<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:
Commission file number 0-19411
SUMMIT CARE CORPORATION
(Exact name of Registrant as specified in its charter)
California 95-3656297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 W. Magnolia Blvd.
Burbank, California 91505-3031
(address of principal executive offices)
(818) 841-8750
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by checkmark whether the Registrant (1) has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of Registrant's common stock outstanding at
December 31, 1997 -- 6,812,500
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<PAGE> 2
SUMMIT CARE CORPORATION
FORM 10-Q
QUARTER ENDED
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page of
Form 10-Q
---------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
PART I
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $53,972 $46,181 $108,507 $95,088
Expenses:
Salaries and benefits 24,132 22,309 47,742 43,386
Supplies 5,091 5,337 10,261 10,381
Purchased services 12,844 12,237 26,211 24,144
Provision for doubtful accounts 957 721 1,780 967
Other expenses 3,738 2,824 7,484 6,258
Rent 762 713 1,525 1,410
Depreciation and amortization 2,151 1,840 4,235 3,632
Interest (net of interest income,
$169 and $371 in 1997 and $179
and $393 in 1996, respectively) 2,311 1,934 4,588 4,057
------- ------- -------- -------
51,986 47,915 103,826 94,235
------- ------- -------- -------
Income (loss) before provision for
income taxes 1,986 (1,734) 4,681 853
Provision (benefit) for income taxes 784 (685) 1,849 337
------- ------- -------- -------
Net income (loss) 1,202 $(1,049) 2,832 $ 516
======= ======= ======== =======
Earnings (loss) per share:
Basic $ 0.18 $ (0.15) $ 0.42 $ 0.08
======= ======= ======== =======
Diluted $ 0.18 $ (0.15) $ 0.41 $ 0.08
======= ======= ======== =======
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,702 $ 3,994
Accounts receivable, less allowance for
doubtful accounts: December 1997 - $2,474;
June 1997 - $2,028 36,343 33,749
Supplies inventory, at cost 3,204 2,690
Other current assets 15,569 12,356
-------- --------
Total current assets 56,818 52,789
Property and equipment, at cost:
Land and land improvements 20,036 19,513
Buildings and leasehold improvements 175,078 161,080
Furniture and equipment 24,361 23,978
Construction in progress 5,298 5,947
-------- --------
224,773 210,518
Less accumulated depreciation and amortization 30,220 28,605
-------- --------
194,553 181,913
Notes receivable, less allowance for doubtful
accounts: December 1997 - $363; June 1997 - $322 6,842 6,859
Other assets 9,207 8,955
-------- --------
$267,420 $250,516
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
4
<PAGE> 5
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank $ 2,985 $ 4,678
Accounts payable 36,776 29,586
Employee compensation and benefits 4,622 5,877
Income taxes payable 1,051 --
-------- --------
Total current liabilities 45,434 40,141
Long-term debt 129,754 121,452
Deferred income taxes 7,511 7,511
-------- --------
Total liabilities 182,699 169,104
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000
authorized shares, none issued -- --
Common stock, no par value, 100,000 authorized
shares; 6,813 and 6,776 issued and outstanding,
respectively 52,020 51,543
Retained earnings 32,701 29,869
-------- --------
Total shareholders' equity 84,721 81,412
-------- --------
$267,420 $250,516
======== ========
</TABLE>
NOTE: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
5
<PAGE> 6
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 2,832 $ 516
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,235 3,632
(Increase) in accounts receivable, net (2,594) (5,027)
(Increase) in supplies inventory (514) (66)
(Increase) in other current assets (3,152) (1,602)
Increase in accounts payable 7,190 6,805
(Decrease) increase in employee compensation
and benefits (1,255) 294
Increase (decrease) in income taxes payable 1,051 (989)
-------- --------
Total adjustments 4,961 3,047
-------- --------
Net cash provided by operating activities 7,793 3,563
-------- --------
Investing activities:
Issuance of notes receivable (2,281) (550)
Principal payments of notes receivable 2,294 253
Additions to property and equipment (6,706) (12,049)
Property and equipment related to purchase of
nursing center (4,209) --
(Increase) in other assets (470) (1,579)
-------- --------
Net cash (used in) investing activities (11,372) (13,925)
-------- --------
Financing activities:
(Decrease) in payable to bank (1,693) (1,229)
Principal payments on long-term debt (10,497) (8,435)
Proceeds from long-term debt 13,000 19,000
Proceeds from exercise of stock options 477 --
-------- --------
Net cash provided by financing activities 1,287 9,336
-------- --------
(Decrease) in cash and cash equivalents (2,292) (1,026)
Cash and cash equivalents at beginning of year 3,994 2,658
-------- --------
Cash and cash equivalents at end of the period $ 1,702 $ 1,632
======== ========
</TABLE>
6
<PAGE> 7
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
------ -----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,015 $ 5,161
Income taxes 808 1,654
Non cash investing and financing activities:
Acquisition of nursing care center under
capital lease 5,799 --
Capital lease obligation (5,799) --
</TABLE>
See accompanying notes.
7
<PAGE> 8
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
1. The unaudited financial information included herein, in the opinion of
management, reflects all adjustments (all of which are of a normal
recurring nature except for a special charge recorded in December 1996,
see Note 5), which are considered necessary to fairly state the
Company's financial position, its cash flows and the results of
operations. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
Company's annual report filed on Form 10-K for the year ended June 30,
1997. The interim financial information herein is not necessarily
representative of that to be expected for a full year.
2. Certain amounts have been reclassified to conform with fiscal 1998
presentations.
3. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $1,202 $(1,049) $2,832 $ 516
Denominator:
Denominator for basic earnings
per share - weighted average
shares 6,802 6,775 6,789 6,774
Effect of stock options 58 66 46 80
------ ------- ------ ------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 6,860 6,841 6,835 6,854
Earnings per share:
Basic $ 0.18 $ (0.15) $ 0.42 $ 0.08
====== ======= ====== ======
Diluted $ 0.18 $ (0.15) $ 0.41 $ 0.08
====== ======= ====== ======
</TABLE>
8
<PAGE> 9
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
(In thousands)
4. Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- -------------
<S> <C> <C>
Due from third-party payors $ 4,743 $ 2,491
Deferred tax assets 1,956 1,956
Notes receivable 1,257 1,253
Prepaid expenses 2,526 1,004
Income tax receivable 3,000 4,128
Other receivables 2,087 1,524
------- -------
$15,569 $12,356
======= =======
</TABLE>
5. In December 1996, the Company recorded a special charge of $4,000
against revenues ($2,420 against net income) as a result of adjustments
proposed by Medicare in connection with an audit of fiscal 1995
completed in the quarter ended December 31, 1996, which would have an
effect on revenues for that fiscal year, fiscal 1996 and the six months
ended December 31, 1996.
6. In July 1997, the Company opened its fifth assisted living center with
66 beds in Orange, California, at a total cost of construction of
$3,924. In September 1997, the Company exercised a purchase option in
the amount of $1,871 in its lease of a 111-bed skilled nursing care
center in La Grange, Texas. In November 1997, the Company opened 47
additional beds at one of its two skilled nursing care centers in
Lubbock, Texas, at an approximate cost of construction of $1,900. In
December 1997, the Company acquired the assets of a 194 bed skilled
nursing care center in McAllen, Texas at an approximate cost of $10,058.
The Company's bank line of credit was used to finance the two
construction projects, the exercise of the purchase option and $4,259 of
the acquisition cost of the McAllen center. The balance of the McAllen
acquisition cost of $5,799 was financed with a capitalized lease
obligation.
7. In December 1997, the Company amended its secured bank line of credit by
reducing the commitment from $40,000 to $33,000. One of the four lenders
was deleted from the credit agreement, and the revolving credit
termination date was extended one year to September 30, 1999. No other
terms and conditions were added, deleted or amended.
8. Recent Accounting Pronouncement: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for fiscal years ending
after December 15, 1997. This Statement is not required to be applied to
interim financial statements in the initial year of its application.
SFAS 131 establishes standards for the way that public enterprises
report information about operating segments in annual financial
9
<PAGE> 10
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
(In thousands)
statements. It also requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. Under existing accounting standards, the Company has
reported its operations as one line of business because substantially
all of its revenues have been derived from its skilled nursing care
centers and assisted living centers and closely related ancillary
services. The Company is presently evaluating the new standard in order
to determine its effect, if any, on the way the Company might report its
operations in the future.
9. Subsequent Event: On February 6, 1998, the Company and Fountain View,
Inc., a privately-held skilled nursing care company based in Los
Angeles, California, entered into a definitive merger agreement for
Fountain View to acquire the Company. According to the terms of the
merger agreement, the Company's shareholders will receive $21.00 per
share in cash for a total purchase price of approximately $274 million,
including the assumption of approximately $130 million of the Company's
debt.
On February 13, 1998, Fountain View commenced a cash tender offer for
all outstanding shares of the Company's stock at $21.00 per share.
Following consummation of the tender offer, subject to the terms and
conditions contained in the merger agreement, the Company will be merged
with a wholly owned subsidiary of Fountain View, and each remaining
outstanding share of the Company will be converted in the merger into
$21.00 in cash.
Fountain View has received a commitment from Heritage Fund II, L.P. for
$82 million of the equity financing necessary to complete the
transaction and a bank financing commitment from Bank of Montreal
covering an additional $250 million. Completion of the tender offer and
the merger are subject to customary conditions to closing, including the
receipt of any applicable regulatory approvals and the expiration of any
applicable regulatory waiting periods.
10
<PAGE> 11
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1997 COMPARED TO QUARTER ENDED DECEMBER 31, 1996
Net revenues increased $7,791 or 16.9% from $46,181 for the quarter ended
December 31, 1996 to $53,972 for the quarter ended December 31, 1997. The
increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Special charge to Medicare revenues $4,000 51.4%
2. Increased census days and revenue rates 2,035 26.1
3. New beds opened in fiscal years 1997 and 1998 2,017 25.9
4. Pharmacy operations 516 6.6
5. Rehabilitative and other specialty services (777) (10.0)
------ -----
$7,791 100.0%
====== =====
</TABLE>
In December 1996, the Company recorded a special charge of $4,000 against
Medicare revenues as a result of adjustments proposed by Medicare in connection
with an audit of fiscal 1995, which would have an effect on revenues for that
fiscal year, fiscal 1996 and the six months ended December 31, 1996. Average
occupancy was 86.7% in the second quarter ended December 31, 1997 and 84.4% in
the second quarter ended December 31, 1996. Excluding newly constructed beds,
the average occupancy was 89.6% in the second quarter ended December 31, 1997
and 86.3% in the same quarter last year. The Company's quality mix (revenues
from Medicare, managed care and private pay patients as a percentage of gross
revenues excluding pharmacy revenues) was 67.5% in the second quarter ended
December 31, 1997 and 69.5% in the second quarter ended December 31, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 86.5% of net
revenues in the second quarter ended December 31, 1996 to 86.6% in the second
quarter ended December 31, 1997. Total salaries and employee related benefits
were 44.7% of net revenues in the second quarter ended December 31, 1997
compared to 44.5% of net revenues, before the effect of the special charge, in
the second quarter ended December 31, 1996. Expenses increased $3,334 or 7.7%
from $43,428 in the second quarter ended December 31, 1996 to $46,762 in the
second quarter ended December 31, 1997 for the following reasons:
11
<PAGE> 12
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Expenses relating to new beds opened
in fiscal years 1997 and 1998 $1,673 50.2%
2. Salaries and benefits 1,012 30.4
3. Other expenses 764 22.9
4. Rehabilitative and other specialty services (115) (3.5)
------ -----
$3,334 100.0%
====== =====
</TABLE>
Income before rental, depreciation and amortization and interest
expense, net of interest income, increased $4,457 or 161.9% from $2,753 in the
second quarter ended December 31, 1996 to $7,210 in the second quarter ended
December 31, 1997, and was 13.4% of net revenues in the second quarter ended
December 31, 1997 compared to 6.0% in the second quarter ended December 31, 1996
(and 13.5% of net revenues before the special charge to revenues).
Rent, depreciation and amortization and interest expense, net of
interest income, increased by $737 or 16.4% from $4,487 in the second quarter
ended December 31, 1996 to $5,224 in the second quarter ended December 31, 1997.
Substantially all of this increase was due to interest expense related to higher
debt and depreciation expense related to capital additions.
The Company's effective tax rate was 39.5% of income in the second
quarter ended December 31, 1997 and in the second quarter ended December 31,
1996. Net income increased $2,251 from a net loss of $1,049 in the second
quarter ended December 31, 1996 to net income of $1,202 in the second quarter
ended December 31, 1997. The net loss of $1,049 in the second quarter ended
December 31, 1996, included $2,420 for the special charge described earlier. Net
income before the special charge, decreased $169 or 12.3% from $1,371 in the
second quarter ended December 31, 1996 to $1,202 in the second quarter ended
December 31, 1997.
12
<PAGE> 13
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
Net revenues increased $13,419 or 14.1% from $95,088 for the six months
ended December 31, 1996 to $108,507 for the six months ended December 31, 1997.
The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Increased census days and revenue rates $4,874 36.3%
2. Special charge to Medicare revenues 4,000 29.8
3. New beds opened in fiscal years 1997 and 1998 3,973 29.6
4. Pharmacy operations 1,406 10.5
5. Rehabilitative and other specialty services (834) (6.2)
------- -----
$13,419 100.0%
======= =====
</TABLE>
In December 1996, the Company recorded a special charge of $4,000 against
Medicare revenues as a result of adjustments proposed by Medicare in connection
with an audit of fiscal 1995, which would have an effect on revenues for that
fiscal year, fiscal 1996 and the six months ended December 31, 1996. Average
occupancy was 87.2% in the six months ended December 31, 1997 and 84.0% in the
six months ended December 31, 1996. Excluding newly constructed beds, the
average occupancy was 90.3% in the six months ended December 31, 1997 and 85.9%
in the same period last year. The Company's quality mix (revenues from Medicare,
managed care and private pay patients as a percentage of gross revenues
excluding pharmacy revenues) was 68.3% in the six months ended December 31, 1997
and 69.7% in the six months ended December 31, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 85.9% of net
revenues in the six months ended December 31, 1996 to 86.1% in the six months
ended December 31, 1997. Total salaries and employee related benefits were 44.0%
of net revenues in the six months ended December 31, 1997 compared to 43.8% of
net revenues, before the effect of the special charge, in the six months ended
December 31, 1996.
13
<PAGE> 14
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Expenses increased $8,342 or 9.8% from $85,136 in the six months ended December
31, 1996 to $93,478 in the six months ended December 31, 1997 for the following
reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Expenses relating to new beds opened
in fiscal years 1997 and 1998 $3,232 38.7%
2. Salaries and benefits 2,776 33.3
3. Other expenses 1,540 18.5
4. Rehabilitative and other specialty services 794 9.5
------ -----
$8,342 100.0%
====== =====
</TABLE>
Income before rental, depreciation and amortization and interest
expense, net of interest income, increased $5,077 or 51.0% from $9,952 in the
six months ended December 31, 1996 to $15,029 in the six months ended December
31, 1997 and was 13.9% of net revenues in the six months ended December 31, 1997
compared to 10.5% in the six months ended December 31, 1996 (and 14.1% of net
revenues before the special charge to revenues).
Rent, depreciation and amortization and interest expense, net of
interest income, increased by $1,249 or 13.7% from $9,099 in the six months
ended December 31, 1996 to $10,348 in the six months ended December 31, 1997.
Substantially all of this increase was due to interest expense related to higher
debt and depreciation expense related to capital additions.
The Company's effective tax rate was 39.5% of income in the six months
ended December 31, 1997 and in the six months ended December 31, 1996. Net
income increased $2,316 from $516 in the six months ended December 31, 1996 to
$2,832 in the six months ended December 31, 1997. The net income of $516 for the
six months ended December 31, 1996 included $2,420 for the special charge
described earlier. Net income before the special charge, decreased $104 or 3.5%
from $2,936 in the six months ended December 31, 1996 to $2,832 in the six
months ended December 31, 1997.
14
<PAGE> 15
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Selected statistics are shown below:
<TABLE>
<CAPTION>
FISCAL
-------------------
INCREASE
1998 1997 (DECREASE)
------ ----- --------
<S> <C> <C> <C>
Facilities in operation at:
September 30 40 39 1
December 31 41 39 2
Nursing center beds at:
September 30 4,631 4,629 2
December 31 4,872 4,629 243
Assisted living beds at:
September 30 475 468 7
December 31 475 468 7
Total beds at:
September 30 5,106 5,097 9
December 31 5,347 5,097 250
Total occupancy:
First quarter 87.7% 83.6% 4.1%
Second quarter 86.7% 84.4% 2.3%
Nursing center occupancy:
First quarter 88.6% 84.1% 4.5%
Second quarter 87.5% 84.9% 2.6%
Assisted living center occupancy:
First quarter 79.6% 78.7% 0.9%
Second quarter 79.5% 79.6% (0.1)%
Percentage of revenues
from private, managed care and
Medicare (quality mix):
First quarter 69.1% 69.9% (0.8)%
Second quarter 67.5% 69.5% (2.0)%
Percentage of revenues from
Medicaid:
First quarter 30.9% 30.1% 0.8%
Second quarter 32.5% 30.5% 2.0%
</TABLE>
15
<PAGE> 16
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $1,702 in cash and cash equivalents and
working capital of $11,384. During the six months ended December 31, 1997, the
Company's cash and cash equivalents decreased by $2,292.
Net cash provided by operating activities increased $4,230 from $3,563 in the
first six months of fiscal 1996 to $7,793 in the first six months of 1997. Net
cash provided by operating activities, plus an increase in credit line
borrowings outstanding of $9,000 and the acquisition of a capital lease of
$5,799, related to the purchase of a skilled nursing care center in McAllen,
Texas (see Note 6), were used principally for capital expenditures of $6,706 for
existing centers, $10,008 for property and equipment related to the purchase of
the skilled nursing care center described above and principal payments on
long-term debt of $6,497.
Accounts receivable increased $2,594 primarily due to payment delays in
Medicare and Medicaid. At December 31, 1997, the Company's average accounts
receivable days outstanding were 40 compared to 41 days outstanding at June 30,
1997 and December 31, 1996.
Long-term debt, totaling $129,754 at December 31, 1997, consisted of mortgage
indebtedness of $8,083 on three properties, $16,821 on five capitalized leases,
$90,850 in senior secured debt, and credit line borrowings of $14,000.
The Company believes that it has sufficient cash flow from its existing
operations and from its bank line of credit to service long-term debt due within
one year of $8,956 (the Company intends to borrow this amount against its bank
line of credit which has a revolver extending to September 30, 1999 followed by
a three year payment period), to make normal recurring capital replacements,
additions and improvements of approximately $6,400 planned for the next 12
months, to develop properties over the next 12 months costing approximately $800
and to meet other long-term working capital needs and obligations. The Company
expects, on a selective basis, to pursue expansion of its existing centers and
the acquisition or development of additional centers in markets where
demographics and competitive factors are favorable.
16
<PAGE> 17
SUMMIT CARE CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
(Dollars in thousands)
IMPACT OF INFLATION
The health care industry is labor intensive. Wages and other expenses
increase more rapidly during periods of inflation and when shortages in the
labor market occur. In addition, suppliers pass along rising costs in the form
of higher prices. Increases in reimbursement rates under Medicaid generally lag
behind actual cost increases, so that the Company may have difficulty covering
them in a timely fashion.
RECENT ACCOUNTING PRONOUNCEMENT
See Note 8 to Consolidated Financial Statements.
17
<PAGE> 18
PART II
SUMMIT CARE CORPORATION
OTHER INFORMATION
QUARTER ENDED
DECEMBER 31, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.45 Limited Liability Company Agreement of APS-Summit Care
Pharmacy, L.L.C., dated November 30, 1996.
10.46 Robert Crone-South Texas Health Care, Inc. Agreement of
Purchase and Sale of Assets of Briarcliff Nursing and
Rehabilitation Center dated November 24, 1997.
10.47 Agreement and Plan of Merger Among Summit Care Corporation,
Fountain View, Inc., FV-SCC Acquisition Corporation and
Heritage Fund II, L.P., dated February 6, 1998.
10.48 Summit Care Corporation Special Severance Pay Plan dated
February 6, 1998.
(b) Reports on Form 8-K
On February 11, 1998 the Company filed a current report on Form 8-K
with respect to its execution of an Agreement and Plan of Merger Among
Summit Care Corporation, Fountain View, Inc., FV-SCC Acquisition
Corporation and Heritage Fund II, L.P., dated February 6, 1998.
