcare services. In addition, the Company, through its wholly owned
subsidiary Knightsbridge International Reinsurance Corporation (formerly known
as Towers International Reinsurance Corporation, "Knightsbridge"), a Barbados
company, has served as a reinsurer of property and casualty risks on a
facultative and treaty basis, mainly outside the North American market. The
Company's principal office is located in Pompano Beach, Florida.
Formation of the Company
The Company is a Delaware limited partnership which was formed on
March 8, 1994 in connection with the chapter 11 cases of Towers and certain of
its affiliates. In 1993, Towers and those affiliates had filed chapter 11
petitions in the Bankruptcy Court. In February 1994, the Bankruptcy Court
authorized Towers' entry into a joint venture with CF Healthcare Finance, Inc.
and approved a form of Partnership Agreement of the Company and a form of
Contribution Agreement pursuant to which Towers would contribute certain assets
to the Company in exchange for a general partnership interest in the Company.
Under the Amended and Restated Agreement of Limited Partnership of the Company,
dated as of March 18, 1994, as amended and modified (the "Partnership
Agreement"), CF Healthcare Finance, Inc. (reconstituted as CFHF Partners, L.P.
and now known as Qualis Group Holdings, L.P. ("CFH")) and Towers were the
Company's two general partners. John Hall is a principal of CFH and is believed
by the Company's present management to have directed CFH's activities as a
general partner of the Company. On March 18, 1994, Towers contributed to the
Company $20 million in cash, certain healthcare businesses, certain healthcare
purchase contracts and certain other assets, and CFH contributed to the Company
$5 million in cash and certain other assets pursuant to the Contribution
Agreement dated as of March 18, 1994 (the "Contribution Agreement").
In December 1994, the Bankruptcy Court confirmed a plan of
reorganization for Towers and certain of its affiliates (the "Towers Plan")
under which Towers' general partnership interest in the Company was converted
into 100,000 limited partnership
<PAGE>
interests of the Company (the "Units"). Under the Towers Plan, the Units, which
represent the entire limited partnership interests in the Company, were
designated for distribution to certain classes of Towers' creditors. The Towers
Plan provides for the distribution of an aggregate of 51.5% of the Units
(51,500 Units) to Towers' bondholders and an aggregate of 48.5% of the Units
(48,500 Units) to all of Towers' noteholders and general unsecured creditors,
other than those electing an all-cash option for small claims.
Under the Towers Plan, all of the Units were to be distributed by the
Towers Financial Corporation Administrative Trust. In May and June 1995, the
Towers Financial Corporation Administrative Trust distributed an aggregate of
approximately 66,660 Units. Of these Units, 51,500 were distributed to Towers'
bondholders and approximately 11,160 were distributed to Towers' noteholders
and general unsecured creditors. During 1995, additional distributions of Units
were made to Towers' noteholders and general unsecured creditors. As of
November 29, 1996, approximately 90,522 Units had been distributed to Towers'
creditors and approximately 9,478 Units remained for subsequent distribution to
Towers' noteholders and general unsecured creditors, upon resolution of the
remaining disputed claims against Towers in the Towers' chapter 11 cases.
Alleged Improprieties by John Hall and Others
Allegations were made in May 1995 of improprieties by certain of the
Company's then management, including John Hall, who was at the time the
Company's chairman, a member of its Management Committee and a controlling
person of its general partner. These alleged improprieties are further
described below under "Legal Proceedings--Hall Litigation." Commencing in June
1995, Ronald O. Drake and Thomas R. Sheehan, the two members of the Company's
Management Committee designated by the creditors' committee in the Towers'
chapter 11 cases (the "Independent Members"), caused an investigation to be
conducted of certain transactions by the Company involving: (i) Mr. Hall's
unauthorized withdrawal of CFH's $5 million capital contribution; (ii) the
purchase of certain illiquid securities; and (iii) the sale and purchase by the
Company of accounts receivable portfolios. The results of this investigation
caused members of the Management Committee to: (a) call a special meeting of
the Management Committee on June 15, 1995; (b) remove Mr. Hall as an officer of
the Company; (c) accept the resignation of Mr. Hall as a member of the
Management Committee; and (d) ultimately commence a law suit against Mr. Hall
and others in the United States District Court for the Southern District of New
York. See "Legal Proceedings."
At its June 15, 1995 special meeting, the Management Committee created
a special committee consisting of the two Independent Members (the "Special
Committee") to review and
<PAGE>
investigate these alleged improprieties. The Management Committee authorized
the Special Committee to take such actions as it deemed necessary or
appropriate in the name of the Company to preserve the Company's rights and
assets and pursue such remedies in the name of the Company as the Special
Committee deemed appropriate. On November 2, 1995, the Management Committee
authorized the Special Committee to authorize and implement any financial or
strategic alternative for the Company that the Special Committee deemed
appropriate to address the Company's situation.
Chapter 11 filings
On June 14, 1996, each of the Debtors filed a voluntary chapter 11
petition with the Bankruptcy Court. The Debtors have continued in possession
of their properties and in the management of their businesses as debtors in
possession. See "Bankruptcy or Receivership."
Current Members of Management Committee
As described below under "Management," under the Partnership Agreement,
a Management Committee consisting of six members is to govern the business and
affairs of the Company. Four of the Management Committee's members are to be
designated by CFH; the remaining two members are to be designated by the
creditors' committee in the Towers' chapter 11 cases or the post-confirmation
committee that succeeds it. As of February 2, 1996, all members of the
Management Committee designated by CFH had resigned, and the two Independent
Members were the sole members of the Management Committee. CFH, which remains
the general partner of the Company, has not designated, and the Company does not
expect that CFH will designate, any persons to fill the vacancies created by
these resignations. See "Management."
Billing and Accounts Receivable Management Services
Through its wholly owned subsidiary, Qualis Services, Inc.
("Services"), the Company provided billing and accounts receivable management
services to healthcare providers. These services included on-site contract
management, off-site collection of receivables and bad-debt services. In April
1994, Services entered into a contract with Northeastern Hospital of
Philadelphia ("Northeastern") to provide accounts receivable management
services. In addition, in April 1994, Credit (as defined below) entered into a
loan and security agreement with Northeastern to provide Northeastern with
financing for Northeastern's receivables. The management services contract with
Northeastern accounted for substantially all of the revenues of the Company in
1994 and a significant portion of the revenues of the Company in 1995. In June
1995, Northeastern terminated the management services contract and the loan and
security agreement. The Company believes that the alleged improprieties
<PAGE>
described above contributed to Northeastern's decision to terminate these
contracts. In March 1996, the Company settled its claims against Northeastern
arising from these terminations.
In February 1995, Services entered into a contract with Sinai Hospital
of Baltimore, Inc. ("Sinai") pursuant to which Services provided billing and
accounts receivable management services to the staff physicians at Sinai's
hospital in Baltimore, Maryland. In April 1996, the Company and Sinai terminated
the contract. Under the termination agreement, the approximately 55 employees of
the Company providing on-site services to Sinai became employees of Sinai
effective May 1, 1996, with Sinai: (i) assuming certain severance, vacation pay
and other obligations relating to the termination of these employees; and (ii)
agreeing to pay the Company $105,000 in three installments. The Company believes
that the alleged improprieties described above contributed to Sinai's decision
to terminate this contract.
The Sinai contract and the Northeastern contract are the only
significant contracts that the Company or its subsidiaries has obtained in the
area of billing or accounts receivable management services since inception.
Neither the Company nor any of its subsidiaries has any billing or accounts
receivable management services contracts. The Company does not anticipate that
it or its subsidiaries will enter into any further such contracts.
Receivables Contributed to the Company by Towers
Among the assets Towers contributed in connection with the formation of
the Company were certain healthcare purchase contracts. The Company has sought
to collect amounts due under the contracts. As of November 29, 1996, there were
two such contracts that the Company had yet to settle.
Healthcare Receivables Financing
The Company organized a wholly owned subsidiary, Qualis Credit, Inc.
("Credit"), to engage in healthcare receivables funding. The funding services
that were intended to be offered included: (i) providing funding to medical
providers in the form of purchasing a provider's receivables; and (ii) providing
financing to the provider with Credit taking the receivables as collateral.
Since its formation, the Company has not engaged directly or through its
subsidiaries in significant healthcare financing activities other than as
described above with respect to Northeastern.
In January 1995, the Company and certain of its subsidiaries entered
into a Master Program Agreement (the "Financing Agreement") with Cargill
Financial Services Corporation ("Cargill") for the purpose of obtaining capital
for the finance
<PAGE>
and sale of medical receivables. The Financing Agreement provided for Cargill
to finance or purchase up to $150 million of healthcare receivables from a
former subsidiary of the Company. In connection with the Financing Agreement,
the Company issued a warrant entitling Cargill to purchase from the Company
limited partnership interests in an amount up to 15 percent of the limited
partnership interests outstanding at the time of exercise (the "Warrant"). In
July 1995, purportedly as a result of the alleged improprieties described
above, Cargill gave notice of its termination of the Financing Agreement.
Cargill never made any advances under the Financing Agreement. Cargill has
asserted that the Warrant was not terminated and continues in full force and
effect. The Warrant presently remains outstanding.
The Company has not obtained substitute financing since the termination
of the Financing Agreement and does not intend to pursue the financing needed to
enable it to engage in healthcare receivables financing.
Reinsurance
The stock of Knightsbridge was among the assets contributed by Towers
to the Company in connection with the Company's formation. Knightsbridge has
served as a reinsurer of property and casualty risks on a facultative and treaty
basis and is organized under and subject to the insurance regulations of
Barbados. Eton Management Corporation ("Eton Management") serves as the manager
of Knightsbridge.
In December 1995, Knightsbridge's principal reinsurance contract was
terminated by the primary insurer and all funds held in a trust account as
security for the payment of claims arising under the reinsurance contract were
transferred to the insurer. Knightsbridge has not written new business to
replace the terminated contract and the Company does not anticipate that
Knightsbridge will write new business.
The Company is presently in negotiations to sell the stock of
Knightsbridge to an affiliate of Martin Hoffman, the President of Eton
Management and a former executive officer of Knightsbridge. It is contemplated
that any such sale to the affiliate of Mr. Hoffman would provide the Company
with a 50 percent share of any net assets remaining after the run-off of
Knightsbridge's pre-sale business. In addition, any such sale would involve the
contemporaneous delivery of an alleged "promissory note" of the Company in the
principal amount of $8 million, dated June 9, 1994, and issued by the Company to
Knightsbridge. Notwithstanding any delivery of this note in connection with a
sale of Knightsbridge, the Company believes and will continue to assert that
this note is not a binding and enforceable obligation of the Company as a result
of its issuance as part of the alleged improprieties involving John Hall
described above.
<PAGE>
Strategy of the Company
Due to the alleged improprieties, the resulting investigations and
corresponding claims of the Company arising from such improprieties, the
Management Committee and the Special Committee determined that the Bankruptcy
Court is the best and most appropriate forum: (i) to complete the investigation
of the improprieties at and concerning the Company; (ii) to negotiate and
implement settlements of claims arising from that investigation; and (iii) to
preserve and maximize values for the Company's creditors and limited partners.
The Company believes that the above goals can best be achieved through
the filing of a plan of reorganization which provides for: (i) the disposition
of the Debtors' remaining non-cash assets; (ii) the comprehensive settlement or
litigation of the Debtors' claims against certain persons involved in the
Towers' chapter 11 cases; and (iii) the distribution of the Debtors' current
cash and future proceeds from asset dispositions and claims recoveries to the
Debtors' creditors and limited partners (but not to CFH and the other parties
involved in the alleged improprieties described above).
Employees
As of December 31, 1995, the Company had 67 full-time employees,
including 14 in administration and 53 in accounts receivable management
services. As of November 29, 1996, the Company had two full-time employees.
<PAGE>
PROPERTIES
The Company's principal office occupies approximately 1,200 square feet
of office space in Pompano Beach, Florida under a month-to-month lease.
The Company also leased space in Ft. Lauderdale, Florida (under a lease
which expired on July 31, 1996) and, through a subsidiary, in Baltimore,
Maryland under a lease which was terminated on April 25, 1996 in connection with
the termination of the contract with Sinai. See "Business of the
Company--Billing and Accounts Receivable Management Services."
The Company believes that its existing facilities will be adequate to
meet its currently anticipated requirements and that, if additional space is
needed, such space will be available on acceptable terms.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table and the accompanying footnotes set forth, as of
November 29, 1996, the beneficial ownership of (i) the holders of Units known by
the Company to own more than 5% of the Units, (ii) each member of the Management
Committee of the Company, (iii) each of the Named Executive Officers (as defined
below) of the Company and (iv) all executive officers and members of the
Management Committee as a group. The information set forth in the table is based
solely on the Company's review of the holders of record of Units, as set forth
in the register maintained by its transfer agent.
<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner Type of Interest Number of Units Percentage(1)
------------------- ---------------- --------------- -------------
<S> <C> <C> <C>
CFH............................................ General Partnership (2) 100%
Ronald O. Drake(3)............................. Limited Partnership -- --
Thomas R. Sheehan(4)........................... Limited Partnership -- --
Michael D. Gervais............................. Limited Partnership -- --
Joel Ciniero(5)................................ Limited Partnership -- --
Frederick Grant(6)............................. Limited Partnership -- --
Lasalle National Bank
Attn: Ronald O. Drake
Euram Management
Inc.
One EAB Plaza
Uniondale, New York 11555.................. Limited Partnership 12,934.63 14.3%
Confederation Life Insurance Co.
260 Interstate North
Atlanta, Georgia 30339..................... Limited Partnership 11,575.24 12.8%
European American Bank
Attn: William Fitzgerald-VP
One EAB Plaza
Uniondale, New York 11555.................. Limited Partnership 5,185.87 5.7%
City of Detroit Police and Fire Retirement System
c/o Thomas Zdrodowski-Secty,
908 City County Building,
Detroit, Michigan 48226.................... Limited Partnership 4,572.59 5.1%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cargill Financial Services
Corporation(7)
600 Clearwater Drive
Minnetonka, Minnesota 55343................ Limited Partnership 17,647 15.0%
All current officers and members of the
Management Committee as a group (3 persons) Limited Partnership -- --
<FN>
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1. The percentages are based on the approximately 90,522 Units that have
been distributed to creditors of Towers as of November 29, 1996. An
additional approximately 9,478 Units remain for distribution to Towers'
noteholders and general unsecured creditors.
2. See "Description of Company's Securities" for the allocation of net
income and net losses to CFH under the Partnership Agreement with
respect to its general partnership interest.
3. Mr. Drake is the President and Chief Executive Officer of Euram
Management Inc., an affiliate of Lasalle National Bank, which
beneficially owns 12,934.63 Units.
4. Mr. Sheehan is Chairman of the Retirement Board and an Investment Agent
with the Finance Department of the City of Detroit. The General
Retirement Board of the City of Detroit beneficially owns 2,643 Units.
5. Mr. Ciniero was terminated as Chief Executive Officer of the Company on
July 26, 1995.
6. Mr. Grant was terminated as Vice-Chairman of the Company on November 2,
1995 and resigned from the Management Committee effective February 2,
1996.
7. Represents Units issuable in accordance with the terms of the Warrant
held by Cargill, assuming that all of the Units remaining for
distribution are distributed. See "Description of Company's
Securities--Warrant."
</TABLE>
<PAGE>
MANAGEMENT
Overview
Pursuant to the Partnership Agreement, the business and affairs of the
Company are, subject to certain exceptions, to be governed by the Management
Committee. A summary of the composition, authority and operation of the
Management Committee is set forth below under "Governance of the Company."
The Special Committee, formed in June 1995 to investigate alleged
improprieties involving the former management of the Company, has been
authorized by the Management Committee to take certain actions including the
pursuit of actions it deems necessary or appropriate to preserve the Company's
rights, remedies and assets. See "Business of the Company--Alleged Improprieties
by John Hall and Others."
Management Committee Members and Executive Officer
The following table sets forth certain information with respect to the
executive officer of the Company and the members of the Management Committee:
Name Age Position
---- --- --------
Michael D. Gervais 32 Chief Operating Officer
Ronald O. Drake 54 Independent Member of Management Committee
and member of Special Committee
Thomas R. Sheehan 50 Independent Member of Management Committee
and member of Special Committee
Michael D. Gervais has been the Chief Operating Officer of the Company
since September 1994. From May 1994 until September 1994 he acted as Vice
President of Operations of the Company. Mr. Gervais also served as a member of
the Management Committee from December 1994 until April 1995. From January 1993
until May 1993, Mr. Gervais served as Healthcare Operations Manager and from May
1993 until May 1994 as Vice President of Operations of Towers. Prior to January
1993, Mr. Gervais operated his own accounting and healthcare consulting firm
which primarily provided consulting services in the areas of accounts receivable
and billing management services to hospitals, physicians and skilled nursing
facilities.
<PAGE>
Ronald O. Drake has been a member of the Management Committee since
March 1994. Since June 1992, Mr. Drake has been President and CEO of
Euram Management, Inc. ("EMI"). EMI is a wholly owned subsidiary of ABN AMRO
Bank and is responsible for the bank's restructuring and workout activity in
North America. Mr. Drake previously served as Managing Director of Merrill
Lynch Business Capital from 1981 until 1990.
Thomas R. Sheehan has been a member of the Management Committee since
March 1994. Since 1984, Mr. Sheehan has been an Investment Agent with the
Finance Department of the City of Detroit. Since July 1991, Mr. Sheehan has
served as Trustee of the City of Detroit General Retirement System and is
currently its Chairman. Mr. Sheehan is a director of American Rehabilitation
Network and a member of the Executive Committee of the Michigan Association of
Public Employees Retirement Systems.
Governance of the Company
The business and affairs of the Company are governed by a six-member
Management Committee. Under the Partnership Agreement, four of the members of
the Management Committee are chosen by CFH and the two Independent Members are
chosen by the official creditors committee in the Towers' chapter 11 cases, or
its successor, the Towers Post Confirmation Committee (as defined below), or as
otherwise provided by order of the Bankruptcy Court.
Under the Towers Plan, any Independent Member may resign at any time
and any such member may be removed for cause, at any time, by the vote of the
holders of Units (excluding any units held by CFH and its affiliates). The
Towers Plan provides that any vacancy in the Management Committee arising from
the death, resignation or removal for cause of any Independent Member may be
filled by the vote of the members of a committee consisting of all of the
members of the Towers official creditors committee who were serving at the date
of confirmation of the Towers Plan (the "Towers Post Confirmation Committee"),
so long as the members of the Towers Post Confirmation Committee are beneficial
owners of Units, at a meeting called and held as provided in the Towers Plan.
The Towers Plan further provides that, when less than three of such members of
the Towers Post Confirmation Committee are entitled to vote at such meeting,
such members shall no longer be entitled to elect any Independent Members to the
Management Committee in their capacity as such members of the Towers Post
Confirmation Committee, and any such vacancy thereon may be filled only by a
vote of the holders of the Units (excluding any Units held by CFH and its
affiliates) at a meeting called and held as provided in the Towers Plan.
Under the Partnership Agreement, the Management Committee is required
to meet quarterly and at any other time at the request of any Management
Committee member (but in no event more than two
<PAGE>
additional times per year at the request of the Independent Members). Subject
to certain exceptions described below, the Partnership Agreement provides that
members of the Management Committee holding at least three votes and present at
any meeting constitute a quorum and the vote of the members present at any
meeting and holding a majority of the votes is the act of the Management
Committee. Under the Partnership Agreement, the approval of all of the members
of the Management Committee (or the affirmative vote of partners whose
aggregate capital account balances exceed 50 percent of the aggregate capital
account balances of all partners of the Company (the "Partners") other than CFH
or its affiliates) is necessary to: (i) sell, lease or otherwise dispose of (A)
all or substantially all of the assets of the Company in a single transaction
or in a series of related transactions within a one-year period or (B) any
material portion of the assets of the Company in a transaction that is not in
the ordinary course of the Company's business where the consideration includes
an equity interest in or other security of the transferee; (ii) merge or
consolidate the Company with or into any other person; or (iii) admit an
additional general partner.
The Partnership Agreement further provides that the approval of at
least five members of the Management Committee is necessary to: (i) make any
investment or expenditure in excess of $100,000 for the purpose of entering into
any new and unrelated line of business; (ii) admit an additional limited
partner; (iii) voluntarily cause the bankruptcy of the Company; (iv) take any
action to dissolve the Company; (v) except as otherwise permitted by the
Partnership Agreement, approve or cause the Company to enter into any
transaction with any Partner or its affiliate; (vi) except as expressly provided
in the Partnership Agreement, make elections under the Internal Revenue Code of
1986, as amended (the "Code"), and other tax laws as to the treatment of items
of Company income, gain, loss and deduction, select the method of accounting and
bookkeeping procedures to be used by the Company and select accountants other
than Ernst & Young; (vii) establish reserves from Company funds for Company
operations and for the payment of Company obligations; and (viii) approve or
cause the Company to enter into any transaction with T. Barrack, W. Rogers,
Colony Capital, Inc. or any of their respective affiliates.
In addition, under the Partnership Agreement, authority is vested
solely in the Independent Members to: (i) reconstitute the Company as a Delaware
corporation, by means of a contribution of assets, merger or otherwise, with the
Partners' having distribution, governance and other rights and CFH having
contractual responsibilities all as nearly the same as is provided in the
Partnership Agreement to the extent practicable (with the intent being to
replicate the economic benefits and obligations and governance mechanisms
provided in the Partnership Agreement in a corporate form (except that
Partners/shareholders would not be required to remain generally liable for the
<PAGE>
Company's debts and liabilities)); (ii) cause the limited partnership interests
of the Company or the shares of capital stock (of whatever class) of the
corporation referred to in clause (i) above to be registered under applicable
federal and state securities laws and to enter into all related arrangements
including indemnity and similar agreements; and (iii) waive, modify or enforce
rights or claims against CFH, John Hall or their respective affiliates arising
under the Partnership Agreement, the Contribution Agreement or under any other
agreement, instrument or document executed in connection therewith. The
Partnership Agreement contemplates that, in any such reconstitution of the
Company, the rights of Partners other than CFH to distributions until the
amount of cumulative net income that has been earned by the Company equals $180
million, would be represented by a preferred or preference stock with priority
upon liquidation, winding-up, dissolution and redemptions, dividends or other
distributions over other classes of capital stock (and any such preferred or
preference stock would not be redeemed or acquired by the Company or any of its
affiliates at less than par plus, if any, accumulated dividends). The
affirmative vote of Partners whose aggregate capital account balances exceed 50
percent of the aggregate capital account balances of all Partners other than
CFH and its affiliates have the right under the Partnership Agreement to direct
the Independent Members to take or refrain any action with respect to which
authority is vested solely in the Independent Members under such agreement.
Management of Knightsbridge
Eton Management serves as the manager of Knightsbridge. Martin Hoffman,
a former executive officer of Knightsbridge, is the President of Eton
Management. Knightsbridge paid to Eton Management approximately $1,685,200 in
management fees in 1995 pursuant to the Management Agreement, effective as of
January 1, 1995, between Eton Management and Knightsbridge. Eton Management has
indicated that it is owed an additional approximately $198,053 in management
fees for 1995.
<PAGE>
EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth certain summary information concerning
compensation paid for the fiscal year ended December 31, 1995 to the Chief
Executive Officer and each executive officer of the Company who received
compensation in excess of $100,000 in 1995 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-----------------------------------------------------------------------
Name and Principal Position Other Annual
Salary($) Bonus($)(1) Compensation($)(2)
--------- ----------- ------------------
<S> <C> <C> <C>
Michael D. Gervais
Chief Operating Officer of
the Company..................................... $156,923 $231,720 __
Joel Ciniero(3)
Chief Executive Officer of
the Company..................................... 114,923 238,500 __
Frederick Grant(4)
Vice-Chairman of
the Company..................................... 100,272 58,500 __
<FN>
- --------------------
(1) Includes cash and non-cash bonus.
(2) Other annual compensation in the form of perquisites and other personal
benefits has been has been omitted because the aggregate amount of such
perquisites and other personal benefits was less than $50,000 and
constituted less than 10% of the executive's total annual salary and
bonus.
(3) Mr. Ciniero was terminated as Chief Executive Officer of the Company on
July 26, 1995.
(4) Mr. Grant was terminated as Vice-Chairman of the Company on November 2,
1995 and resigned from the Management Committee effective February 2,
1996.
</TABLE>
Bonus Program
The Company maintained an incentive bonus program for certain of its
key employees. Participants in the program were eligible to receive cash bonuses
based upon the Company's operating profits and recoveries on certain assets
transferred by Towers to the Company. Under the program, 10 percent of the
Company's annual net pretax profits were available for distribution to
participants at the end of each fiscal year, and 5 percent of the amounts
realized by the Company, during each consecutive six-month period from the
Company's inception, on the healthcare loans and purchase contracts contributed
by Towers to the Company were available for distribution to participants at the
end of each such period. A compensation committee of
<PAGE>
officers of the Company determined how the amounts available for distribution
to participants were allocated. In 1995, an aggregate of $479,000 was
distributed under the program to 17 employees, including Messrs. Ciniero and
Gervais. Under the bonus program, Messrs. Ciniero and Gervais each received
bonuses of $219,000 in 1995. Such amounts paid to Messrs. Ciniero and Gervais
are recorded as bonuses in the Summary Compensation Table above. All amounts
distributed in 1995 were based solely on the Company's recoveries on the
healthcare loans and purchase contracts contributed by Towers to the Company.
At an April 25, 1995 meeting of the Management Committee, the two Independent
Members voted against the award of certain of the bonuses paid in 1995.
Compensation of CFH and its Affiliates
Under the terms of the Partnership Agreement, the Company is not
permitted to pay, directly of indirectly, to CFH, its partners or their
respective affiliates, any amount including but not limited to amounts for
management fees, salaries or other compensation, or fees for the performance of
services or payments for the purchase or lease of property of more than: (i)
$800,000 in the cumulative period through the end of the first four fiscal
quarters including and following the date of the Partnership Agreement, and
$960,000 for each subsequent period of four consecutive fiscal quarters; or (ii)
the fair market value of the consideration received for such payment, whichever
is lesser. However, in no event will any such payment be made if the recipient
thereof (other than John Hall) is not engaged, independently of the Company and
as an ordinary and ongoing business, in the business of rendering the
consideration for such payment to a substantial extent to other persons.
In 1995, the Company paid to CFH or John Hall $125,000 in consulting
fees, a bonus of $225,000 in connection with the execution of the Financing
Agreement with Cargill and $66,022 in reimbursement for travel expenses. In
1994, the Company paid to CFH or John Hall $325,000 in consulting fees, $32,000
in reimbursement of miscellaneous expenses and $378,416 in reimbursement for
travel expenses. Since June 1995, the Company has not made any payments to CFH
or John Hall and does not intend to make any further payments to CFH or Mr.
Hall.
Management Committee Compensation
Pursuant to the Partnership Agreement, members of the Management
Committee who are not employees or affiliates (other than solely by virtue of
serving on the Management Committee) of the Company are to be compensated at the
rate of $500 per Management Committee meeting attended and reimbursed for actual
out-of-pocket expenses associated with attending such meetings. The Partnership
Agreement also provides that the two Independent Members are entitled to be
reimbursed by the Company for premiums paid for director and officer liability
insurance in connection
<PAGE>
with his or her role as a member of the Management Committee in an aggregate
amount for both Independent Members not to exceed $50,000 annually. The
Company made payments of $15,000 in the aggregate on behalf of Thomas Sheehan
representing the premiums for director and officer liability insurance coverage
through December 31, 1995 in connection with his role as a member of the
Management Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
In 1994 and 1995, the Company paid to CFH or John Hall consulting
fees, a bonus and amounts in reimbursement for expenses. At the time such
payments were made, Mr. Hall was the Chairman of the Company, a member of the
Management Committee and the controlling person of CFH. See "Executive
Compensation."
The Company has commenced a lawsuit against Mr. Hall and others for
alleged improprieties involving the Company. See "Legal Proceedings--Hall
Litigation."
In December 1994, John Hall or an entity controlled by Mr. Hall
attempted to execute a Stock Purchase Agreement (the "Agreement") to sell
Knightsbridge to Blackpool Capital, S.A. ("Blackpool") for $200,000. At the
time of the execution of the Agreement, Mr. Hall or an affiliate of Mr. Hall
may have held a significant interest in Blackpool. The Agreement provided for
an increase in the purchase price in the event the Company solicited offers
from third persons to acquire the shares of Knightsbridge at a price greater
than one hundred and ten percent of the sales price agreed to with Blackpool.
The transaction with Blackpool was not consummated and, as described below, the
Company is in the process of negotiating to sell Knightsbridge to another
party. The circumstances surrounding the proposed sale of Knightsbridge to
Blackpool are among the matters under investigation by the Special Committee.
The Company is presently in negotiations to sell the insurance assets
and liabilities of Knightsbridge to an affiliate of Martin Hoffman, the
President of Eton Management and a former executive officer of Knightsbridge.
See "Business of the Company--Reinsurance."
LEGAL PROCEEDINGS
Hall Litigation
On June 29, 1995, the Company commenced an action in United States
District Court for the Southern District of New York, captioned Qualis Care,
<PAGE>
L.P. v. John Carlisle Hall, et al., 95 Civ. 4955 (the "Hall Litigation"). On
July 24, 1995, the Company filed its first amended complaint in the Hall
Litigation, and on September 13, 1995, the Company filed its second amended
complaint (the "Second Amended Complaint") in that action. Named as defendants
in the Second Amended Complaint are John Hall (the Company's former Chairman);
CFH; Qualis Group, Inc. (a company controlled by Hall, and the general partner
of CFH ("QGI"); Joel Ciniero (the Company's former Chief Executive Officer);
Terren S. Peizer; S.A. Zimco Management, PLC, S.A. Zimco Management, S.A. Zimco
International, Ltd., S.A. Zimco International, PLC, S.A. Zimco Management
Corp., Zimco International Liquidity Fund, S.A. Zimco Corp., S.A. Zimco PLC,
and S.A. Zimco, Ltd. (collectively, the "Zimco Companies"); Mohamed Hadid;
Nautilus Fund, Ltd.; Mark Keckeisen; Woods Financial Corporation; John W.
Temple; John W. Temple & Co.; and various unnamed persons and companies.
The Second Amended Complaint alleges: (i) violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on
the part of Mr. Hall, QGI, CFH, Ciniero, Mr. Peizer, the Zimco Companies, Mr.