18
<PAGE> 19
SUMMIT CARE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SUMMIT CARE CORPORATION
Date: February 13, 1998 By: S/DERWIN L. WILLIAMS
------------------------------------
Derwin L. Williams
Sr.Vice President - Finance,
Chief Financial Officer and
Treasurer (Principal Financial Officer)
Date: February 13, 1998 By: S/JOHN FARBER
-------------------------------------
John Farber
Vice President - Controller and
Secretary (Principal Accounting
Officer)
19
<PAGE> 1
EXHIBIT 10.45
================================================================================
LIMITED LIABILITY COMPANY
AGREEMENT
OF
APS-SUMMIT CARE PHARMACY, L.L.C.,
a Delaware Limited Liability Company
Dated as of November 30, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I - ORGANIZATIONAL MATTERS..................................... 1
1.1 Formation......................................................... 1
1.2 Name.............................................................. 1
1.3 Principal Place of Business; Other Places of Business............. 1
1.4 Purpose........................................................... 1
1.5 Certificate of Formation; Filings................................. 1
1.6 Fictitious Business Name Statements............................... 1
1.7 Designated Agent for Service of Process........................... 2
1.8 Term.............................................................. 2
ARTICLE 2 - DEFINITIONS................................................ 2
2.1 "Act"............................................................. 2
2.2 "Additional Members".............................................. 2
2.3 "Affected Member"................................................. 2
2.4 "Adjusted Capital Account Deficit"................................ 2
2.5 "Affiliate"....................................................... 2
2.6 "Agreement"....................................................... 2
2.7 "Assignee"........................................................ 3
2.8 "Bona Fide Offer"................................................. 3
2.9 "Business"........................................................ 3
2.10 "Capital Account"................................................ 3
2.11 "Capital Contributions".......................................... 4
2.12 "Cash Available for Distribution"................................ 4
2.13 "Certificate".................................................... 4
2.14 "Code"........................................................... 4
2.15 "Company"........................................................ 4
2.16 "Company Assets"................................................. 4
2.17 "Company Minimum Gain"........................................... 4
2.18 "Company Price".................................................. 4
2.19 [Intentionally deleted.)......................................... 4
2.20 "Depreciation"................................................... 4
2.21 "Economic Interest".............................................. 5
2.22 "Fundamental Change"............................................. 5
2.23 "Gross Asset Value".............................................. 6
2.24 "Immediate Family"............................................... 7
2.25 "Incapacity"..................................................... 7
2.26 "Indemnitee"..................................................... 7
2.27 "Majority in Interest"........................................... 7
2.28 "Majority of Remaining Members".................................. 7
2.29 "Member Minimum Gain"............................................ 7
2.30 "Member Nonrecourse Debt"........................................ 7
2.31 "Member Nonrecourse Deductions".................................. 7
</TABLE>
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<TABLE>
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2.32 "Members"................................................. 7
2.33 "Membership Interest" or "Interest"....................... 7
2.34 "Net Profits" or "Net Losses"............................. 7
2.35 "Nonrecourse Deductions".................................. 8
2.36 "Nonrecourse Liability"................................... 8
2.37 "Non-Transferring Members"................................ 8
2.38 "Offerer"................................................. 8
2.39 "Offer"................................................... 8
2.40 "Offer by Transferor"..................................... 8
2.41 "Operating Cash Expenses"................................. 9
2.42 "Ordinary Course"......................................... 9
2.43 "Percentage Interest"..................................... 9
2.44 "Person".................................................. 9
2.45 "Recourse Liability"...................................... 9
2.46 "Regulations"............................................. 9
2.47 "Regulatory Allocations".................................. 9
2.48 "Representative".......................................... 9
2.49 "Reserves"................................................ 9
2.50 "Responsible Party"....................................... 9
2.51 "Substitute Member"....................................... 9
2.52 "Summit Care"............................................. 9
2.55 "Supermajority in Interest"............................... 9
2.54 "Terminating Capital Transaction"......................... 10
2.55 "Termination Payment"..................................... 10
2.56 "Transfer"................................................ 10
2.57 "Transferee".............................................. 10
2.58 "Transferor".............................................. 10
2.59 "Unaffected Members"...................................... 10
ARTICLE 3 - CAPITAL; CAPITAL ACCOUNTS AND MEMBERS..................... 10
3.1 Initial Capital Contributions of Members........................ 10
3.2 Additional Capital Contributions by Member...................... 10
3.3 Capital Accounts................................................ 11
3.4 Additional Members.............................................. 11
3.5 Member Capital.................................................. 11
3.6 Member Loans.................................................... 11
3.7 Liability of Members............................................ 11
ARTICLE 4 - DISTRIBUTIONS............................................. 12
4.1 Distributions of Cash Available for Distribution................ 12
4.2 Distributions Upon Liquidation.................................. 12
4.3 Withholding..................................................... 12
4.4 Distributions in Kind........................................... 13
4.5 Limitations on Distributions.................................... 13
</TABLE>
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<TABLE>
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ARTICLE 5 - ALLOCATIONS OF NET PROFITS AND NET LOSSES................... 13
5.1 General Allocation of Net Profits and Losses........................ 13
5.2 Regulatory Allocations.............................................. 13
5.3 Tax Allocations..................................................... 15
5.4 Other Provisions.................................................... 15
ARTICLE 6 - OPERATIONS.................................................. 16
6.1 Management........................................................ 16
6.2 Reliance By Third Parties......................................... 18
6.3 Compensation...................................................... 18
6.4 Records and Reports............................................... 18
6.5 Indemnification and Liability of the Member....................... 19
6.6 Covenant Not To Compete........................................... 20
6.7 Services.......................................................... 21
ARTICLE 7 - INTERESTS AND TRANSFERS OF INTERESTS........................ 21
7.1 Transfers......................................................... 21
7.2 Further Restrictions.............................................. 21
7.3 Rights of Assignees............................................... 22
7.4 Admissions and Withdrawals........................................ 22
7.5 Payment Upon Withdrawal of Member................................. 22
7.6 Admission of Assignees as Substitute Members...................... 22
7.7 Withdrawal of Members............................................. 23
7.8 Conversion of Membership Interest................................. 23
7.9 Right of First Refusal............................................ 23
7.10 Buy and Sell Rights............................................... 25
7.11 Option to Purchase Upon Fundamental Change........................ 26
ARTICLE 8 - DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE
COMPANY................................................................. 27
8.1 Limitations................................................... 27
8.2 Exclusive Causes.............................................. 27
8.3 Effect of Dissolution......................................... 27
8.4 No Capital Contribution Upon Dissolution...................... 28
8.5 Liquidation................................................... 28
ARTICLE 9 - MISCELLANEOUS............................................... 28
9.1 Amendments.......................................................... 28
9.2 Accounting and Fiscal Year.......................................... 29
9.3 Meetings............................................................ 29
9.4 Entire Agreement.................................................... 29
</TABLE>
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9.5 Further Assurances............................................. 29
9.6 Notices........................................................ 29
9.7 Tax Matters.................................................... 29
9.8 Governing Law.................................................. 30
9.9 Arbitration.................................................... 30
9.10 Construction................................................... 30
9.11 Captions - Pronouns............................................ 30
9.12 Binding Effect................................................. 30
9.13 Severability................................................... 30
9.14 Confidentiality................................................ 30
9.15 Counterparts................................................... 31
9.16 No Referrals................................................... 31
</TABLE>
iv
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
APS-SUMMIT CARE PHARMACY, L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "AGREEMENT") is made and
entered into as of the 30th day of November, 1996, by and between American
Pharmaceutical Services, Inc., a Delaware corporation ("APS"), and Summit Care
Pharmacy, Inc., a California corporation ("SCPI"; each of APS and SCPI are a
MEMBER, as defined below) for the purpose of forming APS-Summit Care Pharmacy,
L.L.C. (the "COMPANY"), a limited liability company organized under the Delaware
Limited Liability Company Act (the "ACT").
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 FORMATION. The Members hereby form the Company under the Act
for the purposes and upon the terms and conditions hereinafter set forth. The
rights and liabilities of the Members of the Company shall be as provided in the
Act, except as otherwise expressly provided herein. In the event of any
inconsistency between any terms and conditions contained in this Agreement and
any nonmandatory provisions of the Act, the terms and conditions contained in
this Agreement shall govern.
1.2 NAME. The name of the Company shall be "APS-Summit Care
Pharmacy, L.L.C." The Company may also conduct business at the same time under
one or more fictitious names if a Majority in Interest determines that such is
in the best interests of the Company. The Members may, upon the written consent
of a Majority in Interest, change the name of the Company, from time to time, in
accordance with applicable law.
1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS. The
principal place of business of the Company is located at 2324 Ridgepoint Drive,
Suite G-1, Austin, Texas 78754 or such other place within or outside the State
of Delaware as a Majority in Interest may from time to time designate. The
Company may maintain offices and places of business at such other place or
places within or outside the State of Delaware as a Majority in Interest deems
advisable.
1.4 PURPOSE. The Company shall provide institutional pharmacy
services to nursing homes, retirement centers and the patients and residents
residing in such facilities, and may engage in any and all other lawful
business, purpose or activity in which a limited liability company may be
engaged under applicable law (including, without limitation, the Act).
1.5 CERTIFICATE OF FORMATION; FILINGS. The Members shall cause to
be executed and filed a Certificate of Formation in the form attached as
Schedule I hereto (the "CERTIFICATE") in the Office of the Delaware Secretary of
State as required by the Act. Any Member may, upon the written consent of a
Majority in Interest, execute and file any duly authorized amendments to the
Certificate from time to time in a form prescribed by the Act.
1.6 FICTITIOUS BUSINESS NAME STATEMENTS. Following the execution
of this Agreement, fictitious business name statements shall be filed and
published when and if a Majority in Interest determines it necessary. Any such
statement shall be renewed as required by applicable law.
<PAGE> 7
1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS. The Company shall
continuously maintain a registered office and a designated and duly qualified
agent for service of process on the Company in the State of Delaware.
1.8 TERM. The Company shall commence on the date that the
Certificate is filed with the Office of the Delaware Secretary of State, and
shall continue until terminated pursuant to this Agreement.
ARTICLE 2
DEFINITIONS
Capitalized words and phrases used and not otherwise defined elsewhere
in this Agreement shall have the following meanings:
2.1 "ACT" is defined in the Preamble.
2.2 "ADDITIONAL MEMBERS" means those Persons admitted to the
Company pursuant to Paragraph 3.4 of this Agreement.
2.3 "AFFECTED MEMBER" is defined in Paragraph 7.11.1.
2.4 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant fiscal year, after giving effect to the following
adjustments:
2.4.1 Add to such Capital Account the following items:
(a) The amount, if any, that such Member is
obligated to contribute to the Company pursuant to this Agreement upon
liquidation of such Member's Interest; and
(b) The amount that such Member is obligated to
restore or is deemed to be obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
2.4.2 Subtract from such Capital Account such Member's
share of the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
2.5 "AFFILIATE" means, with reference to a specified Person: (a)
a Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person, (b) any Person that is an officer, partner or trustee of, or serves in a
similar capacity with respect to, the specified Person, or for which the
specified Person is an officer, partner or trustee, or serves in a similar
capacity, or (c) any member of the Immediate Family of the specified Person.
2.6 "AGREEMENT" is defined in the Preamble.
2
<PAGE> 8
2.7 "ASSIGNEE" means any Person (a) to whom a Member (or assignee
thereof) Transfers all or any part of its Interest, and (b) which has not been.
admitted to the Company as a Substitute Member pursuant to Paragraph 7.6 of this
Agreement.
2.8 "BONA FIDE OFFER" shall mean an offer in writing signed by a
third party offeror or offerors (who must be a Person financially capable of
carrying out the term of such Bona Fide Offer), in a form legally enforceable
against such third party offeror or offerors.
2.9 "BUSINESS" means the provision of institutional pharmacy
services to nursing homes, retirement centers and the patients and residents
residing in such facilities, or any and all other lawful business, purpose or
activity in which the Company may be engaged.
2.10 "CAPITAL ACCOUNT" means the Capital Account maintained for
each Member on the Company's books and records in accordance with the following
provisions:
2.10.1 To each Member's Capital Account there shall be
added (a) such Member's Capital Contributions, (b) such Member's allocable share
of Net Profits and any items in the nature of income or gain that are specially
allocated to such Member pursuant to Article 5 hereof or other provisions of
this Agreement, and (c) the amount of any Company liabilities assumed by such
Member or which are secured by any property distributed to such Member.
2.10.2 From each Member's Capital Account there shall be
subtracted (a) the amount of (i) cash and (ii) the Gross Asset Value of any
Company Assets (other than cash) distributed to such Member (other than any
payment of principal and/or interest to such Member pursuant to the terms of a
loan made by the Member to the Company) pursuant to any provision of this
Agreement, (b) such Member's allocable share of Net Losses and any other items
in the nature of expenses or losses that are specially allocated to such Member
pursuant to Article 5 or other provisions of this Agreement.
2.10.3 In the event any interest in the Company is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
2.10.4 In determining the amount of any liability for
purposes of Paragraphs 2.10.1 and 2.10.2 hereof, there shall be taken into
account Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
2.10.5 The foregoing provisions and the other provisions
of this Agreement relating to the maintenance of Capital Accounts are intended
to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event that a Majority in Interest shall determine that it is prudent to modify
the manner in which the Capital Accounts, or any additions or subtractions
thereto, are computed in order to comply with such Regulations, the Members may,
upon the written consent of a Majority in Interest, make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Member pursuant to Article 8 hereof upon the dissolution of
the Company. Upon the written consent of a Majority in Interest, the Members
shall also make (a) any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Members and the amount of
Company capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations
3
<PAGE> 9
Section 1.704-1(b)(2)(iv)(q), and (b) any appropriate modifications in
the event that unanticipated events might otherwise cause this Agreement
not to comply with Regulations Sections 1.704-1(b) and 1.704-2.
2.11 "CAPITAL CONTRIBUTIONS" means, with respect to any Member,
the total amount of money and the initial Gross Asset Value of property (other
than money), less any liabilities of such Member assumed by the Company or any
liabilities which are secured by any property contributed to the capital of the
Company by such Member, whether as an initial Capital Contribution or as an
additional Capital Contribution.
2.12 "CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any
fiscal year, all Company cash receipts (excluding the proceeds from any
Terminating Capital Transaction), after deducting payments for Operating Cash
Expenses, payments required to be made in connection with any loan to the
Company or any other loan secured by a lien on any Company Assets, capital
expenditures and any other amounts set aside for the restoration, increase or
creation of reasonable Reserves.
2.13 "CERTIFICATE" means the Certificate of Formation of the
Company filed under the Act in the Office of the Delaware Secretary of State for
the purpose of forming the Company as a Delaware limited liability company, and
any duly authorized, executed and filed amendments or restatements thereof.
2.14 "CODE" means the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provisions of succeeding law).
2.15 "COMPANY" is defined in the Preamble.
2.16 "COMPANY ASSETS" means all direct and indirect interests in
real and personal property owned by the Company from time to time, and shall
include both tangible and intangible property (including cash and cash
equivalents).
2.17 "COMPANY MINIMUM GAIN" has the meaning set forth in
Regulations Sections 1.7042(b)(2) and 1.704-2(d)(1) for the phrase "partnership
minimum gain."
2.18 "COMPANY PRICE" is defined in Paragraph 7.10.1
2.19 [Intentionally deleted.]
2.20 "DEPRECIATION" means, for each fiscal year or other period,
an amount equal to the federal income tax depreciation, amortization or other
cost recovery deduction allowable with respect to an asset for such year or
other period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method agreed to by a Majority
in Interest.
4
<PAGE> 10
2.21 "ECONOMIC INTEREST" means a Person's right to share in the
Net Profits, Net Losses, or similar items of, and to receive distributions from,
the Company, but does not include any other rights of a Member including,
without limitation, the right to vote or to participate in the management of the
Company, or, except as specifically provided in this Agreement or required under
the Act, any right to information concerning the business and affairs of the
Company.
2.22 "FUNDAMENTAL CHANGE" means the happening of any of the
following events with respect to a Member (or, in the case of SCPI, with respect
to either SCPI or Summit Care), without receiving the written consent of a
majority in interest of the Unaffected Members:
(a) the sale of substantially all of its assets to a Person or a
group of associated or affiliated Persons who are not affiliated
with such Member (or, in the case of SCPI, with either SCPI or
Summit Care, as the case may be);
(b) the sale, issuance, exchange or other disposition of more than
fifty percent (50%) of any class or series of the outstanding
capital stock of such Member (or, in the case of SCPI, either
SCPI or Summit Care) in one transaction or a series of related
transactions to a Person or a group of associated or affiliated
Persons who are not affiliated with such Member (or, in the case
of SCPI, with either SCPI or Summit Care, as the case may be);
(c) the dissolution or liquidation of such Member (or, in the case
of SCPI, of either SCPI or Summit Care);
(d) a merger or other reorganization with one or more entities in
which such Member (or, in the case of SCPI, either SCPI or
Summit Care) is not the surviving entity, or if such Member (or,
in the case of SCPI, either SCPI or Summit Care) is the
surviving entity, the ownership of fifty percent (50%) or more
of its voting common stock, is held by a Person or entity not
currently holding fifty percent (50%) of such voting common
stock;
(e) such Member (or, in the case of SCPI, either SCPI or Summit
Care) becomes insolvent or makes an assignment for the benefit
of creditors, or voluntary proceedings are instituted by such
Member (or, in the case of SCPI, either SCPI or Summit Care)
under the Bankruptcy Code as amended, or involuntary proceedings
are instituted against such Member (or, in the case of SCPI,
against either SCPI or Summit Care) under the Bankruptcy Code,
as amended and such involuntary proceedings are not dismissed
within sixty (60) days thereafter;
(f) a receiver is appointed for such Member (or, in the case of
SCPI, for either SCPI or Summit Care) or its assets; or
(g) any other event or transaction by which effective control of
such Member (or, in the case of SCPI, of either SCPI or Summit
Care) is transferred to, or vested in, a Person who is not
affiliated with such Member (or, in the case of SCPI, with
either SCPI or Summit Care).
Notwithstanding the foregoing, a public distribution of securities by a
Member (or, in the case of SCPI, by either SCPI or Summit Care) shall not be
deemed a Fundamental Change with respect to such Member (or, in the case of
SCPI, with respect to either SCPI or Summit Care) if a majority of such Member's
directors and principal officers (or, in the case of SCPI, the directors and
principal officers of SCPI and Summit Care) remain in the same positions they
held prior to the public distribution.
5
<PAGE> 11
2.23 "GROSS ASSET VALUE" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
2.23.1 The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market value of
such asset, as determined by a Majority in Interest and the contributing Member.
2.23.2 The Gross Asset Values of all Company Assets
immediately prior to the occurrence of any event described in subsection
(a), subsection (b), subsection (c) or subsection (d) hereof shall be
adjusted to equal their respective gross fair market values, as determined
by a Majority in Interest using such reasonable method of valuation as such
Majority in Interest may adopt, as of the following times:
(a) the acquisition of an additional interest in
the Company (other than in connection with the execution of this
Agreement) by a new or existing Member in exchange for more than
a de minimis Capital Contribution if a Majority in Interest
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative Economic Interests of the
Members in the Company;
(b) the distribution by the Company to a Member
of more than a de minimis amount of Company Assets as
consideration for an interest in the Company, if a Majority in
Interest reasonably determines that such adjustment is necessary
or appropriate to reflect the relative Economic Interests of the
Members in the Company;
(c) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and
(d) at such other times as a Majority in Interest
shall reasonably determine necessary or advisable in order to
comply with Regulations Sections 1.704-1(b) and 1.704-2.
2.23.3 The Gross Asset Values of Company Assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this Paragraph 2.23.3 to the extent that a Majority in Interest reasonably
determines that an adjustment pursuant to Paragraph 2.23.2 above is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Paragraph 2.23.3.
2.23.4 If the Gross Asset Value of a Company asset has
been determined or adjusted pursuant to Paragraph 2.23.1, Paragraph 2.23.2
or Paragraph 2.23.3 hereof, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such Company
Asset for purposes of computing Net Profits and Net Losses.
6
<PAGE> 12
2.24 "IMMEDIATE FAMILY" means, and is limited to, an individual
Member's current spouse, parents, parents-in-law, grandparents, children,
siblings, and grandchildren, or a trust or estate, all of the beneficiaries of
which consist of such Member or members of such Member's Immediate Family.
2.25 "INCAPACITY" means the bankruptcy, incompetence, insanity,
death, retirement, resignation, withdrawal, expulsion, or other acts resulting
in dissolution under the Act or termination (other than by merger or
consolidation) of any Person, any such Person being an "Incapacitated Member".
2.26 "INDEMNITEE" is defined in Paragraph 6.5.1.
2.27 "MAJORITY IN INTEREST" means Members holding, in the
aggregate, a majority of the Percentage Interests held by all Members of the
Company.
2.28 "MAJORITY OF REMAINING MEMBERS" means Members other than the
Incapacitated Member owning (a) a majority of the profits interests in the
Company held by all Members other than the Incapacitated Member, determined and
allocated based on any reasonable estimate of profits from the relevant date to
the projected termination of the Company and taking into account present and
future allocations of profits under this Agreement as it is in effect on the
relevant date, and (b) a majority of the capital interests in the Company,
determined as of the relevant date under this Agreement, owned by all the
Members other than the Incapacitated Member.
2.29 "MEMBER MINIMUM GAIN" means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Regulations Section 1.704-2(i) with respect to "partner
minimum gain."
2.30 "MEMBER NONRECOURSE DEBT" has the meaning set forth in
Regulations Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."
2.31 "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i) for the phrase "partner nonrecourse deductions."
2.32 "MEMBERS" means the Persons owning Membership Interests,
including any Substitute Members and Additional Members, with each Member being
referred to, individually, AS A "MEMBER."
2.33 "MEMBERSHIP INTEREST" or "INTEREST" means the entire
ownership interest of a Member in the Company at any particular time, including
without limitation, the Member's Economic Interest, any and all rights to vote
and otherwise participate in the Company's affairs, and the rights to any and
all benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all of the terms and
provisions of this Agreement.
2.34 "NET PROFITS" or "NET LOSSES" means, for each fiscal year or
other period, an amount equal to the Company's taxable income or loss for such
year or period determined in accordance with Code Section 703(a)(for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
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2.34.1 Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing Net
Profits or Net Losses pursuant to this Paragraph 2.34 shall be added to such
taxable income or loss;
2.34.2 Any expenditure of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Net Profits or Net Losses pursuant to this
Paragraph 2.34, shall be subtracted from such taxable income or loss;
2.34.3 Gain or loss resulting from any disposition of
Company Assets with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the Company Assets disposed of, notwithstanding that the adjusted tax
basis of such Company Assets differs from its Gross Asset Value;
2.34.4 In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such
fiscal year;
2.34.5 To the extent an adjustment to the adjusted tax
basis of any asset included in Company Assets pursuant to Code Section
734(b) or Code Section 743(b) is required pursuant to Regulations Section
1.704-1 (b)(2)(iv) (m) (4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Member's Interest, the amount of such adjustment shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for the purposes of computing Net
Profits and Net Losses;
2.34.6 If the Gross Asset Value of any Company Asset is
adjusted in accordance with Paragraph 2.23 of this Agreement, the amount of
such adjustment shall be taken into account in the taxable year of such
adjustment as gain or loss from the disposition of such asset for purposes
of computing Net Profits or Net Losses; and
2.34.7 Notwithstanding any other provision of this
Paragraph 2.33, any items that are specially allocated pursuant to Paragraph
5.2 hereof shall not be taken into account in computing Net Profits or Net
Losses.