Hadid and the Nautilus Fund; (ii) violations of the Investment Advisers Act of
1940 on the part of Mr. Hadid and the Zimco Companies; (iii) violations of the
Racketeering Influenced and Corrupt Organization Act, on the part of Mr. Hall,
QGI, CFH, and Mr. Ciniero; and (iv) various state law claims against the
various defendants. In addition, the Second Amended Complaint seeks an order
removing Mr. Hall, CFH and QGI from their respective capacities as general
partner of the Company, and enjoining them from having any further role in
connection with the Company's affairs. The Second Amended Complaint seeks money
damages of not less than $30 million along with various other forms of legal
and equitable relief. In addition, the Company has referred these matters to
the New York Regional Office of the Securities and Exchange Commission and the
United States Attorney for the Southern District of New York.
The Second Amended Complaint alleges that Mr. Hall functioned as the
Company's de facto general partner and as such used his control over the
Company's day-to-day affairs to defraud the Company and loot its assets for his
own benefit and the benefit of the other defendants. Among other things, it
alleges that Mr. Hall: (i) fraudulently caused the Company to repay a $5 million
personal debt he owed to defendant Peizer; (ii) fraudulently removed CFH's $5
million capital contribution from the Company; (iii) fraudulently caused the
Company to overpay for certain illiquid securities it purchased, for the benefit
of Mr. Hall and certain of the other defendants; (iv) misappropriated from the
Company a portion of a portfolio of consumer loans; and (v) misappropriated the
Company's assets by abusing his access to those assets. In answering the Second
Amended Complaint, Mr.
<PAGE>
Hall, QGI and CFH asserted the Fifth Amendment privilege against
self-incrimination with respect to all of the allegations in the Second Amended
Complaint. John W. Temple denied the allegations of the Second Amended
Complaint implicating him. Defendants Peizer, Hadid and Ciniero have filed
motions to dismiss the Second Amended Complaint. Briefing on those motions is
complete, and the parties await the court's decisions on them. The other
defendants have not yet responded to this complaint and defaults have been
entered against S.A. Zimco Management, PLC and John W. Temple & Co. The
Company has reached an agreement in principle to settle its claims against
defendants Mark Keckeisen and Woods Financial Corporation, and the terms of the
settlement agreements are being negotiated. The Company is currently in the
process of taking document and deposition discovery of parties and non-parties.
Criminal Proceedings Against Former Management
The United States Attorney's investigation of the allegations in the
Hall Litigation has led to the filing of criminal informations against Hall and
Ciniero. On October 2, 1995, Mr. Ciniero pled guilty to one count of conspiracy
to commit bankruptcy fraud in connection with his role in Mr. Hall's fraudulent
schemes. On July 12, 1996, Mr. Hall pled guilty to a five-count indictment. Four
of these counts (conspiracy to commit bankruptcy fraud, mail fraud, wire fraud
and money laundering) arose out of the frauds perpetrated against the Company.
In addition, Keckeisen has pleaded guilty to a two count indictment alleging
mail fraud and wire fraud, one of which counts involved Keckeisen's activities
in connection with his role in Mr. Hall's alleged fraudulent schemes.
Greenblath Litigation
On December 13, 1995, Stanley Greenblath, a purported limited partner
of the Company, commenced an action in the Court of Chancery of the State of
Delaware in and for New Castle County, captioned Stanley Greenblath v. Qualis
Care, L.P., Qualis Group, Inc. (f/k/a CFHF Partners, L.P.) and Qualis Group
Holdings, L.P., C.A. No. 14736 (the "Greenblath Litigation"). The complaint in
the Greenblath Litigation seeks an order of dissolution of the Company. In
essence, the complaint alleges that, given the frauds perpetrated on the Company
by the defendants in the Hall Litigation, it is not reasonably practicable for
the Company to continue to carry on its business in accordance with the
Partnership Agreement. On February 6, 1996, the Company filed an answer to the
complaint in which the Company denied that dissolution would be appropriate. The
other defendants in the action, QGI and CFH, have not responded to the complaint
in the Greenblath Litigation.
On February 14, 1996, Mr. Greenblath filed a Motion for Expedited
Proceedings and Order for Inspection of Books and
<PAGE>
Records. On February 23, 1996, the court issued an order which, among other
things, set the trial of the Greenblath Litigation action for the week of May
13, 1996.
On April 15, 1996, counsel for Mr. Greenblath wrote to the court
stating that, based on settlement discussions, it appeared that a trial may not
be necessary, and requesting that the court remove the matter from its trial
calendar.
Olympian Insurance Company Litigation
The Company has also been named a defendant in an action brought in the
Supreme Court of the State of New York in and for the County of New York,
captioned The Olympian Insurance Company, et al. v. Martin Hoffman, et al.,
Index No. 95-130029. In that action, the plaintiffs assert a variety of claims
against Martin Hoffman, Knightsbridge and certain other defendants, including
the Company. Mr. Hoffman is the President of Eton Management and a former
executive officer of Knightsbridge. The complaint, which was served on the
Company on or about April 10, 1996, alleges claims for breach of contract,
fraudulent breach of contract, defamation, interference with contract,
interference with prospective business advantage, breach of fiduciary duty,
fraud and conversion. In addition, the plaintiffs seek an accounting and the
imposition of a constructive trust over certain property. The Company is not
accused of any wrongdoing. However, the complaint alleges that the Company is a
"successor[] to, assign[] of, alter ego[] of, or otherwise affiliated with"
Knightsbridge, and that the Company is "under the ownership, control, or
influence of defendant Hoffman." The Company did not respond to the complaint
prior to its chapter 11 filing. On June 17, 1996, the Company's counsel informed
the plaintiff's counsel that the Company had filed for chapter 11 protection,
automatically staying the litigation as to the Company. By order dated October
29, 1996, the court dismissed the complaint in its entirety, on the grounds that
certain plaintiffs were conducting business in New York without authorization to
do so, and therefore pursuant to New York Business Corporation Law Section
1312(a) may not maintain an action in New York. The court also dismissed the
claims of certain plaintiffs on the grounds that those plaintiffs were agents
would could assert no actionable wrong as to them. The court granted certain
plaintiffs the right to re-plead as to certain defendants (none of which were
the Company) and stated that the complaint may be reinstated if the plaintiffs
prove compliance with Business Corporation Law Section 1312(a). The Company
believes it would have meritorious defenses to the allegations against it were
it required to litigate.
Bankruptcy
The Debtors have each filed voluntary chapter 11 petitions with the
Bankruptcy Court. See "Bankruptcy or Receivership."
Other Litigation
The Company is a party to certain other litigation which the Company
does not believe to be material.
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON THE
COMPANY'S EQUITY AND RELATED PARTNER MATTERS
Absence of Public Trading Market
No established public trading market exists for the Units. The
Partnership Agreement and the Towers Plan generally prohibit the transfer of
Units. See "Description of Company's Securities."
Distributions
Holders of Units are entitled to distributions pursuant to the terms
of the Partnership Agreement. Under the Partnership Agreement, the limited
partners and CFH share in net income as follows: (i) of the first $60 million
of cumulative net income, the limited partners receive 73% and CFH 27%; (ii) of
the next $40 million of cumulative net income, the limited partners receive 70%
and CFH 30%; (iii) of the next $80 million of cumulative net income, the
limited partners receive 54% and CFH 46%; and (iv) thereafter, the limited
partners receive 35% and CFH 65%; provided, however, that if cumulative
distributions made to all partners other than CFH prior to December 31, 1997
are less than $64.5 million, the percentages in clause (iv) above will be 40%
for the limited partners and 60% for CFH. Under the Partnership Agreement, the
net income from assets, other than cash, contributed by Towers is to be
allocated 90% to the limited partners and 10% to CFH.
Under the terms of the Partnership Agreement, CFH is entitled to
receive a distribution from the Company at the end of each fiscal year in an
amount equal to the positive balance in its capital account; provided, however,
that CFH is not entitled to receive its distributions (other than the tax
distribution hereinafter described) until its capital account is 1.86 times
that of the limited partners. The Partnership Agreement provides that
distributions are made quarterly to all other Partners; provided, however, that
portions of the distributions to which the limited partners would otherwise
have been entitled in the first year of operations were to have been
distributed over the course of 1995. After the end of each fiscal year, CFH has
the right to receive, unless it notifies the Company to the contrary, a
distribution in the amount of its presumed tax liability for net income of the
Company as of the end of such fiscal year at an assumed rate of 45% (less all
amounts distributed to CFH during such fiscal year and all prior fiscal years).
The Partnership Agreement provides that, commencing with the fiscal
quarter that begins on January 1, 1999, the holders of Units and CFH are to
receive 6% per annum, payable quarterly, on their contributed capital. After
cumulative net income equals $180 million, but no later than the fiscal quarter
beginning
<PAGE>
January 1, 2004, the capital contributed by Towers and CFH will be amortized
and distributed quarterly in twenty installments.
To date, no distributions have been made to holders of Units. Any
future distributions to holders of Units must be approved by the Bankruptcy
Court. For a description of amounts paid to CFH and Mr. Hall, see "Executive
Compensation--Compensation of CFH and its Affiliates." The Company has
commenced a lawsuit against Mr. Hall and others for alleged improprieties
involving the Company. See "Legal Proceedings--Hall Litigation."
Holders of Units
As of November 29, 1996, the Units distributed to the creditors of
Towers were held of record by 2,120 persons.
RECENT SALES OF UNREGISTERED SECURITIES
The continuing distribution of Units to certain creditors of Towers
pursuant to the Towers Plan is described above under "Business of the
Company--Formation of the Company." In May 1995, the Towers Financial
Corporation Administrative Trustee began distributing Units to certain classes
of creditors of Towers. Additional distributions of Units were made during 1995.
Through November 29, 1996, an aggregate of approximately 90,522 Units have been
distributed to certain creditors of Towers. As of such date, approximately 9,478
Units remained for subsequent distribution to Tower's noteholders and general
unsecured creditors. No consideration was received by the Company in connection
with any of the above distributions.
These distributions have not been and will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws, in reliance on the exemption from registration afforded by
Sections 1125 and 1145 of the United States Bankruptcy Code (the "Bankruptcy
Code"). Section 1145 of the Bankruptcy Code provides that federal and state
securities registration requirements do not apply to the offer or sale under a
plan of reorganization of securities of a debtor, or of a successor to a debtor,
under such a plan to holders of claims or interests wholly or principally in
exchange for those claims or interests.
<PAGE>
DESCRIPTION OF COMPANY'S SECURITIES
Summary of Partnership Agreement and Description of Units
The following is a summary of the Partnership Agreement as amended and
modified by the Towers Plan. This summary is qualified in all respects by
reference to the Partnership Agreement and the Towers Plan which are filed as
exhibits to this Current Report on Form 8-K. For a discussion of the management
structure of the Company, see "Management." For a discussion of the provisions
of the Partnership Agreement regarding distributions, see "Market Price of and
Dividends on the Company's Equity and Related Partner Matters."
Restrictions on Transfer of Units. The Partnership Agreement and the
Towers Plan generally prohibit the transfer of Units in an effort to ensure that
the Company is taxed as a partnership for federal income tax purposes and not
characterized as a "publicly traded partnership," subject to tax as a
corporation.
The Towers Plan provides that there shall be no sale, exchange,
transfer, assignment, pledge, creation of a security interest in, hypothecation
or other disposition (each, a "Transfer") of any Unit to any person (or group of
persons acting in concert), other than: (i) a Transfer in which the basis of the
Units in the hands of such person (or group of persons acting in concert) is
determined, in whole or in part, by reference to its basis in the hands of the
transferor or is determined under Section 732 of the Code; (ii) a Transfer or
Transfers by a holder of Units, during any thirty-day period, representing in
the aggregate more than five percent of the total of the Units; (iii) a Transfer
by death; or (iv) a Transfer by operation of law.
The above restrictions will not prevent a valid Transfer if:
1. The transferor obtains both the written consent of CFH, which
consent may be given or refused in CFH's sole and absolute discretion, and the
written approval of at least five members of the Management Committee; and
2. The transferor provides the Company with an opinion of counsel
satisfactory in form and substance to the Company to the effect that: (i) the
Transfer shall not result in (a) the Company being treated as an association
taxable as a corporation for federal income tax purposes under Section 7704 of
the Code or otherwise, or (b) the termination of the Company under Section 708
of the Code; and (ii) the Transfer would not violate applicable federal or state
securities laws or rules or regulations of the Securities and Exchange
Commission, state securities commissions or any other governmental authorities
with jurisdiction over such Transfer.
<PAGE>
The Towers Plan also provides that in no event will a Transfer be
approved by the Management Committee: (i) if such Transfer could in the
reasonable judgment of the Management Committee result in (a) the Company being
treated as a "publicly traded partnership" within the meaning of Section 7704 of
the Code or (b) the Company otherwise being treated as an association taxable as
a corporation for federal income tax purposes; or (ii) if such Transfer (a)
would violate applicable federal or state securities laws or rules and
regulations of the Securities and Exchange Commission, state securities
commissions or any other governmental authorities with jurisdiction over such
Transfer or (b) would affect the Company's existence or qualification as a
limited partnership under any applicable state law.
All certificates evidencing ownership of Units distributed under the
Towers Plan bear a conspicuous legend on the face thereof regarding these
restrictions on Transfer.
The Towers Plan permits the Independent Members to exercise, in their
sole discretion, their rights pursuant to the Partnership Agreement to waive or
modify these transfer restrictions for the benefit of the limited partners of
the Company, to reconstitute the Company as a Delaware corporation in the manner
provided in the Partnership Agreement, to cause the registration of the limited
partnership interests of the Company or the shares of capital stock of such
corporation to be registered under applicable federal and state securities laws
or otherwise take any action permitted under the Partnership Agreement.
Allocation of Net Income and Net Loss. Subject to certain exceptions,
the Company's net income or net loss, as the case may be, and each item of
income, gain, loss and deduction entering into the computation thereof for each
fiscal year (or portion thereof) is allocated among the Partners under the
Partnership Agreement as follows:
(a) Net income for each fiscal year (or portion thereof) is
allocated in the following amounts and order of priority:
(i) first, to CFH, an amount equal to its negative
capital account balance, if any;
(ii) second, to the Partners to the extent of and in
proportion to the excess, if any, of the cumulative amount of
net loss previously allocated to such Partners in accordance
with clause (b)(ii) below over the cumulative amount of net
income previously allocated to such Partners in accordance
with this clause (a)(ii); and
<PAGE>
(iii) thereafter, to the Partners in proportion to
their respective Applicable Sharing Percentages (as defined in
the Partnership Agreement).
(b) Net loss for each fiscal year (or portion thereof) is
allocated in the following amounts and order of priority:
(i) first, to each of the Partners to the extent of
and in proportion to the excess, if any, of the positive
capital account balance of such Partner over the Unrecovered
Capital (as defined in the Partnership Agreement) of such
Partner;
(ii) second, to the Partners in proportion to their
respective positive capital account balances, an amount equal
to the sum of the positive capital account balances of all
Partners; and
(iii) thereafter, to CFH.
Limited Liability; Management of Business. Except to the extent
required by law, holders of Units will not have any personal liability to the
Company, to any Partner nor to the creditors of the Company. Holders of Units
are precluded from taking part in the operation, management or control of the
Company's business. However, in certain circumstances, holders of Units can
compel the Independent Members to take or refrain from taking certain actions
over which the Independent Members have sole power and authority. In addition,
holders of Units may remove Independent Members for cause and certain
significant actions cannot be taken without the approval either of all members
of the Management Committee or of holders of Units. See "Management."
Amendments to the Partnership Agreement. Amendments to the Partnership
Agreement which do not adversely affect the right of any limited partner in any
material respect may be made by the Management Committee with the approval of
all the general partners of the Company without the consent of any limited
partner if those amendments are: (i) of an inconsequential nature (as determined
by at least five members of the Management Committee); (ii) for the purpose of
admitting additional limited partners or substituted limited partners as
permitted by the Partnership Agreement; (iii) necessary to maintain the
Company's status as a partnership according to Section 7701(a)(2) of the Code;
(iv) necessary to preserve the validity of any and all allocations of Company
income, gain, loss or deduction pursuant to Section 704(b) of the Code; or (v)
contemplated by the Partnership Agreement. Amendments to the Partnership
Agreement other than those described in the foregoing sentence may be made only
if embodied in an instrument signed by all of the Company's general partners and
two-thirds-in-interest of the limited partners. However, unless otherwise
specifically contemplated by
<PAGE>
the Partnership Agreement, no amendment to the Partnership Agreement shall: (a)
without the consent of all of the Partners, change or alter the section of the
Partnership Agreement governing amendments thereto; or (b) without the consent
of each of the Partners adversely affected thereby, except as contemplated in
the Partnership Agreement, increase the liability of any limited partner,
decrease any limited partner's interest in profits and distributions or
increase any limited partner's interest in losses.
Warrant
As part of the Financing Agreement with Cargill, the Company granted to
Cargill the Warrant. The exercise price of the Warrant is a pro-rata portion of
the Company's book value as determined in accordance with the terms of the
Warrant. The Warrant expires on February 28, 1999.
The Company granted to Cargill certain rights with respect to the
registration under the Securities Act of the interests issuable upon exercise of
the Warrant. The Company has also granted to Cargill certain rights to
participate in certain sales and purchases of limited partnership interests in
the Company.
INDEMNIFICATION
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
provides that, subject to the terms set forth in its partnership agreement, a
Delaware limited partnership may indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever. The
Partnership Agreement provides that the Company will indemnify and hold harmless
its general partners, certain related entities and their respective officers,
directors, trustees, agents and employees, from and against certain loss,
expense, damage and injury (other than with respect to income taxes) suffered or
sustained by them by reason of any acts, omissions or alleged acts or omissions
arising out of or in connection with the Company or the Partnership Agreement if
the acts, omissions or alleged acts or omissions upon which an actual or
threatened action, proceeding or claims are based were for a purpose (a) within
the scope of the authority conferred on the general partner by the Partnership
Agreement or by law and (b) in or not opposed to the best interests of the
Company and were not performed or omitted fraudulently or in bad faith or did
not constitute gross negligence or willful misconduct the indemnified party.
However, the foregoing indemnification is not applicable to any action, claim or
proceeding by, or dispute with, any limited partner of the Company or its
affiliates or among the Company's general partners (or their respective
affiliates) and may be made only from the assets of the Company.
<PAGE>
The Partnership Agreement also provides that the Company will indemnify
and hold harmless any limited partners, certain related entities and their
respective officers, directors, trustees, agents and employees, from and against
certain loss, expense, damage and injury suffered or sustained by them by reason
of any acts, omissions or alleged acts or omissions arising out of or in
connection with the Company or the Partnership Agreement if the acts, omissions
or alleged acts or omissions upon which an actual or threatened action,
proceeding or claims are based were not performed or omitted fraudulently or in
bad faith or did not constitute gross negligence or willful misconduct by the
indemnified party. However, the foregoing indemnification is not applicable to
any action, claim or proceeding by, or dispute with, any other limited partner
of the Company or its affiliates and may be made only from the assets of the
Company.
<PAGE>
ITEM 7 Financial Statements and Exhibits
Exhibits
* 2.1 Amended and Restated Agreement of Limited Partnership of Qualis
Care, L.P. (formerly known as Healthcare Partners, L.P.) dated
as of March 18, 1994 (the "Partnership Agreement").
* 2.2 Articles X and XII of Joint Plan of Reorganization of the Chapter 11
Trustee and the Official Creditors Committee Pursuant to Section 1125
of the Bankruptcy Code of Towers Financial Corporation, which amend
or modify the Partnership Agreement.
* 2.3 Contribution Agreement by and among Qualis Group Holdings, L.P.
(formerly known as CFHF Partners, L.P.), Towers Investment
Corporation, Towers Collection Service, Incorporated and Qualis
Care, L.P. (formerly known as Healthcare Partners, L.P.).
* 3.1 Certificate of Limited Partnership of Healthcare Partners, L.P.,
dated March 8, 1994.
* 3.2 Certificate of Amendment to Certificate of Limited Partnership of
Healthcare Partners, L.P., dated March 18, 1994.
* 3.3 Certificate of Amendment of Certificate of Limited Partnership of
Healthcare Partners, L.P., dated June 14, 1994 (changing the name of
Healthcare Partners, L.P. to Qualis Care, L.P.).
* 3.4 Certificate to Restore Good Standing, filed with the Delaware
Secretary of State on December 7, 1995.
* 3.5 Certificate of Amendment of Limited Partnership, dated October 25,
1995.
* 4.1 Warrant to Purchase Limited Partnership Interests of Qualis Care,
L.P.
* 10.1 Warrant, Subscription and Rights Agreements, among Qualis Care,
L.P., Qualis Services, Inc., Qualis Credit Corp., Qualis Service
Holding, Inc., Qualis Care Funding Corporation, Qualis Group
Holdings, L.P., Qualis Group, Inc. and Cargill Financial Services
Corporation, dated as of January 20, 1995.
* 21.1 Subsidiaries of Qualis Care, L.P.
- ---------------------------
* filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 3, 1996
QUALIS CARE, L.P.
By: /s/ Michael D. Gervais
Name: Michael D. Gervais
Title: Chief Operating Officer
<PAGE>
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
HEALTHCARE PARTNERS, L.P.
<PAGE>
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
Healthcare Partners, L.P.
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of
Healthcare Partners, L.P. (the "Partnership"), dated as of March 18, 1994, among
CFHF Partners, L.P., a Delaware limited partnership ("CFH"), Towers Financial
Corporation, a Delaware corporation, or the successor in interest thereof
("Towers"), on behalf of itself and its subsidiaries as their respective
interests may appear (each, a "Towers Entity") as general partners, and Towers
Limited Partner Subsidiary Corp., as limited partner.
WHEREAS, CFH, as general partner, and John T. Hall as limited
partner, entered into an Agreement of Limited Partnership dated as of March 10,
1994 (the "Original Agreement"); and
WHEREAS, the Certificate of Limited Partnership of the
Partnership was filed with the Office of the Secretary of State of Delaware on
March 8, 1994; and
WHEREAS, Towers desires to be admitted to the Partnership as a
general partner; and
WHEREAS, Towers Limited Partner Subsidiary Corp. desires to be
admitted to the Partnership as a limited partner; and
WHEREAS, John T. Hall will withdraw as a limited partner from
the Partnership; and
WHEREAS, the parties hereto desire to amend and restate the
Original Agreement.
NOW, THEREFORE, in consideration of the covenants and
agreements set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
CONTINUATION OF THE PARTNERSHIP
Section 1.1. Continuation of the Partnership. The Partnership
was formed as a limited partnership under the Delaware Act (as defined below) by
the filing of the Certificate of Limited Partnership of the Partnership with the
Office of the Secretary of State of Delaware on March 8, 1994. The parties
hereto agree to continue the Partnership.
<PAGE>
Section 1.2. Name and Principal Office; Registered Agent and
Registered Office. (a) The name of the Partnership is "Healthcare Partners,
L.P.", as such name may be modified from time to time by the General Partners
following written notice to the Limited Partners. The principal office of the
Partnership shall be located as 1525 Locust Street, 17th Floor, Philadelphia,
Pennsylvania 19102, but the Management Committee may change the location of the
Partnership's principal office within or outside the State of Delaware and may
establish such additional offices of the Partnership within or outside the State
of Delaware as it may from time to time determine.
(b) The name of the registered agent for service of process on
the Partnership in the State of Delaware is The Prentice-Hall Corporation
System, Inc. The address of the registered agent and the address of the
registered office of the Partnership in the State of Delaware is 32 Loockerman
Square, Suite L-100, Dover, Delaware 19901.
Section 1.3. Business of the Partnership. Subject to the
limitations on the activities of the Partnership otherwise specified in this
Agreement, the Partnership is organized for the following objectives and
purposes:
(a) to carry on certain of the businesses previously conducted
by Towers or its subsidiaries, including financing of providers of medical or
other healthcare services by way of loans, accounts receivable purchases or
prefunding of revenues and to provide billing and accounts receivable management
services to providers of medical or other healthcare services (the "Healthcare
Finance Business"); and
(b) to enter into, make and perform all contracts and other
undertakings, and engage in all activities and transactions as the Management
Committee may reasonably deem necessary or advisable to the carrying out of the
foregoing objectives and purposes.
Section 1.4. Term. The term of the Partnership commenced on
March 8, 1994 and shall continue until December 31, 2019, unless the Partnership
is earlier dissolved and terminated in accordance with the provisions of this
Agreement.
ARTICLE II
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings set forth below:
"Accountants" means such firm of independent public
accountants as shall be engaged from time to time by the Partnership.
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"Additional Limited Partners" has the meaning set forth in
Section 9.7.
"Affiliate" means, with respect to a specified Person, (i) any
Person directly or indirectly owning, controlling or holding the power to vote
25% or more of the outstanding voting securities or other ownership interests of
the specified Person, (ii) any Person 25% of more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (iii) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (iv) a partnership in which the specified Person is a
general partner, (v) any officer or director of the specified Person, and (vi)
if the specified Person is an officer, director, general partner or employee,
any other entity for which the specified Person acts in any such capacity.
"Agreement" means this Amended and Restated Agreement of
Limited Partnership, as amended, modified or supplemented from time to time.
"Applicable Sharing Percentage" means, at any date of
determination,
(a) as to CFH:
(i) until the amount of Cumulative Net Income that has
been earned by the Partnership equals $60 million, 27%;
(ii) thereafter until the amount of Cumulative Net
Income that has been earned by the Partnership equals $100 million,
30%;
(iii) thereafter until the amount of Cumulative Net
Income that has been earned by the Partnership equals $180 million,
46%; and
(iv) thereafter, 65%.
(b) as to each of the other Partners, such Partner's Capital
Account Share of:
(i) until the amount of Cumulative Net Income that has
been earned by the Partnership equals $60 million, 73%;
(ii) thereafter until the amount of Cumulative Net
Income that has been earned by the Partnership equals $100 million,
70%;
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(iii) thereafter until the amount of Cumulative Net
Income that has been earned by the Partnership equals $180 million,
54%; and
(iv) thereafter, 35%.
Notwithstanding the foregoing in clauses (a) and (b) above of
this definition of "Applicable Sharing Percentage," if cumulative distributions
made to all Partners other than CFH (from any source whatsoever other than a
distribution of Unrecovered Capital or a Quarterly Yield Amount) for all periods
ended on or prior to December 31, 1997 are less than $64.5 million, then the
percentage in (a)(iv) above shall be 60% (instead of 65%) and the percentage in
(b)(iv) above shall be 40% (instead of 35%) (regardless of any subsequent events
or circumstances).
Whenever it is necessary to allocate an amount of Net Income
or Net Loss at a time when Cumulative Net Income determined without regard to
such amount is below or above a particular threshold set forth in this
definition of "Applicable Sharing Percentage" and Cumulative Net Income
determined with regard to such amount would exceed or fall below such threshold,
as the case may be, then the Applicable Sharing Percentage applicable to such
allocation shall be determined as if such allocation were of two separate
amounts of Net Income or Net Loss, the first in an amount that causes Cumulative
Net Income to equal such threshold and the second in the remaining amount of
such Net Income or Net Loss.
"Bankruptcy" of a Partner shall mean (i) the filing by such
Partner of a voluntary petition seeking liquidation, reorganization, arrangement
or readjustment, in any form, of its debts under Title 11 of the United States
Code or any other federal or state insolvency law, or such Partner filing an
answer consenting to or acquiescing in any such petition, (ii) the making by
such Partner of any assignment for the benefit of its creditors, (iii) the entry
of an order for relief against a Partner as a debtor under Title 11 of the
United States Code or any other federal or state insolvency law, or (iv) the
expiration of 60 days after the filing of an involuntary petition under Title 11
of the United States Code, an application for the appointment of a receiver for
the assets of such Partner or an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any other federal
or state insolvency law, provided that the same shall not have been vacated, set
aside or stayed within such 60-day period.
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"Business Day" means any day other than Saturday, Sunday or
other day on which commercial banks located in New York City are authorized to
be closed.
"Capital Account" means, with respect to any Partner, the
capital account of such Partner maintained and adjusted as provided in Article
IV.
"Capital Account Share" means, with respect to any Partner
other than CFH at any date, a fraction, the numerator of which is the Capital
Account balance of such Partner at such date and the denominator of which is the
sum of the Capital Account balances at such date of all Partners other than CFH;
provided, however, that if at any time the Capital Account balance of all
Partners other than CFH shall be zero or negative, the "Capital Account Share"
of such Partners shall be determined by reference to such Partners' Capital
Account balances immediately preceding the allocation or distribution which
reduced said balance to or below zero.
"Capital Contribution" means any cash or other property which
a Partner contributes to the Partnership pursuant to Article III (net of
liabilities assumed by the Partnership).
"Capital Liquidation Amount" has the meaning set forth in
Section 11.3.
"Certificate" means the Certificate of Limited Partnership of
the Partnership, as amended, modified or supplemented from time to time.
"CFH" has the meaning set forth in the preamble of this
Agreement.
"CFH Principal Owner" means John T. Hall.
"CFH Required Capital Amount" means, at any date, an amount
equal to 1.86 times the sum of (i) the greater of (a) the aggregate amount of
the Unrecovered Capital of all Partners other than CFH at such date or (b) the
aggregate balance of the Capital Accounts of all Partners other than CFH at such
date, plus (ii) if any, the aggregate Unpaid Quarterly Yield Amount of all
Partners other than CFH at such date.
"Closing Date" means the date of the closing of the
transactions contemplated by the Contribution Agreement as set forth therein.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, any successor thereto and applicable regulations thereunder.
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"Competing Business" has the meaning set forth in Section 7.2.
"Contribution Agreement" means the Agreement, dated as of
March 18, 1994, by and among Towers, CFH, Towers Collection Service,
Incorporated, and the Partnership relating to the contribution of assets to the
Partnership and other transactions, and includes any other agreements or
instruments executed by any such parties pursuant thereto.
"Cumulative Net Income" means, as of any date, the excess of
(a) the aggregate amount of Net Income allocated to the Partners pursuant to
Section 4.4(a), Soft Asset Net Income allocated to the Partners pursuant to
Section 4.6(b) and items of income and gain allocated pursuant to Section
4.6(a), in each case for each Fiscal Year (or portion thereof) ending on or
before such date, over (b) the aggregate amount of Net Loss allocated to the
Partners pursuant to Section 4.4(b) for each Fiscal Year (or portion thereof)
ending on or before such date.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, as it may be amended from time to time, and any successor to
such Act.