2.35 "NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Sections 1.704-2(b)(1) and 1.704-2(c).
2.36 "NONRECOURSE LIABILITY" has the meaning set forth in
Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2).
2.37 "NON-TRANSFERRING MEMBERS" means, in the event an Offer by
Transferor is made, all Members other than the Member making such Offer by
Transferor.
2.38 "OFFERER" is defined in Paragraph 7.10.1
2.39 "OFFER" is defined in Paragraph 7.10.1.
2.40 "OFFER BY TRANSFEROR" is defined in Paragraph 7.9.
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2.41 "OPERATING CASH EXPENSES" means, with respect to any fiscal
period, the amount of cash disbursed in the Ordinary Course during the period,
including without limitation, all cash expenses, such as advertising, promotion,
property management, insurance premiums, taxes, utilities, repair, maintenance,
legal, accounting, bookkeeping, computing, equipment use, travel on Company
business, telephone expenses and salaries, and direct expenses of Company
employees (if any) and agents while engaged in Company business. Operating Cash
Expenses shall include fees paid by the Company to any Member or any Affiliate
thereof permitted by this Agreement, and the actual cost of goods, materials and
administrative services used for or by the Company, whether incurred by any
Member, any Affiliate thereof or any non-Affiliate in performing functions set
forth in this Agreement reasonably requiring the use of such goods, materials or
administrative services. Operating Cash Expenses shall not include expenditures
paid from Reserves.
2.42 "ORDINARY COURSE" shall mean the ordinary course of business
of the Business.
2.43 "PERCENTAGE INTEREST" means, with respect to each Member,
the percentage set forth opposite such Member's name on Exhibit A. attached
hereto as it may be modified or supplemented from time to time pursuant to the
provisions of this Agreement.
2.44 "PERSON" means and includes an individual, a corporation, a
general or limited partnership, a limited liability company, a trust, an
unincorporated organization, a government or any department or agency thereof,
or any entity similar to any of the foregoing.
2.45 "RECOURSE LIABILITY" has the meaning set forth in
Regulations Section 1.752-1(a)(1).
2.46 "REGULATIONS" means temporary and final Treasury Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding Treasury Regulations).
2.47 "REGULATORY ALLOCATIONS" is defined in Paragraph 5.2.8.
2.48 "REPRESENTATIVE" is defined in Paragraph 6.1.2.
2.49 "RESERVES" means funds set aside or amounts allocated to
reserves that shall be maintained in amounts deemed sufficient by a Majority in
Interest for working capital, to pay taxes, insurance, debt service, and other
costs or expenses incident to the conduct of business by the Company as
contemplated hereunder.
2.50 "RESPONSIBLE PARTY" is defined in Paragraph 6.5.5.
2.51 "SUBSTITUTE MEMBER" means any Person (a) to whom a Member
(or assignee thereof) Transfers all or any part of its Interest and (b) which
has been admitted to the Company as a Substitute Member pursuant to Paragraph
7.6.
2.52 "SUMMIT CARE" means Summit Care Corporation, a California
corporation.
2.53 "SUPERMAJORITY IN INTEREST" means Members holding, in the
aggregate, sixty-six percent (66%) or more of the Percentage Interests held by
all Members of the Company. Until such time as there are members in addition to
APS and SCPI, "Supermajority in Interest" shall mean 'Majority in Interest."
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2.54 "TERMINATING CAPITAL TRANSACTION" means any sale or other
disposition of all or substantially all of the assets of the Company or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the Company Assets.
2.55 "TERMINATION PAYMENT" is defined in Paragraph 7.5.
2.56 "TRANSFER" means, with respect to any interest in the
Company, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift,
bequest, hypothecation or other transfer or disposition by any other means,
whether for value or no value and whether voluntary or involuntary (including,
without limitation, by operation of law), or an agreement to do any of the
foregoing.
2.57 "TRANSFEREE" is defined in Paragraph 7.9.
2.58 "TRANSFEROR" is defined in Paragraph 7.9.
2.59 "UNAFFECTED MEMBERS" means, in the event of a Fundamental
change, all Members other than the Affected Member.
ARTICLE 3
CAPITAL: CAPITAL ACCOUNTS AND MEMBERS
3.1 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS. The names,
addresses, initial Capital Contributions and Percentage Interests of the Members
are set forth on Exhibit A attached hereto and incorporated herein. All Members
acknowledge and agree that the initial Capital Contributions set forth in
Exhibit A represent the amount of money and the Gross Asset Value of all
property (other than money) initially contributed by the Members.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS BY MEMBERS.
3.2.1 Except as provided in Paragraphs 3.2.2 and 3.2.3,
no Member shall be permitted or required to make any additional Capital
Contributions to the Company.
3.2.2 If from time to time the Company requires
additional capital or has capital inadequate to pay its liabilities, each as
determined by a Majority in Interest, then the Members constituting such
Majority in Interest shall deliver a notice to each other Member specifying
the aggregate amount of the additional Capital Contribution required, a date
not earlier than thirty (30) days from the date of such notice prior to
which such additional Capital Contribution shall be made, and any other
terms and conditions relating to such additional Capital Contribution. Upon
receipt of such notice, each Member, in its discretion, shall thereafter be
required to make additional Capital Contributions, on a date not later than
the date set forth in the notice, on a pro rata basis in accordance with its
respective Percentage Interests pursuant to such terms and conditions as are
set forth in the notice. The sole remedy against a Member for failure to
make the additional Capital Contribution approved by a Majority in Interest
under this Paragraph 3.2.2 shall be the reduction of such Member's
Percentage Interest as provided in Paragraph 3.2.3.
3.2.3
(a) If any Member fails to make its proportionate
share of an additional Capital Contribution approved by a Majority in
Interest as required under Paragraph 3.2.2, such
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Member's Percentage Interest shall be reduced to that percentage arrived at
by dividing the actual Capital Contributions made by such Member by the
total Capital Contributions made by all Members (including additional
Capital Contributions), and there shall be a corresponding increase to the
Percentage Interest of the Members making such additional Capital
Contributions.
(b) In the event that any Member fails to make
its proportionate share of an additional Capital Contribution approved by a
Majority in Interest as required under Paragraph 3.2.2, and such failure
shall continue for a period of thirty (30) days, the Members making such
additional Capital Contribution shall at any time thereafter that such
Capital Contribution has not been paid have the right to contribute (pro
rata in accordance with the Percentage Interests held by those electing to
so contribute) the delinquent Member's share of the additional Capital
Contribution. In the event of such contribution by one or more Members
making such additional Capital Contribution, the Percentage Interest of each
such Member making such Additional Capital Contribution shall be increased
to that percentage arrived at by dividing the sum of the actual Capital
Contributions (including additional Capital Contributions) made by such
Member on its own behalf and one hundred fifty percent (150%) of the total
Capital Contributions made by such Member on behalf of the Member not making
such Additional Capital Contribution, by the total Capital Contribution made
by all Members. The Percentage Interest of the Member not making such
additional Capital Contribution shall be correspondingly decreased.
(c) In the event that a Member's Percentage
Interest is diluted pursuant to this Paragraph 3.2.3, the Tax Matters
Partner shall prepare a revised Exhibit A reflecting the adjusted Percentage
Interests of the Members.
3.3 CAPITAL ACCOUNTS. A Capital Account shall be established and
maintained for each Member in accordance with the terms of this Agreement.
3.4 ADDITIONAL MEMBERS. Following formation of the Company, the
Members may, upon the written consent of a Majority in Interest, issue interests
in the Company directly from the Company, and admit one or more recipients of
such interests as additional Members ("ADDITIONAL MEMBERS") from time to time,
on such terms and conditions and for such Capital Contributions, if any, as a
Majority in Interest may determine. As a condition to being admitted to the
Company, each Additional Member shall execute an agreement to be bound by the
terms and conditions of this Agreement.
3.5 MEMBER CAPITAL. Except as otherwise provided in this
Agreement or with the prior written consent of all of the Members: (a) no Member
shall demand or be entitled to receive a return of or interest on its Capital
Contributions or Capital Account, (b) no Member shall withdraw any portion of
its Capital Contributions or receive any distributions from the Company as a
return of capital on account of such Capital Contributions, and (c) the Company
shall not redeem or repurchase the Interest of any Member.
3.6 MEMBER LOANS. No Member shall be required or permitted to
make any loans or otherwise lend any funds to the Company, except with the
consent of a Majority in Interest. No loans made by any Member to the Company
shall have any effect on such Member's Percentage Interest, such loans
representing a debt of the Company payable or collectible solely from the assets
of the Company in accordance with the terms and conditions upon which such loans
were made.
3.7 LIABILITY OF MEMBERS. Except as otherwise required by any
non-waivable provision of the Act or other applicable law: (a) no Member shall
be personally liable in any manner whatsoever
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for any debt, liability or other obligation of the Company, whether such debt,
liability or other obligation arises in contract, tort, or otherwise; and (b) no
Member shall in any event have any liability whatsoever in excess of (i) the
amount of its Capital Contributions, (ii) its share of any assets and
undistributed profits of the Company, (iii) the amount of any unconditional
obligation of such Member to make additional Capital Contributions to the
Company pursuant to this Agreement, and (iv) the amount of any wrongful
distribution to such Member, if, and only to the extent, such Member has actual
knowledge (at the time of the distribution) that such distribution is made in
violation of Section 18-607 of the Act.
ARTICLE 4
DISTRIBUTIONS
4.1 Distributions of Cash Available for Distribution.
4.1.1 Except as otherwise provided in Article 8, Cash
Available for Distribution shall be distributed to the Members only at such
times as may be determined by a Majority in Interest.
4.1.2 Subject to Article 8 hereof, all distributions of
Cash Available for Distribution shall be distributed to the Members pro rata
in accordance with their respective Percentage Interests.
4.1.3 Notwithstanding anything to the contrary contained
herein, the Company shall distribute to APS the amount of One Million Five
Hundred Thousand Dollars ($1,500,000) in immediately available funds on the
date that the Certificate is filed with the Office of the Delaware Secretary
of State.
4.2 Distributions Upon Liquidation. Distributions made in
conjunction with the final liquidation of the Company, including, without
limitation, the net proceeds of a Terminating Capital Transaction, shall be
applied or distributed as provided in Article 8 hereof.
4.3 Withholding. The Company may withhold distributions or
portions thereof if it is required to do so by any applicable rule, regulation,
or law, and each Member hereby authorizes the Company to withhold from or pay on
behalf of or with respect to such Member any amount of federal, state, local or
foreign taxes that a Majority in Interest determines that the Company is
required to withhold or pay with respect to any amount distributable or
allocable to such Member pursuant to this Agreement. Any amount paid on behalf
of or with respect to a Member pursuant to this Paragraph 4.3 shall constitute a
loan by the Company to such Member, which loan shall be repaid by such Member
within fifteen (15) days after notice from the Company that such payment must be
made unless: (i) the Company withholds such payment from a distribution which
would otherwise be made to the Member or (ii) a Majority in Interest determines
that such payment may be satisfied out of Cash Available For Distribution which
would, but for such payment, be distributed to the Member. Any amounts withheld
pursuant to this Paragraph 4.3 shall be treated as having been distributed to
such Member. Each Member hereby unconditionally and irrevocably grants to the
Company a security interest in such Member's Interest to secure such Member's
obligation to pay to the Company any amounts required to be paid pursuant to
this Paragraph 4.3. In the event that a Member fails to pay any amounts owed to
the Company pursuant to this Paragraph 4.3 when due, the remaining Members may,
in their respective sole and absolute discretion, elect to make the payment to
the Company on behalf of such defaulting Member, and in such event shall be
deemed to have loaned such amount to such defaulting Member and shall succeed to
all rights and remedies of the Company as against such defaulting Member
(including, without limitation, the right to receive distributions). Any amounts
payable by a Member hereunder shall bear
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interest at a rate equal to two percent (2%) above the "prime rate," as
announced in the Wall Street Journal from time to time, or the successor to such
rate if no longer published, compounded annually from the date such amount is
due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Member shall take such actions as the Company shall request in order to
perfect or enforce the security interest created hereunder. A Member's
obligations hereunder shall survive the dissolution, liquidation, or winding up
of the Company.
4.4 Distributions in Kind. No right is given to any Member to
demand or receive property other than cash as provided in this Agreement. The
Members may, upon the written consent of a Majority in Interest, cause the
Company to make a distribution in kind of Company Assets to the Members, and
such Company Assets shall be distributed in such a fashion as to ensure that the
fair market value thereof is distributed and allocated in accordance with this
Article 4 and Articles 5 and 8 hereof; provided, however, that no Member may be
compelled to accept a distribution consisting, in whole or in part, of any
Company Assets in kind unless the ratio that the fair market value of such
distribution in kind bears to such Member's total distribution does not exceed
the ratio that the fair market value of similar distributions in kind bear to
the total distributions of other Members receiving distributions concurrently
therewith (if any), except upon a dissolution and winding up of the Company.
4.5 Limitations on Distributions. Notwithstanding any provision
to the contrary contained in this Agreement, neither the Company nor any Member,
on behalf of the Company, shall knowingly make a distribution to any Member or
the holder of any Economic Interest on account of its Membership Interest or
Economic Interest (as applicable) in violation of Section 18-607 of the Act.
ARTICLE 5
ALLOCATIONS OF NET PROFITS AND NET LOSSES
5.1 General Allocation of Net Profits and Losses.
5.1.1 Net Profits and Net Losses shall be determined and
allocated with respect to each fiscal year of the Company as of the end of
such fiscal year. Subject to the other provisions of this Agreement, an
allocation to a Member of a share of Net Profits or Net Losses shall be
treated as an allocation of the same share of each item of income, gain,
loss or deduction that is taken into account in computing Net Profits or Net
Losses.
5.1.2 Subject to the other provisions of this Article 5,
Net Profits, Net Losses and any other items of income, gain, loss and
deduction for any fiscal year shall be allocated in proportion to the
Members' respective Percentage Interests.
5.2 Regulatory Allocations. Notwithstanding the any other
provision of this Article 5, the following special allocations shall be made in
the following order of priority:
5.2.1 If there is a net decrease in Company Minimum Gain
during a Company taxable year, then each Member shall be allocated items of
Company income and gain for such taxable year (and, if necessary, for
subsequent years) in an amount equal to such Member's share of the net
decrease in Company Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g)(2). Allocations made pursuant to the previous sentence
shall be made in proportion to the amounts required to be allocated to each
Member pursuant thereto. This Paragraph 5.2.1 is
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intended to comply with the minimum gain chargeback requirement of
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
5.2.2 If there is a net decrease in Member Minimum Gain
attributable to a Member Nonrecourse Debt during any Company taxable year,
each Member who has a share of the Member Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain
for such taxable year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Member Nonrecourse Debt,
determined in a manner consistent with the provisions of Regulations Section
1.704-(i)(4). Allocations made pursuant to the previous sentence shall be
made in proportion to the amounts required to be allocated to each Member
pursuant thereto. This Paragraph 5.2.2 is intended to comply with the
partner nonrecourse debt minimum gain chargeback requirement of Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
5.2.3 If any Members unexpectedly receive an adjustment,
allocation, or distribution of the type contemplated by Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be
allocated to all such Members (in proportion to the amounts of their
respective Adjusted Capital Account Deficits) in an amount and manner
sufficient to eliminate, to the extent required by the Regulation, the
Adjusted Capital Account Deficit of such Members as quickly as possible. It
is intended that this Paragraph 5.2.3 qualify and be construed as a
"qualified income offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(d).
5.2.4 If the allocation of Net Loss to a Member as
provided in Paragraph 5.1 hereof would create or increase an Adjusted
Capital Account Deficit, there shall be allocated to such Member only that
amount of Net Loss as will not create or increase an Adjusted Capital
Account Deficit. The Net Loss that would, absent the application of the
preceding sentence, otherwise be allocated to such Member shall be allocated
to the other Members in accordance with their relative Percentage Interests,
subject to the limitations of this Paragraph 5.2.4.
5.2.5 To the extent that an adjustment to the adjusted
tax basis of any Company Asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
be taken into account in determining Capital Accounts as the result of a
distribution to a Member in complete liquidation of its Interest, the amount
of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Members in accordance with their interests in the Company
in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to
the Members to whom such distribution was made in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
5.2.6 The Nonrecourse Deductions for each taxable year of
the Company shall be allocated to the Members in proportion to their
Percentage Interests.
5.2.7 The Member Nonrecourse Deductions shall be
allocated each year to the Member that bears the economic risk of loss
(within the meaning of Regulations Section 1.752-2) for the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(1).
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5.2.8 The allocations set forth in Paragraphs 5.2.1,
5.2.2, 5.2.3, 5.2.4, 5.2.5, 5.2.6 and 5.2.7 hereof (the "REGULATORY
ALLOCATIONS") are intended to comply with certain requirements of
Regulations Sections 1.704-1(b) and 1.704-2(i). Notwithstanding the
provisions of Paragraph 5.1.2, the Regulatory Allocations shall be taken
into account in allocating other items of income, gain, loss and deduction
among the Members so that, to the extent possible, the net amount of such
allocations of other items and the Regulatory Allocations to each Member
shall be equal to the net amount that would have been allocated to each such
Member if the Regulatory Allocations had not occurred. In the event that the
Code or any Regulations require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Article 5, the
Company is hereby authorized to make new allocations in reliance on the Code
and such Regulations, provided that such new allocations shall be subject to
the prior written approval of a Majority in Interest. Furthermore, to the
extent permitted by the Code or Regulations, any such new allocations shall
be considered Regulatory Allocations subject to this Paragraph 5.2.8.
5.3 TAX ALLOCATIONS.
5.3.1 Except as provided in Paragraph 5.3.2 hereof, for
income tax purposes under the Code and the Regulations each Company item of
income, gain, loss and deduction shall be allocated between the Members as
its correlative item of "book" income, gain, loss or deduction is allocated
pursuant to this Article 5.
5.3.2 Tax items with respect to Company Assets that are
contributed to the Company with a Gross Asset Value that varies from its
basis in the hands of the contributing Member immediately preceding the date
of contribution shall be allocated between the Members for income tax
purposes pursuant to Regulations promulgated under Code Section 704(c) so as
to take into account such variation. The Company shall account for such
variation under any method approved under Code Section 704(c) and the
applicable Regulations as chosen by a Majority in Interest including,
without limitation, the 'traditional method" as described in Regulations
Section 1.704-3(b). If the Gross Asset Value of any Company Asset is
adjusted pursuant to Paragraph 2.23, subsequent allocations of income, gain,
loss and deduction with respect to such Company Asset shall take account of
any variation between the adjusted basis of such Company Asset for federal
income tax purposes and its Gross Asset Value in the same manner as under
Code Section 704(c) and the Regulations promulgated thereunder under any
method approved under Code Section 704(c) and the applicable Regulations as
chosen by a Majority in Interest. Allocations pursuant to this Paragraph
5.3.2 are solely for purposes of federal, state and local taxes and shall
not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of Net Profits, Net Losses and any other items or
distributions pursuant to any provision of this Agreement.
5.4 OTHER PROVISIONS.
5.4.1 For any fiscal year during which any part of a
Membership Interest or Economic Interest is transferred between the Members
or to another Person, the portion of the Net Profits, Net Losses and other
items of income, gain, loss, deduction and credit that are allocable with
respect to such part of a Membership Interest or Economic Interest shall be
apportioned between the transferor and the transferee under any method
allowed pursuant to Section 706 of the Code and the applicable Regulations
as determined by a Majority in Interest.
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5.4.2 For purposes of determining a Member's proportional share
of the Companys' "excess nonrecourse liabilities" within the meaning of
Regulations Section 1.752-3(a)(3), each Member's interest in Net Profits
shall be such Member's Percentage Interest.
5.4.3 The Members acknowledge and are aware of the income tax
consequences of the allocations made by this Article 5 and hereby agree to
be bound by the provisions of this Article 5 in reporting their shares of
Net Profits, Net Losses and other items of income, gain, loss, deduction and
credit for federal, state and local income tax purposes.
ARTICLE 6
OPERATIONS
6.1 MANAGEMENT.
6.1.1 The Company shall be a member-managed limited liability
company within the meaning of the Act. All Members shall be entitled to
participate in the management and control of the day-to-day operation and
business affairs of the Company. Each Member shall have the authority to
bind the Company, and, except as otherwise provided herein, shall have the
power, on behalf of the Company, to do all things necessary or convenient to
carry out the business and affairs of the Company. Notwithstanding anything
to the contrary contained herein, any action taken by any Member on behalf
of the Company without the requisite approval of the other Members as
required herein, shall constitute a breach of this Agreement by such Member.
6.1.2 Each of APS and SCPI is a duly organized and validly
existing corporation, acting by and through its respective Board of
Directors and elected and authorized officers. Each of APS and SCPI may
delegate a single officer to serve as its representative with respect to the
matters and affairs of the Company (each, a "Representative" and together,
"Representatives"). Each Representative shall be provided with copies of any
and all papers, documents and correspondences to or from the Company,
including, without limitation, financial statements, balance sheets,
contracts, reports, filings, tax returns, legal notices and notices from any
governmental authority or agency. As its initial Representative, SCPI
designates Jesse Martinez. APS designates Terry Davis as its initial
Representative.