"Dissolution Date" means December 31, 2019.
"Distribution Value" means the Value of any Partnership Asset
distributed by the Partnership (net of the Value of all Partnership Liabilities
that the Partner to whom such asset is distributed is treated as assuming or
taking subject to in connection with such distribution pursuant to the
provisions of Section 752 of the Code).
"Event of Withdrawal" has the meaning specified in Section
11.2(a)(ii).
"Family Members" means with respect to any natural person,
such person's spouse, such person's parents and lineal descendants of such
parents.
"Family Trusts" means with respect to any natural person, a
trust benefiting solely such Person and the Family Members of such natural
person.
"First Reserve Amount" has the meaning set forth in Section
5.3(b)(i).
"Fiscal Quarter" means each of the three month periods ending
March 31, June 30, September 30 and December 31 in each Fiscal Year.
"Fiscal Year" means the fiscal year of the Partnership
established pursuant to Section 10.3.
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"General Partner" means any general partner in the
Partnership.
"Healthcare Finance Business" has the meaning specified in
Section 1.3(a).
"Income Taxes" has the meaning set forth in Section 6.11.
"Indemnified Party" has the meaning specified in Sections 6.11
and 8.3.
"Interest", when used in reference to an interest in the
Partnership, means the entire ownership interest of a Partner in the Partnership
at any particular time, including, without limitation, its interest in the
capital, income, losses and distributions of the Partnership.
"Limited Partner" means each Person admitted to the
Partnership as a limited partner pursuant to the terms of this Agreement.
"Liquidator" has the meaning set forth in Section 11.2(b).
"Management Committee" means the committee specified in
Section 6.1.
"Net Income" and "Net Loss" mean the net income or net loss,
respectively, for any Fiscal Year or portion thereof determined in accordance
with generally accepted accounting principles consistently applied, computed
with the following adjustments:
(a) items of income, gain, loss and deduction allocated
pursuant to Section 4.6(a) and items of income, gain, loss and deduction
comprising the Soft Asset Net Income shall not be taken into account in
computing Net Income and Net Loss; and
(b) to the extent not already taken into account, Quarterly
Yield Amounts paid by the Partnership pursuant to Sections 5.3(c) and 5.4(b)
shall be treated as deductible expenses.
"Net Income" and "Net Loss" of the Partnership shall be
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Original Agreement" has the meaning set forth in the preamble
of this Agreement.
"Partner" means a General Partner or a Limited Partner.
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"Partnership" means the limited partnership continued pursuant
to this Agreement.
"Partnership Asset" means any property or asset of the
Partnership, and "Partnership Assets" means the aggregate of all of the property
and assets of the Partnership.
"Partnership Books and Records" has the meaning set forth in
Section 10.2.
"Partnership Liability" means any debt, liability or
obligation of the Partnership (whether fixed, accrued, unmatured or contingent),
and "Partnership Liabilities" means the aggregate of all such debts, liabilities
and obligations of the Partnership.
"Person" means any individual, partnership, association,
corporation, trust or other entity.
"Presumed Tax Liability" for CFH for any Fiscal Year, means an
amount equal to the product of (a) the cumulative net taxable income of the
Partnership allocated to CFH as of the end of such Fiscal Year as certified to
the Partnership by the independent public accountants of the Partnership and (b)
45%.
"Quarterly Capital Distribution Amount" means, (a) with
respect to any Partner other than CFH, at any date, an amount equal to the sum
of (i) the product of (x) the sum of (I) $1,750,000 (representing one-twentieth
of the aggregate initial Values of all the Capital Contributions made on the
Closing Date by the Partners other than CFH) and (II) an amount equal to the
product of (A) a fraction, the numerator of which is one and the denominator of
which is the excess of 20 over the number of quarters of a Fiscal Year for which
payment of a Quarterly Capital Distribution Amount has become due to such
Partner and (B) the amount of all Capital Contributions made by all Partners
other than CFH subsequent to the initial Capital Contributions of such Partners
on the Closing Date, and (y) such Partner's Capital Account Share at such date
and (ii) the Unpaid Quarterly Capital Distribution Amount of such Partner at
such date, and (b) with respect to CFH, at any date, an amount equal to the sum
of (i) $272,500 (representing one-twentieth of the initial Value of the Capital
Contribution made on the Closing Date by CFH), (ii) an amount equal to the
product of (A) a fraction, the numerator of which is one and the denominator of
which is the excess of 20 over the number of quarters of a Fiscal Year for which
payment of a Quarterly Capital Distribution Amount has become due to CFH and (B)
the amount of all Capital Contributions made by CFH subsequent to the initial
Capital Contributions of CFH on the Closing Date, and (iii) the Unpaid Quarterly
Capital Distribution Amount of CFH at such date.
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"Quarterly Yield Amount" means, with respect to any Partner
for any Fiscal Quarter, the sum of (i) the product of (a) 0.015 and (b) the
Unrecovered Capital of such Partner as of the beginning of such Fiscal Quarter
and (ii) the product of (x) 1.015 and (y) the Unpaid Quarterly Yield Amount of
such Partner as of the beginning of such Fiscal Quarter.
"Regulation" means a Treasury Regulation promulgated under the
Code.
"Restrictive Period" has the meaning set forth in Section 7.2.
"Second Reserve Amount" has the meaning set forth in Section
5.3(b)(ii).
"Soft Asset Net Income" means, for any Fiscal Year, the net
income for such Fiscal Year with respect to the Soft Assets, determined in
accordance with generally accepted accounting principles consistently applied.
"Soft Assets" means the assets contributed by Towers to the
Partnership on the Closing Date other than cash.
"Substituted Limited Partner" means any Person admitted to the
Partnership as a substituted Limited Partner pursuant to the provisions of
Article IX.
"Tax Distribution" has the meaning set forth in Section 5.2.
"Tax Matters Partner" has the meaning set forth in Section
6.10.
"Territory" has the meaning set forth in Section 7.2.
"Third Reserve Amount" has the meaning set forth in Section
5.3(b)(iii).
"Towers" has the meaning set forth in the preamble of this
Agreement.
"Towers Collection" has the meaning set forth in the preamble
of this Agreement.
"Towers Entity" has the meaning set forth in the preamble of
this Agreement.
"Transfer" has the meaning set forth in Section 9.1.
"Two-Thirds-in-Interest" of certain Partners or all the
Partners as the case may be at any time means Partners whose aggregate Capital
Account balances are equal to or exceed 66 2/3%
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of the aggregate Capital Account balances of all such Partners at such time.
"Undistributed Income" means, with respect to any Partner, at
any date, the excess, if any, at such date, of the positive balance in such
Partner's Capital Account over the amount of such Partner's Unrecovered Capital.
"Unpaid Quarterly Capital Distribution Amount" means, with
respect to any Partner, at any date, an amount equal to all or any portion of
any Quarterly Capital Distribution Amount not distributed by the Partnership to
such Partner as and when required to be distributed pursuant to Sections 5.3(d)
and 5.4(c).
"Unpaid Quarterly Yield Amount" means, with respect to any
Partner, for any Fiscal Quarter, an amount equal to all or any portion of any
Quarterly Yield Amount not paid by the Partnership to such Partner as and when
required to be paid pursuant to Sections 5.3(c) and 5.4(b).
"Unrecovered Capital" means, (A) with respect to any Partner
other than CFH, at any date, the product of (i) the positive excess, if any, as
of such date of (a) the sum of (I) $35,000,001 (being the initial Value of all
Capital Contributions made to the Partnership by all Partners other than CFH
pursuant to Section 3.1(a)), and (II) the initial Value of any Capital
Contributions made to the Partnership by the Partners other than CFH pursuant to
Section 3.5 over (b) the aggregate amount, if any, of all distributions
previously made to all Partners other than CFH pursuant to Sections 5.3(d),
5.3(e) and 11.3(e), and (ii) such Partner's Capital Account Share at such date,
and (B) with respect to CFH, at any date, the positive excess, if any, as of
such date of (a) the sum of (I) $5,450,000 (being the initial Value of the
Capital Contributions made to the Partnership by CFH pursuant to Section 3.1(b))
and (II) the initial Value of any Capital Contributions made to the Partnership
by CFH pursuant to Section 3.5 over (b) the aggregate amount, if any, of all
distributions previously made to CFH pursuant to Sections 5.4(a), 5.4(c) and
11.3(f).
"Value" of any Partnership Asset or Partnership Liability, as
the case may be, as of any date, means the fair market value of such Partnership
Asset or Partnership Liability, as the case may be, as of such date.
ARTICLE III
CAPITAL CONTRIBUTIONS
Section 3.1. Initial Capital Contributions. (a) On the Closing
Date, Towers shall contribute (i) an aggregate of $20,000,000 in cash and (ii)
such of its assets as provided in
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the Contribution Agreement. On the Closing Date, Towers Limited Partner
Subsidiary Corp. shall contribute $1 in cash.
(b) On the Closing Date, CFH shall contribute (or shall cause
its Affiliates to contribute on behalf of CFH) to the Partnership (i) $5,000,000
in cash, and (ii) such of its (or its Affiliates') assets as provided in the
Contribution Agreement.
Section 3.2. Towers Assets. (a) Solely for purposes of this
Agreement, the Partners acknowledge and agree that the aggregate Value of the
assets initially contributed to the Partnership by Towers pursuant to Section
3.1(a)(ii) and the Contribution Agreement (but not the cash contributed pursuant
to Section 3.1(a)(i)), is equal to $15,000,000.
(b) The allocation of Value to each Partnership Asset referred
to in Section 3.2(a) shall be jointly determined by the Partners as soon as
reasonably practicable after the Closing Date. If the Partners cannot agree on
the allocation of Value to any asset or assets, then the determination shall be
made by a nationally recognized accounting firm mutually acceptable to the
Partners.
Section 3.3. CFH Assets. Solely for purposes of this
Agreement, the Partners acknowledge and agree that the aggregate Value of the
assets initially contributed to the Partnership by CFH pursuant to Section
3.1(b)(ii) of this Agreement and the Contribution Agreement (but not the cash
contributed pursuant to Section 3.1(b)(i)), is equal to $450,000.
Section 3.4. No Withdrawal of Interest. No Partner shall be
entitled to withdraw any part of such Partner's Capital Contribution or any
Capital Account, or to receive any distribution from the Partnership, except as
otherwise provided in this Agreement.
Section 3.5. Other Contributions. (a) In addition to required
capital contributions pursuant to Section 3.1, with the approval of the
Management Committee, any Partner may make voluntary contributions of capital
from time to time in cash.
(b) Except as otherwise provided in this Agreement and the
Delaware Act, no Partner shall be obligated to make any contribution of capital
or have any liability for the debts and obligations of the Partnership.
(c) Whenever a Partner (other than CFH) makes a capital
contribution pursuant to this Section 3.5 or upon the issuance by the
Partnership of a Limited Partner Interest, CFH shall make an additional capital
contribution to the Partnership in an amount equal to 1.01% of such Partner's
capital contribution or such lesser amount, if any, necessary to maintain a
balance in CFH's Capital Account (determined in accordance with
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Article IV) equal to the lesser of (i) 1% of the total positive Capital Account
balances of the Partners, and (ii) $500,000.
Section 3.6. Advances to Partnership. Except for the Capital
Contributions provided for in this Article III, if any Partner shall advance
funds to the Partnership, whether pursuant to Section 6.7 or otherwise, the
amount of such advance shall not result in an increase in such Partner's Capital
Account or entitle such Partner to an increase in such Partner's share of the
income or distributions of the Partnership or subject such Partner to any
greater portion of any losses which the Partnership may sustain.
ARTICLE IV
CAPITAL ACCOUNTS; ALLOCATION OF
NET INCOME AND NET LOSS
Section 4.1. Capital Accounts. There shall be established and
maintained for each Partner, on the books and records of the Partnership, a
"Capital Account". The initial capital account balance of each Partner shall be
an amount equal to the aggregate net Value of the assets contributed by such
Partner to the Partnership.
Section 4.2. Capital Account Adjustments. Each Partner's
Capital Account shall be maintained and adjusted as follows: There shall be
credited to each Partner's Capital Account (i) the amount of any cash
contributed by such Partner to the capital of the Partnership, (ii) the Value of
any Property contributed by such Partner to the capital of the Partnership (net
of any liability secured by such property that the Partnership is considered to
assume or take subject to under Section 752 of the Code), and (iii) the amount
of any Net Income allocated to such Partner pursuant to Section 4.4(a), the
amount of any Soft Asset Net Income allocated to such Partner pursuant to
Section 4.6(b) and the amount of any items of income or gain allocated to such
Partner pursuant to Section 4.6(a); and there shall be charged against each
Partner's Capital Account (A) the amount of all cash distributions made to such
Partner by the Partnership (other than Quarterly Yield Amounts), (B) the
Distribution Value of any property distributed to such Partner by the
Partnership, and (C) the amount of any Net Loss Allocated to such Partner
pursuant to Section 4.4(b) and the amount of any items of loss, deduction or
credit allocated to such Partner pursuant to Section 4.6(a). Whenever property
of the Partnership is to be distributed in kind to a Partner, the Capital
Accounts of the Partners shall be adjusted immediately prior to such
distribution to reflect the manner in which the unrealized income, gain, loss
and deduction inherent in such property would be allocated among the Partners if
there were a taxable disposition of the property for its then current fair
market
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value (as determined in the reasonable judgment of the Management Committee)
immediately prior to such distribution.
Section 4.3. Ordering Rule. Whenever it is necessary to
determine the Capital Account of any Partner, the Capital Account of such
Partner shall be determined after giving effect to all allocations pursuant to
this Article IV and all contributions and distributions made prior to the time
as of which such determination is to be made.
Section 4.4. Allocation of Net Income and Net Loss. Except as
provided in Section 4.6, the Partnership's Net Income or Net Loss, as the case
may be, and each item of income, gain, loss and deduction entering into the
computation thereof for each Fiscal Year (or portion thereof) shall be allocated
among the Partners as follows:
(a) Net Income for each Fiscal Year (or portion thereof) shall
be allocated in the following amounts and order of priority:
(i) first, to CFH, an amount equal to its negative Capital
Account balance, if any;
(ii) second, to the Partners to the extent of and in
proportion to the excess, if any, of the cumulative amount of Net Loss
previously allocated to such Partners pursuant to Section 4.4(b)(ii)
over the cumulative amount of Net Income previously allocated to such
Partners pursuant to this Section 4.4(a)(ii); and
(iii) thereafter, to the Partners in proportion to their
respective Applicable Sharing Percentages.
(b) Net Loss for each Fiscal Year (or portion thereof) shall
be allocated in the following amounts and order of priority:
(i) first, to each of the Partners to the extent of and in
proportion to the excess, if any, of the positive Capital Account
balance of such Partner over the Unrecovered Capital of such Partner;
(ii) second, to the Partners in proportion to their respective
positive Capital Account balances, an amount equal to the sum of the
positive Capital Account balances of all Partners; and
(iii) thereafter, to CFH.
Section 4.5. Affiliates Transactions. The Partnership shall
not directly or indirectly pay (or agree to pay) to CFH, its partners or their
respective Affiliates any amount including but not limited to amounts for
management fees, salaries or other
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compensation or fees for the performance of services or payments for the
purchase or lease of property of more than (i) $800,000 in the cumulative period
through the end of the first four Fiscal Quarters including and following the
date of this Agreement, and $960,000 for each subsequent period of four
consecutive Fiscal Quarters or (ii) the Fair Market Value of the consideration
received for such payment, whichever is less; provided, however, that in no
event shall any such payment be made if the recipient thereof (other than John
T. Hall) is not engaged, independently of the Partnership and as an ordinary and
ongoing business, in the business of rendering the consideration for such
payment to a substantial extent to other Persons. For purposes of this Section,
"Fair Market Value" shall mean the consideration which is at least as favorable
to the Partnership as that which it could obtain in a transaction with a
non-Affiliate on an arm's length basis.
Section 4.6. Provisions Having General Applicability. (a)
Notwithstanding anything else contained in this Article IV, if any Partner other
than CFH has a deficit balance in its Capital Account for any Fiscal Year as a
result of any adjustment of the type described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4) through (6), then items of Partnership income and gain
will be allocated to such Partner in an amount and manner sufficient to
eliminate such deficit as quickly as possible. Any allocation of items of income
and gain pursuant to this Section 4.6(a) shall be taken into account in
computing subsequent allocations pursuant to this Article IV so that the
cumulative net amount of all items allocated to such Partner shall, to the
extent possible, be equal to the amount that would have been allocated to such
Partner if there had never been any allocation pursuant to this Section 4.6(a).
(b) For each Fiscal Year, the amount of any Soft Asset Net
Income for such Fiscal Year shall be allocated 90% to the Partners other than
CFH, in accordance with their Capital Account Shares, and 10% to CFH.
(c) All matters concerning the determination of Net Income or
Net Loss, the allocations required by Sections 4.4, 4.6 and 4.7 and any
accounting procedures, policies or determinations not expressly provided for by
the terms of this Agreement, shall be determined in good faith, on a consistent
basis, and Towers or a Person or Persons designated by Towers shall have the
opportunity to review and object to any determination made by the Management
Committee. In the case of any such dispute that is not resolved to the
satisfaction of all the parties within 60 days from the date that an objection
is made, any party to the dispute may submit the dispute to binding arbitration
in accordance with the procedures of the American Arbitration Association
governing the arbitration of disputes regarding accounting matters.
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(d) The Quarterly Yield Amount of any Partner shall be treated
by the Partnership and by such Partner for all purposes of this Agreement and
for federal income tax purposes as a "guaranteed payment" within the meaning of
Section 707(c) of the Code.
Section 4.7. Allocation For Income Tax Purposes. For tax
purposes, income, gain, losses, deductions and credits of the Partnership shall
be allocated in accordance with the principles of Section 704(b) of the Code and
the Treasury Regulations thereunder so as to reflect as closely as possible,
both currently and on a cumulative basis, the economic benefits and burdens to
the respective Partners of the allocations provided for in Sections 4.4 and 4.6
and the distributions made pursuant to Article V and Section 11.3; provided,
however, that in accordance with Section 704(c) of the Code, taxable income,
gain, loss, deduction and credit with respect to any Partnership Asset
contributed to the Partnership shall be allocated among the Partners so as to
take account of the variation between the adjusted tax basis of such Partnership
Asset and its Value under such method, consistent with any Treasury Regulations
promulgated under Section 704(c) of the Code, as shall be selected by the Towers
designees to the Management Committee. The Partners intend that these
allocations of taxable income or loss will have substantial economic effect, and
will reflect the Partners' economic interests in the Partnership, in accordance
with the principles of Section 704(b) of the Code and the Treasury Regulations
thereunder. The Partners understand that, by reason of timing differences, the
Partners may not realize items of taxable income or loss with the same taxable
year as the Partnership allocates items of Net Income or Net Loss, and agree to
use their best efforts to cause the allocations of items of taxable income or
loss, as required by this Section 4.7, to produce, as closely as possible, the
same results to the Partners as would occur if the requirements of Treas. Reg.
Sections 1.704-1(b)(2)(ii)(b)(1), (2) and (3) and 1.704-1(b)(2)(ii)(d) were
satisfied. To accomplish the above purposes, the Partners undertake as promptly
as practicable to consider and if possible approve a protocol or procedure, to
be consistently applied, for the administrative implementation of this Section
4.7.
ARTICLE V
DISTRIBUTIONS; PAYMENTS; WITHDRAWALS
Section 5.1. Distributions Generally. (a) Except for any
distributions expressly required or permitted to be made pursuant to this
Article V, and subject to the provisions of Section 5.1(b), no distributions of
cash or other property of the Partnership shall be made to any Partner except
with the prior written consent of all the General Partners and the prior consent
of at least five members of the Management Committee.
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(b) Notwithstanding anything herein to the contrary, no
distribution or payment pursuant to this Agreement shall be made if such
distribution or payment would violate the Delaware Act.
(c) All distributions and payments required to be made to the
Partners pursuant to Section 5.3 or 5.4 with respect to any Fiscal Quarter shall
be made, in accordance with the provisions of such Sections, on the same date.
Section 5.2. Tax Distributions to CFH. CFH shall have the
right to receive, with respect to each Fiscal Year beginning with the Fiscal
Year beginning January 1, 1994, a cash distribution (a "Tax Distribution") in an
amount equal to the excess of (i) CFH's Presumed Tax Liability as of the end of
such Fiscal Year over (ii) the sum of (A) all amounts distributed to CFH by the
Partnership during such Fiscal Year and all prior Fiscal Years and (B) all
amounts (other than amounts referred to in Section 5.2(ii)(A) above) distributed
to CFH effective as of the last day of such Fiscal Year pursuant to Section
5.4(a). The Partnership shall distribute, not earlier than 45 days nor later
than 90 days following the end of each Fiscal Year, to CFH an amount of cash
equal to CFH's Tax Distribution with respect to such Fiscal Year unless CFH
shall have notified the Partnership not later than 90 days following the end of
such Fiscal Year that it does not wish to receive such distribution.
Section 5.3. Distributions and Payments to Partners Other
Than CFH.
(a) Required Income Distributions. Except as otherwise
provided in Section 5.3(b) or 5.5, as soon as practicable (but not later than 45
days) after the end of each Fiscal Quarter, the Partnership shall distribute to
each Partner other than CFH cash in the amount of such Partner's Undistributed
Income as of the end of such Fiscal Quarter.
(b) Initial Periods. Notwithstanding the foregoing in clause
(a) of this Section 5.3:
(i) the first distribution to each Partner pursuant to Section
5.3(a) shall be with respect to the cumulative period ending at the end
of the Fiscal Quarter ending June 30, 1994 in an amount equal to
one-half of the Undistributed Income of such Partner as of the end of
such Fiscal Quarter (and the other half shall be referred to as the
"First Reserve Amount");
(ii) the second distribution to each Partner pursuant to
Section 5.3(a) shall be with respect to the Fiscal Quarter ending
September 30, 1994 in an amount equal to one-half of the excess of (A)
the Undistributed Income of such Partner as of September 30, 1994 over
(B) the First Reserve
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Amount of such Partner (and the other half shall be referred to as the
"Second Reserve Amount");
(iii) the third distribution to each Partner to Section 5.3(a)
shall be with respect to the Fiscal Quarter ending December 31, 1994 in
an amount equal to one-half of the excess of (A) the Undistributed
Income of such Partner as of December 31, 1994, over (B) the sum of the
First Reserve Amount of such Partner and the Second Reserve Amount of
such Partner (and the other half shall be referred to as the "Third
Reserve Amount"); and
(iv) (without limiting in any way any subsequent
distributions) the balance of the amount due to each Partner under
Section 5.3(a) and this Section 5.3(b) as of the end of the Fiscal
Quarter ending December 31, 1994 (i.e., the sum of the First Reserve
Amount of such Partner, the Second Reserve Amount of such Partner, and
the Third Reserve Amount of such Partner) shall be distributed in cash
to such Partner in three equal installments at such time as
distributions are made (or would be required to be made) with respect
to the Fiscal Quarters ending on March 31, 1995, June 30, 1995 and
September 30, 1995 (or, if any such distribution is not required to be
made, on the forty-fifth day following such Fiscal Quarter as to which
such distribution is not required to be made.
(c) Required Yield Payments. Beginning with the Fiscal Quarter
that begins on January 1, 1999, as soon as practicable (but not later than 45
days) after the end of each Fiscal Quarter, the Partnership shall pay to each
Partner other than CFH the Quarterly Yield Amount of such Partner for such
Fiscal Quarter. Any Quarterly Yield Amount of a Partner not so paid shall be the
Unpaid Quarterly Yield Amount of such Partner (as provided in the definition of
the term "Unpaid Quarterly Yield Amount") and shall be paid to such Partner in
accordance with the terms of this Agreement.
(d) Required Capital Distributions. Beginning with the first
full Fiscal Quarter that begins after the date when Cumulative Net Income as
equaled $180,000,000 (and regardless of any subsequent decreases, if any, in
Cumulative Net Income) (but in any event not later than the Fiscal Quarter
beginning January 1, 2004), and continuing until the aggregate Unrecovered
Capital for all Partners other than CFH equals zero, as soon as practicable (but
in any event not later than 45 days) after the end of each Fiscal Quarter, the
Partnership shall distribute to each Partner other than CFH the Quarterly
Capital Distribution Amount of such Partner for such Fiscal Quarter.
(e) Optional Capital Distributions. Effective as of the end of
any Fiscal Quarter, within 45 days after the end of such Fiscal Quarter, CFH may
cause the Partnership to distribute
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to all Partners other than CFH, in proportion to their Capital Account Shares,
all or any part of the aggregate Unrecovered Capital of all Partners other than
CFH as of such date (without limiting in any way any required distributions
pursuant to Section 5.3(d) or otherwise).
Section 5.4. Distributions and Payments to CFH.
(a) General. Except as provided in Section 5.5, upon proper
notice by CFH as described in the following sentence, CFH shall be entitled to
receive a distribution from the Partnership, as soon as practicable (but not
later than 45 days) after (and effective as of) the end of each Fiscal Year, in
an amount equal to all or any part of the positive balance, if any, of the
Capital Account of CFH as of such date, and the Partnership shall make such
distribution on the date specified in the notice; provided, however, that,
except for Tax Distributions pursuant to Section 5.2, CFH shall have no right to
receive any distribution to the extent that giving effect to such distribution
for Capital Account adjustment purposes, the balance of the Capital Account of
CFH would be less than the CFH Required Capital Amount. If CFH desires to
receive any distribution described in this Section 5.4, CFH shall provide
written notice to the other General Partners, if any, the members of the
Management Committee and the Partnership, which notice shall state the amount to
be distributed (consistent with the provisions of this Section 5.4) and the date
the distribution is to be made, which date shall be no earlier than 45 days
after the date of the notice.
(b) Required Yield Payments. Beginning with the Fiscal Quarter
that begins on January 1, 1999, as soon as practicable (but not later than 45
days) after the end of each Fiscal Quarter, the Partnership shall pay to CFH the
Quarterly Yield Amount of CFH for such Fiscal Quarter. Any Quarterly Yield
Amount of CFH not so paid shall be the Unpaid Quarterly Yield Amount of CFH (as
provided in the definition of the term "Unpaid Quarterly Yield Amount") and
shall be paid to CFH in accordance with the terms of this Agreement.
(c) Required Capital Distributions. Beginning with the first
full Fiscal Quarter that begins after the date when Cumulative Net Income has
equaled $180,000,000 (and regardless of any subsequent decreases, if any, in
Cumulative Net Income) but in any event not later than the Fiscal Quarter
beginning January 1, 2004), and continuing until the aggregate Unrecovered
Capital for CFH equals zero, as soon as practicable (but in any event not later
than 45 days) after the end of each Fiscal Quarter, the Partnership shall
distribute to CFH the quarterly Capital Distribution Amount of CFH for such
Fiscal Quarter.
Section 5.5. Distributions Pursuant to a Liquidation.
Distributions pursuant to a liquidation of the Partnership shall be made in
accordance with the provisions of Section 11.3.
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ARTICLE VI
POWERS, RIGHTS AND DUTIES OF THE
GENERAL PARTNERS' MANAGEMENT COMMITTEE
Section 6.1. Authority. (a) Subject to the limitations
provided in this Agreement, the business and affairs of the Partnership shall be
exclusively controlled by a management committee (the "Management Committee")
consisting of six members, four of whom shall be designated by CFH and two of
whom shall be such Person or Persons as the official unsecured creditors'
committee in the Towers Bankruptcy Case (the "Creditors' Committee"), so long as
such committee is in existence, may designate, or as otherwise provided by order
of the Bankruptcy Court (as defined in the Contribution Agreement). For so long
as the Trustee shall continue to serve as the chapter 11 trustee of Towers, such
Trustee shall be an ex officio member of the Management Committee entitled to
notice of and to attend all meetings of the Management Committee, but shall have
no vote as a member of the Management Committee. Any action taken by the
Management Committee shall constitute the act of and serve to bind the
Partnership. In dealing with the Management Committee acting on behalf of the
Partnership no Person shall be required to inquire into the authority of the
Management Committee to bind the Partnership. Persons dealing with the
Partnership are entitled to rely conclusively on the power and authority of the
Management Committee as set forth in this Agreement.
(b) The Management Committee shall meet quarterly on the
second Wednesday of the fist month of each calendar quarter and at any other
time upon the request of any Management Committee member (but in no event more
than two additional times per Fiscal Year at the request of a Towers designee to
the Management Committee), provided not less than ten days' advance written
notice is given for any such meeting unless such notice is waived by the
unanimous consent of the members of the Management Committee. Such notice shall
include an agenda for the meeting and the text of any proposed resolutions for
adoption. Such meetings may be held by any means permissible under the laws of
the State of Delaware. Members of the Management Committee holding at least
three votes and present (or substitute members with written proxy) at any
meeting shall constitute a quorum for purposes of transacting business at a
meeting of the Management Committee. The vote of the members present at a
meeting (or by proxy) and holding a majority of the votes shall, except as
provided in Section 6.3, be the act of the Management Committee. Members of the
Management Committee who are not employees or Affiliates (other than solely by
virtue of serving on the Management Committee) of the Partnership will be
compensated at the rate of $500 per meeting attended and reimbursed for actual
out-of-pocket expenses associated with attending meetings of the Management
Committee, and will be
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indemnified by the Partnership to the fullest extent permitted by Delaware law.
The two Towers designees to the Management Committee shall be reimbursed by the
Partnership for premiums paid for director and officer liability insurance in
connection with his or her role as a member of the Management Committee in an
aggregate amount for both Towers designees not to exceed $50,000 annually.
(c) The decisions of the Management Committee shall be
implemented by one or more of the General Partners or such other Persons as the
Management Committee may designate from time to time.
Section 6.2. Powers and Duties of the Management Committee.