6.1.3 Subject to Paragraph 6.1.l and the limitations set forth
in Paragraph 6.1.5,and except as otherwise expressly provided in this
Agreement, all actions by or on behalf of the Company may be taken upon the
prior written approval of a Majority in Interest. By way of illustration and
not by way of limitation, and subject to the limitations set forth in the
preceding sentence, the Company shall have the power and authority from time
to time, upon the prior written approval of a Majority in Interest, to do
the following:
(a) to oversee the operations of the Business and to manage
and maintain all personal and real property in which the
Company has an interest;
(b) to incur expenditures on behalf of the Company in
connection with the operation of the Business;
(c) to employ and dismiss from employment employees, agents
and consultants of the Business in the Ordinary Course;
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(d) to enter into, execute, amend, supplement,
acknowledge and deliver contracts, agreements,
leases or other instruments in connection with
the operation of the Business;
(e) to establish and maintain one or more bank
accounts for the Company in such bank or banks
having assets of at least Twenty-five Million
Dollars ($25,000,000);
(f) to the extent that funds of the Company are
available, to pay expenses, debts and
obligations of the Company; and
(g) to perform all normal business functions, and
otherwise operate and manage the business and
affairs of the Company, in accordance with and
as limited by this Agreement.
6.1.4 The Company may, from time to time, hire such employees
as are deemed necessary by the Members for the efficient operation of
the Company's day-to-day business operations, which employees shall be
granted such powers and authority as determined by the Members.
6.1.5 Notwithstanding the provisions of Paragraphs 6.1.2,
6.1.3 and 6.1.4 or any other provision of this Agreement (but subject to
Paragraph 6.1.1) the Company may not take any of the following actions
without the written consent of a Supermajority in Interest:
(a) approve any Terminating Capital Transaction;
(b) sell, mortgage, encumber, pledge as security for
borrowing, lease or otherwise transfer or
dispose of (i) the Business or any portion
thereof or (ii) any of the assets of the Company
or the Business except in the Ordinary Course;
(c) incur any indebtedness other than trade
indebtedness to vendors and suppliers in the
Ordinary Course;
(d) employ or compensate any Person in connection
with the business of the Company, except in the
Ordinary Course;
(e) lend money or give credit on behalf of the
Company or release or discharge any debt or
liability owing to the Company, except in the
Ordinary Course;
(f) cause the Company to become a surety, guarantor
or endorser for any Person;
(g) enter into, amend or otherwise modify any
agreement, oral or written, including without
limitation any employment agreement, consulting
agreement or other similar agreement, on behalf
of the Company with any Member or any Affiliate
of any Member, and including, without
limitation, this Agreement or the Certificate;
or
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(h) participate in a reorganization, merger or
consolidation with one or more entities in which
the Company is not the surviving entity, or if
Company is the surviving entity, if the
ownership of fifty percent (50%) or more of its
membership interest is held by entities other
than the Company, or the acquisition of
beneficial ownership of fifty percent (50%) or
more of the voting stock or other ownership
interest in any Member (or, in the case of SCPI,
of either SCPI or Summit Care) by any person or
entity not currently holding fifty percent (50%)
or more of such interest.
6.2 RELIANCE BY THIRD PARTIES. Any Person dealing with the Company
or any Member may rely upon a certificate signed by any Member as to:
(a) the identity of any Member of the Company;
(b) the existence or non-existence of any fact or
facts which constitute a condition precedent to
acts by a Member or in any other manner germane
to the affairs of the Company;
(c) the Persons who are authorized to execute and
deliver any instrument or document for or on
behalf of the Company; or
(d) any act or failure to act by the Company or as
to any other matter whatsoever involving the
Company or any Member.
6.3 COMPENSATION.
6.3.1 Except for the reimbursements provided for in Paragraph
6.3.2, no Member shall be entitled to compensation for actions taken on
behalf of the Company or in connection with this Agreement.
6.3.2 Subject to the approval of a Majority in Interest, to be
obtained on a monthly basis, to the extent not otherwise provided for in any
agreement contemplated in Paragraph 6.3.1, each Member shall be entitled to
reimbursement on a monthly basis from the Company for all out-of-pocket
costs and expenses incurred by it, in its reasonable discretion, for or on
behalf of the Company.
6.3.3 Compensation for the Representatives and any office
created under Paragraph 6.1.3 shall be determined by a Supermajority in
Interest.
6.4 RECORDS AND REPORTS.
6.4.1 The Members shall cause to be kept, at the principal
place of business of the Company, or at such other location as a Majority in
Interest shall reasonably deem appropriate, full and proper ledgers, other
books of account, and records of all receipts and disbursements, other
financial activities, and the internal affairs of the Company for at least
the current and past four fiscal years.
6.4.2 The Members shall also cause to be sent to each Member
of the Company, the following:
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(a) within ninety (90) days following the end of
each fiscal year of the Company, a report that
shall include all necessary information required
by the Members for preparation of their federal,
state and local income or franchise tax or
information returns, including each Member's pro
rata share of Net Profits, Net Losses and any
other items of income, gain, loss and deduction
for such fiscal year; and
(b) a copy of the Company's federal, state and local
income tax or information returns for each
fiscal year, concurrent with the filing of such
returns.
6.4.3 Members (personally or through an authorized
representative) may, for purposes reasonably related to their Interests,
examine and copy (at their own cost and expense) the books and records of
the Company at all reasonable business hours.
6.5 INDEMNIFICATION AND LIABILITY OF THE MEMBERS.
6.5.1 The Company shall indemnify and hold harmless each
Member, its Affiliates, and subsidiaries, and all officers, directors,
employees, shareholders and agents of any of the foregoing (individually, an
"INDEMNITEE") to the full extent permitted by law from and against any and
all losses, claims, demands, costs, damages, liabilities, expenses of any
nature (including attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, in which the Indemnitee may be involved, or threatened to be
involved as a party or otherwise, relating to the performance or
nonperformance of any act concerning the activities of the Company, if (i)
the Indemnitee acted in good faith and in a manner he believed to be in, or
not contrary to, the best interests of the Company, and (ii) the
Indemnitee's conduct did not constitute gross negligence or willful
misconduct. The termination of an action, suit or proceeding by judgment,
order, settlement, or upon a plea of nolo contendere or its equivalent,
shall not, in and of itself, create a presumption or otherwise constitute
evidence that the Indemnitee acted in a manner contrary to that specified in
clauses (i) or (ii) above.
6.5.2 Any indemnification provided hereunder shall be
satisfied solely out of the assets of the Company, as an expense of the
Company. No Member shall be subject to personal liability by reason of these
indemnification provisions.
6.5.3 The provisions of this Paragraph 6.5 are for the benefit
of the Indemnitees and shall not be deemed to create any rights for the
benefit of any other Person.
6.5.4 Neither a Member, nor the subsidiaries nor Affiliates of
any Member nor the officers, directors, employees or agents of any of the
foregoing shall be liable to the Company or to any other Member for any
losses sustained or liabilities incurred as a result of any act or omission
of any Member or any such other Person if (i) the act or failure to act of
the Member or such other Person was in good faith and in a manner he
believed to be in, or not contrary to, the best interests of the Company,
and (ii) the conduct of the Member or such other Person did not constitute
gross negligence or willful misconduct.
6.5.5 To the extent that a Member, or any Affiliate or
subsidiary of any Member, or any officer, director, employee or agent of any
of the foregoing (each, a "RESPONSIBLE PARTY")
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has, at law or in equity, duties (including, without limitation, fiduciary
duties) to the Company, or to any other Member or other Person bound by the
terms of this Agreement, such Responsible Parties acting in accordance with
this Agreement shall not be liable to the Company, any Member, or any such
other Person for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they
restrict the duties of a Responsible Party otherwise existing at law or in
equity, are agreed by all parties hereto to replace such other duties to the
greatest extent permitted under applicable law.
6.5.6 Whenever a Responsible Party is required or permitted to
make a decision, take or approve an action, or omit to do any of the
foregoing: (a) in its discretion, under a similar grant of authority or
latitude, or without an express standard of behavior (including, without
limitation, standards such as "reasonable" or "good faith"), then such
Responsible Party shall be entitled to consider only such interests and
factors, including its own, as it desires, and shall have no duty or
obligation to consider any other interests or factors whatsoever, or (b)
with an express standard of behavior (including, without limitation,
standards such as "reasonable" or "good faith"), then such Responsible Party
shall comply with such express standard but shall not be subject to any
other, different or additional standard imposed by this Agreement or
otherwise applicable law.
6.6 COVENANT NOT TO COMPETE. No Member (for the purposes of this
Paragraph 6.6, the term "Member" shall include Summit Care) shall (and each
Member shall cause each of its officers, directors, partners, shareholders, and
owners not to), directly or indirectly, (i) engage in a business concerned in
whole or part with providing pharmacy services in competition with the Business
of the Company in the County of Travis, State of Texas, or (ii) be or become
interested in any Person engaged in a business concerned in whole or part with
providing pharmacy services in competition with the Business of the Company in
the County of Travis, State of Texas as a partner, shareholder, principal,
trustee, employee, consultant or in any other relationship or capacity. Members
agree to maintain in confidence, and not to disclose to any third party, any
ideas, methods, developments, inventions, improvements and business plans and
information which are the confidential information of the Company. In the event
the agreement in this Paragraph 6.6 shall be determined by any court of
competent jurisdiction to be unenforceable by reason of its extending for too
great a period of time or over too great a geographical area or by reason of its
being too extensive in any other respect, it shall be interpreted to extend only
over the maximum period of time for which it may be enforceable and/or over the
maximum geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable, all as
determined by such court in such action.
Members acknowledge that a breach of the covenants contained in this
Paragraph 6.6 will cause irreparable damage to the Company, the exact amount of
which will be difficult to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly, the Members agree that if any Member
breaches the covenant contained in this Paragraph 6.6, in addition to any other
remedy which may be available at law or in equity, the Company shall be entitled
to specific performance and injunctive relief, without posting bond or other
security.
Except as set forth below, the provisions of this Paragraph 6.6 shall
survive for so long as the Company is in existence and no longer.
Notwithstanding the preceding sentence, the provisions of this Paragraph 6.6
shall terminate and cease to apply (i) immediately upon the withdrawal of either
APS or SCPI as a Member with the consent of the other, as contemplated by the
second sentence of Paragraph 7.4 hereof and (ii) on November 30, 1998 in the
event that either APS or SCPI withdraws from the Company (A) prior to November
30, 1998 and (B) without the consent of the other party; provided, however, that
in the event either APS or SCPI exercises its buy/sell right under Paragraph
7.10 hereof,
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the provisions of the first two paragraphs of this Paragraph 6.6 shall apply to
the selling party only (as though the buying party were the Company) and shall
terminate on the date that is the second (2nd) anniversary of the closing of the
sale contemplated by Paragraph 7.10 hereof
6.7 SERVICES. Subject to the other provisions of this Article VI,
APS shall provide to the Company without charge administrative support services
reasonably requested by the Company to maintain operations in the ordinary
course of business, including, without limitation, payroll, accounting and risk
management services.
ARTICLE 7
INTERESTS AND TRANSFERS OF INTERESTS
7.1 TRANSFERS. No Member or Assignee may Transfer all or any portion
of its Membership Interest or Economic Interest (or beneficial interest therein)
without the prior written consent of a Majority in Interest. Any purported
Transfer which is not in accordance with this Agreement shall be null and void.
7.2 FURTHER RESTRICTIONS. Notwithstanding any contrary provision in
this Agreement, any otherwise permitted Transfer shall be null and void if:
(a) such Transfer would cause a technical termination of the
Company for federal or state, if applicable, income tax purposes;
(b) such Transfer would, in the opinion of counsel to the
Company, cause the Company to cease to be classified as a partnership for
federal or state income tax purposes;
(c) such Transfer requires the registration of such Interest
to be transferred pursuant to any applicable federal or state securities
laws;
(d) such Transfer causes the Company to become a "Publicly
Traded Partnership," as such term is defined in Sections 469(k)(2) or
7704(b) of the Code;
(e) such Transfer subjects the Company to regulation under
the Investment Company Act of 1940, the Investment Advisers Act of 1940 or
the Employee Retirement Income Security Act of 1974, each as amended;
(f) such Transfer results in a violation of applicable laws
or any applicable regulation, rule or policy of any federal, state or local
entity;
(g) such Transfer causes the revaluation or reassessment of
the value of any Company Asset resulting in a material amount of federal,
state or local tax liability;
(h) all approvals and authorizations required in connection
with such Transfer have not been obtained;
(i) such Transfer is made to any Person who lacks the legal
right, power or capacity to own such Interest to be transferred; or
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(j) the Company does not receive written instruments
(including, without limitation, copies of any instruments of Transfer and
such Assignee's consent to be bound by this Agreement as an Assignee) that
are in a form satisfactory to a Majority in Interest on or prior to the
closing of such Transfer.
7.3 RIGHTS OF ASSIGNEES. Until such time, if any, as a transferee of
any permitted Transfer pursuant to this Article 7 is admitted to the Company as
a Substitute Member pursuant to Paragraph 7.6: (i) such transferee shall be an
Assignee only, and only shall receive, to the extent transferred, the
distributions and allocations of income, gain, loss, deduction, credit, or
similar item to which the Member which transferred its Interest would be
entitled, and (ii) such Assignee shall not be entitled or enabled to exercise
any other rights or powers of a Member, such other rights, including, without
limitation, management and voting rights, remaining with the transferring
Member. In such a case, the transferring Member shall remain a Member even if it
has transferred its entire Economic Interest to one or more Assignees. In the
event any Assignee desires to make a further assignment of any Economic
interest, such Assignee shall be subject to all of the provisions of this
Agreement to the same extent and in the same manner as any Member desiring to
make such an assignment.
7.4 ADMISSIONS AND WITHDRAWALS. No Person shall be admitted to the
Company as a Member except in accordance with Paragraph 3.4 (in the case of
Persons obtaining an interest in the Company directly from the Company) or
Paragraph 7.6 (in the case of transferees in a permitted Transfer of an interest
in the Company from another Person). Except as otherwise specifically set forth
in Paragraph 7.7, no Member shall be entitled to retire or withdraw from being a
Member of the Company without the written consent of a Majority in Interest. Any
purported admission or withdrawal which is not in accordance with this Agreement
shall be null and void.
7.5 PAYMENT UPON WITHDRAWAL OF MEMBER. If any Member withdraws from
the Company with the consent of a Majority in Interest (other than pursuant to
Paragraph 7.7), then such Member automatically shall receive from the Company a
payment equal to the Member's Capital Account balance as adjusted as of the
effective date of the written election of withdrawal (the "TERMINATION
PAYMENT"). The Termination Payment shall be paid on the effective date of the
written election of withdrawal. If any Member attempts to withdraw from the
Company (other than pursuant to Paragraph 7.7) without the consent of a Majority
in Interest, such withdrawing Member shall not be entitled to any Termination
Payment or any other compensation whatsoever in consideration for its terminated
Membership Interest.
7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS.
7.6.1 An Assignee shall become a Substitute Member only if and
when each of the following conditions are satisfied:
(a) the assignor of the Interest transferred sends
written notice to each Member requesting the
admission of the Assignee as a Substitute Member
and setting forth the name and address of the
Assignee, the Percentage Interest transferred,
and the effective date of the Transfer;
(b) a Majority in Interest consents in writing to
such admission; and
(c) the Members receive from the Assignee (i) such
information concerning the Assignee's financial
capacities and investment experience as may
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reasonably be requested by the Members, and (ii)
written instruments (including, without
limitation, copies of any instruments of
Transfer and such Assignee's consent to be bound
by this Agreement as a Substitute Member) that
are in a form satisfactory to the Members.
(d) at the request of a Majority in Interest, an
opinion of counsel to Assignee is delivered,
acceptable to a Majority in Interest, with
respect to the validity, binding effect and
enforceability of the assignment, of this
Agreement against such Assignee and such other
matters as a Majority in Interest shall
reasonably request.
7.6.2 Upon the admission of any Substitute Member, the Tax
Matters Partner shall amend Exhibit A to reflect the name, address and
Percentage Interest, corresponding to such Substitute Member and to
eliminate or adjust, if necessary, the name, address and Percentage Interest
corresponding to the predecessor of such Substitute Member.
7.7 WITHDRAWAL OF MEMBERS. If a Member has transferred all of its
Membership Interest to one or more Assignees, then such Member shall
automatically be deemed withdrawn from the Company, with no further action by
any party required, if and when all such Assignees have been admitted as
Substitute Members in accordance with this Agreement.
7.8 CONVERSION OF MEMBERSHIP INTEREST. Upon the Incapacity of a
Member (and the subsequent continuation of the business of the Company pursuant
to Paragraph 8.2(c), such Incapacitated Member's Membership Interest shall
automatically be converted to an Economic Interest only, and such Incapacitated
Member (or its executor, administrator, trustee or receiver, as applicable)
shall thereafter be deemed an Assignee for all purposes hereunder, with the same
Economic Interest as was held by such Incapacitated Member prior to its
Incapacity, but without any other rights of a Member unless the holder of such
Economic Interest is admitted as a Substitute Member pursuant to Paragraph 7.6.
7.9 RIGHT OF FIRST REFUSAL.
7.9.1 RECEIPT OF BONA FIDE OFFER. If any Member shall receive
a Bona Fide Offer to purchase any or all of its Membership Interest, and it
is willing to accept such Bona Fide Offer, then such Member shall make the
offer described in Paragraph 7.9.2 (the "Offer by Transferor").
7.9.2 OFFER BY TRANSFEROR. The Offer by Transferor shall
consist of a written offer to Transfer all of the Membership Interest
proposed to be Transferred by the transferor (the "Transferor") and shall be
given to the Company and to the remaining Members. The Offer by Transferor
shall include a statement of intention to Transfer and shall disclose all
the terms of the proposed Transfer, including the name and address of the
transferee under the Bona Fide Offer (the "Transferee"), and shall be
accompanied by a copy of the Bona Fide Offer.
7.9.3 ACCEPTANCE OF OFFER BY TRANSFEROR. Within thirty (30)
days after its receipt of the Offer by Transferor, the Company may, at its
option, elect to purchase all of the Membership Interest proposed to be
Transferred. The decision of the Company as to the acceptance or
non-acceptance of said offer shall be determined by a majority in interest
of the Non-Transferring Members. If the Company does not elect to purchase
the Membership Interest proposed to be Transferred pursuant to the Offer by
Transferor, the Company shall, within five (5) business days following
delivery of written notice of its election to the Transferor, or within five
(5) days following
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the expiration of the above-described thirty (30)-day period, deliver
written notice of its election to the Non-Transferring Members. The
Non-Transferring Members may, within forty-five (45) days after the receipt
of said notice from the Company, at the Non-Transferring Members' option,
purchase all of the Membership Interests proposed to be Transferred pursuant
to the Offer by Transferor, pro rata in accordance with the Percentage
Interests held by the Members electing to purchase such Membership
Interests. The Non-Transferring Members shall exercise their election to
purchase by giving written notice of such election to the Transferor and to
the Company. In either event, such notice of election shall specify a date
for the closing of the purchase, which shall be not more than thirty (30)
days after the date of such notice. If any consideration to be received by
the Transferor under the Bona Fide Offer is property other than cash, the
time periods for acceptance of the Offer by Transferor by the Company, or
the Non-Transferring Members, and the closing date shall be extended and
shall begin running effective the day after the fair market value of such
consideration is determined in accordance with Paragraph 7.9.4.
7.9.4 PURCHASE PRICE. The purchase price for the Membership
Interest proposed to be Transferred pursuant to the Offer by Transferor
shall in no event exceed the purchase price stated in the Bona Fide Offer.
If any consideration to be received by the Transferor under the Bona Fide
Offer is property other than cash, the value shall be computed on the basis
of the fair market value of such non-cash consideration. Such fair market
value shall be determined by agreement among the Transferor and either the
Non-Transferring Members purchasing such Interest, or the Company, as
applicable, or if they are unable to agree, as determined by the average of
the appraisals of two (2) independent qualified appraisers, one being
selected by the Transferor and the other by the Non-Transferring Members
purchasing such Interest, the cost of such appraisal being shared equally by
Transferor and the Company.
7.9.5 CLOSING OF PURCHASE. The closing of the purchase
contemplated by Paragraph 7.9.3 shall take place at the principal office of
the Company. The Company or the Non-Transferring Members shall have the
option of paying the purchase price on the same terms as the Bona Fide Offer
or as follows: ten percent (10%) down payment in cash at closing and the
balance by a promissory note, payable in twelve (12) equal, quarterly annual
installments of principal, plus interest on the unpaid balance, with the
first installment due ninety (90) days after the closing, and each
successive installment paid on the first (lst) day of every third month
thereafter. The promissory note shall bear interest at a rate equal to two
percent (2%) above the "prime rate," as announced in the Wall Street Journal
from time to time, or the successor to such rate if such rate is no longer
published, and shall provide that: (i) the maker shall have the privilege of
prepaying all or any part thereof, at any time, without penalty; and (ii) a
default in any payment shall cause the remaining unpaid balance to become
due and payable immediately. The promissory note shall be secured by a
pledge of all of the Membership Interests being purchased. If the maker of
the promissory note is the Company, such promissory note shall be personally
endorsed by the remaining Members.
7.9.6 TRANSFER AFTER OFFER. If the Membership Interests are
not purchased by the Company or the Non-Transferring Members as provided in
this Article 7, the Transferor shall, for a period of three (3) months after
the earlier to occur of (i) the date of any written notice given by all
Non-Transferring Members of their election not to purchase such Membership
Interest and (ii) the date on which the period during which the
Non-Transferring Members may elect to purchase such Membership Interest
expires, be free to Transfer the Membership Interests to the Transferee,
upon the terms disclosed in the Offer by Transferor.
7.9.7 PROHIBITED TRANSFERS VOID.
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(i) Any purported Transfer in violation of this Agreement
shall be null and void and shall not transfer any interest in, or title
to, the Membership Interests transferred to the purported Transferee.
The Company shall not be required to treat as owner of the Membership
Interests, or to pay distributions to, any Transferee to whom any of
such Membership Interests shall have been purportedly sold or
Transferred.
(ii) In addition, and without in any way intending to
validate, approve or otherwise render a Transfer in violation of this
Agreement other than null and void, the Company first, and the remaining
Members (pro rata in accordance with the Percentage Interests held by
those electing the option to purchase hereinafter described) second,
shall have the option to purchase all or any portion of the Membership
Interests attempted to be transferred to a Transferee in violation of a
restriction on Transfer contained in this Agreement for the price and on
the same terms and conditions described in Paragraphs 7.9.4 and 7.9.5;
provided, however, that the Company and the Non-Transferring Members may
pay the purchase price by delivery of a promissory note representing the
entire purchase price. To exercise this option, the Company must give
the Transferee written notice within thirty (30) days after the Company
is notified of the purported Transfer. In the event the Company does not
elect to exercise this option, the Company shall, within ten (10)
business days following the expiration of the foregoing thirty (30)-day
period, notify the Non-Transferring Members of its election. The
Non-Transferring Members must give the Transferee written notice, within
thirty (30) days following the receipt of notice from the Company, of
their election to purchase all or any portion of the Membership Interest
purportedly held by the Transferee. The Transferee's sale obligation
pursuant to this paragraph may be specifically enforced by the Company
or any Non-Transferring Member.
7.10 BUY AND SELL RIGHTS.
7.10.1 Any Member (the "Offeror") may, at any time, make a
buy-sell offer (the "Offer") to any other Member (the "Offeree") by
notifying the Offeree in writing of the exercise of this right, and stating
in such notice the gross sales price for the Company, as determined by the
Offeror (the "Company Price"), which Company Price shall be used in the
calculation procedures set forth in Paragraph 7.10.2 hereof, and the terms
under which the Offeror is willing either to buy all of the Membership
Interest owned by the Offeree or to sell to the Offeree all of the
Membership Interest owned by the Offeror, with the price and any terms being
the same for both the purchase and the sale. Except as set forth in
Paragraph 7.10.2, the Offer shall not be revocable once the aforesaid notice
has been delivered to the Offeree.
7.10.2 Within thirty (30) days after receipt by the Offeree of
the Offeror's written notice of the Offer, the Offeree shall send the
Offeror a written notice stating whether the Offeree elects (i) to purchase
from the Offeror all of the Offeror's Membership Interest, at the price (as
determined pursuant hereto) and under the terms stated in the Offer, or (ii)
to sell to the Offeror all of the Offeree's Membership Interest at the price
(as determined pursuant hereto) and under the terms stated in the Offer. If
the Offeree shall fail to notify the Offeror whether he elects to buy or
sell within the time period specified above, such failure shall be deemed to
be an election to sell all Membership Interest owned by the Offeree to the
Offeror at the price (as determined pursuant hereto) and under the terms
specified in the Offer. The Offeror shall be entitled to revoke the Offer
by giving the Offeree written notice of the withdrawal prior to the earlier
of (i) the date the Offeree gives the Offeror written notice of his election
to purchase or to sell pursuant to this Paragraph, or (ii) the date on which
the Offeree shall be deemed to have elected to sell his Membership Interest
to
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the Offeror. The price payable to the Offeror or the Offeree, as the case
may be, shall be the product of the Company Price and the Percentage
Interest held by the selling Member.
7.10.3 The closing of the sale contemplated by this Paragraph
7.10 shall be held at the principal office of the Company (or at such other
place as the Offeror and the Offeree may in writing agree) no later than
thirty (30) days after the expiration of the notice period specified in
Paragraph 7.10.2. Unless otherwise stated in the Offer, the purchasing
Member shall deliver payment in full in cash for the purchase of the
Membership Interest. A Member selling its Interest pursuant to 7.10.2 hereof
shall deliver all appropriate documents of transfer at closing and shall
convey its Membership Interest to the buying Member, or its nominee, free
and clear of all liens, claims, encumbrances or other charges of any kind
whatsoever. In the event the Membership Interest is conveyed to a nominee of
the buying Member, the admission of such nominee to the Company as a
successor to the selling Member shall occur, and for all purposes shall be
deemed to have occurred immediately prior to the transfer by the selling
Member of its Membership Interest.
7.11 OPTION TO PURCHASE UPON FUNDAMENTAL CHANGE.
7.11.1 In the event of the occurrence of a Fundamental Change
with respect to a Member (the "Affected Member"), the Company shall have the
option to purchase from the Affected Member, and the Affected Member shall
sell to the Company upon the exercise of such option, all of the Membership
Interest owned by the Affected Member. The Company may exercise such option
upon the consent of a majority in interest of the Unaffected Members. If the
Company does not elect to exercise the option provided herein, the
Unaffected Members may, at the option of such Unaffected Members purchase
all Membership Interest of the Affected Member which the Company does not
elect to purchase. Such options shall be exercised by either the Company or
the Unaffected Members by giving written notice to the Affected Member
within ninety (90) days after the receipt of notice to the Company and the
Unaffected Members of the occurrence of such Fundamental Change.
7.11.2 PURCHASE PRICE. The purchase price of the Membership
Interest to be purchased pursuant to Paragraph 7.11.1 shall be the book
value of such Membership Interest, including previous adjustments
contemplated by the definition of Gross Asset Value, as of the last day of
the month preceding the date of the Fundamental Change, as determined by the
regularly employed outside accountant serving the Company at such time, or
if none, by a public accountant selected by the Company and the Affected
Member, or if they are unable to agree, by a public accountant chosen by two
public accountants, one being selected by the Affected Member and one by the
Company. At any time after the date of this Agreement, the Members shall
have the right to agree unanimously upon the value of the Membership
Interest of each Member and determine the purchase price of each Membership
Interest for purposes of Paragraph 7.11.1, in which event, the Tax Matters
Partner shall place the purchase price of each Membership Interest on
Exhibit A attached hereto, which shall be initialed by all of the Members.
The purchase price so determined shall be reviewed by the Members each year
or at any other time determined by all of the Members and shall either be
confirmed or adjusted by the unanimous agreement of all Members. If all
Members are unable to agree with respect to the purchase price of any
Membership Interest, the Tax Matters Partner shall delete such purchase
price from Exhibit A. In the event the Members allow a period of eighteen
(18) months to lapse without either revaluing or confirming such purchase
price or are unable to unanimously agree on the revaluing or confirmation of
such purchase price, the purchase price shall then become the book value of
the Membership Interest as appraised by the Company's
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regularly employed outside accountant or such other accountant as may be
selected pursuant to the above-described procedure.
7.11.3 PAYMENT OF PURCHASE PRICE. The purchase price under this
Paragraph 7.11 shall be payable in cash at closing.
7.11.4 CLOSING. The closing of any purchase and sale under
Paragraph 7.11.1 shall take place at the office of the Company at a date
designated by the Company, or the Unaffected Members, as applicable, which
shall not be more than ninety (90) days after the date of determination of
the purchase price of the Membership Interest as set forth in Paragraph
7.11.2.
ARTICLE 8
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
8.1 LIMITATIONS. The Company may be dissolved, liquidated, and
terminated only pursuant to the provisions of this Article 8, and the parties
hereto do hereby irrevocably waive any and all other rights they may have to
cause a dissolution of the Company or a sale or partition of any or all of the
Company Assets.
8.2 EXCLUSIVE CAUSES. Notwithstanding the Act, the following and
only the following events shall cause the Company to be dissolved, liquidated,
and terminated:
(a) Any transaction the result of which is the ownership of
one hundred percent (100%) of all the Membership
Interests of the Company by a single Member, unless such
Member elects to continue the business of the Company by
admitting another Member within thirty (30) days
thereafter;
(b) The occurrence of a Terminating Capital Transaction;
(c) The Incapacity of any Member, unless a Majority of
Remaining Members votes to continue the Company within
ninety (90) days following the occurrence of any such
Incapacity;
(e) The written consent of a Majority in Interest;
(f) Judicial dissolution; or
(g) Upon the seventh (7th) anniversary of the date of this
Agreement.
Any dissolution of the Company other than as provided in this Paragraph 8.2
shall be a dissolution in contravention of this Agreement.
8.3 EFFECT OF DISSOLUTION. The dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the dissolution,
but the Company shall not terminate until it has been wound up and its assets
have been distributed as provided in Paragraph 8.5 of this Agreement.
Notwithstanding the dissolution of the Company, prior to the termination of the
Company, the business of the Company and the affairs of the Members, as such,
shall continue to be governed by this Agreement.
27
<PAGE> 33
8.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall look
solely to the assets of the Company, its Capital Contribution thereto, its
Capital Account and its share of Net Profits or Net Losses for all distributions
with respect to the Company, and shall have no recourse therefor (upon
dissolution or otherwise) against any other Member. Accordingly, in the event
the Company is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(H)(g), if any Member has a deficit balance in its Capital Account
(after giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which the liquidation occurs), then
such Member shall have no obligation to make any Capital Contribution with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Company or to any other person for any purpose whatsoever.
8.5 LIQUIDATION.
8.5.1 Upon dissolution of the Company, the Members shall
liquidate the assets of the Company, and after allocating (pursuant to
Article 5 of this Agreement) all income, gain, loss and deductions resulting
therefrom, shall apply and distribute the proceeds thereof as follows:
(a) First, to the payment of the obligations of the Company,
to the expenses of liquidation, and to the setting up of
any Reserves for contingencies which a Majority in
Interest may consider necessary.
(b) Thereafter, to the Members in accordance with the
positive balances in the Members' respective Capital
Accounts, determined after taking into account all
Capital Account adjustments for the Company taxable year
during which such liquidation occurs (other than those
made as a result of the distributions set forth in this
Paragraph 8.5.1(b) of this Agreement), by the end of
the taxable year in which such liquidation occurs or, if
later, within 90 days after the date of the liquidation.
8.5.2 Notwithstanding Paragraph 8.5.1 of this Agreement, in
the event that a Majority in Interest determines that an immediate sale of
all or any portion of the Company Assets would cause undue loss to the
Members, in order to avoid such loss to the extent not then prohibited by
the Act, the Members may either defer liquidation of and withhold from
distribution for a reasonable time any Company Assets except those necessary
to satisfy the Company's debts and obligations, or distribute the Company
Assets to the Members in kind.
ARTICLE 9
MISCELLANEOUS
9.1 AMENDMENTS.
9.1.1 Each Additional Member and Substitute Member shall
become a signatory hereto by signing such number of counterpart signature
pages to this Agreement, and such other instruments, in such manner, as the
Members shall determine. By so signing, each Additional Member and
Substitute Member, as the case may be, shall be deemed to have adopted and
to have agreed to be bound by all of the provisions of this Agreement.
28
<PAGE> 34
9.1.2 Amendments to this Agreement may be made only as set
forth in Paragraph 6.1.15.
9.1.3 In making any amendments, there shall be prepared and
filed by, or for, the Members such documents and certificates as may be
required under the Act and under the laws of any other jurisdiction
applicable to the Company.
9.2 ACCOUNTING AND FISCAL YEAR. Subject to Code Section 448, the
books of the Company shall be kept on such method of accounting for tax and
financial reporting purposes as may be determined by a Majority in Interest. The
fiscal year of the Company shall end on September 30 of each year, or on such
other date permitted under the Code as a Majority in Interest shall determine.
9.3 MEETINGS. At any time, and from time to time, a Majority in
Interest may, but shall not be required to, call meetings of the Members.
Written notice of any such meeting shall be given to all Members not less than
five (5) nor more than forty-five (45) days prior to the date of such meeting.
Each Member may authorize any other Person (whether or not such other Person is
a Member) to act as a proxy for it or on its behalf on all matters in which the
Member is entitled to participate. Each proxy must be signed by the Member or
such Member's attorney-in-fact. All other provisions governing, or otherwise
relating to, the holding of meetings of the Members, shall from time to time be
established by a Majority in Interest.
9.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
fully supersedes any and all prior or contemporaneous agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
9.5 FURTHER ASSURANCES. Each of the parties hereto does hereby
covenant and agree on behalf of itself, its successors, and its assigns, without
further consideration, to prepare, execute, acknowledge, file, record, publish,
and deliver such other instruments, documents and statements, and to take such
other action as may be required by law or reasonably necessary to effectively
carry out the purposes of this Agreement.
9.6 NOTICES. Any notice, consent, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be in
writing and shall be (a) delivered personally to the Person or to an officer of
the Person to whom the same is directed, or (b) sent by facsimile or registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows: if to the Company, to the Company at the address set forth in Paragraph
1.3 hereof, or to such other address as the Company may from time to time
specify by notice to the Members; if to a Member, to such Member at the address
set forth in Exhibit A, or to such other address as such Member may from time to
time specify by notice to the Company. Any such notice shall be deemed to be
delivered, given and received for all purposes as of: (i) the date so delivered,
if delivered personally, (ii) upon receipt, if sent by facsimile, or (iii) on
the date of receipt or refusal indicated on the return receipt, if sent by
registered or certified mail, return receipt requested, postage and charges
prepaid and properly addressed.
9.7 TAX MATTERS.
9.7.1 APS shall be designated and shall operate as the "Tax
Matters Partner" (as defined in Code Section 6231).
29
<PAGE> 35
9.7.2 The Member designated as "Tax Matters Partner" may make
all elections for federal income and all other tax purposes (including,
without limitation, pursuant to Section 754 of the Code) except as expressly
provided otherwise in this Agreement; provided, however, that upon the
reasonable request of any Member transferring its Membership Interest as
permitted hereunder, the Tax Matters Partner, on behalf of the Company,
shall make the election pursuant to Section 754 of the Code requested by
such Member, as permitted by the Code.
9.7.3 Income tax returns of the Company shall be prepared by
the accountant selected by a Majority in Interest. Such income tax returns
shall be prepared at the Company's expense.
9.8 GOVERNING LAW. This Agreement, including its existence,
validity, construction, and operating effect, and the rights of each of the
parties hereto, shall be governed by and construed in accordance with the laws
of the State of Delaware without regard to otherwise governing principles of
conflicts of law.
9.9 ARBITRATION. The parties hereto agree to submit to arbitration
any and all matters in dispute and in controversy among them concerning the
terms and provisions of this Agreement. All such disputes and controversies
shall be resolved, determined and adjudged by the arbitrators, all pursuant to
the rules of the American Arbitration Association. The selection of arbitrators
and the arbitration procedure shall be according to the Rules of the American
Arbitration Association; however, the arbitrators shall have no authority to
grant any relief which is inconsistent with this Paragraph 9.9 or any other
provision of this Agreement.
9.10 CONSTRUCTION. This Agreement shall be construed as if all
parties prepared this Agreement.
9.11 CAPTIONS - PRONOUNS. Any titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement. All pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as appropriate.
9.12 BINDING EFFECT. Except as otherwise expressly provided herein,
this Agreement shall be binding on and inure to the benefit of the Members,
their heirs, executors, administrators, successors and all other Persons
hereafter holding, having or receiving an interest in the Company, whether as
Assignees, Substitute Members or otherwise.
9.13 SEVERABILITY. In the event that any provision of this Agreement
as applied to any party or to any circumstance, shall be adjudged by a court of
competent jurisdiction to be void, unenforceable or inoperative as a matter of
law, then the same shall in no way affect any other provision in this Agreement,
the application of such provision in any other circumstance or with respect to
any other party, or the validity or enforceability of this Agreement as a whole.
9.14 CONFIDENTIALITY. Each Party hereto agrees that the provisions of
this Agreement, all understandings, agreements and other arrangements between
and among the parties, and all other nonpublic information received from or
otherwise relating to, the Company shall be confidential, and shall not be
disclosed or otherwise released to any other Person (other than another party
hereto), without the written consent of a Majority in Interest. The obligations
of the parties hereunder shall not apply to the extent that the disclosure of
information otherwise determined to be confidential is required by applicable
law, provided that, prior to disclosing such confidential information, a party
shall notify the Company
30
<PAGE> 36
thereof, which notice shall include the basis upon which such party believes the
information is required to be disclosed.
9.15 COUNTERPARTS. This Agreement may be executed in any number of
multiple counterparts, each of which shall be deemed to be an original copy and
all of which shall constitute one agreement, binding on all parties hereto.
9.16 NO REFERRALS. There exists no agreement or understanding between
the Company and any Member, or among any Members, or any affiliates of any
Member, that any Member shall order, refer or purchase goods or services from
the Company, or arrange for the ordering, referring or purchasing of such goods
or services from the Company. Likewise, there exists no agreement or
understanding between the Company and any Member, or among any Members, or any
affiliates of any Member, that the Company shall order, refer or purchase goods
or services from any Member, or arrange for the ordering referring or purchasing
of such goods or services from any Member.
[SIGNATURE PAGE FOLLOWS)
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
AMERICAN PHARMACEUTICAL SERVICES,
INC.
By: /s/ WILLIAM R. KORSLIN
-------------------------------------
William R. Korslin
SUMMIT CARE PHARMACY, INC.
By:
-------------------------------------
--------------------
Its:
------------------------------------
ACKNOWLEDGED AND AGREED THIS ___
DAY OF __________, 1996 FOR THE
PURPOSES OF PARAGRAPH 6.6 HEREOF.
SUMMIT CARE CORPORATION
By:
----------------
------------------
Its:
---------------------------
S-1
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
AMERICAN PHARMACEUTICAL SERVICES,
INC.
By:
-------------------------------------
William R. Korslin
SUMMIT CARE PHARMACY, INC.
By: /s/ DERWIN L. WILLIAMS
-------------------------------------
Derwin L. Williams
Its: Sr. Vice President, Finance
------------------------------------
ACKNOWLEDGED AND AGREED THIS 30th
DAY OF NOVEMBER, 1996 FOR THE
PURPOSES OF PARAGRAPH 6.6 HEREOF.
SUMMIT CARE CORPORATION
By: /s/ DERWIN L. WILLIAMS
----------------------------
Derwin L. Williams
----------------------------
Its: Sr. Vice President, Finance
---------------------------
S-1
<PAGE> 39
EXHIBIT A
MEMBERS, CAPITAL CONTRIBUTIONS,
AND PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Purchase Price for
each Membership
Initial Capital Interest (Pursuant Percentage
Member Contribution to Paragraph 7.11) Interest
------ --------------- ------------------ ----------
<S> <C> <C> <C>
American Pharmaceutical Services, Inc. Those assets that American 50%
1771 W. Diehl Road, Suite 210 Pharmaceutical Services, Inc.
Naperville, Illinois 60563 uses in the conduct of its
business of providing drugs,
pharmaceutical supplies and
pharmacy consulting to long term
care facilities in the Austin,
Texas area from the pharmacy
located at 2324 Ridgepoint
Drive, Suite G-1, Austin, Texas
78754 (Gross Asset Value =
$3,000,000 (1)
Summit Care Pharmacy, Inc. $1,500,000 50%
22607 Old Canal Road
Yorba Linda, California 92887
</TABLE>
- ----------
(1) APS's Capital Account will be adjusted in accordance with Paragraph 2.10
hereof to reflect the distribution provided for in Paragraph 4.1.3 hereof.
<PAGE> 40
SCHEDULE I
STATE OF DELAWARE
CERTIFICATE OF FORMATION
OF
APS-SUMMIT CARE PHARMACY, L.L.C.
FIRST: The name of the limited liability company is:
APS-SUMMIT CARE PHARMACY, L.L.C.
SECOND: Its registered office in the State of Delaware is to be located at:
1209 Orange Street
Wilmington, DE 19801
The county of New Castle and its registered agent at such address is:
The Corporation Trust Company
In Witness Whereof, the undersigned has executed this Certificate of Formation
of APS-SUMMIT CARE PHARMACY, L.L.C. this 27th day of November, 1996.
AMERICAN PHARMACEUTICAL SERVICES,
INC., a Delaware corporation
By:___________________________
Name:_________________________
Title:________________________
SUMMIT CARE PHARMACY, INC., a California
corporation
By:___________________________
Name:_________________________
Title:________________________
<PAGE> 41
===============================================
ASSET CONTRIBUTION AGREEMENT
BY AND BETWEEN
AMERICAN PHARMACEUTICAL SERVICES, INC.,
a Delaware Corporation
AND
APS - SUMMIT CARE PHARMACY, L.L.C.,
a Delaware Limited Liability Company
===============================================
<PAGE> 42
TABLE OF CONTENTS
Page
ASSET CONTRIBUTION AGREEMENT................................................1
RECITALS....................................................................1
AGREEMENT...................................................................1
ARTICLE I - CONTRIBUTION OF ASSETS..........................................1
1.1 Contributed Assets.........................................1
(a) Leasehold Interests..................................2
(b) Purchased Contracts..................................2
(c) Inventories..........................................2
(d) Personal Property, Fixtures and Equipment............2
(e) Governmental Licenses and Permits....................3
(f) Intangible Assets....................................3
(g) Names................................................3
(h) Goodwill.............................................3
(i) Facility Records.....................................3
(j) Customer Lists.......................................3
(k) Noncompetition Covenant..............................3
1.2 Excluded Assets............................................3
1.3 Nonassumption of Agreements................................4
ARTICLE II - ASSUMED LIABILITIES............................................4
2.1 Assumed Liabilities........................................4
2.2 Unassumed - Liabilities....................................4
ARTICLE III - FINANCIAL ARRANGEMENTS AND CLOSING............................4
3.1 Asset Value................................................4
3.2 Capital Account Balance....................................5
3.3 Payment to APS.............................................5
3.4 Allocation.................................................5
3.5 Closing....................................................5
3.6 Closing Deliveries.........................................5
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<PAGE> 43
ARTICLE IV - CLOSING CONDITIONS AND DOCUMENTS...............................6
4.1 Conditions to Obligations of LLC...............................6
4.2 Conditions to Obligations of APS...............................8
ARTICLE V - NONCOMPETITION COVENANT.........................................9
5.1 Covenant...................................................9
5.2 Modification...............................................9
5.3 Remedies...................................................9
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF APS.........................10
6.1 Title to Contributed Assets...............................10
6.2 Compliance With Licensing Requirements....................10
6.3 Compliance With Laws......................................10
6.4 Condition of Personal Property............................11
6.5 Books and Records.........................................11
6.6 Leases and Other Material Agreements......................11
6.7 Taxes.....................................................11
6.8 Governmental Investigations and Proceedings...............11
6.9 No Conflict or Violation..................................11
6.10 Material Misstatements....................................11
6.11 No Condemnation...........................................12
6.12 No Assessments............................................12
6.13 Financial Statements......................................12
6.14 Hazardous Material........................................12
6.15 Insurance.................................................13
6.16 Zoning....................................................13
6.17 Litigation................................................13
6.18 Authorization.............................................13
6.19 Corporate Existence and Qualification.....................13
6.20 Access to Records.........................................13
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF LLC........................14
7.1 No Conflict or Violation..................................14
7.2 Litigation................................................14
7.3 Authorization.............................................14
7.4 Corporate Existence and Qualification.....................14
ii
<PAGE> 44
ARTICLE VIII - POSTCLOSING AGREEMENTS......................................14
8.1 Books and Records and Financial Information...............14
8.2 Sales and Use Taxes.......................................15
ARTICLE IX - INDEMNIFICATION...............................................15
9.1 Indemnification by APS....................................15
9.2 Indemnification by LLC....................................16
ARTICLE X - MISCELLANEOUS..................................................17
10.1 Notices...................................................17
10.2 Referrals.................................................18
10.3 Counterparts..............................................18
10.4 Construction..............................................18
10.5 Gender and Number.........................................18
10.6 Waiver....................................................18
10.7 Further Assurances........................................18
10.8 Confidentiality...........................................18
10.9 Time of Essence...........................................19
10.10 Survival..................................................19
10.11 Supersedes Agreement......................................19
10.12 Commissions...............................................19
10.13 Attorneys' Fees and Costs.................................19
10.14 Arbitration...............................................19
10.15 Interpretation............................................20
10.16 Severability..............................................20
10.17 Binding...................................................20
10.18 Facsimile Copies..........................................20
10.19 Force Majeure.............................................20
10.20 No Obligations To Third Parties...........................21
iii
<PAGE> 45
ASSET CONTRIBUTION AGREEMENT
This Asset Contribution Agreement (the "Agreement") is entered into as
of November 27, 1996 (the "Execution Date"), by and between American
Pharmaceutical Services, Inc., a Delaware corporation ("APS"), and APS - Summit
Care Pharmacy, L.L.C., a Delaware limited liability company ("LLC"). APS and
LLC are sometimes hereinafter referred to collectively as "Parties" and
individually as "Party".