Except as otherwise specifically provided herein, the Management Committee shall
have the rights and powers of a general partner under the Delaware Act, and
shall have all authority, rights and powers in the management of the Partnership
business to do any and all other acts and things necessary, proper, convenient
or advisable to effectuate the purposes of this Agreement, including by way of
illustration but not by way of limitation, the following:
(a) to acquire, hold, sell, transfer, exchange, pledge,
dispose of and otherwise deal with all or any part of the Partnership Assets and
Partnership Liabilities, and incident thereto, to liquidate Partnership Assets
at any time during the term of the Partnership and to reinvest the proceeds
thereof;
(b) enter into, amend, renew, extend or otherwise modify any
financing or refinancing arrangements relating to the business of the
Partnership, and, incident thereto, to pledge or otherwise encumber all or any
part of the Partnership Assets as margin or other collateral for such financing
and refinancing arrangements;
(c) to do such other acts as the Management Committee may deem
necessary or advisable, or as may be incidental to or necessary for the conduct
of the business of the Partnership;
(d) to consult with legal counsel, independent public
accountants and other experts selected by the Management Committee on behalf of
the Partnership;
(e) to exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to any Partnership Assets,
including, without limitation, the voting of securities, the approval of a
restructuring of an investment or loan held by the Partnership, participation in
arrangements with creditors, the institution and settlement or compromise of
suits and administrative proceedings and other similar matters;
(f) to open, maintain and close bank accounts and draw checks
or other orders for the payment of money;
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(g) to employ and dismiss accountants, consultants, attorneys,
and such other agents and employees for the Partnership as it may deem necessary
or advisable, and authorize any such agent or employee to act for and on behalf
of the Partnership;
(h) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Partnership;
(i) to deposit, withdraw, invest, pay, retain and distribute
the Partnership's funds in a manner consistent with the provisions of this
Agreement;
(j) to take all action which may be necessary or appropriate
for the continuation of the Partnership's valid existence as a limited
partnership under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Limited Partners or to enable the Partnership to conduct the
business in which it is engaged; and
(k) to execute and deliver any and all agreements, instruments
or other documents as are necessary or desirable to carry out the intentions and
purposes of the above duties and powers.
Section 6.3. Limitations on the Powers of the Management
Committee. (a) Notwithstanding any other provision of this Agreement to the
contrary, the approval of at least five members of the Management Committee or,
with respect to clauses (i), (ii) and (iv) below, either (x) the unanimous
approval of all members of the Management Committee or, (y) the affirmative vote
of Persons owning a majority of the Partnership Interests (other than CFH or its
Affiliates), shall be necessary to:
(i) sell, exchange, lease or otherwise dispose of (x) all or
substantially all of the assets of the Partnership in a single
transaction or a series of related transactions within a one year
period, or (y) any material portion of the assets of the Partnership in
a transaction that is not in the ordinary course of the Partnership's
business where the consideration includes an equity interest in or
other security of the transferee; provided, however, that this
provision shall not preclude or limited the authority of the Management
Committee to mortgage, pledge, hypothecate or grant a security interest
in all or substantially all of the Partnership's assets,
(ii) merge or consolidate the Partnership with or into any
other Person,
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(iii) make any investment or expenditure by the Partnership in
excess of $100,000 for the purpose of entering into any new and
unrelated line of business,
(iv) admit an additional General Partner,
(v) admit a Limited Partner pursuant to Section 9.7,
(vi) voluntarily cause the Bankruptcy of the Partnership,
(vii) take any action to dissolve the Partnership,
(viii) except as permitted by Section 4.5, approve or cause
the Partnership to enter into any transaction with any Partner or its
Affiliate,
(ix) except as otherwise expressly provided in this Agreement,
to make elections under the Code and other relevant tax laws as to the
treatment of items of Partnership income, gain, loss and deduction, and
(to the extent not expressly provided in this Agreement) selection of
the method of accounting and bookkeeping procedures to be used by the
Partnership and selection of accountants other than Ernst & Young,
(x) to establish such reserves from Partnership funds as the
Management Committee, in its discretion, may deem necessary or
advisable for Partnership operations and for the payment of Partnership
obligations, or
(xi) approve or cause the Partnership to enter into any
transaction with T. Barrack, W. Rogers, Colony Capital, Inc. or any of
their respective Affiliates.
(b) Notwithstanding any other provision of this Agreement to
the contrary, the Management Committee shall not have authority, and authority
shall be vested solely in the Towers designees to the Management Committee, to:
(i) reconstitute the Partnership as a Delaware corporation, by
means of a contribution of assets, merger or otherwise, with the
Partners' having distribution, governance and other rights and CFH
having contractual responsibilities all as nearly the same as is
provided in this Agreement to the extent practicable, as reasonably
specified by Towers as the General Partner (or by the Towers designee)
with the intent being to replicate the economic benefits and
obligations and governance mechanisms provided in this Agreement in a
corporate form (except that Partners/shareholders shall not be required
to remain generally liable for the Partnership's/corporation's debts
and liabilities); it is expected that rights to distribution to all
Partners other than CFH pursuant to Section 5.3(a)
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and (b) until the amount of Cumulative Net Income that has been earned
by the Partnership equals $180 million would be represented by a
preferred or preference stock with priority upon liquidation,
winding-up, dissolution and redemptions, dividends or other
distributions over other classes of capital stock (any such preferred
or preference stock shall not be redeemed or acquired by the
Partnership or any of its Affiliates at less than par plus, if any,
accumulated dividends); CFH agrees to cooperate in good faith and to
enter into all contractual and other arrangements necessary or
appropriate to implement this clause (i); and
(ii) cause the limited partnership interests of the
Partnership or the shares of capital stock (of whatever class) of the
corporation referred to in clause (i) above to be registered under
applicable federal and state securities laws and to enter into all
related arrangements including indemnity and similar agreements.
(iii) waive, modify or enforce rights or claims against CFH,
John Hall or their respective Affiliates arising hereunder, under the
Contribution Agreement or under any other agreement, instrument or
document executed in connection herewith or thereunder.
The holders of a majority of the interests in the Partnership of all
Partners other than CFH shall have the right to direct Towers as a
General Partner (or the Towers designees referred to above) to take or
refrain from any action contemplated by this Section 6.3(b).
Section 6.4. Intentionally deleted.
Section 6.5. Certificate of Limited Partnership. CFH shall
cause to be filed with the Secretary of State of Delaware such certificates or
documents as may be necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership in the State of Delaware or
any other state in which the Management Committee elects to cause the
Partnership to conduct business. To the extent necessary or appropriate, CFH
shall cause the Partnership to file amendments to the Certificate of Limited
Partnership and do all the things to maintain the Partnership as a limited
partnership under the laws of the State of Delaware or any other state in which
the Partnership conducts business. Subject to applicable law, CFH may cause the
Partnership to omit from the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of Delaware and from any other
certificates or documents filed in any other state in order to qualify the
Partnership to do business therein, and from all amendments thereto, any
information, including, without limitation, the names and addresses of the
Limited Partners and information related to the Capital Contributions and shares
or profits and compensation of the Limited Partners, or
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state such information in the aggregate rather than with respect to each Limited
Partner.
Section 6.6. Compensation and Reimbursement of the General
Partners. Except for the General Partners' interests in distributions, capital,
profits, income, gain, loss, deduction and credit of the Partnership as provided
in this Agreement, none of the General Partners nor (except for compensation, if
any, to the extent permitted by Sections 4.5 and 6.3 any Affiliates of the
General Partners shall receive compensation from the Partnership. Each of the
General Partners shall be reimbursed (except as contemplated by the Contribution
Agreement) and subject to compliance with Section 4.5, for all direct expenses
it incurs or makes on behalf of the Partnership (including amounts paid to any
person to perform services solely for the Partnership).
Section 6.7. Loans to and by Partners. The General Partners
may lend to the Partnership funds needed by the Partnership for such periods of
time as the Management Committee may determine; provided, however, that: (i) all
General Partners are offered the opportunity to lend to the Partnership the
portion of such funds as is equal to such General Partners' Applicable Sharing
Percentage as a percentage of the aggregate Applicable Sharing Percentages of
all General Partners at the time of the intended loan, and (ii) the General
Partners may not charge the Partnership interest at a rate greater than the rate
(including points or other financing charges or fees) that would be charged the
Partnership (without reference to any Partner's financial abilities or
guaranties) by unrelated lenders on comparable loans. The Partners and their
respective Affiliates shall not borrow from the Partnership.
Section 6.8. Partnership Funds; Title to Partnership Assets.
Partnership funds shall be held in the name of the Partnership and shall not be
commingled with those of any other Person. Partnership funds shall be used only
for the business of the Partnership. All funds of the Partnership shall be
deposited in the name of the Partnership in such bank account or accounts as may
be designated by the Management Committee. All withdrawals from or charges
against such accounts shall be made in the regular course of the Partnership's
business upon such signature or signatures as the Management Committee may
designate. Title to Partnership assets, whether real or personal, tangible or
intangible, shall be deemed to be owned by the Partnership as an entity, and no
Partners, individually or collectively, shall have any ownership interest in
such Partnership assets.
Section 6.9. Partnership Status. CFH shall cause the
Partnership to use all reasonable efforts to establish and maintain the
classification of the Partnership as a partnership for federal income tax
purposes and not as an association taxable as a corporation.
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Section 6.10. Tax Matters Partner. For purposes of Code
section 6231(a)(7), the "Tax Matters Partner" shall be CFH as long as it remains
a general partner of the Partnership. The Tax Matters Partner shall keep Towers
fully informed of any, and allow Towers to participate in any Partnership level,
inquiry, examination or proceeding, including, without limitation, promptly
notifying Towers of the beginning and completion of an administrative proceeding
at the Partnership level promptly upon such notice being received by the Tax
Matters Partner.
Section 6.11. Indemnification of General Partners. The
Partnership shall indemnify and hold harmless the General Partners, their
stockholders, creditors, the officers, directors, trustees, agents and employees
of the General Partners and the Affiliates of the General Partners, and their
respective officers, directors, trustees, agents and employees (herein the
"Indemnified Party"), from and against any loss, expense, damage or injury
(other than Income Taxes (as hereinafter defined)) suffered or sustained by them
by reason of any acts, omissions or alleged acts or omissions arising out of or
in connection with the Partnership or this Agreement without regard to the date
or dates on which such acts or omissions occurred or are alleged to have
occurred, including but not limited to any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim and
including any payments made by a General Partner to any Affiliate, any officer
or director of the General Partner, or any of their respective officers, agents
or employees pursuant to an indemnification agreement no broader than this
Section 6.11, if the acts, omissions or alleged acts or omissions upon which
such actual or threatened action, proceeding or claims are based were for a
purpose (a) within the scope of the authority conferred on the General Partner
by this Agreement or by law and (b) in or not opposed to the best interests of
the Partnership and were not performed or omitted fraudulently or in bad faith
or did not constitute gross negligence or willful misconduct by such Indemnified
Party, provided, however, that this Section 6.11 shall not be applicable to any
action, claim or proceeding by, or dispute with, any Limited Partner or its
Affiliates or among the General Partners (or their respective Affiliates). Any
indemnification pursuant to this Section 6.11 shall only be from the assets of
the Partnership. The term "Income Taxes" means any federal, state, local or
foreign tax (including any interest, penalties or additions thereto) (i) based
upon, measured by, or calculated with respect to, net income or profits or (ii)
based upon, measured by, or calculated with respect to multiple bases
(including, but not limited to, corporate franchise or occupation taxes) if one
or more of the bases on which such tax may be based, measured by, or calculated
with respect to is described in (i) above.
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Section 6.12. Subsidiaries of the Partnership. The Partnership
shall not establish or own any subsidiaries (other than subsidiaries to conduct
the Healthcare Finance Business in which the Partnership has a controlling
interest, and if acquired, Towers International Reinsurance Corp. ("TIRC") or an
insurance company reinsuring and/or continuing the business of TIRC in which the
Partnership has a controlling interest). All references to the activities,
operations and conduct of the Partnership (and limitations and restrictions
thereof) in this Agreement shall refer to the Partnership and its subsidiaries
taken as a whole.
Section 6.13. 754 Election. The Partnership shall not be
required to make an election under Section 754 of the Code.
ARTICLE VII
RESPONSIBILITIES OF CFH
Section 7.1. Responsibilities of CFH. (a) CFH shall devote
such management time, effort and expertise as are necessary to achieve the
business objectives of the Partnership.
(b) CFH shall conduct the operations of the Partnership
efficiently and in accordance with the general business practices of the
industry and all applicable laws and regulations.
Section 7.2. Non-Competition. (a) CFH and its Affiliates which
are controlled by or under common control with CFH shall not, without the prior
written consent of Towers and five members of the Management Committee, directly
or indirectly, anywhere within the world (the "Territory") during the period
commencing on the Closing Date and expiring on the second (2nd) anniversary of
the termination of the Partnership (the "Restrictive Period"), (i) voluntarily
form, acquire (except for the ownership of less than five (5%) percent of the
issued and outstanding capital stock of a publicly traded company), finance,
assist, support, provide premises, facilities, goods or services directly or
indirectly to, an enterprise which is substantially similar to, as to types of
customers and products, or otherwise competitive with the Healthcare Finance
Business of the Partnership (a "Competing Business"); provided, however, that
the foregoing shall not prohibit CFH or its Affiliates from engaging in
transactions with parties which conduct a Competing Business, as long as such
transactions are not directly or indirectly connected with such other parties'
Competing Business, (ii) interfere with or attempt to interfere with or induce
or attempt to induce any employee to leave the employ of the Partnership, or
violate the terms of such employee's contract of employment or other engagement;
or (iii) for the purpose of conducting or engaging in a Competing Business, call
upon, solicit, advise or otherwise do, or attempt to do, business with any
clients,
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suppliers, customers or accounts of the Partnership or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Partnership; provided, however, in the event that CFH acquires a business during
the Restrictive Period of which a Competing Business constitutes less than ten
(10%) percent of the assets or revenues of the acquired business and divests
itself of the Competing Business within one (1) year of acquisition, such action
shall not constitute a breach of this covenant not to compete.
(b) The parties hereto acknowledge and agree that any breach
by CFH or its Affiliates of the restrictive covenant contained in Section 7.2(a)
would cause irreparable injury to the Partnership and the other Partners and
that the remedy at law for any such breach would be inadequate. CFH therefore
agrees and consents for itself and its Affiliates that, in addition to any other
available remedy, temporary and permanent injunctive relief may be granted in
any proceeding which may be brought to enforce such restrictive covenant without
necessity of proof that any other remedy at law is inadequate and CFH and its
Affiliates hereby covenant and agree not to interpose in any such proceeding any
claim or defense that there is an adequate remedy at law.
(c) Each of CFH and the other Partners intend that the
covenant of Section 7.2(a) shall be deemed to be a series of separate covenants,
one for each county or province of each and every state, territory or
jurisdiction of each country included within the Territory and one for each
month of the Restrictive Period. If, in any judicial proceeding, a court shall
refuse to enforce any of such covenants by relief in equity, then such
unenforceable covenants shall be deemed eliminated from the provisions hereof
for the purpose of such proceeding to the extent necessary to permit the
remaining separate covenants to be enforced in such proceeding. If, in any
judicial proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time thereof is deemed to be excessive or
unreasonable, then it is the intent of the parties hereto that such covenants,
which would otherwise be unenforceable due to such excessive or unreasonable
period of time, be in force for such lesser period of time as shall be deemed
reasonable and not excessive by such court.
Section 7.3. Systems Development and CFH's Ongoing Credit
Support. CFH agrees to use its best efforts to, as quickly as practicable, cause
the Partnership to complete the development of state-of-the-art systems for the
acquisition, evaluation, tracking and disposition of medical receivables. At or
near the substantial completion of such systems, the Partnership will seek new
customers for the Healthcare Finance Business. Upon approval by the Management
Committee of the extension of credit to customers of the Partnership, CFH shall
(or shall cause its Affiliates to) provide, as needed, first loss protection (in
the form of guarantees, letters of credit, cash collateral or otherwise) to
lenders who are not Affiliates of CFH
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or its Principal Owners in an amount up to $20,000,000, all in amount, form and
substance satisfactory to such lenders to induce them initially to lend
approximately $150 million aggregate principal amount of funds to the
Partnership.
Section 7.4. Minimum CFH Net Worth. CFH covenants and agrees
to maintain, at and following the Closing Date, an aggregate net worth
(exclusive of its Partnership Interest in the Partnership) adequate to maintain
the Partnership's tax status as a partnership under the standards of existing
law but which shall in no event be less than $1,000,000 which may be in the form
of a demand promissory note.
Section 7.5. No CFH Partners Limited Partnership Interest. CFH
shall cause (by written agreements, copies of which will be made available to
Towers) each of its partners (and the Persons holding ownership interests in
such partners) never to own a beneficial interest in any Limited Partner
Interest (other than through their respective direct or indirect partnership
interests in CFH) (it being acknowledged that this Section 7.5 does not prohibit
CFH itself from owning Limited Partner Interests).
Section 7.6. Separate Legal Identity of Towers International
Reinsurance Corp. CFH shall take, and shall cause the Partnership to take, all
reasonable steps to maintain the separate legal identity of TIRC, to make it
apparent to third parties that TIRC is a corporation with properties and
liabilities distinct from those of the Partnership and maintain compliance with
Barbados law regarding the ownership, existence or operation of TIRC. Without
limiting the generality of the foregoing, the Partnership shall use its best
efforts to assure that TIRC: (a) compensates all consultants and agents
directly, from TIRC's bank accounts, for services provided to TIRC by such
consultants and agents and, to the extent any employee, consultant or agent of
TIRC is also an employee, consultant or agent of the Partnership, allocates the
compensation of such employee, consultant or agent between TIRC and the
Partnership on a basis which reflects the separate services rendered to each of
TIRC and the Partnership; (b) allocates all overhead and operating expenses for
items shared between TIRC and the Partnership on the basis of actual use to the
extent practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to actual use; (c) maintains the books and records of
TIRC complete and separate from those of the Partnership; (d) does not maintain
bank accounts or other depository accounts to which the Partnership is an
account party, into which the Partnership makes deposits or from which the
Partnership has the power to make withdrawals; (e) does not permit the
Partnership to pay any of the operating expenses of TIRC; (f) refrains from
filing or otherwise initiating or supporting the filing of a motion in any
bankruptcy or insolvency proceeding to substantively consolidate TIRC with the
Partnership; and (g) conducts all of its business solely in its
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own name. No funds or assets may be transferred, loaned or advanced from the
Partnership to TIRC except with the approval of five members of the Management
Committee.
ARTICLE VIII
LIABILITY AND RIGHTS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability. Except to the extent
required by the Delaware Act, the Limited Partners shall not have any personal
liability to the Partnership, to any Partner, nor to the creditors of the
Partnership.
Section 8.2. Management of Business. The Limited Partners
shall not take part in the operation, management or control of the Partnership's
business, transact any business in the Partnership's name nor have the power to
sign documents for or otherwise bind the Partnership.
Section 8.3. Indemnification of Limited Partners. The
Partnership shall indemnify and hold harmless any Limited Partner, its
stockholders, the officers, directors, agents and employees of any Limited
Partner and the Affiliates of any Limited Partner, and their respective
officers, directors, trustees, agents and employees (herein the "Indemnified
Party"), from and against any loss, expense, damage or injury other than Income
Taxes suffered or sustained by them by reason of any acts, omissions or alleged
acts or omissions arising out of or in connection with the Partnership or this
Agreement without regard to the date or dates on which such acts or omissions
occurred or are alleged to have occurred, including but not limited to any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim and including any payment made by any Limited
Partner to any Affiliate, any officer or director of any Limited Partner, or any
of their respective officers, agents or employees pursuant to an indemnification
agreement no broader than this Section 8.3, if the acts, omissions or alleged
acts or omissions upon which such actual or threatened action, proceeding or
claims are based were not performed or omitted fraudulently or in bad faith or
did not constitute gross negligence or willful misconduct by such Indemnified
Party; provided, however, that this Section 8.3 shall not be applicable to any
action, claim or proceeding by, or dispute with, the other Limited Partners or
their respective Affiliates. Any indemnification pursuant to this Section 8.3
shall only be from the assets of the Partnership.
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ARTICLE IX
TRANSFERABILITY OF A PARTNER'S INTEREST; SUBSTITUTED
LIMITED PARTNERS; ADDITIONAL PARTNERS
Section 9.1. Transferability of a Partner's Interest. Except
as otherwise provided in this Article IX, a Partner may not sell, exchange,
transfer, assign, pledge, create a security interest in, hypothecate or
otherwise dispose of (each, a "Transfer") all or any portion of its Interest in
the Partnership to any Person (except a testamentary or legal heir of such
Partner). Any Transfer or purported Transfer of an Interest in the Partnership
not made in accordance with this Agreement shall be null and void and of no
force or effect whatsoever.
Section 9.2. Transfer of CFH Interests. CFH may not Transfer
all or any portion of its Interest in the Partnership. None of the CFH Principal
Owners may, directly or indirectly (by merger, consolidation or otherwise),
Transfer all or any portion of his interest in CFH to any Person (except to his
testamentary or legal heirs) unless after giving effect to such Transfer, the
CFH Principal Owners and/or Family Members or Family Trusts for such Persons
will own collectively, directly or indirectly, all of the outstanding voting
securities and other ownership interests of such Person.
Section 9.3. Transfer of Towers Entities Interests.
Notwithstanding any other provision in this Article IX, Towers, Towers
Collection and other Tower Entities may Transfer all or any part of their
respective Partnership Interests (and may cause their subsidiaries to Transfer
their Partnership Interests) to creditors or other Person or Persons in
connection with a plan or reorganization or a liquidation confirmed by or
approved by the Bankruptcy Court and such transferees shall be admitted to the
Partnership as substituted Partners. In addition, notwithstanding any other
provision of this Article IX, Towers (or a Person or Persons designated by
Towers) may establish procedures on behalf of the Partnership, which procedures
shall satisfy the conditions set forth in this Section 9.3, under which Partners
other than CFH may Transfer all or part of their Partnership Interests. The
conditions under which Towers or its designee may establish such procedures are
as follows:
(A) In no event shall any such procedures be adopted if
Transfers made in accordance with such procedures could in the reasonable
judgment of the Management Committee result in (I) the Partnership being treated
as a "publicly traded partnership" within the meaning of Section 7704 of the
Code or (II) the Partnership otherwise being treated as an association taxable
as a corporation for federal income tax purposes.
(B) In no event shall any transferee of a Partnership interest
under such procedures be admitted to the Partnership as a Substituted Limited
Partner without the written consent of CFH, which consent may be given or
refused in CFH's sole and absolute discretion.
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(C) In no event shall such procedures allow any Transfers that
(I) would violate the then applicable federal or state securities laws or rules
and regulations of the Securities and Exchange Commission, state securities
commissions or any other governmental authorities with jurisdiction over such
Transfers or (II) would affect Partnership's existence or qualification as a
limited partnership under any applicable state law.
In connection with establishment of the foregoing procedures,
Towers (or its designee(s)) (in consultation with CFH) may establish mechanisms
for certification of, notices to, and voting of, limited partner Interests. The
other Partners shall agree with and cause such mechanisms to be reflected in an
amendment of this Agreement (so long as such mechanisms do not adversely affect
the entitlements to percentages of allocations or distributions of such other
Partners or are customary for partnerships that have numerous limited partners).
Section 9.4. Transfer of Interests of General Partners Other
Than CFH. In the event of a transfer of all or any part of the Partnership
Interest of a General Partner other than CFH, such Partnership Interest shall
immediately and automatically (and without further action by the transferring
Partner or the transferee) be converted from a Partnership Interest as a general
partner to a Partnership Interest as a Limited Partner (unless the transferring
General Partner expressly notifies the Partnership to the contrary). However
(except as provided in the first sentence of Section 9.3), such transferee shall
not be admitted in the Partnership as a Substituted Limited Partner without the
written consent of CFH, which consent may be given or refused in CFH's sole and
absolute discretion.
Section 9.5. Substituted Limited Partners. (a) The transferee
of a Partner's Interest in the Partnership may be admitted in the Partnership as
a Substituted Limited Partner upon the written consent of CFH, which consent may
be given or refused in CFH's sole and absolute discretion.
(b) Upon the Transfer of its entire Interest in the
Partnership and the admission of such Partner's transferee pursuant to Section
9.5(a), a Partner shall be deemed to have withdrawn from the Partnership.
Section 9.6. Consequences of Transfers Generally. (a) In the
event of any Transfer or Transfers permitted under this Article IX, the
transferor and the Interest in the Partnership that is the subject of such
Transfer shall remain subject to all terms and provisions of this Agreement and
the transferee shall (except as provided in Section 9.5) hold such Interest in
the Partnership subject to all unperformed obligations of the transferor and
shall agree in writing to the foregoing if requested by any of the General
Partners. Any successor or transferee hereunder shall be subject to and bound by
all the
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provisions of this Agreement as if originally a party to this Agreement.
(b) Unless a transferee of a Partner's Interest becomes a
Substituted Limited Partner, such transferee shall have no right to obtain or
require any information or account of Partnership transactions, or to inspect
the Partnership's books, or to consent or vote on Partnership matters. Such a
Transfer shall, subject to the last sentence of Section 9.1, merely entitle the
transferee to receive the share of distributions, income and losses to which the
transferring Partner otherwise would be entitled. Each Partner agrees that such
Partner will, upon request of the Management Committee, execute such
certificates or other documents and perform such acts as the Management
Committee deems appropriate after a Transfer of that Limited Partner's Interest
in the Partnership (whether or not the transferee becomes a Substituted Limited
Partner) to preserve the limited liability of the Limited Partner under the laws
of the jurisdictions in which the Partnership is doing business.
(c) The Transfer of a Partner's interest in the Partnership
and the admission of a Substituted Limited Partner shall not be cause for
dissolution of the Partnership.
(d) References in this Agreement to allocations or
distributions to a Partner shall include allocations or distributions to any
predecessor in interest of such Partner. Any transferee of a Partner admitted as
a Partner pursuant to this Agreement and any assignee of a Partner pursuant to
an assignment permitted under this Agreement shall succeed to the Capital
Account so transferred or assigned to such Person.
Section 9.7. Admission of Additional Limited Partners. (a) The
Management Committee acting in accordance with Section 6.3(a)(v) may admit one
or more Persons as additional Limited Partners ("Additional Limited Partners")
for such Capital Contributions in cash as the Management Committee, in its sole
discretion, may determine; provided, however, that no Person may be admitted as
an Additional Limited Partner if such admission would jeopardize the status of
the Partnership as a partnership for Federal income tax purposes or violate or
cause the Partnership to violate any applicable Federal or state law, rule or
regulation.
(b) Each Additional Limited Partner shall automatically be
bound by all of the terms and conditions of this Agreement applicable to a
Limited Partner. Each Additional Limited Partner shall execute such
documentation as requested by the Management Committee pursuant to which such
Additional Limited Partner agrees to be bound by the terms and provisions of
this Agreement.
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(c) Each Additional Limited Partner shall, at the discretion
of the Management Committee, be subject to a charge in such amount as the
Management Committee shall determine to reimburse the Partnership for the
expenses incurred by or on behalf of the Partnership in connection with such
admission.
ARTICLE X
BOOKS, RECORDS, ACCOUNTING AND
REPORTS; OTHER AGREEMENTS
Section 10.1. Books and Records. (a) The Partnership shall
keep or cause to be kept complete and accurate books and records with respect to
the Partnership's business, which books and records shall at all times be kept
at the principal office of the Partnership or at such other place as the
Management Committee shall reasonably designate. The books of the Partnership
shall be maintained, for financial reporting purposes, on the accrual basis in
accordance with generally accepted accounting principles consistently applied.
(b) The books of account and records of the Partnerships shall
be audited as of the end of each Fiscal Year by the Accountants.
Section 10.2. Access to Books. (a) The books and records of
the Partnership shall be available to each Partner or its representatives or a
Partner's designees for inspection, copying and audit (at the Partnership's
expense) during normal business hours and, upon request made by Towers at least
one Business Day in advance, at any other time at the principal office of the
Partnership. The Partnership shall cause the auditors of the Partnership to
cooperate in such inspection and audit, and to provide any of their work papers
requested in connection therewith, all at the cost and expense of the
Partnership.
(b) For a period of seven years from the Closing Date (or such
longer period as may be required of the Partnership by any governmental agency
or requested by Towers or any Person or Persons designated by Towers in
connection with disputes, investigations or litigation):
(i) the Partnership shall not dispose of or destroy any of the
books, records, files and data of the Partnership relating to periods
prior to the Closing (or otherwise obtained from any Towers Entity or
relating in any way to TIRC) ("Partnership Books and Records") without
first offering to turn over possession thereof to Towers by written
notice to Towers at least 30 days prior to the proposed date of such
disposition or destruction;
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(ii) the Partnership shall allow Towers and its agents or
designees access to all the Partnership Books and Records during normal
working hours and, upon request made at least one Business Day in
advance at any other time at the Partnership's principal place of
business or at any location where any Partnership Books and Records are
stored, and Towers shall have the right, at the Partnership's expense,
to make copies of any of the Partnership Books and Records; and
(iii) the Partnership shall make available to Towers upon
written request (i) copies of any Partnership Books and Records, (ii)
Partnership personnel to assist Towers in locating and obtaining any
Partnership Books and Records and (iii) any of Partnership personnel
whose assistance or participation is reasonably required by Towers or
any of their Affiliates in anticipation of, or preparation for,
existing or future litigation, tax returns or other matters in which
Towers or any of its Affiliates are involved.
Section 10.3. Fiscal Year. The fiscal year of the Partnership
shall either be the calendar year or the twelve month period ending June 30th,
as Tower designates to the Partnership prior to Closing or within 30 days
thereafter; provided, however, that the last Fiscal Year of the Partnership
shall end on the date on which the Partnership is terminated.
Section 10.4. Reports. (a) As soon as practicable (but in any
event within 120 days) after the close of each Fiscal Year, the Partnership
shall cause to be mailed to each Partner financial statements of the Partnership
for the Fiscal Year then ended, including a balance sheet and statements of
operations, Partners' equity and changes in financial position, reconciliation
of Capital Accounts for all Partners and schedules of distributions and
allocations of Net Income and Net Loss for all Partners, all of which shall be
prepared in accordance with generally accepted accounting principles (except as
required by this Agreement) and shall be audited by the Partnership's
Accountants. The Partnership's Accountants shall be selected by the Management
Committee (with the concurrence of the designees of all General Partners which
shall not be unreasonably withheld) from among the nationally recognized
accounting firms.
(b) As soon as practicable (but in no event later than 60
days) after the close of each Fiscal Quarter, except the last Fiscal Quarter of
each Fiscal Year, the Partnership shall cause to be mailed to each Partner
unaudited financial statements of the Partnership for the fiscal quarter then
ended, including a balance sheet and statements of operations, Partners' equity
and changes in financial position, reconciliation of Capital Accounts for all
Partners and schedules of distributions and allocations of Net Income and Net
Loss for all Partners, all of which shall
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be prepared in accordance with generally accepted accounting principles (except
as required by this Agreement).