RECITALS
A. APS is the owner and operator of a pharmacy (the "Facility")
located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas 78754 (the
"Premises").
B. APS owns certain "Contributed Assets" (as defined in Section
1. 1 of this Agreement) which are used or usable in connection with the
operation of the Facility.
C. APS and Summit Care Pharmacy, Inc., a California corporation
("Summit Care") (a) have formed LLC for the purpose of engaging in the business
of operating a pharmacy to provide pharmacy and IV therapy services and (b) have
entered into that certain Limited Liability Company Agreement, of even date
herewith (the "LLC Agreement"), to govern the ownership and operations of LLC.
D. Pursuant to the LLC Agreement, APS will contribute to LLC, as
its initial capital contribution, the Contributed Assets, on the terms and
conditions set forth in this Agreement.
E. APS desires to contribute the Contributed Assets to LLC, and
LLC desires to receive the Contributed Assets from APS, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, the Parties agree as follows:
AGREEMENT
ARTICLE I
CONTRIBUTION OF ASSETS
1.1 Contributed Assets. At the Closing (as defined in Section 3.5
hereof) of the transactions contemplated by this Agreement, in
reliance upon the representations and warranties and
agreements of APS herein, APS shall contribute to LLC, and LLC
shall accept from APS, all right, title and interest
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<PAGE> 46
of APS in the following assets, rights and interests of APS
relating to the Facility, all of which are to be contributed
by APS at Closing in accordance with the provisions of Section
3.5 hereof, excluding only the "Excluded Assets" defined in
Section 1.2 hereof. (All of the assets, rights and interests
to be contributed and delivered by APS to LLC pursuant to
Section 3.6 are hereinafter collectively referred to as the
"Contributed Assets"):
(a) Leasehold Interests. All of APS's leasehold interest
(including all security deposits, and any options to
extend such leasehold, to expand the leased premises,
to purchase such premises or otherwise) as lessee of
the Facility pursuant to the lease (the "Lease")
under which APS, as lessee, has been granted the
leasehold interest by the owner of the Premises as
lessor, and all improvements owned by APS on the
Closing Date, if any, to real property and the
buildings leased by APS with respect to the Facility
(collectively, the "Leasehold Interests"). To
effectuate the transfer of the Leasehold Interests
hereunder, APS agrees to execute and deliver at
Closing (i) an Assignment of Lease executed by APS in
substantially the form attached as Exhibit A hereto;
and (ii) a "Consent to Assignment of Lease" executed
by the lessor of the Premises in substantially the
form attached as Exhibit B hereto.
(b) Purchased Contracts. All right, title and interest of
APS in, to and under the contracts relating
exclusively to the operations of the Facility
(collectively, the "Purchased Contracts"), including
but not limited to (i) all assignable agreements
between APS and third-party payors (collectively, the
"Payor Contracts"), (ii) all assignable agreements
with suppliers to which APS is a party (collectively,
the "Supplier Contracts"), (iii) all assignable
agreements with nursing homes (collectively, the
"Facility Contracts") and (iv) the contracts
(including the Payor Contracts, the Supplier
Contracts, and the Facility Contracts) listed on
Schedule 1.1(b) hereto.
(c) Inventories. All of APS's inventories held for use in
connection with the Facility on the Closing Date and
maintained in the ordinary course of the business of
the Facility, including, without limitation, all
medical supplies, equipment and drugs (all such
items, collectively, the "Inventory").
(d) Personal Property, Fixtures and Equipment. All right,
title and interest of APS in and to all furniture,
fixtures, furnishings, tools, machinery, equipment
including, without limitation, all computer hardware,
computer software, supplies, billing and office
support equipment, telecommunications equipment and
records necessary to operate, prepare and collect
bills and maintain the Facility, appliances and all
other tangible personal property of every kind and
description
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<PAGE> 47
and any interest therein necessary to the operations
of the Facility and owned or leased by APS and
exclusively used in or related to the operation of
the Facility on the Closing Date, whether or not
located at the Facility, and whether or not reflected
as capital assets on the accounting records of APS
(all such items, collectively, the "Personal
Property"), including, but not limited to, those
items listed on Schedule 1.1(d) hereto.
(e) Governmental Licenses and Permits. All right, title
and interest of APS in, to and under all agreements,
licenses, permits, consents, authorizations,
certificates and other rights of every kind and
character relating exclusively to the Facility of any
regulatory, administrative or other governmental
agency or body issued to or held by APS necessary or
incidental to the operations of the Facility as of
the Closing Date, to the extent the same are
transferable (all such items, collectively the
"Governmental Licenses and Permits"). A listing of
the Facility's license and permit numbers is set
forth on Schedule 1.1(e) hereto.
(f) Intangible Assets. All right, title and interest of
APS in, to and under the technology, data, symbols,
copyrights and registrations thereof, trade names,
trademarks, trademark registrations, trademark
applications, service marks, service mark
registrations, service mark applications, telephone
numbers, licenses, and other intangible rights and
privileges used by APS exclusively in connection with
the operation of the Facility on the Closing Date.
(g) Names. A license to use the name set forth on
Schedule 1.1(g).
(h) Goodwill. The goodwill and going concern value of
APS's interest in the Facility.
(i) Facility Records. Copies of all books and records,
computer tapes, disks and data relating exclusively
to the Facility and the Contributed Assets,
(collectively, the "Facility Records"), as listed on
Schedule 1.1(i) hereto.
(j) Customer Lists. All right, title and interest of APS
in all customer lists relating to the operation of
the Facility.
(k) Noncompetition Covenant. The Noncompetition Covenant
described in Article V of this Agreement.
1.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, the Contributed Assets shall include only the
assets, rights and interests of APS specifically described in
this Agreement and expressly shall not include (and APS does
not hereby contribute to LLC) any other assets, rights or
interests
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<PAGE> 48
of APS, including, without limitation: (i) any cash,
securities, bank accounts or safe deposit boxes; or (ii) any
accounts receivable arising with respect to goods sold or
services rendered by APS prior to the Closing Date.
1.3 Nonassumption of Agreements. Except for the obligations under
the Purchased Contracts accruing on and after the Closing
Date, LLC shall not assume any agreements or obligations,
whether express or implied, that exist between APS and any of
APS's current or former employees, or any third party, and
nothing in this Agreement is intended to be or shall be
construed as an assumption by LLC of any rights, obligations
or liabilities of any kind under any such agreements.
ARTICLE II
ASSUMED LIABILITIES
2.1 Assumed Liabilities. Except as specified in Section 2.2
hereof, as of the Closing Date, LLC hereby agrees to assume,
satisfy or perform when due all sums owed to trade vendors and
service providers for goods and services purchased in the
ordinary course of operations of the Facility (the "Accounts
Payable") for goods delivered to LLC or services performed for
LLC after the Closing Date (the "Assumed Liabilities").
2.2 Unassumed Liabilities. Other than the Assumed Liabilities, LLC
shall not assume, nor shall LLC or any of its affiliates be
deemed to have assumed or guaranteed, any other liability or
obligation of any nature of APS, or claims of such liability
or obligation, whether accrued, matured or unmatured,
liquidated or unliquidated, fixed or contingent, known or
unknown arising out of (i) acts or occurrences prior to the
Closing, (ii) liabilities or obligations relating to the
Contributed Assets prior to the Closing, or (iii) any other
liability or obligation of APS (all such items (i) through
(iii) of this Section 2.2, collectively, the "Unassumed
Liabilities"). The Unassumed Liabilities specifically include,
without limitation, all Accounts Payable for goods delivered
to APS or services performed for APS prior to the Closing Date
and also include any liabilities or obligations of APS with
respect to APS's employees earned prior to the Closing Date,
whether or not any of APS's employees become employees of LLC.
ARTICLE III
FINANCIAL ARRANGEMENTS AND CLOSING
3.1 Asset Value. The Parties agree that the fair market value of
the Contributed Assets is Three Million Dollars
($3,000,000.00). In exchange for APS's contribution of the
Contributed Assets to LLC pursuant to the terms and
4
<PAGE> 49
conditions of this Agreement, APS will receive from LLC the
consideration described in Sections 3.2 and 3.3 of this
Article.
3.2 Capital Account Balance. In exchange for the Contributed
Assets contributed by APS to LLC in accordance with this
Agreement, in addition to the consideration described in
Section 3.3 below, APS will receive on the Closing Date
described below in accordance with the LLC Agreement, (a) an
initial capital account credit in LLC equal to One Million
Five Hundred Thousand Dollars ($1,500,000.00) and (b) a
membership interest in LLC that represents a fifty percent
(50%) ownership interest in LLC.
3.3 Payment to APS. In exchange for the Contributed Assets
contributed by APS to LLC in accordance with this Agreement,
in addition to the consideration described in Section 3.2
above, APS will receive payment from LLC in the amount of One
Million Five Hundred Thousand Dollars ($1,500,000.00), to be
paid in immediately available funds on the Closing Date
described below.
3.4 Allocation. The Three Million Dollar ($3,000,000.00) value of
the Contributed Assets agreed upon by the Parties shall be
applied and allocated as set forth on Schedule 3.4 hereto. As
an inducement for APS and LLC to enter into this Agreement,
the Parties agree that the values assigned to the items
included in this Agreement and set forth on Schedule 3.4 are
fair and equitable and have been bargained for separately. In
addition, the Parties agree to cooperate in filing reports
relating to such allocation, as and when required by law,
including IRS Form 8594. Furthermore, the Parties acknowledge
and agree that APS and LLC shall report to federal and state
tax authorities any additionally required information relating
to the noncompetition covenant described herein or other
agreements between APS and LLC. APS and LLC agree to cooperate
with each other in the preparation of any such additional
reports.
3.5 Closing. The closing of the transactions contemplated under
this Agreement (the "Closing") shall take place by mail on or
prior to November 30, 1996 (the "Closing Date"). The Closing
Date may be extended upon the mutual agreement of the Parties
hereto. The transfer of the Contributed Assets by APS to LLC
shall be deemed to be effective as of 11:59 p.m., Texas time,
on the Closing Date.
3.6 Closing Deliveries. At the Closing, APS shall execute and
deliver to LLC all instruments, documents and records set
forth in Section 4.1 hereof required by that Section to be
delivered by APS as a condition to LLC's obligation to accept
the Contributed Assets; and LLC shall execute and deliver to
APS all instruments, documents and records set forth in
Section 4.2 hereof required by that Section to be delivered by
LLC as a condition to APS's obligation to accept the
Contributed Assets. For purposes of this Agreement, the term
"Transaction Documents" shall refer to this Agreement and to
the Assignment
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of Lease and Consent to Assignment of Lease, the General
Conveyance and Assignment of Interests described below and
such other instruments of transfer necessary to vest title and
possession in and to the Contributed Assets in LLC as of the
Closing Date.
ARTICLE IV
CLOSING CONDITIONS AND DOCUMENTS
4.1 Conditions to Obligations of LLC. LLC's obligation to accept
the Contributed Assets shall be expressly conditioned upon
satisfaction, or, in the alternative, waiver by LLC of the
following conditions:
(a) All of the terms, covenants and conditions of this
Agreement to be complied with and performed by APS on
or before the Closing Date shall have been duly
complied with and performed by APS in all material
respects.
(b) The representations and warranties made by APS herein
shall be correct in all material respects as of the
Closing Date, with the same force and effect as
though such representations and warranties had been
made as of the Closing Date.
(c) On or before the Closing Date, the Board of Directors
of APS shall have voted to authorize the Transaction
Documents, and the transactions described therein,
and the Secretary or Assistant Secretary of APS shall
have delivered to LLC a certified copy of the
resolutions of its Board of Directors to such effect;
APS shall have executed the Assignment of Lease and
obtained the executed Consent to Assignment of
Lease, in substantially the forms attached hereto as
Exhibits A and B, respectively, on or before the
Closing Date.
(d) On or before the Closing Date, APS shall have
executed an Employee Services Agreement in
substantially the form attached as Exhibit D hereto.
(e) The Facility shall not have been adversely affected
in any material way as the result of any fire,
accident or other casualty (whether or not insured)
or by any act of God.
(f) There shall not have been material adverse change in
the operations, financial condition, or regulatory or
licensing status of APS since the Execution Date of
this Agreement nor shall APS have received any
reports, surveys, citations or correspondence from
licensing authorities (collectively, "Reports")
affecting the Facility for the period prior to the
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Closing Date, except such Reports as to which LLC has had a
reasonable opportunity to review and not disapprove.
(g) APS shall have delivered to LLC a certificate to the
effect that, as of the Closing Date, the conditions
set forth in subsections (a) and (b) of this Section
4.1 have been satisfied.
(h) On or before the Closing Date, APS shall have
executed and delivered to LLC the General Conveyance
and Acceptance and Assignment of Interests and
Assumption of Liabilities in substantially the form
attached hereto as Exhibit C and incorporated herein
by this reference (the "General Conveyance"), which
General Conveyance shall be effective to transfer to
LLC the Contributed Assets free and clear of all
liens and encumbrances, other than the Permitted
Encumbrances set forth on Schedule 6.1.
(i) On or before the Closing Date, APS and Summit Care
shall have executed and delivered to LLC that certain
LLC Agreement by and between APS and Summit Care.
Additionally, on or before the Closing Date, Summit
Care shall have contributed cash in the amount of One
Million Five Hundred Thousand Dollars ($1,500,000.00)
to LLC in accordance with the LLC Agreement.
(j) APS shall have made available for delivery at the
Facility the Purchased Contracts.
(k) APS shall have made available for delivery at the
Facility the Facility Records.
(l) No action, suit, or proceeding before any court or
any governmental body or authority pertaining to the
transactions described in this Agreement or to the
consummation thereof as provided herein, shall have
been instituted or threatened on or before the
Closing Date.
(m) APS shall have delivered to LLC any additional
instruments, signed and properly acknowledged by APS,
if appropriate, as may be necessary for APS to comply
with this Agreement.
(n) To the extent required herein, APS shall have
obtained all necessary consents or approvals of all
third parties (except parties to nursing home
contracts) whose consent or approval is required in
order for APS to consummate the transactions
contemplated by the Transaction Documents.
(o) On or before the Closing Date, APS shall assign or
cause to be assigned to LLC all of APS's existing
warranties of any contractors and
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suppliers who have provided either labor, services,
equipment and/or materials to the Facility to the
extent assignable.
4.2 Conditions to Obligations of APS. APS's obligation to
contribute the Contributed Assets shall be expressly
conditioned upon satisfaction, or in the alternative, waiver
by APS, of the following conditions:
(a) All of the terms, covenants and conditions of this
Agreement to be complied with and performed by LLC on
or before the Closing Date shall have been duly
complied with and performed in all material respects.
(b) The representations and warranties made by LLC herein
shall be correct in all material respects as of the
Closing Date, with the same force and effect as
though such representations and warranties had been
made as of the Closing Date.
(c) LLC shall have executed and delivered all documents
and agreements which it is obligated hereby to
execute.
(d) On or before the Closing Date, LLC shall have
executed an Employee Services Agreement in
substantially the form attached as Exhibit D hereto.
(e) The Facility shall not have been adversely affected
in any material way as the result of any fire,
accident or other casualty (whether or not insured)
or by any act of God.
(f) LLC shall have delivered to APS a certificate to the
effect that, as of the Closing Date, the conditions
set forth in subsections (a) and (b) of this Section
4.2 have been satisfied.
(g) On or before the Closing Date, LLC shall have
executed and delivered to APS the General Conveyance.
(h) On or before the Closing Date, APS and Summit Care
shall have executed and delivered to LLC that certain
LLC Agreement by and between APS and Summit Care.
Additionally, on or before the Closing Date, Summit
Care shall have contributed cash in the amount of One
Million Five Hundred Thousand Dollars ($1,500,000.00)
to LLC in accordance with the LLC Agreement.
(i) No action, suit, or proceeding before any court or
any governmental body or authority pertaining to the
transactions described in this Agreement or to the
consummation thereof as provided herein, shall have
been instituted or threatened on or before the
Closing Date.
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LLC shall have delivered to APS any additional
instruments, signed and properly acknowledged by LLC,
if appropriate, as may be necessary for LLC to comply
with this Agreement.
ARTICLE V
NONCOMPETITION COVENANT
5.1 Covenant. APS shall not directly or indirectly carry on or
engage in the business of providing pharmacy services or
otherwise compete with LLC at or in connection with any
location in the County of Travis, State of Texas, whether on
its own account, or solely or jointly with others as an agent,
consultant, stockholder, member, investor, or general or
limited partner of any corporation, general partnership,
limited partnership, limited liability company or any other
entity, or in any other relationship or capacity. Except as
set forth below, the provisions of this Article V shall
survive for so long as LLC is in existence and no longer.
Notwithstanding the preceding sentence, the provisions of this
Article V shall terminate and cease to apply (i) immediately
upon the withdrawal of either APS or Summit Care as a "Member"
of LLC (as "Member" is defined in the LLC Agreement) with the
consent of the other, as contemplated by the second sentence
of Paragraph 7.4 of the LLC Agreement and (ii) on November 30,
1998 in the event that either APS or Summit Care withdraws
from LLC (A) prior to November 30, 1998 and (B) without the
consent of the other party; provided, however, that in the
event either APS or Summit Care exercises its buy/sell right
under Paragraph 7. 10 of the LLC Agreement, the provisions of
this Article V shall apply to the selling party only (as
though the buying party were LLC) and shall terminate on the
date that is the second (2nd) anniversary of the closing of
the sale contemplated by Paragraph 7.10 of the LLC
Agreement.
5.2 Modification. Although APS and LLC consider the restrictions
contained herein to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction
that the time or geographical territory or any other
restriction contained in this Article is an unreasonable or
otherwise unenforceable restriction, the above provisions
shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other
extent as such court may determine or indicate to be
reasonable.
5.3 Remedies. The Parties to this Agreement further acknowledge
and agree that LLC's remedy at law for a breach or threatened
breach of any of the provisions of the above covenant not to
compete would be inadequate and, in recognition of that fact,
in the event of a breach or threatened breach by APS of the
provisions of this Article, LLC shall be entitled to, without
posting any bond, and APS agrees not to oppose any request
for, equitable relief in the form of specific performance, a
temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may be
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<PAGE> 54
available. Nothing contained herein shall be construed as
prohibiting LLC from pursuing any other remedies available to
LLC for such breach or threatened breach until any such
injunction is granted.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF APS
APS hereby makes the following representations and warranties
to LLC as of the Execution Date and the Closing Date:
6.1 Title to Contributed Assets. Except as disclosed on Schedule
6.1 (collectively, the "Permitted Encumbrances"), no claims,
liens, imperfections of title, security interests or other
encumbrances have attached to any of the Contributed Assets,
nor has any action or event occurred which will impair APS's
ability to deliver valid and marketable title to the
Contributed Assets. APS has taken all reasonably necessary
action to maintain and protect any trademarks or trade names
used in connection with the Facility. Set forth on Schedule 6.
1A hereto are lien search results showing certain UCC
Financing Statements listing APS as debtor which APS believes
were filed against it in error, but for which APS specifically
indemnifies and holds harmless LLC pursuant to the provisions
of Section 9.1 hereof.
6.2 Compliance With Licensing Requirements. Except as specified in
Schedule 6.2 hereof, the Facility has been operated in
substantial compliance with the applicable laws, rules,
requirements, and regulations of the State of Texas and of the
federal government for licensing and certification of the
Facility. Except as set forth on Schedule 6.2 hereof, all
requirements or recommendations of all applicable licensing or
certification authorities regarding the Facility have been or
at the Closing shall have been fully complied with. As of the
Closing, all material State licenses, permits and Medicare and
Medicaid billing agreements and certification necessary to
operate the Facility and to obtain payment shall have been
obtained by APS, shall be in full force and effect, and shall
not be the subject of any revocation or termination action by
the issuing agencies.