(c) The Partnership shall mail to each Partner copies of any
monthly Partnership financial statements or operating reports furnished to the
Partnership's principal lenders. Such reports shall be mailed to the Partners at
the same time they are forwarded or delivered to the Partnership's principal
lenders.
SECTION 10.5. Preparation of Tax Returns. The Partnership
shall arrange for the preparation and timely filing of all returns relating to
Partnership income, gains, losses, deductions and credits, as necessary for
federal, state and local income tax purposes. CFH shall cause the Partnership to
furnish to each of the Partners within 60 days of the close of the taxable year
the tax information required for federal, state and local income tax reporting
purposes. If so requested by Towers or a Person or Persons designated by Towers
in a notice provided to the Partnership in any Fiscal Year, the Partnership
shall duly make a timely election under Section 754 of the Code.
ARTICLE XI
WITHDRAWAL OF PARTNERSHIP;
TERMINATION OF PARTNERSHIP;
LIQUIDATION AND DISTRIBUTION OF ASSETS
Section 11.1. Withdrawal of Partner. Except as otherwise
specifically permitted in this Agreement, no Partner shall at any time retire or
withdraw from the Partnership. Any Partner retiring or withdrawing in
contravention of this Section 11.1 shall indemnify, defend and hold harmless the
Partnership and all other Partners from and against any losses, expenses,
judgment, fines, settlements or damages suffered or incurred by the Partnership
or any other Partner arising out of or resulting from such retirement or
withdrawal.
Section 11.2. Dissolution of Partnership. (a) The Partnership
shall be dissolved, wound up and terminated as provided herein upon the first to
occur of the following:
(i) the Dissolution Date;
(ii) the removal, withdrawal, resignation or Bankruptcy of any
General Partner or the dissolution or termination of any General
Partner's existence as an entity (an "Event of Withdrawal"); provided,
however, that with respect to any of the Towers Entities, the
occurrence of any of the events listed in this Section 11.2(a)(ii) will
only constitute an Event of Withdrawal if such event occurs subsequent
to the substantial consummation of a plan of reorganization or a
liquidation of such Towers Entity;
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(iii) upon election and notice by Towers (or such Person or
Persons as are designated by Towers) to the Partnership, the occurrence
of a Transfer in violation of Section 9.2 of this Agreement;
(iv) upon election and notice by Towers (or such Person or
Persons as are designated by Towers) to the Partnership, the occurrence
of any event which constitutes a material breach of this Agreement by
CFH which continues uncured for 30 days; or
(v) the occurrence of any other event that would make it
unlawful for the business of the Partnership to be continued;
or as otherwise required under the Delaware Act; provided, however, that upon
the occurrence of an Event of Withdrawal or an event described in clause (iii)
or (iv) above, the remaining Partners may, by written consent of
Two-Thirds-in-Interest of the remaining Partners (or such higher percentage as
may be required by the Delaware Act), elect a successor general partner (if
necessary) and continue the business of the Partnership without application of
the liquidation provisions of this Article XI, such action to be taken within 90
days after such Event of Withdrawal or an event described in clause (iii) or
(iv) above. In the event of the continuation of the Partnership as herein
provided, any successor general partner shall exercise the rights and powers and
assume the obligations hereunder of a General Partner (excluding, however,
obligations of a General Partner to another Partner occasioned by that General
Partner's removal or wrongful resignation or withdrawal as General Partner), and
shall have such interest in the Net Income, Net Loss and distributions of the
Partnership as shall be agreed upon by the successor general partner(s) (if any)
and Two-Thirds-in-Interest of the remaining Partners upon execution of a written
acceptance of this Agreement. Except as provided herein or otherwise required by
Delaware law, the Limited Partners shall have no power to dissolve the
Partnership without the consent of the Management Committee.
(b) In the event of the dissolution of the Partnership for any
reason, the remaining General Partner, or, if there is more than one remaining
General Partner, a liquidating agent appointed by Two-Thirds-in-Interest of the
remaining General Partners, or if there is no remaining General Partner, then a
liquidating agent appointed by Two-Thirds-in-Interest of the Limited Partners
(the remaining General Partner or such Person so designated hereinafter referred
to as the "Liquidator"), shall commence to wind up the affairs of the
Partnership and to liquidate the Partnership's Assets. The Partners shall
continue to share all income, losses and allocations during the period of
liquidation in accordance with Articles IV and V. The Liquidator shall have full
right and unlimited discretion to determine the
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time, manner, and terms of any sale or sales of Partnership Assets pursuant to
such liquidation, giving due regard to the activity and condition of the
relevant market and general financial and economic conditions.
(c) The Liquidator shall have all of the rights and powers
with respect to the assets and liabilities of the Partnership in connection with
the liquidation and termination of the Partnership that the Management Committee
would have with respect to the assets and liabilities of the Partnership during
the term of the Partnership, and the Liquidator is hereby expressly authorized
and empowered to execute any and all documents necessary or desirable to
effectuate the liquidation and termination of the Partnership and the transfer
of any assets.
(d) Notwithstanding the foregoing, a Liquidator which is not a
General Partner shall not be deemed a Partner in this Partnership and shall not
have any of the economic interests in the Partnership of a Partner; and such
Liquidator shall be compensated for its services to the Partnership at normal,
customary and competitive rates for its services to the Partnership as
reasonably determined by Two-Thirds-in-Interest of all the Partners.
Section 11.3. Distribution in Liquidation. Upon liquidation of
Partnership, distributions of Partnership Assets shall be made in the following
amounts and order of priority:
(a) first, to pay the costs and expenses of the winding up,
liquidation and the termination of the Partnership;
(b) second, to creditors of the Partnership, in the order of
priority provided by law, but not including those liabilities (other
than liabilities to any General Partner for any expenses of the
Partnership paid by such General Partner for any expenses of the
Partnership paid by such General Partner or its Affiliates to the
extent such General Partner is otherwise entitled to reimbursement
hereunder) to the Limited Partners or to the General Partners in their
capacity as Partners;
(c) third, to establish reserves reasonably adequate to meet
any and all contingent or unforeseen liabilities or obligations of the
Partnership, provided that at the expiration of such period of time as
the Liquidator may deem advisable, the balance of such reserves
remaining after the payment of such contingencies or liabilities shall
be distributed as hereinafter provided;
(d) fourth, to the Partners for loans, if any, made by them to
the Partnership;
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(e) fifth, to the Partners other than CFH in proportion to
their respective Capital Account Shares, the aggregate amount of Unpaid
Quarterly Yield Amounts and Unrecovered Capital for all such Partners;
and
(f) sixth, the aggregate amount remaining for distribution in
cash and the Distribution Value of any other assets of the Partnership
(the "Capital Liquidation Amount") shall be simultaneously distributed
to the Partners either:
(1) (i) for CFH, an amount equal to the positive
balance of CFH's Capital Account; and (ii) for each other
Partner, an amount equal to the Capital Liquidation Amount
minus the amount specified in subclause (1)(i) of this clause
(f) distributed in proportion to their respective positive
Capital Account balances; or
(2) proportionately according to the positive
balances in the respective Partner's Capital Account;
whichever of (1) or (2) yields a larger aggregate total for the Partners other
than CFH.
If the Liquidator, in its sole discretion, determines that
Partnership Assets other than cash are to be distributed, then the Liquidator
shall cause the Value of the assets not so liquidated to be determined. Such
assets shall be retained or distributed by the Liquidator as follows:
(i) The Liquidator shall retain assets having an appraised
value, net of any liability related thereto, equal to the amount by
which the net proceeds of liquidated assets are insufficient to satisfy
the requirements of subparagraphs (a), (b), and (c) of this Section
11.3.
(ii) The remaining assets shall be distributed to the Partners
in the manner specified in subparagraphs (d), (e) and (f) of this
Section 11.3.
If the Liquidator, in its sole discretion, deems it not feasible or desirable to
distribute to each Partner its allocable share of each asset, the Liquidator may
allocate and distribute specific assets to one or more Partners as the
Liquidator shall reasonably determine to be fair and equitable, taking into
consideration, inter alia, the Distribution Value of the assets and the tax
consequences of the proposed distribution upon each of the Partners (including
both distributes and others if any). Any distributions in kind shall be subject
to such conditions relating to the disposition and management thereof as the
Liquidator deems reasonable and equitable.
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Section 11.4. Final Reports. Within a reasonable time
following the completion of the liquidation of the Partnership's Assets, the
Liquidator shall supply to each of the Partners a statement audited by the
Accountants which shall set forth the assets and liabilities of the Partnership
as of the date of complete liquidation and each Partner's portion of
distributions pursuant to Section 11.3.
Section 11.5. No Rights to Non-Cash Assets. No Partner shall
have any right to demand or receive specific property other than cash upon
dissolution and termination of the Partnership.
Section 11.6. Deficit Restoration. Upon liquidation of the
Partnership CFH shall contribute to the Partnership cash in an amount sufficient
to restore any deficit in CFH's Capital Account to zero and such amount shall be
distributed by the Partnership in accordance with the provision of Section 11.3.
No other Partner shall have any liability to restore any deficit in its Capital
Account. The obligations of CFH to make Capital Contributions pursuant to
Article III and this Section 11.6 are for the exclusive benefit of the
Partnership and not of any creditor of the Partnership; no such creditor is
intended as a third-party beneficiary of this Agreement nor shall any such
creditor have any rights hereunder, including, but without limitation, the right
to enforce any capital contribution obligation of CFH.
Section 11.7. Termination. The Partnership shall terminate
when all property owned by the Partnership shall have been disposed of and the
assets shall have been distributed as provided in Section 11.3. The Liquidator
shall then execute and cause to be filed a Certificate of Cancellation of the
Partnership.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, five days after mailed by certified mail with postage paid
and return receipt requested, or sent by facsimile transmissions to the parties
at the following addresses and facsimile numbers (or at such other address or
facsimile number for a party as such party shall designate in a notice given
pursuant to this Section).
(a) If to CFH, to:
CFHF Partners, L.P.
11100 Santa Monica Blvd.
Suite 1990
West Los Angeles, CA 90025
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Facsimile: (310) 473-3813
Attention: John Hall
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Dennis Drebsky, Esq.
(b) If to Towers, to:
Towers Financial Corporation
417 Fifth Avenue
New York, New York 10016
Attention: Alan Cohen, Trustee
Facsimile: (212) 779-7769
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Terrence A. Corrigan, Esq.
Telecopier: (212) 747-1526
and to the Persons in (e) below
(c) If to the Partnership, to:
1525 Locust Street
17th Floor
Philadelphia, PA 19102
(d) If to any Limited Partner:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 1004-1490
Attention: Richard L. Epling, Esq.
Facsimile: (212) 858-1500
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(e) If to the Committee to:
Mr. Ronald O. Drake, Co-Chairman
The Official Committee of Unsecured
Creditors of Towers Financial Corporation
LaSalle National Bank
One EAB Plaza
Uniondale, New York 11555-5729
Facsimile: (516) 296-6506
Mr. Derrick Royal, Co-Chairman
The Official Committee of Unsecured
Creditors of Towers Financial Corporation
City of Detroit Police and Fire
Retirement System
6525 Lincoln
Detroit, Michigan 48202
Facsimile: (313) 871-7024
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Richard L. Epling, Esq.
Facsimile: (212) 858-1500
Section 12.2. Amendments. Amendments to this Agreement which
do not adversely affect the right of any Limited Partner in any material respect
may be made by the Management Committee with the approval of all the General
Partners without the consent of any Limited Partner if those amendments are (i)
of an inconsequential nature (as reasonably determined by the Management
Committee but if Towers is not at such time a General Partner, as determined by
at least five members of the Management Committee), (ii) for the purpose of
admitting Additional Limited Partners or Substituted Limited Partners as
permitted by this Agreement, (iii) necessary to maintain the Partnership's
status as a partnership according to Section 7701(a)(2) of the Code, (iv)
necessary to preserve the validity of any and all allocations of Partnership
income, gain, loss or deduction pursuant to Section 704(b) of the Code, or (v)
contemplated by this Agreement. Amendments to this Agreement other than those
described in the foregoing sentence may be made only if embodied in an
instrument signed by all the General Partners and Two-Thirds-in-Interest of the
Limited Partners; provided, however, that, unless otherwise specifically
contemplated by this Agreement, no amendment to this Agreement shall (i) without
the consent of all Partners, change or alter this Section 12.2, or (ii) without
the consent of each of the Partners adversely affected thereby, except as
contemplated herein, increase the liability of any Limited Partner, decrease any
Limited Partner's interest in profits and distributions or increase any Limited
Partner's interest in losses. The Partnership shall send to each
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Limited Partner a copy of any amendment executed by the General Partners
pursuant to this Section 12.2.
Section 12.3. Entire Agreement. This Agreement, together with
the Contribution Agreement, constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes any prior agreement or
understanding among the parties with respect to the subject matter hereof.
Section 12.4. Governing Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of Delaware, without
giving effect to the provisions, policies or principles thereof relating to
choice or conflict of laws.
Section 12.5. Binding Effect. Except as provided otherwise
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective legal representatives, successors and assigns.
Section 12.6. Counterparts. This Agreement may be executed
either directly or by an attorney-in-fact, in any number of counterparts of the
signature pages, each of which shall be considered an original.
Section 12.7. Separability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or affecting
the validity or enforceability of such provision in any other jurisdiction.
Section 12.8. Captions. The section and other captions
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
Section 12.9. Gender and Number. Whenever required by the
context hereof, the singular shall include the plural and the plural shall
include the singular. The masculine gender shall include the feminine and neuter
genders, and the neuter gender shall include the masculine and feminine genders.
C-42
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the 18th day of March, 1994.
GENERAL PARTNER:
CFHF Partners, L.P.
By: CFHF, Inc., General Partner
By:/s/ John T. Hall
------------------------------------
John T. Hall
President
GENERAL PARTNER:
Towers Financial Corporation
By:/s/ Alan Cohen
-----------------------------------------
Name: Alan Cohen
Title: Trustee
LIMITED PARTNER:
Towers Limited Partner
Subsidiary Corp.
By:/s/ William J. Fitzgerald
-----------------------------------------
Name: William J. Fitzgerald
Title: Attorney-in-Fact
Consented to:
John T. Hall
as withdrawing limited partner.
/s/ John T. Hall
C-43
<PAGE>
ARTICLE X
RESTRICTION ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS
10.1. Transfer Restrictions. In accordance with Sections 9.3 and 9.4
of the Partnership Agreement, Towers hereby transfers all of its general
partnership interest in Qualis Care Partners to the Creditors in the manner
described in Articles III and V of this Plan and such partnership interest
shall immediately and automatically be converted to limited partnership
interests without further action by Towers or the Creditors. Except as provided
in Section 10.2 hereof, in the event of the Confirmation, this Plan shall
constitute an amendment to the Partnership Agreement, as provided in Section
9.3 of the Partnership Agreement, so that from and after the Effective Date
there shall be no sale, exchange, transfer, assignment, pledge, creation of a
security interest in, hypothecation or other disposition (each, a "Transfer")of
any Qualis Care Partners Limited Partnership Interests to any Person (or group
of Persons acting in concert), other than (i) a Transfer in which the basis of
the Qualis Care Partners Limited Partnership Interest in the hands of such
Person (or group of Persons acting in concert) is determined, in whole or in
part, by reference to its basis in the hands of the transferor or is determined
under Code Section 732; (ii) a Transfer or Transfers by a holder of Qualis Care
Partners Limited Partnership Interests, during any thirty-day period,
representing in the aggregate more than five percent (5%) of the total of the
Qualis Care Partners Limited Partnership Interests; (iii) a Transfer by death;
or (iv) a Transfer by operation of law.
10.2. Valid Transfers. Section 10.1 shall not prevent a valid Transfer
if the transferor obtains both the written consent of CFH, which consent may be
given or refused in CFH's sole and absolute discretion, and the written
approval of at least five (5) members of the Management Committee of Qualis
Care Partners and provides Qualis Care Partners with an opinion of counsel
satisfactory in form and substance to Qualis Care Partners to the effect that
(i) the Transfer shall not result in (a) the Partnership being treated as an
association taxable as a corporation for federal income tax purposes under Code
Section 7704 or otherwise, or (b) the termination of the Partnership under Code
Section 708; and (ii) the Transfer would not violate the then applicable
federal or state securities laws or rules or regulations of the Securities and
Exchange Commission, state securities commissions or any other governmental
authorities with jurisdiction over such Transfer. Without limiting or
restricting in any manner the effectiveness of the foregoing provisions, Qualis
Care Partners may rely and shall be protected in relying on its limited
partnership lists and transfer records for all purposes relating to such
notices, voting, payment of partnership distributions or other communications
or distributions to its limited partners. In no event shall a Transfer be
approved by the Management Committee (i) if such Transfer could in the
reasonable judgment of the Management Committee result in (I) the Partnership
being treated as a "publicly traded partnership" within the meaning of Section
7704 of the Code or (II) the Partnership otherwise being treated as an
<PAGE>
association taxable as a corporation for federal income tax purposes; or (ii)
if such Transfer (I) would violate the then applicable federal or state
securities laws or rules and regulations of the Securities and Exchange
Commission, state securities commissions or any other governmental authorities
with jurisdiction over such Transfer or (II) would affect the Partnership's
existence or qualification as a limited partnership under any applicable state
law.
10.3. Legend. All certificates evidencing ownership of Qualis Care
Partners Limited Partnership Interests distributed under this Plan shall bear a
conspicuous legend on the face thereof as follows:
"THE LIMITED PARTNERSHIP INTERESTS REPRESENTED HEREBY ARE SUBJECT TO
RESTRICTIONS PURSUANT TO ARTICLE X OF THE JOINT PLAN OF REORGANIZATION OF
TOWERS FINANCIAL CORPORATION AND ITS AFFILIATES, WHICH ARTICLE IS REPRINTED IN
ITS ENTIRETY ON THE BACK OF THIS CERTIFICATE. THE LIMITED PARTNERSHIP INTERESTS
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
ALTHOUGH SUBSEQUENT DISPOSITION OF THE LIMITED PARTNERSHIP INTERESTS BY ITS
RECIPIENTS MAY BE EXEMPT FROM REGISTRATION AND NOT SUBJECT TO HOLDING PERIODS
IN SOME CIRCUMSTANCES, CERTAIN RECIPIENTS OF THE SECURITIES -- SPECIFICALLY
THOSE RECIPIENTS DEEMED TO BE "UNDERWRITERS" AS DEFINED UNDER SECTION 2(11) OF
THE SECURITIES ACT OF 1933 -- MAY BE UNABLE TO RESELL SUCH SECURITIES ABSENT
REGISTRATION OF THOSE SECURITIES UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE LAW OR ABSENT EXEMPTION THEREFROM. IT IS RECOMMENDED THAT
CREDITORS CONSULT THEIR OWN COUNSEL."
10.4. Waiver and Modification. Nothing contained in this Article X
shall restrict or impair in any way the rights of the Towers Representatives,
pursuant to the Partnership Agreement, in their sole discretion, to waive or
modify these transfer restrictions for the benefit of the limited partners of
Qualis Care Partners, reconstitute the Partnership as a Delaware corporation in
the manner provided in Section 6.3(b)(i) of the Partnership Agreement, cause
the registration of the limited partnership interests of the Partnership or the
shares of capital stock of such corporation to be registered under applicable
federal and state securities laws or otherwise take any action permitted under
the Partnership Agreement.
<PAGE>
ARTICLE XII
AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Pursuant to Bankruptcy Code Section 1123, the Partnership Agreement is
hereby amended as follows:
(a) Section 6.3(a)(y) of the Partnership Agreement is hereby amended
as follows: "(y) the affirmative vote of Partners whose aggregate Capital
Account balances exceed 50% of the aggregate Capital Account balances of all
Partners (other than CFH and its Affiliates) at such time, shall be necessary
to:";
(b) The last paragraph of Section 6.3(b) of the Partnership Agreement
is hereby amended as follows:
"Partners whose aggregate Capital Account balances exceed 50% of the
aggregate Capital Account balances of all Partners (other than CFH and its
Affiliates) at such time shall have the right to direct Towers as a General
Partner (or the Towers designees referred to above) to take or refrain from any
action contemplated by this Section 6.3(b).";
(c) Section 6.10 of the Partnership Agreement is hereby amended so
that each reference to "Towers" shall read "the two members of the Management
Committee designated by Towers";
(d) Section 6.11 of the Partnership Agreement is hereby amended by
deleting the word "creditors" in the first sentence thereof;
(e) Section 7.5 of the Partnership Agreement is hereby amended so that
the reference to "Towers" shall read "the two members of the Management
Committee designated by Towers";
(f) Section 9.3(B) of the Partnership Agreement is hereby amended by
inserting after the last word in the sentence ", and the written approval of at
least five members of the Management Committee"; and
(g) Section 9.5(a) of the Partnership Agreement is hereby amended by
inserting after the last word in the sentence ", and the written approval of at
least five members of the Management Committee".
<PAGE>1
CONTRIBUTION AGREEMENT
Contribution Agreement, dated as of March 18, 1994 ("Contribution
Agreement" or "Agreement"), by and among CFHF Partners, L.P., a Delaware limited
partnership ("CFH"), Towers Financial Corporation ("Towers"), a Delaware
corporation on behalf of itself and such of its subsidiaries as have any right,
title and interest in any of the Towers Assets (hereinafter defined), Towers
Collection Service, Incorporated ("Towers Collection") and Healthcare Partners,
L.P., a Delaware limited partnership ("Partnership").
GENERAL
Towers together with certain of Towers' subsidiaries (collectively,
the "Towers Entities") filed voluntary petitions for relief under Chapter 11 of
Title 11 of the United States Code (together with applicable provisions of Title
28 of the United States Code, as amended from time to time, the "Bankruptcy
Code") on March 25 and 26, April 29 and May 20, 1993. The case (case number 93 B
41558(PBA)) (the "Bankruptcy Case") is currently pending in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
CFH has proposed to Alan Cohen as chapter 11 trustee (the "Trustee") of Towers
and the other Towers Entities to form a joint venture limited partnership with
CFH as general partner and Towers as general partner.
This Agreement provides for the terms and conditions of the various
transactions ("Transactions") pursuant to which Towers shall at the Closing on
the Closing Date (both as defined below) contribute certain (as described
herein) of its assets and liabilities to the Partnership, which the Partnership
shall accept and assume, and CFH shall at the Closing contribute certain assets
to the Partnership, which the Partnership shall accept, after which
contributions, CFH shall continue as a general partner of the Partnership,
Towers shall be admitted by and to the Partnership as a general partner and a
new subsidiary of Towers, Towers Limited Partner Subsidiary Corp., shall be
admitted to the Partnership as a limited partner, replacing an affiliate of CFH.
The Amended and Restated Agreement of Limited Partnership, which shall govern
the Partnership after the Closing, is set forth as Exhibit A to this Agreement
and is referred to herein as the "Partnership Agreement."
<PAGE>2
AGREEMENTS
----------
The parties hereto agree as follows:
ARTICLE I.
----------
THE TRANSACTIONS
----------------
1.1. Entry into Partnership of Towers and Additional Capital
Contribution of CFH. (a) At the Closing on the Closing Date, Towers and CFH
shall execute and deliver the Partnership Agreement and, simultaneously
therewith, the contributions provided below in this Section 1.1 shall be made to
and accepted or assumed by the Partnership.
(b) Towers shall contribute to the Partnership $20,000,000 in
cash and all of its right, title and interest in and to only certain of its
assets (the "Towers Assets") as described in Schedule 1.1(b) to this
Contribution Agreement and the Partnership shall assume (and thereby agree fully
and timely to pay and perform) certain corresponding liabilities (the "Towers
Liabilities") as described in Schedule 1.1(b) to this Contribution Agreement,
and Towers shall be admitted to the Partnership as a general partner, and shall
receive a general partnership interest in the Partnership as set forth in the
Partnership Agreement. Towers Limited Partner Subsidiary Corp. shall contribute
$1 in cash and shall be admitted to the Partnership as a limited partner,
replacing an affiliate of CFH, and Towers Limited Partner Subsidiary Corp. shall
receive a limited partnership interest in the Partnership as set forth in the
Partnership Agreement. The Towers Assets shall be contributed free and clear of
all liens, claims, interests and encumbrances (other than the Towers
Liabilities).
(c) CFH, sole general partner of the Partnership prior to
consummation of the Transactions, shall, at the Closing on the Closing Date,
contribute to the Partnership the additional capital contribution consisting of
(i) $5,000,000 in cash, and (ii) the Software as described in Schedule
1.1(c)-Part A to this Contribution Agreement, and (iii) the assets listed on
Schedule 1.1(c)-Part B to this Contribution Agreement (the items referred to in
clauses (ii) and (iii) (collectively, the "CFH Assets")). In all events, the
Partnership is hereby granted an unlimited right to use the CFH Assets. CFH
shall continue as a general partner of the Partnership, and CFH shall hold a
general partnership interest in the Partnership as set forth in the Partnership
Agreement. The CFH Assets shall be contributed free and clear of all liens,
adverse claims, interests and encumbrances except that CFH makes no
representation or warranty regarding the consequences of the rights of (x) the
holders of the Non-Voting Preferred Stock (the "Preferred Holders") of Lightship
Acquisition Corp., a Delaware corporation ("LAC") with respect to the transfer
of substantially all the assets of LAC, and (y) American Insured Receivables
Fund,
<PAGE>3
Inc. ("Amerifund") pursuant to that certain Bill of Sale between LAC and
Amerifund dated as of October 27, 1993 (the "Bill of Sale") (the items referred
to in (x) and (y) being referred to as the "Exceptions").
1.2. Ownership of Partnership. Immediately following the Closing, the
Partnership shall be owned and its partners shall be as set forth in the
Partnership Agreement.
1.3. Deliveries. At the Closing on the Closing Date the deliveries
described in Section 8.2 shall be completed.
ARTICLE II.
-----------
REPRESENTATIONS AND WARRANTIES OF TOWERS
----------------------------------------
The Towers Entities hereby jointly and severally represent and warrant
to CFH and the Partnership, solely for the purposes of Section 4.2 below, as
follows:
2.1. Authority and Capacity. On February 2, 1994 the Bankruptcy Court
entered an order (the "Approval Order") authorizing and approving the
Transactions, pursuant to which the Towers Entities have all requisite legal
capacity to enter into this Agreement, to perform all of the terms and
conditions contained herein and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Towers and Towers
Collection.
2.2. No Conflicts. Upon the entry by the Bankruptcy Court of the
Approval Order, the authorization, execution and delivery of this Agreement by
Towers and Towers Collection and the consummation of the transactions
contemplated hereby by Towers and Towers Collection shall not violate any
provision of any law, statute, ordinance, rule or regulation or judicial or
administrative order, writ, award, judgment, injunction or decree applicable to
Towers or Towers Collection (other than with respect to the contribution of
Towers' right, title and interest in and to the capital stock of Towers
International Reinsurance Corporation ("TIRC"), as to which no representation or
warranty is made).
2.3. Governmental Approvals. Upon the entry by the Bankruptcy Court of
the Approval Order, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not require any Towers
Entity to obtain any consent, approval or action of, or make any filing with or
give any notice to, any governmental, administrative or regulatory body or
judicial agency or authority, except where the failure to obtain such consents,
approvals or actions, to make such filing or give such notice would not have a
material adverse effect on the business, operations or condition (financial or
otherwise) of the Partnership.
<PAGE>4
ARTICLE III.
------------
REPRESENTATIONS AND WARRANTIES
------------------------------
OF CFH; DISCLAIMER OF RECOURSE TO TOWERS
----------------------------------------
3.1. CFH. CFH represents and warrants to the Towers Entities and the
Partnership as --- follows:
(a) Organization. CFH is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite power and authority to own its properties and to carry on
its business as now being conducted.
(b) Authorization. CFH has full power and authority to enter into
this Agreement and the Partnership Agreement, to perform all of the terms and
conditions contained herein and therein and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement, the Partnership Agreement and the agreements referred to herein and
therein by CFH have been duly and validly authorized and approved by CFH, and no
other actions are necessary on the part of CFH to authorize this Agreement, the
Partnership Agreement, the agreements referred to herein and therein and the
transactions contemplated hereby or thereby. This Agreement, the Partnership
Agreement and the other documents, instruments and certificates contemplated
herein and therein constitute valid and binding agreements of CFH enforceable
against CFH in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors' right generally and by general
principles of equity.
(c) No Conflicts. The authorization, execution and delivery of
this Agreement and the Partnership Agreement by CFH and the consummation of the
transactions contemplated hereby and thereby by CFH shall not (i) violate any
provision of any law, statute, ordinance, rule or regulation or judicial or
administrative order, writ, award, judgment, injunction or decree applicable to
CFH, LAC or Lightship Financial Group, Inc., a Delaware corporation ("LFG"),
including, without limitation, any provision of law or governmental order of
Barbados with respect to the transfer of ownership of TIRC or (ii) except for
the Exceptions, conflict with the terms, conditions or provisions of the charter
documents or bylaws of CFH, LAC or LFG, or any agreement, commitment or other
instrument binding upon CFH, LAC or LFG or their respective property.
(d) Governmental Approvals. Upon the entry by the Bankruptcy
Court of the Approval Order, (i) the execution and delivery of this Agreement
and the Partnership Agreement by CFH and the consummation of the transactions
contemplated hereby and thereby will not require CFH, LAC or LFG to obtain any
consent, approval or action of, or make any filing with or give any notice
<PAGE>5
to any governmental, administrative or regulatory body or judicial agency or
authority, and (ii) all requisite approvals, orders and permits required to
operate the current and proposed business of CFH and the Partnership in
accordance with applicable laws, rules and regulations will have been obtained,
except in either case (i) or (ii) of this Section 3.1(d), where the failure to
obtain such consents, approvals or actions, to make such filing or give such
notice would not have a material adverse effect on the business, operations or
condition (financial or otherwise) of CFH or the Partnership; provided, however,
that at Tower's option, the Towers Entities' right, title and interest in and to
the capital stock of TIRC may be excluded from the Towers Assets by notice to
CFH, if CFH's representation and warranty in this Section 3.1(d) would not be
true and correct (without giving effect to the foregoing exception) as a result
of any such interest in such capital stock being a part of the Towers Assets.
(e) Broker's or Finder's Fees. CFH has not authorized any person or
entity to act as broker, finder or in any other similar capacity, and has not
incurred any obligations to any such person or entity, in connection with the
transactions contemplated by this Agreement.
(f) Ownership of CFH. All outstanding interests in CFH are owned by
John T. Hall, or companies wholly-owned by John T. Hall.