6.3 Compliance With Laws. To the knowledge of APS, no action or
event has occurred which would cause the Facility to be out of
substantial compliance with any applicable federal, state or
local laws, rules and regulations, including without
limitation, all federal, state or local health, fire and
safety, seismic safety, zoning, or labor laws, ordinances,
rules or regulations applicable to the Facility, all
requirements of the Occupational Safety and Health Act and its
Texas equivalent and regulations promulgated under such
legislation and all orders, judgments and decrees of any
tribunal under such legislation that apply to the Facility,
the consequences of violation of which could have a material
adverse effect on the operations of the Facility.
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6.4 Condition of Personal Property. AU Personal Property has been
maintained and repaired by APS in the ordinary course of APS's
business operations.
6.5 Books and Records. APS's Financial Statements and other
financial books and records for the Facility have been
maintained in accordance with APS's usual and customary
accounting practices applied on a consistent basis and are
true and correct in all material aspects.
6.6 Leases and Other Material Agreements. Except as disclosed on
Schedule 6.6 hereto, APS has not entered into any leases,
subleases, management agreements or management contracts
affecting the Facility, other than the Lease. To the knowledge
of APS, nothing has occurred which would cause any of the
Purchased Contracts listed on Schedule 1.1(b) not to be legal,
valid, binding, enforceable and in full force and effect. APS
has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in the Lease other than to
LLC.
6.7 Taxes. All federal, state and local taxes (other than real and
personal property taxes and any transfer taxes arising out of
the transfer contemplated herein), fees and assessments of
whatever nature upon the Contributed Assets being sold to LLC
hereunder which are due and payable by reason of the
transactions contemplated by this Agreement have been or shall
be paid by APS.
6.8 Governmental Investigations and Proceedings. Except as
disclosed on Schedule 6.8 hereto, there is no current or
pending litigation, proceeding, vendor hold or similar lien on
state or federal payments to APS, or arbitration or
governmental investigation with respect to APS and relating to
the Facility, which, if decided adversely to APS, could have a
material and adverse impact on the operations of the Facility.
6.9 No Conflict or Violation. The execution, delivery and
performance of the Transaction Documents by APS will not
result in any breach or violation or constitute a default
under any material agreement or other instrument to which APS
is a party or result in the termination of, or accelerate the
performance required by, or cause the acceleration of the
maturity of any such material agreement or other instrument.
6.10 Material Misstatements. No representation or warranty by APS
contained in this Agreement and no records, writing,
certificate, list or other instrument furnished or to be
furnished to LLC pursuant hereto or in connection with the
transactions contemplated hereby contains or will contain any
untrue statement of a material fact.
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6.11 No Condemnation. No condemnation action has been taken or to
APS's knowledge has been threatened with respect to the
Facility or any part thereof.
6.12 No Assessments. The Facility has not been the subject of any
assessments for work or improvements either completed or to be
completed, and APS has no knowledge or belief that there is
any pending or contemplated assessment or other specified tax
or assessment relating to the Facility.
6.13 Financial Statements. Schedule 6.13 attached hereto sets forth
the profit and loss statements of APS for APS's two (2) most
recent fiscal years for the Facility (the "Financial
Statements"). The Financial Statements have been prepared in
accordance with APS's usual and customary accounting practices
consistently followed by APS throughout the periods indicated,
and fairly present the financial position and results of
operations of APS for the respective periods indicated. In
addition, on or before the Closing, APS shall promptly provide
LLC with all such additional monthly profit and loss
statements for the Facility through September 1996 as are
prepared by APS in APS's normal course of business in
accordance with APS' usual and customary accounting practices
consistently followed by APS throughout the periods indicated.
6.14 Hazardous Material. APS has not placed any underground storage
tanks on the real property upon which the Facility is located
in which any Hazardous Material (as defined below) has been or
is being stored, nor has APS spilled, disposed of, discharged,
or released any Hazardous Material into, upon, from, or over
such real property or into or upon ground or surface water on
such real property. APS has not incorporated any
asbestos-containing materials into the buildings or interior
improvements that are part of such real property, nor has it
located any electrical transformer, fluorescent light fixture
with ballasts, or other equipment containing PCBs on such real
property. As used in this paragraph, "Hazardous Material"
means any hazardous or toxic substance, material, or waste
that is regulated by any federal authority or by any state or
local governmental authority where the substance, materials,
or waste is located. Except as set forth on Schedule 6.14
hereto, APS has operated the Facility in material compliance
with all federal, state and local environmental protection
laws and regulations and has not received any notice of nor
has been cited for any violation of any such law or regulation
and is aware of no such pending or threatened citation. There
is no pending audit with respect to the Facility known to APS
by any federal, state, or local governmental authority with
respect to groundwater, soil, or air monitoring; the storage,
burial, release, transportation, or disposal of Hazardous
Materials; or the use of underground storage tanks by APS,
related to the Facility. APS has no agreement with any third
party or federal, state, or local governmental authority
relating to any such environmental matter or any environmental
cleanup.
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6.15 Insurance. APS has maintained and now maintains (1) insurance
on all of the assets of the Facility of a type customarily
insured, covering property damage and loss of income by fire
and other casualty, and (2) adequate insurance protection
against all liabilities, claims, and risks against which it is
customary to insure. APS is not in default with respect to
payment of premiums on any such policy. No claim is pending
under any such policy which if decided adversely to APS would
materially and adversely effect the business, condition,
operations (financially or otherwise), or results of
operations of the Facility.
6.16 Zoning. APS has not commenced, nor received notice of the
commencement of, any proceeding that would affect the present
zoning or other land use classification of the property where
the Facility is located.
6.17 Litigation. Except as set forth on Schedule 6.17 attached
hereto, APS (a) is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge or (b) is not a
party nor to APS's knowledge is threatened to be made a party
to any action, suit, proceeding, hearing, audit or
investigation relating to the Facility or the Purchased Assets
of, in or before any court or quasijudicial or administrative
agency of any federal, state, local or foreign jurisdiction or
before any arbitrator that is reasonably likely to result in a
material adverse change with respect to the business,
condition, operations (financial or otherwise) or results of
operation of the Facility or the Contributed Assets.
6.18 Authorization. APS has full power and authority to execute and
deliver the Transaction Documents and to perform its
obligations thereunder. The Transaction Documents constitute
the valid and legally binding obligation of APS, enforceable
against APS in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, or similar laws
relating to creditors' rights and to principles of equity
generally.
6.19 Corporate Existence and Qualification. APS is a corporation
duly organized, validly existing, and in good standing under
the laws of the State of Delaware, and has all necessary
corporate powers to own its properties and to carry on its
business as now owned and operated by it.
6.20 Access to Records. APS shall have provided LLC, its agents,
counsel, and accountants, through APS's counsel, reasonable
access to all records maintained by APS at the Facility
applicable to the Contributed Assets and the Facility and
necessary to enable LLC to consummate the transactions
described herein.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF LLC
LLC hereby represents and warrants to APS as follows:
7.1 No Conflict or Violation. To the actual knowledge of LLC,
there is no impediment or reason, including threatened or
pending litigation, which would preclude LLC from executing
and delivering the Transaction Documents, from performing its
obligations thereunder or from consummating the transactions
contemplated hereunder.
7.2 Litigation. LLC (a) is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge or (b)
is not a party nor to LLC's knowledge is threatened to be made
a party to any action, suit, proceeding, hearing, audit or
investigation in or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator that is reasonably
likely to result in a material adverse change with respect to
the business, condition, operations (financial or otherwise)
or results of operation of the Facility or the Contributed
Assets.
7.3 Authorization. LLC has all necessary power and authority and
has taken all action necessary to enter into this Agreement
and to consummate the transactions contemplated hereby and to
perform its obligations hereunder. The Transaction Documents
have been duly executed and delivered by LLC and are the
legal, valid and binding obligations of LLC enforceable
against LLC in accordance with their terms, except as may be
limited by bankruptcy, insolvency, or similar laws relating to
creditors' rights and to principles of equity generally.
7.4 Corporate Existence and Qualification. LLC is a limited
liability company duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has
all necessary corporate power to own its properties and to
carry on its business as now owned and operated by it.
ARTICLE VIII
POSTCLOSING AGREEMENTS
8.1 Books and Records and Financial Information. Following the
Closing Date, APS agrees to provide, promptly upon reasonable
request by LLC, access to any books, records, computer tapes,
disks and data related to the Contributed Assets and the
Facility, which were not purchased by LLC as Facility Records,
and such financial information of APS related to the
Contributed Assets and the Facility with respect to any period
prior to the Closing Date as LLC or its auditors shall request
in connection with any filings or reports LLC and its
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affiliates are required to file, or any tax inquiry or audit,
as a result of the transactions contemplated hereby.
8.2 Sales and Use Taxes. All sales and use taxes arising out of
the transfer of the Contributed Assets imposed by any local,
state or federal agency shall be paid by the party required to
collect them under the statute imposing such taxes.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by APS.
(a) APS shall indemnify and hold LLC (including, for
purposes of this Article IX, any members, officers,
affiliates, agents and employees of LLC, and its or
their successors and assigns) harmless against any
claims, demands, damages, losses, expenses and
liabilities, including without limitation, reasonable
attorneys' fees (collectively, the "Liabilities")
suffered by LLC, arising out of or resulting from (i)
any breach by APS (including, for purposes of this
Article IX, any officers, directors, affiliates,
agents and employees of APS, and its or their
successors and assigns) of this Agreement, (ii) any
inaccuracy or misrepresentation in or breach of any
of the representations, warranties, covenants or
agreements made by APS herein, (iii) any inaccuracy
or misrepresentation in any certificate or document
delivered by APS in accordance with the provisions of
this Agreement, (iv) any Unassumed Liabilities, or
(v) any citation violations issued by the State of
Texas which relate to surveys of the Facility, if
any, conducted prior to the Closing. APS shall
indemnify and hold LLC harmless from and against any
and all liabilities arising out of the acts or
omissions of APS in connection with the operation of
the Facility prior to the Closing. For purposes of
this Section 9.1(a), the indemnification by APS
provided herein shall be in force and effect for a
period of two (2) years from the Closing Date, or
until the expiration of the statute of limitations
applicable to the specific matter indemnified
against, whichever is greater. The obligation of APS
to indemnify LLC shall be limited to the amount of
One Million Five Hundred Thousand Dollars
($1,500,000.00).
(b) Upon obtaining knowledge thereof, LLC shall promptly
notify APS of any claim or demand which such party
has determined has given or could give rise to a
right of indemnification under this Agreement. If
such claim or demand relates to a claim or demand
asserted by a third party against such party and if
APS acknowledges APS's obligations to indemnify and
hold harmless hereunder, APS shall have the right to
employ such counsel as is reasonably acceptable to
LLC to defend any
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such claim or demand asserted against such party. LLC
shall have the right at its own expense to
participate in the defense of any such claim or
demand. So long as APS is defending in good faith any
such claim or demand, LLC shall not settle such claim
or demand, without the consent of APS, which shall
not be unreasonably withheld. LLC shall make
available to APS all records and other materials
required by APS for its use in contesting any claim
or demand asserted by a third party against LLC.
Whether or not APS so elects to defend any such claim
or demand, LLC shall not have any obligation to do so
and LLC shall not waive any right that LLC may have
against APS hereunder with respect to any such claim
or demand by electing or failing to elect to defend
any such claim or demand.
9.2 Indemnification by LLC.
(a) LLC shall indemnify and hold APS harmless from and
against any and all Liabilities arising out of or
resulting from (i) any breach by LLC of this
Agreement; (ii) the acts or omissions of LLC after
the Closing; (iii) the failure by LLC to pay or
otherwise discharge any Assumed Liabilities or any
obligation incurred or accrued subsequent to the
Closing relating to the Facility or the Purchased
Assets; (iv) any inaccuracy or misrepresentation in
or breach of any of the representations, warranties,
covenants or agreements made by LLC herein; or (v)
any inaccuracy or misrepresentation in any
certificate or document delivered by LLC in
accordance with the provisions of this Agreement. For
purposes of this Section 9.2(a), the indemnification
by LLC provided herein shall be in force and effect
for a period of two (2) years from the Closing Date,
or until expiration of the statute of limitations
applicable to the specific matter indemnified
against, whichever is greater. The obligation of LLC
to indemnify APS shall be limited to the amount of
One Million Five Hundred Thousand Dollars
($1,500,000.00).
(b) Upon obtaining knowledge thereof, APS shall promptly
notify LLC of any claim or demand which such party
has determined has given or could give rise to a
right of indemnification under this Agreement. If
such claim or demand relates to a claim or demand
asserted by a third party against such party and if
LLC acknowledges LLC's obligations to indemnify and
hold harmless hereunder, LLC shall have the right to
employ such counsel as is reasonably acceptable to
APS to defend any such claim or demand asserted
against such party. APS shall have the right at its
own expense to participate in the defense of any such
claim or demand. So long as LLC is defending in good
faith any such claim or demand, APS shall not settle
such claim or demand, without the consent of LLC,
which shall not be unreasonably withheld. APS shall
make available to LLC all records and other materials
required by
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LLC for its use in contesting any claim or demand
asserted by a third party against APS. Whether or not
LLC so elects to defend any such claim or demand, APS
shall not have any obligation to do so and APS shall
not waive any right that APS may have against LLC
hereunder with respect to any such claim or demand by
electing or failing to elect to defend any such claim
or demand.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices required or permitted to be given
hereunder shall be personally delivered or sent by registered
or certified mail, return receipt requested, or sent by
overnight courier, or sent by both facsimile and mail,
addressed to the Parties as follows:
If to LLC: APS - Summit Care Pharmacy, L.L.C.
2324 Ridgepoint Drive, Suite G-1
Austin, Texas 78754
Attention: President
With a copy to: Hooper, Lundy & Bookman, Inc.
1875 Century Park East, Suite 1600
Los Angeles, CA 90067-2799
Telephone: (310) 551-8111
Telecopier: (310) 551-8181
If to APS: American Pharmaceutical Services, Inc.
1771 W. Diehl Road, Suite 210
Naperville, Illinois 60563
Attn: William Korslin, President
Telephone: (630) 305-8000
Telecopier: (630) 305-8190
With a copy to: American Pharmaceutical Services, Inc.
1771 W. Diehl Road, Suite 210
Naperville, Illinois 60563
Attn: Chris Mollet, Vice President
and General Counsel
Telephone: (630) 305-8000
Telecopier: (630) 305-8190
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With a copy to: Latham & Watkins
233 So. Wacker Drive, Suite 5800
Chicago, Illinois 60606
Telephone: (312) 876-7700
Telecopier: (312) 993-9767
If mailed, notices shall be deemed received as of the date of
receipt indicated by the postal service, or, if the addressee
refuses to accept delivery, as of the date of such refusal of
attempted delivery. If personally delivered, notices shall be
deemed received as of the date of delivery. Either Party may
change its address for purposes of this Agreement by giving
notice thereof in accordance with this Section 10.1.
10.2 Referrals. Neither Party shall have any obligation to make
referrals to the other Party. The potential for referrals
between the Parties has played no role in determining the
consideration described in Sections 3.2 and 3.3 of this
Agreement or in the decision to enter into this Agreement.
10.3 Counterparts. This Agreement may be executed simultaneously or
in any number of counterparts, each of which shall be deemed
to be an original, but all of which together shall constitute
one and the same agreement.
10.4 Construction. APS and LLC acknowledge that each Party and its
counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
10.5 Gender and Number. The masculine, feminine and neuter gender
and the singular or plural number shall each be deemed to
include the other whether the context so indicates.
10.6 Waiver. Waiver by a Party of the performance of any covenant,
condition or promise of any Party shall not invalidate this
Agreement, nor shall it be considered to be a waiver by such
Party of any other covenant, condition or promise contained
herein. The waiver of either or both Parties of the time for
performing any act shall not be construed as a waiver of any
other act required to be performed at a later date.
10.7 Further Assurances. APS and LLC agree to execute such further
documents and instruments as shall be necessary to fully carry
out the terms of this Agreement or to vest, perfect or confirm
in LLC the title to the Contributed Assets as of the Closing
Date.
10.8 Confidentiality. The Parties agree to keep all information
contained in this Agreement confidential. Additionally, the
Parties agree to keep confidential all nonpublic information
provided by one Party to the other Party including,
18
<PAGE> 63
but not limited to, information of both a technical and
financial nature relating to the business operations of the
Parties and subsidiary or other affiliated entities. Provided,
however, that the information to be kept confidential shall
not include (i) information which has come within the public
domain through no fault or action of either Party; (ii)
information which rightfully becomes available to a Party on a
nonconfidential basis prior to its disclosure in relation to
this Agreement and the transactions contemplated hereunder; or
(iii) information which rightfully becomes available to a
Party on a nonconfidential basis from any third party, the
disclosure of which to that Party did not violate any
contractual or legal obligation the third party has to the
other Party, its members, subsidiaries or other affiliated
entities with respect to such information. For purposes of
this Section only, the term "Party" shall include Summit Care.
Notwithstanding the above, nothing in this Section shall
prohibit a Party from providing information when legally
required to do so by a law enforcement, licensing, or other
governmental agency or entity.
10.9 Time of Essence. Time is of the essence of each and every
provision of this Agreement.
10.10 Survival. The representations and warranties in this Agreement
shall survive the Closing for a period of two (2) years.
10.11 Supersedes Agreement. This Agreement and the Schedules and
Exhibits attached hereto express the complete agreement of the
Parties and supersede all prior written or oral agreements
between APS and LLC regarding the Facility and the Contributed
Assets, except that the Agreement shall be entered into and
construed in compliance with the LLC Agreement.
10.12 Commissions. No fees or commissions are due or payable to any
brokers, finders or other agents of the Parties hereto.
10.13 Attorneys' Fees and Costs. In the event either Party commences
legal action or arbitration to interpret or enforce this
Agreement, or for damages for any alleged breach hereof, the
prevailing party in such action shall be entitled to recover
from the nonprevailing party reasonable attorney's fees and
costs as awarded by the court.
10.14 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach hereof, shall be
settled by arbitration in accordance with the Rules of the
American Arbitration Association, at its Austin, Texas office,
or at its office nearest to Austin. Notwithstanding the
foregoing, LLC and APS shall endeavor to agree on an
arbitrator within ten (10) business days (the "Arbitrator
Selection Period") after the initiation of the arbitration
proceeding (the "Proceeding"), the cost and expenses of which
shall be shared fifty percent (50%) by APS and fifty percent
(50%) by the other members of LLC, collectively. If APS and
LLC are unable to agree on an arbitrator, then
19
<PAGE> 64
within ten (10) business days after the expiration of the
Arbitrator Selection Period, each of APS and LLC shall select
an arbitrator (together, the "Chosen Arbitrators"), the costs
and expenses of each of which shall be paid solely by the
Party that selected such Chosen Arbitrator. Within 5 business
days after the Chosen Arbitrators have been selected, they
shall together choose a third arbitrator (together with the
Chosen Arbitrators, the "Panel"), the costs and expenses of
which shall be shared fifty percent (50%) by APS and fifty
percent (50%) by the other members of LLC, collectively. Each
Party shall submit its case in writing, setting forth the
facts and its arguments with respect to the matter or matters
that are the subject of the Proceeding, to the Arbitrator or
the Panel, as the case may be, within thirty (30) days after
the initiation of the Proceeding. Hearings in the Proceeding
shall commence within thirty (30) days after the last such
submission. The Arbitrator or the Panel, as the case may be,
shall deliver its opinion within thirty (30) days after the
completion of the arbitration hearings. Judgment upon the
award rendered by the Arbitrator or the Panel, as the case may
be, may be entered in any court having jurisdiction thereof.
10.15 Interpretation. This agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
10.16 Severability. If any provision of this Agreement or any
application thereof to any person or circumstances shall to
any extent be invalid, the remainder of this Agreement
(including the application of such provision to persons or
circumstances other than those to which it is held invalid)
shall not be affected thereby, and each provision of this
Agreement shall be valid and enforced to the fullest extent
permitted by law.
10.17 Binding. This Agreement shall be binding upon, and inure to
the benefit of the Parties hereto and their respective heirs,
executors, administrators, successors in interest and
permitted assigns.
10.18 Facsimile Copies. Signed, faxed documents shall constitute
originals.
10.19 Force Majeure. In the event that either Party is unable to
consummate the transactions contemplated herein by the Closing
Date or within any extension of the Closing Date granted
hereunder due to (i) losses to the Facility by reason of
strike, fire, flood, earthquake, accident or other calamity of
such character as to interfere materially with the conduct of
the business and operations of the Facility regardless of
whether or not such loss shall have been insured, (ii) the
outbreak or escalation of hostilities between the United
States and any foreign power or of any other insurrection or
armed conflict involving the United States or the declaration
by the United States of a national emergency which makes it
impracticable or inadvisable to consummate the transactions
contemplated hereby, then either Party may extend the Closing
Date until such condition no longer makes it impracticable
20
<PAGE> 65
or inadvisable to consummate the transactions contemplated
hereby but in any event, the Closing Date shall not be
extended pursuant to this section for a period longer than 30
days.
10.20 No Obligations To Third Parties. The execution and delivery of
this Agreement shall not be deemed to confer any rights or
benefits upon any person or entity other than as specified
herein.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the Execution Date first written above.
APS: AMERICAN PHARMACEUTICAL
SERVICES, INC., a Delaware corporation
By: [SIG]
-------------------------------------
Its: President
------------------------------------
LLC: APS-SUMMIT CARE PHARMACY, L.L.C.,
a Delaware limited liability company
By: American Pharmaceutical Services, Inc.,
a Delaware corporation, its member
By: [SIG]
---------------------------------
Its: President
--------------------------------
By: Summit Care Pharmacy, Inc., a
California corporation, its member
By:
---------------------------------
Its:
--------------------------------
Acknowledged and Agreed
this ___ day of _____________,
1996, for the purposes of Sections 5.1
and 10.8 hereof only.
SUMMIT CARE PHARMACY, INC., a
California corporation
By:
--------------------------
Its:
-------------------------
21
<PAGE> 66
or inadvisable to consummate the transactions contemplated
hereby but in any event, the Closing Date shall not be
extended pursuant to this section for a period longer than 30
days.
10.20 No Obligations To Third Parties. The execution and delivery of
this Agreement shall not be deemed to confer any rights or
benefits upon any person or entity other than as specified
herein.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the Execution Date first written above.
APS: AMERICAN PHARMACEUTICAL
SERVICES, INC., a Delaware corporation
By:
-------------------------------------
Its:
------------------------------------
LLC: APS-SUMMIT CARE PHARMACY, L.L.C.,
a Delaware limited liability company
By: American Pharmaceutical Services, Inc.,
a Delaware corporation, its member
By:
---------------------------------
Its:
--------------------------------
By: Summit Care Pharmacy, Inc., a
California corporation, its member
By: DERWIN L. WILLIAMS
---------------------------------
Its: Sr. Vice President, Finance
--------------------------------
Acknowledged and Agreed
this 30th day of November
1996, for the purposes of Sections 5.1
and 10.8 hereof only.
SUMMIT CARE PHARMACY, INC., a
California corporation
By: DERWIN L. WILLIAMS
----------------------------
Its: Sr. Vice President, Finance
---------------------------
21
<PAGE> 67
EXHIBIT A
ASSIGNMENT OF LEASE
[SEE ATTACHED]
<PAGE> 68
ASSIGNMENT AND ASSUMPTION OF LEASE
This ASSIGNMENT AND ASSUMPTION OF LEASE (the "Assignment") is made as
of November 30,1996 by AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware
corporation ("Assignor"), APS-SKILLED CARE PHARMACY, L.L.C., a Delaware limited
liability company ("Assignee"), and PROMONTORY INVESTORS, LTD., a Texas limited
partnership ("Landlord"), as successor in interest to Pension Realty Income
Trust A.
RECITALS
A. Lease. Pursuant to that certain Lease, dated as of April 11,
1994 (the "Lease"), by and between Landlord, as lessor, and Assignor, as
successor in interest to Abbey Pharmaceutical Services, Inc., as lessee,
Landlord leased to Assignor certain real property located at 2324 Ridgepoint
Drive, Suite G-1, Austin, Texas, 78754 (the "Property"). The entire right, title
and interest of Assignor under the Lease is referred to herein as the "Leasehold
Estate."
B. Purpose. Pursuant to (i) that certain Limited Liability
Company Agreement of APS-Summit Care Pharmacy, L.L.C., dated as of the date
hereof, by and between Assignor and Summit Care Pharmacy, Inc. a California
corporation ("SCPI"), and (ii) that certain Asset Contribution Agreement, dated
as of the date hereof, by and between Assignor and Assignee, Assignor and SCPI
have formed Assignee and provided for the contribution of all of the assets of
Assignor's pharmacy business that is conducted at the Property to Assignee, and
Assignee wishes to assume the obligations of the Lease and have all of
Assignor's rights under the Lease assigned to Assignee.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor, Assignee and Landlord
mutually agree as follows:
1. Assignment. Assignor hereby sets over, transfers and assigns
unto Assignee, effective as of the date hereof, all of Assignor's right, title
and interest in and to the Leasehold Estate, for the balance of the term
thereof, with the full benefit of all the powers and of all the covenants and
provisions contained therein. This assignment includes an assignment of all
right, title and interest of Assignor in and to the improvements at the
Property. The execution of this Assignment shall not release Assignor from
Assignor's obligations as lessee under the Lease.
2. Assumption. In consideration of the foregoing assignment,
Assignee hereby accepts the foregoing assignment and agrees to make all of the
payments and to otherwise observe, keep and perform all the terms, covenants and
conditions to be made, observed, kept and performed by Assignor, as lessee under
the Lease, as fully as though Assignee were originally named in the Lease as the
lessee.
<PAGE> 69
3. Consent. Landlord hereby consents to the terms of this
Assignment and acknowledges that Assignee shall forthwith be the lessee under
the Lease.
4. Assignor's Warranties. Assignor hereby represents and warrants
to Assignee that:
(a) At the time of this Assignment, Assignor is the lawful owner
of that interest in and to the Leasehold Estate assigned
hereby and Assignor has the right, power and authority to
assign the same to Assignee.
(b) Assignor has not previously assigned, transferred or conveyed
any of its right, title or interest in or to the Leasehold
Estate.
(c) The Lease is free and clear of any and all liens, charges,
encumbrances and claims whatsoever.
5. Landlord's Warranties. Landlord hereby represents and warrants
to Assignee that:
(a) The term of the Lease began June 1, 1994 and will expire May
31, 1999.
(b) The current minimum rent in the amount of $5,156.02 per month
and all other sums due thereunder, have been paid in
accordance with the terms of the Lease through the date
hereof, and Landlord holds no security deposit with respect to
the Lease.
(c) To the best of Landlord's knowledge, as of the date hereof,
Landlord is entitled to no penalties, interest or offset under
the Lease.
(d) As of the date hereof, the Lease is in full force and effect
and, to the best of Landlord's knowledge, no default exists
thereunder.
(e) Landlord has not assigned, hypothecated, pledged or otherwise
transferred all or any portion of its interest under the Lease
except to Equitable of Iowa or its affiliate under a first
mortgage loan.
(f) The copy of the Lease attached hereto as Exhibit A is a true
and correct copy of the Lease. The Lease has not been modified
or amended except as indicated on Exhibit A. The Lease
constitutes the only agreement relating to the lease of the
Leasehold Estate from Landlord to Assignor.
6. Tenant's Sign. Assignee agrees that it will remove its sign
from the exterior facade of the Property within thirty (30) days after the date
hereof. If Assignee replaces such sign, the new sign will comply with Landlord's
sign specifications, a copy of which has been delivered to Assignee prior to the
execution of this document.
2
<PAGE> 70
7. Miscellaneous. Each party agrees that it will execute and
deliver such additional documents as are necessary or reasonable to give effect
to this Assignment or any provisions hereof If any party refers this Assignment
to an attorney to assist in its enforcement, the prevailing party in any action
on the dispute shall be entitled to an award of its costs and attorneys' fees
incurred in connection therewith. This Assignment shall be governed by the law
of the State of Texas. This Assignment shall be binding upon, and shall inure to
the benefit of, the heirs, successors, assigns and personal representatives of
the parties. This Assignment may be executed in one or more counterparts, each
of which is an original and all of which constitute one agreement.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the date first above written.
"Assignor"
AMERICAN PHARMACEUTICAL SERVICES,
INC., a Delaware corporation
By:__________________________________
Name:________________________________
Title:_______________________________
"Assignee"
APS-SKILLED CARE PHARMACY, L.L.C., a
Delaware limited liability company
By: American Pharmaceutical Services,
Inc., a Delaware corporation, Member
By:_____________________________
Name:___________________________
Title:__________________________
By: Summit Care Pharmacy, Inc., a
California corporation, Member
By:_____________________________
Name:___________________________
Title:__________________________
"Landlord"
PROMONTORY INVESTORS, LTD., a Texas
limited partnership
By: Cameron Road Investors, Ltd., a Texas
limited liability company
By:_____________________________
Name: Mark S. Scher
Title: Director
S-1
<PAGE> 72
EXHIBIT A
THE LEASE
Attached.
A-1
<PAGE> 73
EXHIBIT B
CONSENT TO ASSIGNMENT OF LEASE
[SEE EXHIBIT A]
<PAGE> 74
EXHIBIT C
GENERAL CONVEYANCE AND ACCEPTANCE
AND ASSIGNMENT OF INTERESTS AND ASSUMPTION OF LIABILITIES
[SEE ATTACHED]
<PAGE> 75
GENERAL CONVEYANCE AND ACCEPTANCE
AND ASSIGNMENT OF INTERESTS AND ASSUMPTION OF LIABILITIES
This General Conveyance and Acceptance and Assignment of Interests and
Assumption of Liabilities (the "General Conveyance") is hereby entered into and
delivered by and between American Pharmaceutical Services, Inc., a Delaware
corporation ("APS"), and APS-Summit Care Pharmacy, L.L.C., a Delaware limited
liability company ("LLC"), effective as of November 30, 1996, in connection with
that certain Asset Contribution Agreement of even date herewith (the "Asset
Contribution Agreement"). The terms of the Asset Contribution Agreement are
hereby incorporated herein by this reference.
For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, APS hereby contributes, transfers and assigns to LLC, in
accordance with the terms of the Asset Contribution Agreement, all of APS's
rights, title and interest in and to the Contributed Assets (as defined in
Article I of the Asset Contribution Agreement). In accordance with the terms of
the Asset Contribution Agreement, LLC hereby accepts the Contributed Assets and
assumes the Assumed Liabilities (as defined in Article II of the Asset
Contribution Agreement).
APS hereby covenants and agrees to take all steps reasonably necessary
to establish the record of LLC's title to the Contributed Assets contributed,
transferred and assigned in accordance with this General Conveyance.
This General Conveyance is executed in, and shall be governed by, the
laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this General Conveyance
effective as of the date first written above.
AMERICAN PHARMACEUTICAL APS-SUMMIT CARE PHARMACY, L.L.C.,
SERVICES, INC., a a Delaware limited liability company
Delaware corporation
By: American Pharmaceutical Services, Inc.
a Delaware corporation, its member
By:_____________________________
Its:____________________________ By:_________________________________
Its:________________________________
By: Summit Care Pharmacy, Inc., a
California corporation, its member
By:_________________________________
Its:________________________________
<PAGE> 76
EXHIBIT D
EMPLOYEE SERVICES AGREEMENT
[SEE ATTACHED]
<PAGE> 77
EMPLOYEE SERVICES AGREEMENT
This Employee Services Agreement (the "Agreement") is made as of this
30th day of November, 1996 by and between APS-Summit Care Pharmacy, L.L.C., a
Delaware limited liability company ("Joint Venture"), and American
Pharmaceutical Services, Inc., a Delaware corporation ("APS").
RECITALS
A. Joint Venture was formed pursuant to that certain Limited
Liability Agreement, dated as of the date hereof (the "LLC Agreement"), by and
between APS and Summit Care Pharmacy, Inc., a California corporation.
B. Joint Venture owns and operates a pharmacy located at 2324
Ridgepoint Drive, Suite G-1, Austin, Texas (the "Pharmacy") providing
pharmaceutical supplies and services to long-term care facilities that are
located in the Austin, Texas area (the "Business").
C. Joint Venture desires that APS provide, and APS desires to
provide, employee services to operate the Business in the ordinary course of
business according to the terms and provisions of this Agreement.
AGREEMENT
1. Provision of Employee Services. APS shall make commercially
reasonable efforts to provide to Joint Venture, at the request of Joint Venture,
the services of APS employees that are reasonably necessary to operate the
Business in a manner consistent with its past operation and with its reasonable
business needs (the "Employee Services"). The employees providing the Employee
Services (the "Leased Employees") shall work on-site at the Pharmacy during its
regular business hours and shall also be available during non-business hours,
consistent with APS personnel policies, with the past operation of the Business
and with its reasonable business needs. The Leased Employees shall hold all such
licenses or other professional qualifications as are reasonably necessary for
the operation of the Business in the ordinary course of business.
2. Compensation for Employee Services. APS shall be solely
responsible for paying the costs of providing the Employee Services (the
"Employee Costs"), including, without limitation, (i) the salaries or wages, as
applicable, of the Leased Employees, including, without limitation, vacation
pay, sick pay, payroll taxes and severance costs, (ii) the cost of employee
benefits programs for the Leased Employees, to the extent such benefits are
customarily provided to APS employees, including, without limitation, health
insurance, life insurance, disability insurance, worker's compensation
insurance, malpractice insurance, other customary insurance, retirement programs
and profit sharing plans, and (iii) a reasonable allocation for the overhead
costs of APS in employing the Leased Employees. Joint Venture shall reimburse to
APS the amount of all Employee Costs during the term of this Agreement. As soon
as practicable after the end of each calendar month, APS shall deliver to Joint
Venture a statement setting forth the Employee Costs that are attributable to
such month. Joint Venture shall pay the Employee Costs reflected on such
statement on or before the fifth (5th) day after receipt of such statement.
1
<PAGE> 78
3. Employee Management. Subject to the provisions of Section I
hereof and except as otherwise required by applicable law, Joint Venture shall
supervise and manage the day-to-day duties of the Leased Employees and be liable
for their actions in such capacity. Joint Venture hereby agrees to comply with
all applicable laws and regulations and to follow APS personnel policies with
respect to the Leased Employees. APS, in its sole discretion, shall make all
hiring and termination decisions, establish and pay all wages, salaries and
compensation, determine staffing levels, individual work hours, personnel
policies and employee benefit programs for all of the Leased Employees, all
consistent with APS's personnel policies. APS shall consult with Joint Venture
on such matters, but all final decisions shall be those of APS, in its sole
discretion.
4. Ownership of Employee Records. All records and information
relating to the Leased Employees shall remain the property of APS.
5. Term. This Agreement shall commence on the date hereof and
shall terminate on the date that APS ceases to hold at least fifty percent (50%)
of the membership interests in Joint Venture.
6. Indemnity by Joint Venture. Joint Venture hereby indemnifies,
saves and holds harmless APS, its affiliates and subsidiaries, and its and its
affiliates' and subsidiaries' respective officers, directors, principals,
attorneys, agents or other representatives (collectively, "APS Indemnified
Parties") from and against all costs, losses, liabilities, damages, lawsuits,
deficiencies, claims and expenses (whether or not arising out of third party
claims), including, without limitation, interest, penalties, reasonable
attorneys' fees and all amounts paid in investigation, defense or settlement of
any of the foregoing incurred in connection with or arising out of the actions
of the Leased Employees while leased to Joint Venture pursuant hereto or the
Leased Employees' employment on-site at the Clinic, including, without
limitation, claims for discrimination, harassment and workplace injury. Nothing
contained herein is intended to relieve any APS Indemnified Party of its
respective obligations arising as a result of APS's status as a member in Joint
Venture.
7. Indemnity by APS. APS hereby indemnifies, saves and holds
harmless Joint Venture, its affiliates and subsidiaries, and its and its
affiliates' and subsidiaries' respective officers, directors, principals,
attorneys, agents or other representatives (collectively, "Joint Venture
Indemnified Parties") from and against all costs, losses, liabilities, damages,
lawsuits, deficiencies, claims and expenses (whether or not arising out of third
party claims), including, without limitation, interest, penalties, reasonable
attorneys' fees and all amounts paid in investigation, defense or settlement of
any of the foregoing incurred in connection with or arising out of the failure
by APS to timely pay any Employee Costs as contemplated by the first sentence of
Section 2 hereof or any decisions by APS to fire or otherwise discipline Leased
Employees to the extent that a Majority in Interest (as defined in the "LLC
Agreement") did not agree with such decision to fire or discipline.
8. No Liability. In no event shall APS, or its successors and
assigns, representatives, agents, advisors, partners, consultants, affiliates,
contractors, counsel, shareholders, directors, officers and employees, be liable
to Joint Venture under or in connection
2
<PAGE> 79
with this Agreement under any theory of tort, contract, strict liability or
other legal or equitable theory for any damages, direct or indirect,
consequential or otherwise except for such damages that result from the
recklessness or willful misconduct of APS and except for the intentional
repudiation by APS of its obligations hereunder when such intentional
repudiation is not reasonable under the existing circumstances. Nothing
contained herein is intended to relieve any APS Indemnified Party of its
respective obligations arising as a result of APS's status as a member in Joint
Venture.
9. Assignment and No Third Party Beneficiaries. Neither this
Agreement nor any of the rights or obligations hereunder may be assigned by any
party without the prior written consent of the other party. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other person shall have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
10. Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Texas (without reference to the choice of law provisions of Texas law).
11. Entire Agreement; Amendments and Waivers. This Agreement
together with all exhibits to be attached hereto constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes or will supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. To the extent that the
provisions of the exhibits to be attached hereto conflict with the provisions of
this Agreement, the provisions of this Agreement shall control. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12. Notices. All notices, requests, and other communications which
may be given under this Agreement (other than orders hereunder, which shall be
placed as provided herein) shall be in writing and shall be deemed to have been
duly given when received if personally delivered; when transmitted if
transmitted by telecopy; the day after being sent, if sent for next day delivery
by recognized overnight delivery service (e.g., FedEx); and upon receipt, if
sent by certified or registered mail, return receipt requested. In each case
notice shall be given as follows:
If to Joint Venture, addressed to:
APS-Summit Care Pharmacy, L.L.C.
2324 Ridgepoint Drive, Suite G-1
Austin, TX 78754
Telecopy Number:__________________
3
<PAGE> 80
Attention: Terry Davis
with a copy to the same address:
Attention: Jesse Martinez
If to APS, addressed to:
American Pharmaceutical Services, Inc.
Diehl Road, Suite 210
Naperville, IL 60563
Telecopy Number: (708) 305-0824
Attention: President
with a copy to the same address:
Attention: General Counsel
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Relationship. Nothing herein shall be deemed to create a
partnership, joint venture or other similar relationship. Joint Venture and APS
shall not be construed as partners of each other by reason of this Agreement,
and neither shall have the power to bind or obligate the other except as
specifically set forth herein.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AMERICAN PHARMACEUTICAL SERVICES,
INC., a Delaware corporation
By:_____________________________
Name:___________________________
Title:__________________________
APS-SKILLED CARE PHARMACY, L.L.C., a
Delaware limited liability company
By: American Pharmaceutical Services,
Inc., a Delaware corporation, Member
By:_____________________________
Name:___________________________
Title:__________________________
By: Summit Care Pharmacy, Inc., a
California corporation, Member
By:_____________________________
Name:___________________________
Title:__________________________
S-1
<PAGE> 82
SCHEDULE 1.1(b)
PURCHASED CONTRACTS
[SEE ATTACHED]
<PAGE> 83
CUSTOMER/SERVICE SEGMENTS
9/30/96
<TABLE>
<CAPTION>
SERVICE SEGMENT
--------------------------------------------
Area/Reg. Territ. Facility Name City SL AFFIL. C RX IV RT E U WC PHAR.
- --------- ------- ------------------- ---------------- -- ------ --- ---- ---- -------- --- --- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C/MS P-CONS Aldwyche Group Austin TX LCA X X AU
C/MS CTX Alexander CC Austin TX LCA X X X X X X AU
C/MS P-PHRM Arbor Austin TX PCA X AU
C/MS CTX Arboretum S. Marcos TX X X X X X AU
C/MS P-PHRM Austin Manor Austin TX 3927 X X X AU
C/MS CTX Austin NC Austin TX X X X X AU
C/MS CTX B. Gardens Austin TX Mart X X X X X X AU
C/STX P-PHRM Barton House Austin TX X AU
C/MS CTX Bastrop Nursing Bastrop TX LCA X X X X X X AU
C/MS CTX Brazos Valley Geri College Station TX LCA X X X X X X AU
C/MS P-PHRM Canon Oaks Austin TX PCA X AU
C/MS P-PHRM Capital City Austin TX PCA X AU
C/MS P-PHRM Cent Tx Treatment Austin TX X AU
C/MS CTX CI-Lagrange Lagrange TX LCA X X X X X X AU
C/MS CTX CI-Liano Liano TX LCA X X X X X X AU
C/MS P-PHRM Clairmont Austin TX X AU
C/MS P-PHRM Concept Six Austin TX X X AU
C/MS Crestview Methodist Brian TX X X X AU
C/MS CTX Crestview Manor Belton TX LCA X X X X X X AU
C/STX SAN Deer Creek Nursing Wimberly TX LCA X X X X X X AU
C/STX P-PHRM Four Seasons Austin TX X AU
C/MS CTX Gracy Woods Austin TX X X X X X AU
C/MS Gracy Woods II Austin TX LCA X X X X AU
C/STX P-PHRM Heartland Austin YX HCR X X X AU
C/MS CTX Heritage Park Austin TX HCCI X X X X X AU
C/MS Home Patients Austin TX X X X AU
C/MS P-PHRM Indian Wells Austin TX X X AU
C/MS P-PHRM Lalla Austin TX X AU
C/MS P-PHRM M. Johnson N C Austin TX X X AU
C/MS P-CONS M.L. Southpointe Austin TX X X AU
C/MS CTX Marbridge Manchaca TX X X X AU
C/MS P-PHRM Mary Lee Res Ctr Austin TX X X AU
C/MS P-CONS Marywood Group Austin TX LCA X AU
C/MS P-PHRM Mason CC Mason TX 3927 X X AU
C/MS P-PHRM Monte Siesta Austin TX X AU
C/MS CTX Oak Manor NC Flatonia TX Summit X AU
C/MS CTX Oakland Manor Giddings TX Summit X AU
C/MS P-CONS Parkfield Group Austin TX LCA X X AU
C/MS CTX Pecan Grove Austin TX X X X X X AU
C/MS P-CONS Pendleton Group Austin TX LCA X X AU
C/MS CTX Pflugerville HC Pflugerville TX X X X AU
C/MS P-PHRM Regency Village Austin TX X X X X X X AU
C/MS P-PHRM Renaissance Georgetown TX X AU
C/MS CTX Retirement & NC Austin TX X X X AU
C/MS P-PHRM River Gardens New Brauniels TX X X AU
C/MS CTX River Haven Georgetown TX X X X X AU
C/MS P-PHRM Scissortail Austin TX X X AU
C/MS P-PHRM Settlement Home Austin TX X AU
C/MS CTX Sierra Health Austin TX Sierra X X X X X AU
C/MS P-CONS Silverway Group Austin TX LCA X X AU
C/MS P-PHRM Skyview Austin TX X X AU
C/MS CTX Southwood Austin TX Summit X X X AU
C/MS P-PHRM Stratford House Austin TX X AU
C/MS P-PHRM Summit HCC Austin TX X X AU
C/MS CTX Sweetbriar Taylor Taylor TX LCA X X X X X X AU
C/MS CTX The Hearthstone Roundrock TX LCA X X X X X X AU
??? CT ???????? TX X X X AU
C/MS P-CONS Wagon Crossing Austin TX LCA X X AU
C/STX P-PHRM Walnut