(g) Intellectual Property Assets. Subject to the Exceptions, as of the
Closing Date CFH is the sole and exclusive owner of the proprietary system
developed by CFH, LFG or Electronic Data Systems Corporation, specifically for
the business of the Partnership, and used for the purpose of underwriting,
funding, tracking and collecting of receivables from health care providers and
for billing and accounts receivables management and analysis for health care
providers (and referred to herein as the "Software"). The Software is used and
is intended for the purpose of the underwriting, funding, tracking and
collection of medical receivables and for billing and accounts receivables
management and analysis for health care providers as described in the proposal
submitted to the Trustee. Subject to the Exceptions, CFH has full power and
authority to grant the rights herein granted without the consent of any other
person or entity. The Software works and operates for its intended purpose. The
Software and associated written documentation is confidential and, subject to
the Exceptions, proprietary thereto. Subject to the Exceptions, CFH has the
exclusive right to use the Software and (l) no person or entity has a license to
use it or has any claim against CFH, LFG or LAC which may arise from the
existence of such proprietary systems (other than LFG and LAC which is hereby
granted a license to use the Software to service the loan portfolio described in
Schedule 3.1(g)) and (2) no outstanding order, decree, judgment or stipulation,
and no proceeding charging CFH, LFG or LAC with infringement of any intellectual
property rights, including, but
<PAGE>6
not limited to, patent, copyright and trade secret rights, has been served upon
CFH, LFG or LAC or is threatened to be filed, and the use of the Software will
not result in the infringement of any such intellectual property rights.
(h) Representations Regarding LAC and LFG. Each of the
representations and warranties set forth on Annex A hereto are hereby
incorporated by reference into this Section 3.1 and made a part hereof.
(i) CFH Assets Transferred Free and Clear of Liens. The CFH
Assets shall be transferred to the Partnership free and clear of all liens,
obligations and liabilities of CFH, LAC or LFG arising prior to the Closing Date
(it being agreed by the parties hereto that obligations arising after the
Closing Date, other than in connection with breaches on or prior to the Closing
Date, under any CFH Assets consisting of contracts conveyed hereby to the
Partnership shall be obligations of the Partnership).
(j) Source of Capital Contributions; Capitalization. Capital
contributions to CFH of $1,000,000 in demand promissory notes bearing 6%
interest per annum with John T. Hall as maker of such note and in form and
substance satisfactory to the Trustee, have been made. As of the Closing, the
aggregate net worth of CFH, exclusive of its Partnership interest in the
Partnership, shall be at least $1,000,000.
(k) No CFH Claim. Neither CFH nor any partner in CFH owns a
beneficial interest in any "claim" (as defined in ss. 101 of the Bankruptcy
Code) against Towers or any Towers Entity.
3.2. Towers. CFH ACKNOWLEDGES AND AGREES THAT THE TOWERS ENTITIES MAKE
NO REPRESENTATIONS OR WARRANTIES EXPRESSED OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE WARRANTY OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A
PARTICULAR PURPOSE REGARDING THE TOWERS ASSETS OR TOWERS LIABILITIES. THE TOWERS
ASSETS ARE TRANSFERRED "AS IS; WHERE IS." THERE ARE NO ORAL OR WRITTEN
AGREEMENTS OR WARRANTIES COLLATERAL TO OR AFFECTING THIS AGREEMENT. NEITHER THE
PARTNERSHIP NOR CFH SHALL HAVE RECOURSE AGAINST ANY TOWERS ENTITY, ANY PARTY IN
INTEREST OF ANY TOWERS ENTITY, THE TRUSTEE APPOINTED IN THE BANKRUPTCY CASE AND
THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS
AND ADVISORS. THE PARTNERSHIP AND CFH AGREE NOT TO ASSERT ANY CLAIM, DEFENSE, OR
OTHER POSITION INCONSISTENT WITH OR CONTRARY TO THE FOREGOING.
ARTICLE IV.
-----------
CONDITIONS
----------
4.1. Conditions to Obligation of Towers. The obligation of the Towers
Entities to consummate the transactions
<PAGE>7
contemplated by this Agreement is subject to the satisfaction of the following
conditions:
(a) CFH's Ongoing Credit Support. (i) CFH shall have provided to
Towers, at least ten (10) days prior to any Bankruptcy Court ordered auction
sale of the Towers assets provided for herein, a commitment or commitments from
a financial or investment institution satisfactory in form and substance to the
Trustee attesting to their belief and expectation that CFH is able to provide
the financial commitments contemplated in Section 7.3 of the Partnership
Agreement; and
(ii) CFH shall have provided to Towers, immediately prior to
the Closing (and in no event more than fifteen (15) business days after entry by
the Bankruptcy Court of the Approval Order) evidence satisfactory in form and
substance to the Trustee, (A) that the commitments provided for in Section
4.1(a)(i) above remain in effect as of the Closing Date and (B) either (I) that
CFH is ready, willing and able to provide first loss guarantees in an amount up
to $20 million sufficient to induce lenders initially to lend $50 million to the
Partnership, which lenders have provided written commitments thereof
satisfactory in form and substance to the Trustee; or (II) that CFH will make
available $20 million cash to be used by the Partnership to make loans.
The Towers Entities and the Trustee agree to waive the conditions in
this Section 4.1(a).
(b) Truth of Representations and Warranties of this Agreement.
The representations and warranties made by CFH in Section 3.1 of this Agreement
shall be true and correct in all material respects on and as of the Closing
Date. The agreements of CFH and the Partnership in Section 3.2 of this Agreement
shall have been fulfilled at all times prior to the Closing Date.
(c) Non-Competition Agreements. John T. Hall shall have entered
into a non-competition agreement substantially similar to Section 7.2 of the
Partnership Agreement and otherwise in form and substance satisfactory to the
Trustee.
4.2. Conditions to Obligation of CFH. The obligation of CFH to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the condition that the representations and warranties made by
the Towers Entities in Article II of this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except that any
representation or warranty that relates to a specific date shall be true and
correct in all material respects on and as of that date.
4.3. Conditions to Obligations of CFH and Towers. The obligation of
each of CFH and Towers to consummate the transactions contemplated by this
Agreement is subject to the
<PAGE>8
entry by the Bankruptcy Court of the Approval Order as to which no stay is in
effect.
ARTICLE V.
----------
EMPLOYEES
---------
5.1. Towers Employees. With regard to all persons that have been
employed or are currently employed by any of Towers Entities ("Towers
Employees"):
(a) Termination/Offer of Employment. The Partnership shall not be
obligated to employ any Towers Employees, but the Partnership may, in its sole
discretion, choose to offer employment to certain of such employees.
(b) No Liability of CFH. Neither CFH nor the Partnership shall
have any liability, obligation or responsibility of any nature whatsoever with
respect to persons who were Towers Employees prior to the Closing Date arising
out of or relating to such persons' employment by any of the Towers Entities
prior to the Closing Date. Without limiting the generality of the immediately
preceding sentence, neither CFH nor the Partnership shall have any liability,
obligation or responsibility with respect to wages, salaries, vacation pay,
employee benefits whether insured or otherwise (including, but not limited to,
life insurance, medical and disability programs), pensions, profit sharing,
employment contracts or severance payments, if any, relating to any Towers
Entities arising out of or relating to such persons' employment by Towers or any
of the Towers Entities prior to the Closing Date. In addition, with respect to
any Towers Employees whom the Partnership may hire, it is agreed that the
Partnership shall not be required in any way to give such persons, in respect of
any of the Towers Entities' benefit plans for which they may be eligible, any
past service credit based on such persons' participation in employee benefit
plans of the Partnership.
5.2. Lightship Employees. With regard to all persons that have been
employed or are currently employed by LAC or LFG ("Lightship Employees"):
(a) Termination/Offer of Employment. The Partnership shall not be
obligated to employ any Lightship Employees, but the Partnership may, in its
sole discretion, choose to offer employment to certain of such employees.
(b) No Liability of Towers. Neither Towers nor the Partnership
shall have any liability, obligation or responsibility of any nature whatsoever
with respect to persons who were Lightship Employees prior to the Closing Date
arising out of or relating to such persons' employment by LAC or LFG prior to
the Closing Date. Without limiting the generality of the immediately preceding
sentence, neither Towers nor the
<PAGE>9
Partnership shall have any liability, obligation or responsibility with respect
to wages, salaries, vacation pay, employee benefits whether insured or otherwise
(including, but not limited to, life insurance, medical and disability
programs), pensions, profit sharing, employment contracts or severance payments,
if any, relating to LAC or LFG arising out of or relating to such persons'
employment by LAC or LFG prior to the Closing Date. In addition, with respect to
any Lightship Employees whom the Partnership may hire, it is agreed that the
Partnership shall not be required in any way to give such persons, in respect of
LAC or LFG benefit plans for which they may be eligible, any past service credit
based on such persons' participation in employee benefit plans of the
Partnership.
ARTICLE VI.
-----------
INTERIM ARRANGEMENTS
--------------------
6.1. From and after the Closing Date: The Partnership shall reimburse
each of the Towers Entities for their respective expenses allocable to the use
by the Partnership of designated (i) space currently leased by any Towers
Entity; (ii) employees of any Towers Entity; and (iii) computers and related
equipment and software leased by any Towers Entity and related personnel costs.
The Partnership shall not thereby acquire any ownership interest therein. On the
date of this Agreement, the Partnership will identify to Towers the amount of
office space desired to be used by the Partnership and the computer equipment
and related software and the employees of Towers required by the Partnership to
carry on the business of the Partnership. For such time as the Partnership shall
make use of such space, the Partnership shall pay Towers the Partnership's
proportionate share of the rent and utilities incurred by Towers computed on a
ratio of square footage identified for use by the Partnership divided by total
square footage leased by Towers. The Partnership shall also pay for all employee
costs, including salary and employee benefits for the employees designated by it
and the equipment lease payments incurred by any Towers Entity for the use of
the computer equipment and software. The Partnership may change its designation
of office space and equipment on thirty (30) days' written notice to Towers and
employee designations on fifteen (15) days' written notice to Towers. Upon 30
days' prior written notice by the Partnership to Towers, the Partnership shall
have the right to request the Towers Entities to apply to the Bankruptcy Court
to assume and assign to the Partnership any equipment, software or office space
lease to which a Towers Entity is a party with any "cure" or other payments
required by the Bankruptcy Court in connection therewith to be paid by the
Partnership. The agreements in this Article VI may be terminated by either the
Partnership or Towers upon forty (40) days' prior written notice to the other
party but will otherwise remain in full force and effect for six (6) months from
Closing.
<PAGE>10
ARTICLE VII.
------------
COLLECTION OPERATIONS
---------------------
7.1. Use of Facilities. The Partnership shall provide Towers and/or
Towers Collection such office space within the Partnership's operating facility
and use of computers, computer systems, all other equipment and related
personnel as is necessary for Towers and/or Towers Collection to conduct the
collection business presently conducted by Towers, Towers Collection and their
affiliates in scope and manner mutually agreed by the Partnership and Towers
(the "Collection Business"). The operating facility made available by the
Partnership shall be in a location where the Collection Business can efficiently
retain sufficient personnel to operate the Collection Business in a proper
manner. All costs and expenses of the Collection Business other than those
expressly provided for herein shall be the sole responsibility of Towers and/or
Towers Collection.
7.2. Managerial Support. The Partnership shall provide to Towers
and/or Towers Collection such managerial assistance and related oversight,
including, without limitation, the full or part time attention of up to four
management information system personnel, and asset control and tracking services
as Towers and/or Towers Collection may reasonably request. Towers and/or Towers
Collection shall retain all rights and responsibilities to operate the
Collection Business and may accept or reject the managerial or oversight advice
as, in its business judgment, Towers and/or Towers Collection sees fit.
7.3. Fee for Use of Facilities and Managerial Support. For a period of
five (5) years from the Closing Date, as compensation for the use of facilities
and managerial support provided by the Partnership to Towers and/or Towers
Collection, Towers and/or Towers Collection shall pay to the Partnership an
annual fee of $400,000, payable in quarterly portions of $100,000 each;
provided, however, that if Towers and/or Towers Collection provide notice of the
cancellation of the provisions of this Article VII within 90 days after the
Closing, then no fee shall be owed or paid to the Partnership pursuant to this
Section 7.3 and the Partnership shall not be required to pay or reimburse Towers
for the expenses referred to in clauses (i) and (iii) of the first sentence of
Section 6.1 with respect to the Collection Business. On the third anniversary of
the Closing Date, this annual fee will be adjusted to increase in percentage by
the percentage increase, if any, in the Consumer Price Index (All Urban
Consumers, 1982-84=100, Bureau of Labor Statistics) from the Closing Date until
the third anniversary of the Closing Date. Such increase will be effective for
the remaining two years of this agreement.
<PAGE>11
7.4. Indemnification. Towers and Towers Collection agree that they
will indemnify the Partnership against any claims, suits or proceedings by
third parties arising out of or related to the services performed by the
Partnership to the same extent as such indemnification is provided for the
General Partners in Section 6.11 of the Partnership Agreement. The Partnership
also agrees that it will indemnify Towers and Towers Collection against any
Damages (as defined in Section 10.2) arising out of or related to the services
performed by the Partnership to the same extent as such indemnification is
provided for the Limited Partners in Section 8.3 of the Partnership Agreement.
7.5. Business Referred to Towers Collection. The Partnership may,
although it is not required to, refer collection business to Towers Collection.
If any business is so referred to Towers Collection, Towers Collection agrees to
pay the partnership a mutually agreeable commission expressed as a percentage of
the amounts collected on terms no less favorable to Towers Collection as such
commission may be charged by an unaffiliated third party for referring similar
collection business to Towers Collection.
7.6. Option to Purchase. For a period of 30 days after (i) the fifth
anniversary of the Closing or (ii) if sooner terminated pursuant to Section 7.9,
the date of termination, other than due to an uncured default by, or the
bankruptcy of, the Partnership, the Partnership shall have the right (but not
the obligation) to purchase the then existing assets and assume the related
liabilities of the Collection Business for a price (not less than $1) equal to
five (5) times the audited pre-tax income of the Collection Business computed
pursuant to generally accepted accounting principles for the preceding twelve
(12) months. Upon the consummation of such a purchase, no further amounts shall
be owing by any Towers Entities pursuant to Section 7.3 or otherwise pursuant to
this Article VII. The Trustee, Towers, Towers Collection and its affiliates may
retain any of the original books, records or other information (including
computer tapes or disks) of the Collection Business but will provide copies (and
reasonable access to the originals) of such books, records or other information
to the Partnership. The option to purchase provided by this Section 7.6 will
lapse and cease to be effective 30 days after either (x) the fifth anniversary
of the Closing or (y) the date the provisions of this Article VII are terminated
pursuant to Section 7.9.
7.7. Costs and Economic Risks. Except as expressly provided herein, in
conducting the Collection Business Towers and/or Towers Collection shall (i)
remain liable for all costs and expenses; (ii) be entitled to all economic
benefits; and (iii) assume all economic risks.
7.8. Dissolution of Towers. If Towers is ordered dissolved pursuant to
a final, non-appealable order confirming a plan of reorganization or any
liquidation under either Chapter 11 or Chapter 7 of the Bankruptcy Code or
Towers is for any other reason dissolved or liquidated, then prior to any such
<PAGE>12
dissolution or liquidation, at Towers' option Towers, Towers Collection and any
other Towers Entity may transfer to the Partnership all of their respective
right, title and interest in the assets (excluding cash or cash equivalents)
representing the Collection Business for One ($1.00) Dollar plus the amortized
cost of computers and other equipment purchased (with the approval of the
Partnership) by the Collection Business after the date of Closing.
7.9. Duration. The provisions of this Article VII, except for the
indemnifications provided in Section 7.4 which shall survive without limitation,
shall remain in full force and effect for a period of five (5) years from
Closing unless canceled (a) by Towers or Towers Collection upon ten (10) days'
written notice to the Partnership; (b) by the Partnership if Towers or Towers
Collection is in material default of its obligations to the Partnership and such
material default remains uncured after sixty (60) days' written notice by the
Partnership to Towers and Towers Collection of such default; or (c) by mutual
agreement by Towers, Towers Collection and the Partnership. Without limiting the
generality of the foregoing, the fee provided in Section 7.3 shall cease upon
any such cancellation.
ARTICLE VIII.
-------------
CLOSING
-------
8.1. Closing. Unless this Agreement shall have been terminated
pursuant to Article IX hereof, the closing (the "Closing") shall be held not
earlier than ten days after entry by the Bankruptcy Court of the Approval Order,
as to which no stay is in effect, as soon thereafter as all the conditions in
Article IV have been satisfied or waived in writing by the appropriate party,
but no later than March 31, 1994 (the date of actual closing being referred to
herein as the "Closing Date") at the offices of Fried, Frank, Harris, Shriver &
Jacobson, counsel to the Trustee, at 10:00 A.M., in New York, New York, or at
such other time and place as shall be mutually agreed upon by the parties.
8.2. Deliveries at Closing. At the Closing, the parties shall deliver,
or cause to be delivered, agreements and instruments mutually satisfactory to
the Towers Entities and CFH to accomplish the transfers and/or assumptions of
the Towers Assets and Towers Liabilities and the CFH Assets to the
Partnership, not inconsistent with the terms of this Agreement and without
recourse to the Towers Entities or the Trustee. The Partnership shall pay all
sales and transfer taxes payable on the transfer and conveyance of the Towers
Assets and the CFH Assets except to the extent the Bankruptcy Court rules such
transfer and conveyance to be exempt from such taxes.
<PAGE>13
ARTICLE IX.
-----------
TERMINATION PRIOR TO CLOSING
----------------------------
9.1. Termination. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time on or before the
Closing Date:
(a) by a written agreement signed by CFH, Towers and Towers
Collection; or
(b) by any party or parties whose obligation to close or complete
the transactions herein contemplated is conditioned upon an event or matter
which shall not have occurred, been satisfied, completed or waived by such party
or parties on the Closing Date upon written notice from such party or parties;
or
(c) by CFH or Towers by written notice to the other parties
hereto if the Closing has not occurred by March 31, 1994, unless extended by
written agreement by CFH and Towers.
9.2. Procedure Upon Termination. If this Agreement shall have been
terminated pursuant to Section 9.1:
(a) each party will redeliver all documents and other material of
any other party relating to the transactions contemplated hereby, whether
obtained before or after the execution hereof, to the party furnishing the same;
and
(b) no party hereto shall have any further liability or further
obligation to any other party to this Agreement; provided, however, that any
termination pursuant to Section 9.1(b) or (c) shall not relieve any party whose
failure to fulfill an obligation under this Agreement was the cause of the
failure of the Closing to occur, from any liability to the other parties hereto.
ARTICLE X.
----------
INDEMNIFICATION
---------------
10.1. Survival of Representations and Warranties. The representations
and warranties of the parties contained herein shall survive the Closing Date or
the termination of this Agreement in accordance with Article IX hereof and for a
period of three years from the Closing Date (except for the representations,
warranties or other obligations of any Towers Entity pursuant to Article II
which shall not survive the Closing and except that Section 3.2 shall survive
without limitation); provided, however, that if any claim is made within such
three year period such claim shall survive thereafter.
<PAGE>14
10.2. Indemnification by the Partnership. If the Closing shall occur,
the Partnership shall indemnify, defend and hold each of the Towers Entities and
each of the Trustee appointed for any Towers Entity in the Bankruptcy Case and
their respective affiliates, directors, officers, employees, agents, attorneys
and advisors harmless from, against and in respect of any claim, loss,
liability, obligation, damage, judgment or expense (including reasonable
attorneys' fees and expenses) ("Damages") incurred by it or them or anyone of
them arising from or in connection with the Towers Liabilities assumed by the
Partnership pursuant to Section 1.1(b) hereof, or arising from or in connection
with the Towers Assets or the CFH Assets transferred to the Partnership pursuant
to Section 1.1(b) or (c), but not including any Damages arising from or in
connection with the liabilities of Towers retained by Towers.
10.3. Indemnification by CFH. CFH shall indemnify, defend and hold the
Partnership, each of the Towers Entities, the Trustee appointed for any Towers
Entity in the Bankruptcy Case, and their respective affiliates, directors,
officers, employees, agents, attorneys and advisors harmless from, against and
in respect of any claim, loss, liability, obligation, damage, judgment or
expense (including reasonable attorneys' fees and expenses) ("Damages") incurred
by it or them or any one of them (regardless of any disclosure by CFH or
investigation made by or on behalf of any of the parties to be indemnified)
arising from or in connection with (i) any breach by CFH of any of the
representations, warranties or agreements made by CFH in this Agreement or (ii)
the authorization, execution and delivery of this Agreement and the Partnership
Agreement by CFH and the consummation of the transactions contemplated hereby
and thereby conflicting with or breaching the terms, conditions or provisions of
the charter documents or by-laws of LAC or LFG, or any agreement, commitment or
other instrument binding upon LAC or LFG or their respective property.
10.4. Notice of Claims. Whenever any claim arises for indemnification
hereunder, the party seeking to enforce its indemnification rights (the
"Indemnified Party") shall notify the party against whom indemnification is
sought (the "Indemnifying Party") promptly after the Indemnified Party has
actual knowledge of the facts constituting the basis for such claim. Such notice
shall specify all material facts known to the Indemnified Party giving rise to
such claim for indemnification and the amount of such claim to the extent
alleged or otherwise determinable, but the failure to give such notice shall not
limit the obligation of the Indemnifying Party except to the extent of actual
prejudice.
10.5. Right to Defend. In connection with any potential claim for
indemnification involving a threatened claim or demand by a third party against
the Indemnified Party, the Indemnifying Party shall be entitled to defend such
claim or demand in the name of the Indemnified Party at the Indemnifying Party's
expense and through counsel of its choosing (but
<PAGE>15
reasonably acceptable to the Indemnified Party) if the Indemnifying Party gives
written notice of its intention to do so to the Indemnified Party within five
days after receipt of notice of the claim or demand. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in the
defense thereof by counsel of its own choosing. If the Indemnifying Party fails
to give notice to the Indemnified Party in a timely manner of its acceptance of
the defense of a claim or demand, the Indemnified Party shall have the right,
but not the obligation, to defend against such claim or demand and make any
compromise or settlement thereof and recover all Damages resulting therefrom
from the Indemnifying Party.
10.6. Cooperation. Whether or not the Indemnifying Party chooses to
defend a claim, the parties hereto shall cooperate with each other in the
defense of any suit, action, investigation, proceeding or claim that may give
rise to a claim or potential claim for indemnification hereunder.
ARTICLE XI.
-----------
GENERAL PROVISIONS
------------------
11.1. Entire Agreement. This Agreement (including all Exhibits and
Schedules hereto) embodies the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings between the parties with respect
to such subject matter.
11.2. Amendment. This Agreement may be amended only by an instrument
in writing signed by all of the parties hereto and the Official Committee of
Unsecured Creditors of Towers Financial Corporation (so long as such committee
is in existence).
11.3. Waiver of Compliance. Any failure of any party hereto to comply
with any obligation, covenant, agreement or condition herein may be waived in
writing by each party entitled to the benefit thereof, but such waiver shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
11.4. Expenses. CFH shall be granted reimbursement by Towers for the
amount of reasonable legal fees, accounting, travel, and related expenses
actually incurred by CFH (or on its behalf) since October 1, 1993 in undertaking
its due diligence of Towers' assets and liabilities and preparing and/or
negotiating the Interim Agreement, Pre-Closing Agreement, Contribution Agreement
and the Partnership Agreement, up to $300,000 (subject to review and approval by
the Bankruptcy Court as to reasonableness but not entitlement). Except as
otherwise provided in Article X hereof or the first sentence of this Section
11.4 or in the Order of the Bankruptcy Court dated
<PAGE>16
December 10, 1993, whether or not the transactions contemplated by this
Agreement are consummated, each party shall pay its own legal, accounting and
other expenses incurred by it or on its behalf in connection with this Agreement
and the transactions contemplated herein. The Partnership shall not pay any fees
or expenses referred to in the first sentence of this Section 11.4.
11.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand,
five days after mailing by certified mail with postage paid and return receipt
requested, or sent by facsimile transmission to the parties at the following
addresses and facsimile numbers (or at such other address or facsimile number
for a party as such party shall designate in a notice given pursuant to this
Section):
(a) If to any Towers Entity, to:
Towers Financial Corporation
417 Fifth Avenue
New York, New York 10016
Attn: Alan Cohen, Trustee
Facsimile: (212) 779-7769
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attn: Terrence A. Corrigan, Esq.
Facsimile: (212) 820-8587
and to the Persons in (c) below
(b) If to CFH:
CFHF Partners, L.P.
11100 Santa Monica Blvd.
Suite 1990
West Los Angeles, CA 90025
Attn: John Hall
Facsimile: (310) 473-3813
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attn: Dennis L. Drebsky, Esq.
Facsimile: (212) 878-8375
<PAGE>17
(c) If to the Committee to:
Mr. Ronald O. Drake, Co-Chairman
The Official Committee of Unsecured
Creditors of Towers Financial Corporation
LaSalle National Bank
One EAB Plaza
Uniondale, New York 11555-5729
Facsimile: (516) 296-6506
Mr. Derrick Royal, Co-Chairman
The Official Committee of Unsecured
Creditors of Towers Financial Corporation
City of Detroit Police and Fire Retirement System
6525 Lincoln
Detroit, Michigan 48202
Facsimile: (313) 871-7024
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attn: Richard L. Epling, Esq.
Facsimile: (212) 858-1500
11.6. Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any party hereto
without the prior written consent of the other parties hereto.
11.7. Third-Party Beneficiaries. Nothing herein expressed or implied
is intended to or shall be construed to confer upon or give any person or
entity, other than the parties hereto and their successors and permitted assigns
(and the intended indemnitees under Article X), any rights or remedies under or
by reason of this Agreement.
11.8. Governing Law. The Agreement shall be governed by and construed
in accordance with the Bankruptcy Code and, to the extent not inconsistent
therewith, the law of the State of New York as to all matters, including, but
not limited to, matters of validity, construction, effect and performance.
11.9. Jurisdiction. Each of parties hereto agrees that the Bankruptcy
Court shall have sole and exclusive jurisdiction in respect of any dispute or
action arising under or in connection with this Agreement and hereby consents to
the personal jurisdiction of the Bankruptcy Court in connection with any such
action and to service of process upon it at the address set forth in Section
11.5; provided, however, that the refusal of
<PAGE>18
the Bankruptcy Court to exercise or retain such jurisdiction shall not result in
any claim or remedy on the part of CFH or the Partnership.
11.10. Further Assurances. Following the Closing, each of the parties
shall, without further consideration, use reasonable efforts to execute and
deliver to the other such additional documents and instruments and to take such
other actions as the other may reasonably request to carry out the purposes of
this Contribution Agreement. Without limiting the generality of the foregoing,
Towers and the Partnership hereby authorize and empower each other, from and
after the Closing Date, to receive and open (unless the envelope is marked
"Personal" or "Confidential") mail addressed to the other, or any Towers Entity,
Towers Employee or employee of the Partnership or CFH in such employee's
capacity as an employee of a general partner of the Partnership and each agrees
to promptly deliver to the other any mail, checks or other documents received by
it which belong to, or with respect to which notice is required by, the other,
including, but not limited to, any mail, checks or other documents pertaining to
the Towers Assets, Towers Liabilities or CFH Assets.
11.11. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.12. Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
<PAGE>19
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement on the date first above written.
CFHF Partners, L.P.
By: CFHF, Inc., General Partner
By: /s/ John T. Hall
John T. Hall, President
TOWERS FINANCIAL CORPORATION
By: /s/ Alan Cohen
Title: Trustee
TOWERS COLLECTION SERVICE,
INCORPORATED
By: /s/ Alan Cohen
Title: Trustee
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 03/08/1994
944035950 - 2384265
CERTIFICATE OF LIMITED PARTNERSHIP
OF
Healthcare Partners, L.P.
This Certificate of Limited Partnership of Healthcare
Partners, L.P. (the "Limited Partnership") is being executed by the undersigned
for the purpose of forming a limited partnership pursuant to the Delaware
Revised Uniform Limited Partnership Act.
1. The name of the Limited Partnership is Healthcare
Partners, L.P.
2. The address of the registered office of the Limited
Partnership in the State of Delaware is 32 Loockerman
Square, Suite L-100, Dover, Delaware 19901. The Limited
Partnership's registered agent at that address is The
Prentice-Hall Corporation Systems, Inc.
3. The name and address of the general partner is as
follows:
NAME ADDRESS
CFHF PARTNERS, L.P. 1925 LOCUST STREET
17TH FLOOR
PHILADELPHIA, PA 19102
IN WITNESS WHEREOF, the undersigned, constituting all of the
general partners of the Partnership, has caused this Certificate of Limited
Partnership to be duly executed as of the 8th day of March, 1994.
By: /s/ John Hall
--------------------------------------
John Hall, President of CFHF, Inc.
General Partner of CFHF Partners, L.P.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 03/18/1994
944044339 - 2384265
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF LIMITED PARTNERSHIP
OF
HEALTHCARE PARTNERS, L.P.
It is hereby certified that:
FIRST: The name of the limited partnership (hereinafter called the
"Partnership") is HEALTHCARE PARTNERS, L.P.
SECOND: Pursuant to provisions of Section 17-202, Title 6, Delaware Code, the
Certificate of Limited Partnership is amended as follows:
3. The names and addresses of the general partners of
the Partnership are as follows:
NAME ADDRESS
CFHF PARTNERS, L.P. 1525 LOCUST STREET
17TH FLOOR
PHILADELPHIA, PA 19102
TOWERS FINANCIAL CORPORATION 417 FIFTH AVENUE
NEW YORK, NY 10016
The undersigned, general partners of the Partnership, executed this Certificate
of Amendment on March 18, 1994.
By: /s/ John Hall
--------------------------------------
John Hall, President of CFHF, Inc.
General Partner of CFHF Partners, L.P.
By: /s/ Alan Cohen
--------------------------------------
Alan Cohen, Trustee
Towers Financial Corporation
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:0 PM 07/11/1994
544126867 - 2384265
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF LIMITED PARTNERSHIP
OF
HEALTHCARE PARTNERS, L.P.
The undersigned, the general partners of Healthcare Partners,
L.P. (the "Partnership"), certify as follows:
FIRST: The name of the Partnership is Healthcare Partners,
L.P.
SECOND: In accordance with Section 17-202, Title 6, Delaware
Code, Paragraph I of the Certificate of Limited Partnership of the Partnership
is amended to state the following:
1. The name of the Partnership is Qualis Care, L.P.
IN WITNESS WHEREOF, the undersigned have executed this
certificate of Amendment on June 14, 1994.
CFHF PARTNERS, L.P.
General Partner
By CFHF, INC.
General Partner
By /s/ John Hall
----------------------------------
President
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 12/07/1995
950285880 - 2364265
CERTIFICATE TO RESTORE TO GOOD STANDING
A DELAWARE LIMITED PARTNERSHIP
PURSUANT TO TITLE 6, SEC. 17-1109
1. Name of Limited Partnership: QUALIS CARE, L.P.
2. Date of original filing with Delaware Secretary of State:
3/8/94
I, Michael D. Gervais, acting on behalf of the Management Committee of the above
named limited partnership, which has the full power of a General Partner of the
above named limited partnership, do hereby certify that this limited partnership
is paying all annual taxes, penalties and interest due to the State of Delaware.
I do hereby request this limited partnership be restored to Good Standing.
/s/ Michael D. Gervais
--------------------------------
Chief Operating Officer
as Authorized by the
Management Committee
Acting as General Partner
of Qualis Care, L.P.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
LIMITED PARTNERSHIP
Qualis Care, L.P., a limited partnership formed under Delaware
law, DOES HEREBY CERTIFY:
FIRST: that the registered office of Qualis Care, L.P. in the
State of Delaware be and hereby is changed to Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle, and the
authorization of the present registered agent of this corporation be and the
same is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall be and is
hereby constituted and appointed the registered agent of this corporation at the
address of its registered office.
IN WITNESS WHEREOF, Qualis Care, L.P. has caused this
statement to be signed by the Chief Operating Officer as authorized by the
Management Committee acting as its general partner this 25th day of October,
1995.
/s/ Michael D. Gervais
-----------------------------------
By: Michael D. Gervais
Chief Operating Officer
Qualis Care, L.P.
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT INTERESTS
ISSUABLE ON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED EXCEPT
IN ACCORDANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE RULES AND REGULATIONS THEREUNDER OR IN A TRANSACTION WHICH
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT.
IN ADDITION, THE WARRANT INTERESTS ISSUABLE ON
EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS PURSUANT
TO ARTICLE X OF THE JOINT PLAN OF REORGANIZATION OF TOWERS
FINANCIAL CORPORATION AND ITS AFFILIATES AND THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF QUALIS CARE, L.P.
TRANSFER RESTRICTED -- SEE SECTION 6.1
No. W-001
WARRANT TO PURCHASE
LIMITED PARTNERSHIP INTERESTS OF QUALIS CARE, L.P.
This certifies that Cargill Financial Services Corporation ("Cargill"),
a Delaware corporation, or transferees as permitted pursuant to Article VI, is
entitled to purchase at any time until the Expiration Date, at the Exercise
Price, from Qualis Care, L.P., a Delaware limited partnership, and its
successors (the "Partnership"), up to 15%, on a cumulative basis, of the limited
partnership interests of the Partnership.
ARTICLE I.
Definitions
Section 1.1. The following words and phrases shall have the following
respective meanings in this Warrant:
The term "Affiliate" means, as to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person, within the meaning of control under Section 15
of the Securities Act of 1933, as amended.
The term "Book Value" has the meaning provided in Section
3.1(a).
The term "Business Day" means a day other than a Saturday,
Sunday or other day on which banks in the State of New
<PAGE>
York, Minnesota or Florida are required or authorized by law to remain
closed.
The term "Definitive Book Value Determination Date" has the
meaning provided in Section 3.1.
The term "Equity" means an ownership interest in the
Partnership including, without limitation, an interest in the capital, income,
losses and distributions of the Partnership whether such interests are
represented by limited partnership interests or otherwise.
The term "Exercise Price" means a pro rata portion of the Book
Value of the Partnership determined as of the end of the fiscal quarter
immediately preceding the date of the Warrant Holder's request for a Valuation
Letter under Section 3.1(a).
The term "Expiration Date" shall mean the earlier of (a) the
later of (i) February 28, 1999 and (ii) the payment in full to Cargill of all
amounts owed to it under the Purchase Agreement; and (b) 150 days after notice
to Cargill of the occurrence of a Put Event; provided, however, if the Valuation
Letter is requested by the Warrant Holder prior to the Expiration Date and the
Expiration Date occurs (but for this proviso), the Expiration Date shall be
extended until 10 Business Days after the Definitive Book Value Determination
Date.
The term "Funding" means Qualis Care Funding Corporation, a
Delaware corporation.
The term "GP Participation Agreement" means the Participation
Agreement, dated as of January 20, 1995, between the Warrant Holder and Qualis
Group Holdings, L.P.
The term "Person" means any individual, partnership,
corporation (including a business trust), joint stock company, trust, voluntary
association, joint venture, or a government or any agency or political
subdivision thereof, or any other entity of whatever nature.
The term "Purchase Agreement" means the Purchase Agreement,
dated as of the date hereof, by and among Funding, Qualis Credit, Corp., the
Partnership, Cargill and Bankers Trust Company, as Collateral Agent.
The term "Put Event" means the closing of a public or private
securitization in which Funding sells health care receivables released from the
Purchase Agreement; provided, however, that such securitization results in the
issuance of at least $50,000,000 in aggregate principal amount of securities
rated "BBB" or "Baa" or an equivalent rating or higher by any two nationally
recognized statistical rating agencies.
<PAGE>
The term "Subscription Form" means the subscription form
attached hereto.
"Valuation Letter" has the meaning provided in Section 3.1(a).
The term "Warrant" means this Warrant evidencing the right to
purchase Warrant Interests.
The term "Warrant Holder" means the Person named on the first
page hereof or any Person in whose name this Warrant is registered on the books
of the Partnership.
The term "Warrant Interests" means each class of limited
partnership interests of the Partnership, or any securities into which such
interests are converted, reorganized or exchanged.
ARTICLE II.
Duration and Exercise of Warrant
Section 2.1. (a) This Warrant may be exercised by the Warrant Holder at
any time before the Expiration Date. If this Warrant is not exercised at or
before 5:00 P.M., New York City time, on the Expiration Date, it will become
void and neither the Warrant Holder nor any other Person will have any rights
under this Warrant.
(b) Prior to the occurrence of a Put Event, this Warrant may
be exercised in whole or in part on one or more occasions for not less than 5%
of the Warrant Interests on each occasion. After the occurrence of a Put Event,
this Warrant may be exercised once for not more than the remaining outstanding
amount of Warrant Interests covered by this Warrant. In no event may this
Warrant be exercised if the cumulative amount of Warrant Interests purchased by
Cargill pursuant to this Warrant would exceed 15% of the then outstanding
Warrant Interests (on a fully diluted basis and after giving effect to such
exercise).
Section 2.2. (a) To exercise this Warrant, the Warrant Holder must
surrender this Warrant, with the attached Subscription Form duly executed, to
the Partnership at its office specified in Section 7.2 within ten days after
receipt of the Valuation Letter.
(b) When the Partnership receives this Warrant with the
Subscription Form duly executed and accompanied by payment of the full Exercise
Price for the Warrant Interests as to which
<PAGE>
this Warrant is being exercised, the Partnership will issue
certificates, registered in the name of the Warrant Holder or such other names
as are designated by the Warrant Holder, representing the total number of
Warrant Interests as to which this Warrant is being exercised, in such
denominations as are requested by the Warrant Holder, and the Partnership will
deliver those certificates to the Warrant Holder against payment by a certified
or official bank check payable to the order of the Partnership or by wire
transfer of immediately available funds to the account of the Partnership
designated by it, in each case of an amount equal to the Exercise Price for the
Warrant Interests as to which this Warrant is being exercised.
(c) If the Warrant Holder exercises this Warrant with respect
to less then all the Warrant Interests to which it relates, the Partnership will
execute a new Warrant for the balance of the Equity that may be purchased upon
exercise of this Warrant and deliver that new Warrant to the Warrant Holder.
(d) The Partnership will pay any taxes which may be payable in
respect of the issuance of Warrant Interests. The Partnership will not, however,
be required to pay any transfer tax payable because Warrant Interests are to be
registered in a name other than that of the Warrant Holder, and the Partnership
will not be required to issue any Warrant Interests registered in a name other
than that of the Warrant Holder until the Partnership receives either evidence
that any applicable transfer taxes have been paid or provision has been made as
to the funds with which to pay those taxes.
(e) The Warrant may only be exercised for a percentage
interest equal to the Participation Interest, as defined in the GP Participation
Agreement, percentage exercised by Cargill under the GP Participation Agreement,
and such exercises of the GP Participation Agreement and the Warrant must be
made simultaneously. The consideration for such exercise paid under the Warrant
shall also constitute full consideration for the exercise under the GP
Participation Agreement, and the Partnership shall allocate such consideration
between the Partnership's capital accounts as it may determine in good faith.
Section 2.3. (a) The Partnership shall give the Warrant Holder
notice of the occurrence of any of the following events:
(i) the Partnership declares a dividend or other
distribution on its Equity; or
(ii) the Partnership authorizes the granting to the holders
of its Equity or any other Persons of rights to subscribe for or purchase
any Equity of any class or any other securities; or
(iii) there is any reclassification or reorganization of
the Equity, or any consolidation or merger to which the
<PAGE>
Partnership is a party, any other transaction out of the ordinary course
of business or a sale or transfer of all or substantially all the assets of
the Partnership.
(b) The Partnership shall give the Warrant Holder at least 210
days notice of the expected consummation of a registered public offering of any
class of Equity, accompanied by a letter from a reputable investment banking
firm confirming that it has been engaged by the Partnership to explore the
possibility of underwriting such public offering and confirming the
practicability of such proposed date of consummation. The Partnership agrees
promptly to notify the Warrant Holder of any changes to the foregoing. The
Warrant Holder agrees to notify the Partnership of the amount of Warrant
Interests into which it expects to exercise this Warrant on or prior to the
distribution of a preliminary prospectus for actual use by prospective
investors; provided, that such notice shall not constitute a notice of exercise.
ARTICLE III.
Book Value
Section 3.1. (a) Within 30 days after the end of each fiscal quarter,
the Partnership shall deliver to the Warrant Holder a consolidated balance sheet
of the Partnership for such fiscal quarter, accompanied by a certificate of the
Partnership's chief financial officer certifying such balance sheet and further
calculating the book value of the Partnership (the "Book Value") as of the end
of the Partnership's most recent fiscal quarter. The Book Value shall be
determined as the equity of the Partnership's general and limited partners in
the Partnership (determined in accordance with generally accepted accounting
principles), adjusted for the following items: (i) the characterization of
redeemable preferred stock, if any, as debt; (ii) the elimination of
intercompany transactions; and (iii) the inclusion of off balance sheet items
such as derivative contracts, which shall be valued on a marked-to-market basis,
and contingencies. If requested by the Warrant Holder in connection with a good
faith intention to exercise the Warrant, the Partnership shall instruct its
independent public accountants (the "Accountants") to deliver a letter to the
Partnership and to the Warrant Holder (a "Valuation Letter") confirming or
adjusting such Book Value calculation.
(b) In the event the Warrant Holder contests the valuation of
Book Value contained in a Valuation Letter, within ten (10) Business Days after
the date of receipt of such Valuation Letter (the "Receipt Date"), the Warrant
Holder and the
<PAGE>
Partnership shall each designate a representative and such two
representatives will meet and use their best efforts to reach an agreement on
the Book Value of the Partnership. If such representatives are unable within 5
Business Days to reach such agreement the Warrant Holder and the Partnership
will use their best efforts to agree within 25 calendar days after the Receipt
Date upon the selection of a different firm of appraisers experienced in valuing
businesses of this type. Such appraiser will have 20 calendar days in which to
determine the Partnership's Book Value, and its determination thereof will be
final and binding on all parties concerned. If the Warrant Holder and the
Partnership are unable to reach an agreement as to an independent appraiser
within 25 calendar days after the Receipt Date, the Warrant Holder and the
Partnership will each within five calendar days thereafter select one
independent appraiser experienced in valuing businesses of this type. The
Warrant Holder and the Partnership will each cause the appraiser selected by
them respectively to determine independently the Partnership's Book Value within
20 calendar days after their appointment. If the lesser of the two appraised
values (the "Low Value") exceeds or is equal to 85% of the greater of the two
appraised values (the "High Value"), the Partnership's Book Value will be the
average of the two appraisals. If the Low Value is less than 85% of the High
Value, the two appraisers will themselves appoint a third independent appraiser
experienced in valuing businesses of this type within five calendar days after
the two appraisals have been rendered. Such third appraiser will have 20
calendar days in which to determine independently the Partnership's Book Value.
The Partnership's Book Value in such case will be the mean of the two appraised
values which are closest to each other. The Partnership will provide each
appraiser with all information about the Partnership and its subsidiaries which
any such appraiser reasonably deems necessary for determining the Book Value.
The expenses of the appraisal process will be paid by Qualis. The date the
calculation of Book Value is final in accordance with the foregoing shall be
referred to herein as the "Definitive Book Value Determination Date," which
shall be 10 Business Days following the Receipt Date if not contested by
Cargill, as described above.
ARTICLE IV.
Other Provisions Relating to
Rights of Warrant Holder
Section 4.1. The Warrant Holder will not, as such, be entitled to vote,
receive distributions or dividends or have any other of the rights of a general
partner, limited partner or a shareholder of the Partnership, except as provided
herein, in the Purchase Agreement and the Related Documents (as defined therein)
and except that, after this Warrant is exercised in accordance with Article II,
the persons in whose names the Warrant Interests purchased through exercise of
this Warrant are to be issued will
<PAGE>
be deemed to become the holders of record of those Warrant Interests
for all purposes even if certificates representing those Warrant Interests are
not issued.
Section 4.2. (a) The Partnership will take all steps which are
necessary so that all the Warrant Interests which the Partnership may be
required to issue on exercise of this Warrant will, upon issuance, be listed or
traded on any securities exchange or over-the-counter market, as the case may
be, on which such Warrant Interests are listed or traded.
(b) All Warrant Interests issued on exercise of this Warrant
will, when they are issued, be validly issued, fully paid and non-assessable and
will be subject to the restrictions pursuant to Article X of the Joint Plan of
Reorganization of Towers Financial Corporation and its Affiliates and the
Amended and Restated Agreement of Limited Partnership of Qualis Care, L.P.
Section 4.3. Prior to due presentment for registration of transfer of
this Warrant, the Partnership may treat the Warrant Holder as the absolute owner
of this Warrant for all purposes, including for the purpose of determining
exercise of this Warrant, despite any notice to the contrary.
Section 4.4. If the Partnership becomes a corporation, it shall at all
times reserve and keep available, out of its authorized but unissued Warrant
Interests, for the purpose of effecting the exercise of this Warrant, the full
amount of Warrant Interests then issuable upon the exercise of this Warrant.
Section 4.5. In case of any consolidation of the Partnership with, or
merger of the Partnership into, any other Person, any merger of another Person
into the Partnership (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding Equity of
the Partnership) or any sale or transfer of all or substantially all of the
assets of the Partnership, the Person formed by such consolidation or resulting
from such merger or which acquires such assets, as the case may be, shall
execute and deliver to the Warrant Holder a new Warrant providing that such
Warrant Holder shall have the right thereafter, during the period this Warrant
shall be exercisable as specified herein, to convert this Warrant only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the amount of Warrant
Interests into which this Warrant might have been converted immediately prior to
such consolidation, merger, sale or transfer, assuming such holder of Warrant
Interests (i) is not a Person with which the Partnership consolidated or into
which the Partnership merged or which merged into the Partnership or to which
such sale or
<PAGE>
transfer was made, as the case may be ("constituent Person"), or an
Affiliate of a constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same for each
Warrant Interest of the Partnership held immediately prior to such
consolidation, merger, sale or transfer by others than a constituent Person or
an Affiliate thereof and in respect of which such rights of election shall not
have been exercised ("non-electing interest"), then for the purpose of this
Section the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by each non-electing interest
shall be deemed to be the kind and amount of receivable per interest by a
plurality of the non-electing interests). Such new Warrant shall provide for
adjustments which, for events subsequent to the effective date of such new
Warrant, shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The above provisions of this Section shall
similarly apply to successive consolidations, mergers, sales or transfers.
ARTICLE V.
Representations of the Partnership
Section 5.1. The Partnership hereby represents and warrants that,
except for the Warrant, there are no other outstanding warrants, options or
contingent equity interests in the Partnership (other than pursuant to the Joint
Plan of Reorganization of Towers Financial Corporation and its Affiliates and
the employment agreements with Joel Ciniero and Michael Gervais) and that this
Warrant has been duly authorized, executed and delivered and constitutes the
legal, valid and binding obligation of the Partnership enforceable in accordance
with its terms, subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in the
event of the bankruptcy or insolvency of the Partnership and to the application
of general principles of equity.
ARTICLE VI.
Transfer of Warrants
Section 6.1. Without the prior consent of the general partner of the
Partnership, this Warrant may not be sold, transferred, assigned, or
hypothecated except that this Warrant may be transferred, in whole, to (i) any
Affiliate of the Warrant Holder; (ii) a successor to the Warrant Holder; (iii) a
purchaser of all or substantially all the assets of the Warrant Holder; or
<PAGE>
(iv) any other Person who becomes the owner of this Warrant by
operation of law; provided, that the consent of such general partner shall not
be necessary if the Partnership is in default under the Purchase Agreement or if
the Partnership has made a registered public offering of its equity securities.
Section 6.2. Upon surrender of this Warrant to the Partnership at its
office specified in Section 7.2 with the Form of Assignment (or another
instrument of assignment) duly executed and accompanied by (i) evidence that any
transfer tax has been paid, or funds sufficient to pay any transfer tax have
been provided for, and (ii) evidence reasonably satisfactory to the Partnership
that the proposed assignment will not violate Section 6.1, the Partnership will,
without charge, execute and deliver a new Warrant registered in the name of the
assignee named in the Form of Assignment (or other instrument of assignment) and
will promptly cancel this Warrant.
Section 6.3. Upon receipt by the Partnership of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnification
satisfactory to the Partnership, or (in the case of mutilation) upon surrender
of this Warrant, the Partnership will execute and deliver a new Warrant relating
to the same percentage of Equity as this Warrant and the lost, stolen, destroyed
or mutilated Warrant will become void. Any new Warrant executed and delivered in
accordance with this Section 6.3 will constitute an additional contractual
obligation of the Partnership, and will be valid and enforceable whether or not
the Warrant which was believed to have been lost, stolen or destroyed is
subsequently presented for exercise.
ARTICLE VII.
Other Matters
Section 7.1. The provisions of this Warrant will bind, and inure to the
benefit of, the Partnership, the Warrant Holder and their respective successors
and permitted assigns.
Section 7.2. Any notice or other communication to the Partnership or
the Warrant Holder relating to this Warrant will be deemed given on the Business
Day when it is delivered or sent by facsimile transmission, or on the fifth
Business Day after the day on which it is sent by first-class mail, at the
following address (or such other address as may be specified by one party to the
other after the date of this Warrant):
<PAGE>
The Partnership:
Qualis Care, L.P.
12 East 49th Street
21st Floor
New York, NY 10017
Attention: Frederick Grant
Telephone: (212) 980-0630
Facsimile: (212) 980-6346
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Frederick B. Utley
Telephone: (212) 878-8356
Facsimile: (212) 878-8375
Warrant Holder:
Cargill Financial Services Corporation
6000 Clearwater Drive
Minnetonka, MN 55343
Attention: Structural Finance Funding Desk
Telephone: (612) 742-3058
Facsimile: (612) 742-3844
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attention: Glenn S. Arden
Telephone: (212) 259-6740
Facsimile: (212) 259-6333
Section 7.3. This Warrant will be governed by, and construed under, the
laws of the State of New York relating to contracts made and to be performed in
that state.
<PAGE>
Section 7.4. The Article headings in this Warrant are for convenience
only, are not part of this Warrant and are not intended to affect the meaning or
interpretation of any of the terms of this Warrant.
IN WITNESS WHEREOF, this Warrant has been executed by the Partnership
as of the 20th day of January, 1995.
QUALIS CARE, L.P.
By: Qualis Group Holdings, L.P.
General Partner
By: Qualis Group, Inc.
General Partner
By: /s/ John Hall
Name:
Title:
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the attached Warrant to _______________________ and the undersigned appoints
_______________________with full power of substitution, to transfer that
Warrant, on the books of Qualis Care, L.P.
Dated: _____________, 19__
-------------------------------
(Signature must conform to the name of the
Warrant Holder specified on the face of the
Warrant)
<PAGE>
SUBSCRIPTION FORM
To: Qualis Care, L.P.
The undersigned irrevocably elects to purchase __% of the limited
partnership interests of Qualis Care, L.P. by exercising the Warrant to which
this form is attached (the "Warrant") and will tender payment of the full
Exercise Price with respect to such limited partnership interests in accordance
with Section 2.2 of the Warrant. The undersigned requests that the certificates
representing the limited partnership interests as to which the Warrant is being
exercised be registered as follows:
Name: ____________________________
Social Security or Employer
Identification Number: _________
Address: __________________________
Deliver to: _______________________
Address: __________________________
--------------------------
This Subscription Form is governed in all respects by
provisions of the Warrant.
Date: _____________ Signature ____________________________
(Signature must conform to the name of the
Warrant Holder specified on the face of
the Warrant)
<PAGE>
WARRANT, SUBSCRIPTION AND RIGHTS AGREEMENT
THIS AGREEMENT dated as of January 20, 1995 is entered into among
QUALIS CARE, L.P., a Delaware limited partnership ("Qualis"), QUALIS SERVICES,
INC., a Delaware corporation ("Services"), QUALIS CREDIT, CORP., a Delaware
corporation ("Credit"), QUALIS SERVICE HOLDING, INC., a Delaware corporation
("Service Holding"), QUALIS CREDIT HOLDING, INC., a Delaware corporation
("Credit Holding"), QUALIS CARE FUNDING CORPORATION, a Delaware corporation
("Funding"), QUALIS GROUP HOLDINGS, L.P., a Delaware limited partnership ("Group
Holdings"), QUALIS GROUP, INC., a Delaware corporation ("Group") and CARGILL
FINANCIAL SERVICES CORPORATION, a Delaware corporation ("Cargill").
P R E M I S E S:
A. Qualis, Cargill, Funding and a Collateral Agent are entering into a
Purchase Agreement dated as of the date of this Agreement (the "Purchase
Agreement"), pursuant to which Cargill agrees, subject to certain conditions, to
make purchases of up to $150,000,000 of health care receivables from Funding.
B. In connection with the Purchase Agreement, Qualis, Funding, Credit,
Services, and Cargill have entered into a Master Program Agreement dated as of
the date of this Agreement (the "Program Agreement") to set forth additional
rights and obligations of the parties thereto.
C. As a condition to entering into the Purchase Agreement and the
Program Agreement, Cargill has required that
<PAGE>
Qualis, Services, Credit, Service Holding, Credit Holding, Funding, Group
Holdings, Group and Cargill enter into this Agreement.
NOW, THEREFORE, Qualis, Services, Credit, Service Holding, Credit
Holding, Funding, Group Holdings, Group and Cargill agree as follows:
ARTICLE 1.
DEFINITIONS
For all purposes of this Agreement, capitalized terms used herein and
not defined shall have the meanings set forth below.
Affiliate: means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person, within the meaning of control under Section 15 of the Securities
Act.
Demand Registration: has the meaning provided in Section 7.1(a)
hereof.
Exchange Act: means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
Partnership Interest: means the ownership interest of a general
partner or a limited partner, as the case may be, of Qualis, including, without
limitation, the interest in the capital, income, losses and distributions of
Qualis.
2
<PAGE>
Person: means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof or other entity.
Piggyback Registration: has the meaning provided in Section 7.2(a)
hereof.
Prospectus: means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
Registrable Securities: means Partnership Interests or other
securities of Qualis other than the Warrant.
Registration Expenses: has the meaning provided in Section 7.5 hereof.
Registration Statement: means any registration statement of Qualis
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: means the Securities and Exchange Commission.
Securities Act: means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
3
<PAGE>
Underwritten Registration or Underwritten Offering: means a
registration in which securities of Qualis are sold to an underwriter for
reoffering to the public.
ARTICLE 2.
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
2.1. Representations and Warranties. Each of Qualis, Funding, Credit,
Service Holding, Credit Holding, Group Holdings and Group represents and
warrants to Cargill as to itself, as of the date of this Agreement, as follows:
(a) It is an organization duly formed, validly existing and in
good standing under the laws of the state in which it was formed and is duly
qualified to do business, and is in good standing, in each jurisdiction in which
the nature of its business requires it to be so qualified;
(b) It has the power and authority to own and convey all of its
properties and assets and to execute and deliver this Agreement and to perform
the transactions contemplated hereby;
(c) The execution, delivery and performance by it of this
Agreement and the transactions contemplated hereby, at all relevant times, (i)
shall have been duly authorized by all necessary action on its part, (ii) do not
contravene or cause it to be in default under (A) its organizational documents,
(B) any contractual restriction contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other agreement
or instrument binding on or affecting it or its property or (C) any law, rule,
regulation, order, writ,
4
<PAGE>
judgment, award, injunction, or decree applicable to, binding on or affecting it
or its property and (iii) do not and will not result in or require the creation
of any adverse claim upon or with respect to any of its property (other than as
contemplated under the Related Documents (as defined in the Purchase
Agreement));
(d) This Agreement shall have been duly executed and delivered on
its behalf as of the date it is purported to be effective; and
(e) This Agreement is its legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject to bankruptcy laws
and other similar laws of general application affecting creditors, and subject
to the application of rules of equity, including those respecting the
availability of specific performance.
2.2. Covenants.
(a) Until the Demand Registration rights under Section 7.1 have
been utilized or terminate, (i) Qualis covenants and agrees that it shall be the
sole shareholder of Credit Holding, Service Holding, and Funding, (ii) Credit
Holding covenants and agrees that it shall be the sole shareholder of Credit,
and (iii) Service Holding covenants and agrees that it shall be the sole
shareholder of Services.
(b) Qualis covenants and agrees that until the Warrant expires or
is exercised, it shall provide Cargill with copies of all notices, reports or
other communications required
5
<PAGE>
to be delivered to any limited partner of Qualis simultaneously with the
delivery thereof to such limited partners.
ARTICLE 3.
----------
WARRANT AND PARTICIPATION AGREEMENT
-----------------------------------
3.1. Issuance of Warrant. On the date hereof, Qualis shall issue a
Warrant, dated the date hereof (the "Warrant") to Cargill.
3.2. Participation Agreement. On the date hereof, Group Holdings shall
enter into a Participation Agreement with Cargill, dated the date hereof (the
"Participation Agreement").
ARTICLE 4.
----------
TAG-ALONG RIGHTS
----------------
4.1. Tag-Along Rights.
(a) Before February 28, 1999, neither Group Holdings nor any
Affiliate of Group Holdings will sell or otherwise transfer, in one transaction
or series of related transactions, more than thirty percent (30%) in the
aggregate of their Partnership Interests in Qualis ("Sale Interests") to any
Person other than an Affiliate of Group Holdings, unless such party first offers
to Cargill, directly or indirectly, as provided in Paragraph 4.1(b) the
opportunity to participate in such sale by selling to such purchaser a portion
of Cargill's Partnership Interests in Qualis (the "Cargill Interests"), such
that the portion sold by Cargill, as a percentage of the total Partnership
Interests owned or subject to unexercised Warrants and options under the
Participation Agreement before selling to
6
<PAGE>
such purchaser, is equal to the portion sold by Group Holdings or its Affiliate,
as a percentage of the total Partnership Interests owned by such sellers before
selling to such purchaser.
(b) In order to offer the Sale Interests, the party proposing to
sell or transfer the Sale Interests (the "Selling Party") will:
(i) give Cargill a notice (a "Proposed Sale
Notice") of the proposed sale which
includes the principal terms, including,
but not limited to, the sale price, of the
proposed sale or transfer and, if a
proposed purchaser or transferee has been
identified, the identity of the proposed
purchaser or other transferee, and
(ii) provide to Cargill the option, exercisable
within 30 days after the Proposed Sale
Notice is given, to participate in such
sale by selling to the purchaser a pro
rata portion of the Cargill Sale Interests
at the price, and on the payment terms,
specified in the Proposed Sale Notice.
(c) If an option given as provided in subparagraph (b) is not
exercised within 30 days after the Proposed Sale Notice is given, the Selling
Party may, within 60 days after the option expires or is waived, sell the Sale
Interests for a price which is not higher, and on terms which are
7
<PAGE>
not more favorable to the seller, than the price and terms set forth in the
Proposed Sale Notice.
(d) If Cargill exercises an option granted as provided in
subparagraph (b), the sale of the Cargill Sale Interests will be completed on a
date designated in the notice of exercise, which will not be later than 30 days
after the notice of exercise is given, or such later date as is the earliest
date on which the purchase may be completed in compliance with all applicable
laws. In order to facilitate such sale, the Selling Party shall make any
customary representations and provide any reasonable certifications or opinions
required by the purchaser with respect to the validity of Sale Interests and the
Cargill Sale Interests.
(e) Any transferee of Partnership Interests from Group Holdings
or any Affiliate of Group Holdings agrees to give Cargill the same rights as
provided under this Article 4.
ARTICLE 5.
----------
RIGHT OF FIRST REFUSAL AS TO OUALIS
-----------------------------------
5.1. Agreement to Offer Partnership Interests. Before February 28,
1999, Qualis will not issue any Partnership Interests, unless it first offers
Cargill the option, as provided in Paragraph 5.2, to purchase up to fifty
percent (50%) of the Partnership Interests to be issued by Qualis; provided,
however, that Qualis shall have no obligation to offer and Cargill shall have no
right pursuant to this Section 5.1 to purchase any such
8
<PAGE>
interest or any other interest of Qualis in connection with any public offering
of any securities of Qualis.
5.2. Terms of Offer to Cargill. If Qualis is required by Paragraph 5.1
to offer Cargill the option to purchase Partnership Interests, the following
will take place:
(a) At least 30 days before Qualis proposes to issue Partnership
Interests, Qualis will give Cargill a notice (a "Notice of Proposed Partnership
Interest Issuance") of the proposed issuance of Partnership Interests, which
will state (i) the number and class of Partnership Interests Qualis proposes to
issue and the number of those Partnership Interests which Cargill will have the
right to purchase, (ii) the designations, rights, preferences and limitations
applicable to the class of interests which are to be issued, (iii) the
consideration to be paid to Qualis for the Partnership Interests which are to be
issued, and if that consideration is other than in cash, the cash per
Partnership Interest determined by the Management Committee of Qualis to be
equivalent to the non-cash consideration which is to be received, (iv) the
estimated date of issuance of the Partnership Interests and (v) the identity of
the proposed purchaser.
(b) Cargill will have the option, exercisable by a notice in
writing to Qualis given within 30 days after Cargill receives a Notice of
Proposed Partnership Interest Issuance, to purchase up to 50% of such
Partnership Interests for the consideration to be paid to Qualis as set forth in
the Notice of Proposed Partnership Interest Issuance, or if Cargill so elects,
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the cash equivalent, and on the other terms described in the Notice of Proposed
Partnership Interest Issuance.
(c) If Cargill exercises an option described in subparagraph (b),
Cargill will be contractually obligated to purchase from Qualis, and Qualis will
be contractually obligated to sell to Cargill, the Partnership Interests as to
which the option was exercised. Such purchase and sale will occur
simultaneously.
(d) If Cargill does not exercise an option granted to it as
provided in subparagraph (b), Qualis may, at any time within nine months after
the Notice of Proposed Partnership Interest Issuance which created the option is
given, sell the Partnership Interests to the purchaser described in the Notice
of Proposed Partnership Interest Issuance on the terms described in the Notice
of Proposed Partnership Interest Issuance or on other terms which are no more
favorable to the buyer than those described in the Notice of Proposed
Partnership Interest Issuance; provided, however, that if such sale is not made
to the purchaser described in such Notice of Proposed Partnership Interests
during such nine month period and such Partnership Interests are to be sold on
similar terms during such nine month period, Cargill's option to purchase shall
be reinstated.
ARTICLE 6.
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PURCHASE OPTION
---------------
6.1. Agreement to Offer Partnership Interests. Before February 28,
1999, neither Qualis nor any Affiliate of Qualis
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will purchase any Partnership Interests, unless it offers Cargill the option, as
provided in Section 6.2, to purchase up to fifty percent (50%) of such
Partnership Interests on the same terms and conditions as Qualis is making such
purchase.
6.2. Terms of Offer to Cargill. If any of Qualis or any of its
Affiliates (a "Transacting Party") is required by Section 6.1 to offer Cargill
the right to purchase Partnership Interests, the following will take place:
(a) At least 30 days before such Transacting Party proposes to
purchase Partnership Interests, such Transacting Party will give Cargill a
notice (a "Notice of Proposed Partnership Interest Purchase") of the proposed
purchase of Partnership Interests, which will state (i) the number and class of
Partnership Interests the Transacting Party proposes to purchase and the number
of those Partnership Interests which Cargill will have the right to purchase,
(ii) the designations, rights, preferences and limitations applicable to the
class of interests which are to be purchased, (iii) the consideration to be paid
by such Transacting Party for the Partnership Interests which are to be
purchased, (iv) the estimated date of such purchase of the Partnership Interests
and (v) the identity of the proposed seller.
(b) Cargill will have the option, exercisable by a notice in
writing to the Transacting Party given within 30 days after Cargill receives a
Notice of Proposed Partnership Interest Purchase, to purchase up to 50% of such
Partnership Interests. Cargill will have the right to purchase as set forth in
the
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Notice of Proposed Partnership Interest Purchase, for the consideration per
Partnership Interest to be paid by the Transacting Party as set forth in the
Notice of Proposed Partnership Interest Purchase, and on the other terms
described in the Notice of Proposed Partnership Interest Purchase.
(c) If Cargill exercises an option described in subparagraph (b),
Cargill will be contractually obligated to purchase from the Transacting Party,
and the Transacting Party will be contractually obligated to sell or cause to be
sold to Cargill, the Partnership Interests as to which the option was exercised,
all as part of a simultaneous transaction.
(d) If Cargill does not exercise an option granted to it as
provided in subparagraph (b), the Transacting Party may, at any time within one
year after the Notice of Proposed Partnership Interest Purchase which created
the option is given, purchase the Partnership Interests described in the Notice
of Proposed Partnership Interest Purchase from the seller described in the
Notice of Proposed Partnership Interest Purchase on the terms described in the
Notice of Proposed Partnership Interest Purchase or on other terms which are no
more favorable to the Transacting Party than those described in the Notice of
Proposed Partnership Interest Purchase.
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ARTICLE 7.
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REGISTRATION
------------
7.1. Demand Registration.
(a) Except as provided herein and subject to the condition that
in the reasonable judgment of Group Holdings and at least five members of the
Management Committee of Qualis, implementation of a Demand Registration (as
defined below) will not result in (i) Qualis being treated as a "publicly traded
partnership" within the meaning of Section 7704 of the Internal Revenue Code of
1986, as amended from time to time, any successor thereto and applicable
regulations thereunder, (ii) Qualis otherwise being treated as an association
taxable as a corporation for federal income tax purposes or (iii) Qualis no
longer existing or qualifying as a limited partnership under any applicable
state law, if Cargill has duly exercised the Warrant, Cargill may, at any time
between March 1, 1999 and February 28, 2000, make a written request to Qualis
for registration under the Securities Act of all or part of the Registrable
Securities it then owns or may own at any time upon exercise of the Warrant or
of its option under the Participation Agreement (a "Demand Registration"). Any
such request by Cargill shall specify the aggregate amount of Registrable
Securities to be registered and shall also specify the intended method of
disposition thereof. Within five Business Days after receipt of such
registration request, Qualis shall commence the preparation of the registration
of the Registrable Securities. Qualis may, upon
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notice to Cargill, delay the effectuation of such Demand Registration for a
reasonable period of time, but not more than 90 days after receipt of the
request for such Demand Registration, (x) as is necessary to prepare audited
financial statements of Qualis for its most recently completed fiscal year or
other audited financial statements reasonably required in the Registration
Statement, or (y) if Qualis would be required to divulge in such Registration
Statement the existence of any fact relating to a proposed acquisition,
financing or other material corporate development not otherwise required to be
disclosed and the Management Committee of Qualis shall have in good faith
determined that such disclosure would be materially adverse to Qualis. Such
notice of delay shall explain, in reasonable detail, the reasons for such delay.
If Qualis shall so delay the effectuation of the Demand Registration, Cargill
may, within 30 days after receipt of the notice of delay, notify Qualis that it
is withdrawing its request for registration and, such Demand Registration shall
be deemed to be withdrawn and such request shall be deemed not to have been
exercised for purposes hereof.
(b) Subject to Section 7.1(a) and 7.1(d), Cargill shall be
entitled to one Demand Registration.
(c) The offering of Registrable Securities pursuant to such
Demand Registration shall be in the form of an Underwritten Offering if
requested by Cargill. If the managing underwriter or underwriters unanimously
determine in good faith that the total amount of Registrable Securities proposed
to be included in such offering is such as to materially adversely
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affect the success of such offering, then the amount of Registrable Securities
shall be reduced or limited pro rata among Qualis and Cargill in proportion to
the amount of Registrable Securities sought to be registered by each, to the
extent necessary to reduce the total amount of Registrable Securities to be
included in such offering to the amount that, in the reasonable opinion of such
managing underwriter or underwriters, can be sold without materially adversely
affecting the success of such offering.
(d) If (i) more than 5% of Cargill's Registrable Securities
sought to be registered in any Demand Registration is not included in such
registration pursuant to Section 7.1(c), (ii) a Demand Registration is delayed
pursuant to Section 7.1(a) hereof and is not effective or otherwise is not
effective within 180 days after Cargill's demand for registration, (iii) if such
registration, after it has become effective, is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court by reason of an act or omission by Qualis or any of its
subsidiaries or (iv) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied because of an act or omission by Qualis or any of
its subsidiaries (other than by reason of facts or circumstances not within
control of Qualis or any such subsidiary), then in each such case such Demand
Registration shall not be counted for purposes of calculating the number of
demand rights exercised by Cargill and in case of the
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circumstances described in (i) above, Cargill shall be entitled to a Demand
Registration for such remaining Registerable Securities that may be exercised no
sooner than nine months after the close of the transaction described in (i)
above and no later than 18 months thereafter.
(e) Nothing in this Section 7.1 or in Section 7.2 hereof shall
create any right in Cargill to require Qualis to register any securities other
than Registrable Securities under the Securities Act.
7.2. Piggyback Registration.
(a) If Qualis at any time proposes to register securities of a
class of Registrable Securities on its own behalf or on behalf of any holder of
Registrable Securities of such class under the Securities Act, whether or not
pursuant to registration rights granted to other holders of its securities in a
manner which would permit registration of Registrable Securities, Qualis shall
give prompt written notice each such time to Cargill of its intention to do so
(which notice shall include the anticipated filing date of the Registration
Statement and the amount of Registrable Securities of such class proposed to be
included in the Registration Statement); provided, however, that in any event,
such notice shall be given to Cargill at least thirty (30) days prior to such
proposed filing. The notice shall offer to include in such filing the number of
Registrable Securities as Cargill shall request. Upon the written request of
Cargill given within 15 Business Days after receipt of any such notice by
Cargill (stating the amount of Registrable Securities
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<PAGE>
of such class to be disposed of by Cargill and the intended method of
disposition), Qualis shall include the Registrable Securities intended to be
disposed of in a registration statement under the Securities Act so as to permit
disposition (in accordance with the reasonable methods in said request) by
Cargill of the Registrable Securities so registered (a "Piggyback
Registration"). The managing underwriter or underwriters for any offering of
Registrable Securities to be registered pursuant to this Agreement shall be
selected by Qualis, subject to the consent of Cargill, which shall not be
unreasonably withheld.
(b) Notwithstanding any provision of this Section 7.2, if the
registration of which Qualis gives notice pursuant to Section 7.2(a) is for an
Underwritten Offering and, notwithstanding Qualis used reasonable efforts to
arrange such registration so as to include all the Registrable Securities
required to be included by Cargill in the securities to be offered and sold in
the Underwritten offering, the managing underwriter or underwriters shall advise
Qualis in writing (with a copy to Cargill) that, in its or their reasonable and
good faith judgment the total amount of Registrable Securities requested by
Cargill to be included in such offering concurrently with the securities by
Qualis is such as to materially adversely affect the price, timing or
distribution of such offering, then the amount of Registrable Securities shall
be limited pro rata among Cargill and Qualis in proportion to the amount of
Registrable Securities sought to be registered by each, to the extent necessary
to reduce the total amount of Registrable
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Securities to be included in such offering to the amount that in the reasonable
judgment of such managing underwriter or underwriters, can be sold without
materially adversely affecting the success of such offering. Cargill shall not
be required to make any representations or warranties to, or agreements with
Qualis or any underwriter, other than customary representations, warranties or
agreements made by a selling shareholder in a public offering. Qualis agrees
that it will give any representations typically given by an issuer of
securities, including covering the validity of Registrable Securities.
(c) If Cargill elects not to participate in any underwriting in
which it had previously requested the registration described in Section 7.2(a),
Cargill may elect to withdraw therefrom by delivering written notice to Qualis
and the managing underwriter or underwriters, if any, 30 days prior to the
planned effective date of such Registration or 15 days after notice of any
underwriter's opinion pursuant Section 7.2(a) whichever is later.
7.3. Hold-Back Agreements; Press Releases.
(a) If Cargill's Registrable Securities are covered by a
Registration Statement filed pursuant to Section 7.1 or 7.2 hereof, Cargill
agrees not to effect any public sale or distribution of securities of Qualis,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such Underwritten Registration), during the 30-day period prior to, and
during the 180-day period beginning on, the closing date of the offering made
pursuant to such Registration Statement, unless
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the managing underwriter or underwriters agree in writing to waive or shorten
any such period for Cargill or for any other sellers of securities. This
provision shall not apply to Cargill if there is a public sale or distribution
of securities of Qualis subsequent to such holding period or if Cargill is
prevented by applicable statute or regulation from entering into any such
agreement. Qualis agrees to be bound by the foregoing hold-back agreement to the
same extent as Cargill.
(b) Before Cargill shall disseminate or announce publicly any
information concerning a proposed offering pursuant to Section 7.1 or 7.2 hereof
that is intended for or may result in public knowledge thereof, Cargill shall so
advise Qualis and shall not disseminate or announce publicly such information
without Qualis' consent, unless such information is otherwise publicly available
or the dissemination thereof is required by applicable law.
7.4. Registration Procedures. In connection with the Demand
Registration and Piggyback Registration obligations pursuant to Section 7.1 and
Section 7.2 hereof, Qualis will use its reasonable efforts to effect such Demand
Registration or Piggyback Registration to permit the sale of Registrable
Securities in accordance with the intended method or methods of distribution
thereof, and pursuant thereto Qualis will:
(a) prepare and file with the SEC, as soon as practicable after
receipt of the registration request referred to in Section 7.2 hereof, and use
reasonable efforts to have declared effective, a Registration Statement relating
to the
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Demand Registration or the Piggyback Registration on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements (including,
without limitation, any financial statements of any subsidiary of Qualis)
required by the SEC to be filed therewith, and make all filings required to be
made with any national stock exchange or national computerized market system on
which the Registerable Securities are to be listed or quoted; provided, however,
that, before filing a Registration Statement or Prospectus or any amendments or
supplements thereto, Qualis shall furnish to Cargill, and the managing
underwriter or underwriters, if any, copies of all such documents proposed to be
filed, which documents shall be subject to the reasonable review of each of
Cargill and the managing underwriter or underwriters, if any, and Qualis shall
not file any Registration Statement or amendment thereto or any Prospectus or
any supplement thereto to which the managing underwriter or underwriters, if
any, or Cargill shall reasonably object in writing;
(b) cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the
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intended method or methods of distribution by Cargill set forth in such
Registration Statement or supplement to the Prospectus;
(c) notify Cargill and the managing underwriter or underwriters,
if any, and (if requested by any such Person) confirm such notice in writing:
(1) when the Registration Statement or any amendment thereto or the Prospectus
or any Prospectus supplement or post-effective amendment has been filed, and,
with respect to the Registration Statement or any post-effective amendment, when
the same has become effective, and to furnish Cargill and the underwriter with
copies thereof, (2) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional information, (3)
of the issuance by the SEC of any stop order or similar order suspending the
effectiveness of the Registration Statement or the use of any preliminary
Prospectus or Prospectus or the initiation or threatening of any proceedings for
that purpose, (4) if at any time the representations and warranties of Qualis
contemplated by Section 7.4(l) below cease to be true and correct in all
material respects, (5) of the receipt by Qualis of any notification with respect
to the suspension of the qualification of the Registrable Securities for
offering or sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (6) upon discovery that, or upon the happening
of any event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
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make the statements therein not misleading in the light of the circumstances
under which they were made, and at the request of Cargill promptly prepare and
furnish to Cargill a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers or prospective purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made;
(d) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such Registration Statement
from and after a date not later than the effective date of such Registration
Statement;
(e) make every reasonable effort to obtain the withdrawal of any
stop order or other order suspending the effectiveness of the Registration
Statement or the use of any preliminary Prospectus or Prospectus, at the
earliest possible moment;
(f) if requested by Cargill or the managing underwriter or
underwriters, if any, incorporate in a Prospectus supplement or post-effective
amendment such information as Cargill or the managing underwriter or
underwriters, if any, reasonably agree should be included therein relating to
the plan of distribution with respect to the Registrable Securities; and make
all required filings of such Prospectus supplement or post-
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effective amendment as soon as notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided, however, that
Qualis shall not be required to take any actions in this Section 7.4(e) that are
not, in the written opinion of counsel for Qualis delivered to Cargill, in
compliance with applicable law;
(g) furnish to Cargill as soon as available (x) such number of
copies of such drafts and final versions of such Registration Statement and of
each such amendment and supplement thereto (in each case including all
exhibits), (y) such number of copies of such drafts and final version of the
Prospectus contained in such Registration Statement (including each preliminary
prospectus and any summary prospectus) and (z) any other prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as Cargill may reasonably request; it
being understood and agreed that Qualis consents to the use of the Prospectus or
any amendment or supplement thereto by Cargill and the managing underwriter or
underwriters, if any, in connection with the offering and sale of the securities
covered by the Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities
covered by a Registration Statement, use its reasonable efforts to register or
qualify such Registrable Securities for offer and sale under the securities or
blue sky laws of such jurisdictions as Cargill or the underwriters reasonably
request, to keep such registration or qualification in
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effect for so long as such Registration Statement is in effect, and do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that Qualis shall not be required: (1) to qualify
generally to do business in any jurisdiction where it is not then so qualified
or (2) to consent to general service of process in any such jurisdiction where
it is not then so subject or subject Qualis to any tax in any such jurisdiction
where it is not then so subject;
(i) (1) cooperate with Cargill and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Securities covered by a Registration
Statement to be sold; and (2) enable the Registrable Securities covered by a
Registration Statement to be in such denominations and registered in such names
as the managing underwriter or underwriters may request at least two Business
Days prior to any sale of such Registrable Securities to the underwriters;
(j) use reasonable efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers, Cargill or the managing underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Securities; provided, however, that Qualis shall not be required to register the
Registrable Securities covered by a
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Registration Statement in any jurisdiction where such registration would subject
Qualis to general service of process where it is not then so subject, or subject
Qualis to any tax in any such jurisdiction where it is not then so subject;
(k) upon the occurrence of any event contemplated by Section
7.4(c)(6) above, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities covered by a
Registration Statement, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(l) enter into such customary agreements (including an
underwriting agreement) and use reasonable efforts to take all such other
actions in order to facilitate the disposition of the Registrable Securities
covered by the Registration Statement and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration: (1) make such representations and warranties to
Cargill and the managing underwriter or underwriters, if any, in form, substance
and scope, as are customarily made by issuers to underwriters in similar
underwritten offerings; (2) obtain opinions of counsel to Qualis and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter or underwriters, if any, and
not objected to
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by Cargill) addressed to Cargill and the managing underwriter or underwriters,
if any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
any Cargill and the underwriters; (3) obtain "cold comfort" letters and updates
thereof from Qualis' independent certified public accountants addressed to
Cargill and the managing underwriter or underwriters, if any, such letters to be
in customary form and covering matters of the type customarily covered in "cold
comfort" letters by accountants in connection with primary underwritten
offerings; (4) if an underwriting agreement is entered into, the same shall set
forth certain indemnification provisions and procedures with respect to all
parties to be indemnified pursuant thereto, which provisions and procedures
shall be normal and customary in the investment banking and/or financial
services industry; and (5) deliver such documents and certificates as may be
reasonably requested by Cargill and the managing underwriter or underwriters, if
any, to evidence compliance with Section 7.4(k) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by Qualis. Each of the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
and
(m) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to
holders of Securities covered by a Registration Statement, earnings statements
satisfying the
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provisions of Section 11(a) of the Securities Act, no later than 45 days after
the end of any 12-month period (or 90 days, if such period is a fiscal year):
(1) commencing at the end of any fiscal quarter in which Registrable Securities
covered by a Registration Statement are sold to underwriters in a firm or best
efforts underwritten offering, or (2) if not sold to underwriters in such an
offering, beginning with the first month of Qualis' first fiscal quarter
commencing after the effective date of the Registration Statement, which
statements shall cover said 12-month periods.
Qualis may require Cargill to furnish to Qualis such information
regarding the distribution of such securities, including any information
required by law to be given in connection with the Registration Statement, as
Qualis may from time to time reasonably request in writing and as is required by
applicable law or regulations.
Cargill agrees that, upon receipt of any notice from Qualis of the
happening of any event of the kind described in Section 7.4(c)(3), 7.4(c)(5), or
7.4(c)(6) hereof, Cargill shall forthwith discontinue the disposition of
Registrable Securities until Cargill receives copies of the supplemented or
amended Prospectus contemplated by Section 7.4(k) hereof, or until Cargill is
advised in writing by Qualis that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by Qualis,
Cargill will deliver to Qualis (at Qualis' expense), all copies,
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other than permanent file copies then in Cargill's possession, of the Prospectus
covering such Registrable Securities at the time of receipt of such notice.
7.5. Registration Expenses.
(a) Except as set forth in Section 7.5(c), all expenses incident
to Qualis' performance of or compliance with this Agreement pursuant to any
Piggyback Registration (the "Registration Expenses"), including, without
limitation, all: (1) registration and filing fees, including fees and expenses
associated with filings required to be made with a national securities exchange
or national computerized market system, (2) fees and expenses of compliance with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for underwriters in connection with blue sky qualifications of the
securities covered by the Registration Statement and determination of
eligibility for investment under the laws of such jurisdictions designated by
the managing underwriter or underwriters, if any), (3) printing expenses
(including expenses of printing certificates for the Securities covered by the
Registration Statement in a form eligible for deposit with Depositary Trust
Company and of printing prospectuses), (4) fees and disbursements of counsel for
Qualis, of all independent certified public accountants of Qualis (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance), and of all other Persons retained by Qualis shall be paid
by Qualis promptly upon receipt of bills or invoices relating thereto,
regardless of whether the
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Registration Statement becomes effective. In addition to the expenses set forth
in Section 7.5(c) which are to be borne individually, all expenses incident to
Qualis' performance of or compliance with this Agreement pursuant to any Demand
Registration, including, without limitation the expenses described in the first
sentence of 7.5(a) shall be borne by Qualis, except that the fees described in
Section 7.5(a)(2) shall be borne by Cargill and Qualis pro rata in proportion to
the amount of Registrable Securities sold by each if the Registration Statement
becomes effective or proposed to be sold if the Registration Statement does not
become effective.
(b) Qualis shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, rating agency
fees, and the fees and expenses of any Person (other than legal counsel),
including special experts, retained by Qualis.
(c) Cargill shall bear the following expenses in connection with
any Demand Registration or Piggyback Registration, regardless of whether the
Registration Statement becomes effective: (1) all underwriting discounts and
commissions, or fees of underwriters, selling brokers, dealer managers, or
similar securities industry professionals relating to the distribution of the
Registerable Securities of Cargill, (2) all legal and accounting fees and
expenses, if any, of Cargill and (3) all taxes, if any, of Cargill (except
transfer taxes).
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7.6. Indemnification.
(a) Indemnification by Oualis. Qualis agrees to indemnify and
hold harmless, to the full extent permitted by law, Cargill, its Affiliates, and
their respective officers, directors, and employees, and each Person who
controls Cargill (within the meaning of Section 15 of the Securities Act), from
and against all losses, claims, damages, liabilities (or proceedings in respect
thereof), and expenses, as incurred, arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or 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 not misleading, except insofar as the
same are caused by any untrue statement or alleged untrue statement contained in
or by any omission or alleged omission made in such Registration Statement,
Prospectus or preliminary prospectus in conformity with written information
furnished to Qualis by Cargill expressly for reliance upon and use therein;
provided, however, that Qualis shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense of Cargill arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any such preliminary Prospectus, if, unless
an underwriter has been retained to sell Cargill's Registrable Securities: (1)
Cargill or its agents failed to deliver a copy of the Prospectus to the Person
asserting such loss, claim, damage, liability or expense after Qualis had
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furnished Cargill with a sufficient number of copies of the same, and (2) the
Prospectus corrected such untrue statement or omission; and provided, further,
that Qualis shall not be liable in any such case to the extent that any such
loss, claim, damage, liability, or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
the Prospectus, if such untrue statement or alleged untrue statement or omission
or alleged omission is corrected in an amendment or supplement to the Prospectus
and Cargill or its agents thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of the Securities
covered by a Registration Statement to the Person asserting such loss, claim,
damage, liability or expense after Qualis had furnished Cargill with a
sufficient number of copies thereof in a manner and at a time sufficient to
permit delivery of the same. Qualis will also indemnify underwriters, selling
brokers, dealer managers, and similar securities industry professionals
participating in the distribution, their officers and directors, and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act), to the extent customary in connection with such offerings.
(b) Indemnification by Cargill. In connection with registration
hereunder, Cargill agrees to indemnify and hold harmless, to the full extent
permitted by law, Qualis, its officers, directors and employees, and each Person
who directly or indirectly controls Qualis (within the meaning of Section 15 of
the Securities Act), from and against any losses, claims,
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damages, liabilities and reasonable expenses arising out of or based upon any
untrue or alleged untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the Registration Statement
or Prospectus or preliminary Prospectus or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in a writing furnished by Cargill to Qualis
specifically for reliance upon and inclusion in such Registration Statement or
Prospectus.
(c) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder shall: (1) give prompt written notice to the
indemnifying party of any written claim with respect to which it seeks
indemnification, and (2) permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party;
provided, however, that any Person entitled to indemnification hereunder shall
have the right to employ separate counsel and to participate in the defense of
such claim, and the fees and expenses of such counsel shall be at the expense of
the indemnifying party. The indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld) unless such settlement includes as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party will not be obligated to pay the fees and expenses of more
than one counsel (excluding
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separate counsel as described in 7.6(c)(2) above) (together with appropriate
local counsel) for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, based upon written advice of counsel, a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated, in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnifying party on the
one hand (taking into consideration the fact that the provision of the
registration rights hereunder is a material inducement to Cargill to acquire the
Warrant and enter into the Master Program Agreement and the Participation
Agreement) and the indemnified party on the other but also the relative fault of
the indemnifying party and the indemnified
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party as well as any other relevant equitable considerations. The relative fault
of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this paragraph (d) were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section. Notwithstanding the foregoing, no holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount such holder would have been required to pay to an indemnified party
if the above indemnity was available.
(e) Notwithstanding the termination of this Agreement, the
provisions of this Section 7.6 shall survive.
7.7. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person: (1)
agrees to sell such Person's Registrable
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securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, and (2) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, and other documents required under the terms of such underwriting
arrangements. Nothing in this Section 7.7 shall be construed to create any
additional rights regarding the registration of Registrable Securities in any
Person otherwise than as set forth herein.
ARTICLE 8.
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GENERAL PROVISIONS
------------------
8.1. Entire Agreement. This Agreement contains the entire
understanding among Qualis, Services, Service Holding, Credit Holding, Credit,
Funding, Group Holdings, Group and Cargill regarding the subject matter of this
Agreement, and all prior negotiations, understandings and agreements between
them are superseded by this Agreement.
8.2. Headings. The article and paragraph headings of this Agreement
are for convenience only, and do not affect the meaning or interpretation of
this Agreement.
8.3. Notices and Other Communications. Any notice or other
communication required or permitted to be given under this Agreement must be in
writing and will be deemed effective when delivered in person or sent by
facsimile transmission, if promptly confirmed in writing, or on the third day
after the day
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on which mailed by first class mail from within the United States of America, to
the following addresses:
If to Qualis:
Qualis Care, L.P.
12 East 49th Street, Suite 2100
New York, New York 10017
Attention: John Hall
Telephone: (212) 980-0530
Facsimile: (212) 980-6346
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Frederick B. Utley
Telephone: (212) 878-8356
Facsimile: (212) 878-8375
If to Services:
Qualis Services, Inc.
Suite 100A
600 Corporate Drive
Fort Lauderdale, FL 33334
Telephone: (305) 772-3200
Facsimile: (305) 772-6678
If to Credit:
Qualis Credit, Corp.
Suite 100B
600 Corporate Drive
Fort Lauderdale, FL 33334
Telephone: (305) 772-3200
Facsimile: (305) 772-6678
If to Funding:
Qualis Care Funding Corporation
Suite 100A
600 Corporate Drive
Fort Lauderdale, FL 33334
Telephone: (305) 772-3200
Facsimile: (305) 772-6678
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If to Group:
Qualis Group Holdings, L.P.
12 East 49th Street, Suite 2100
New York, New York 10017
Attention: John Hall
Telephone: (212) 980-0530
Facsimile: (212) 980-6346
If to Cargill:
Cargill Financial Services Corporation
6000 Clearwater Drive
Minnetonka, MN 55343
Attention: David Netjes
Telephone: (612) 742-3090
Facsimile: (612) 742-3910
and
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attention: Peter Humphreys
Telephone: (212) 259-6730
Facsimile: (212) 259-6333
8.4. Governing Law. This Agreement will be governed by, and construed
under, the laws of the State of New York in the United States of America.
8.5. Amendments. This Agreement may be amended by, but only by, a
document in writing signed by Qualis, Services, Credit, Funding, Group and
Cargill.
8.6. Consent to Jurisdiction. Qualis, Services, Credit, Funding, Group
and Cargill each (i) agrees that any action or proceeding relating to this
Agreement or the transactions contemplated by it shall be brought in a Federal
or state court sitting in the Borough of Manhattan, City and State of New York
in the United States of America, and in no other court, (ii) consents to the
jurisdiction and venue of any Federal or state court sitting in the Borough of
Manhattan, City and
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State of New York in any such action or proceeding and agrees not to attempt to
transfer any such action or proceeding to another court on the ground of
inconvenient forum or any other ground, and (iii) agrees that process in any
such action or proceeding may be served by registered mail or in any other
manner permitted by the rules of the court in which the action or proceeding is
brought.
8.7. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Qualis, Services, Credit, Service Holding, Credit
Holding, Funding, Group Holdings, Group and Cargill and their respective
successors and permitted assigns; provided, however, that nothing herein shall
prevent Cargill from being able to transfer all or part of the benefits
hereunder to an Affiliate, which following any such transfer shall be entitled
to the benefits hereunder.
8.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same instrument.
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This Agreement has been executed on the day set forth on the first
page and constitutes a binding agreement between the parties to it.
QUALIS CARE, L.P.
By: Qualis Group Holdings, L.P.
General Partner
By: Qualis Group, Inc.
General Partner
By: /s/ John Hall
QUALIS SERVICE HOLDING, INC.
By: /s/ Joel Ciniero
QUALIS SERVICES, INC.
By: /s/ Joel Ciniero
QUALIS CREDIT HOLDING, INC.
By: /s/ Joel Ciniero
QUALIS CREDIT, CORP.
By: /s/ Joel Ciniero
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QUALIS CARE FUNDING CORPORATION
By: /s/ Joel Ciniero
QUALIS GROUP HOLDINGS, L.P.
By: Qualis Group, Inc.
General Partner
By: /s/ John Hall
QUALIS GROUP, INC.
By: /s/ John Hall
CARGILL FINANCIAL SERVICES
CORPORATION
By: /s/
<PAGE>
QUALIS CARE, L.P.
Subsidiaries
Name Jurisdiction of Incorporation
---- -----------------------------
Qualis Services, Incorporated............................Delaware
Qualis Credit, Incorporated..............................Delaware
Knightsbridge International
Reinsurance Corporation................................Barbados
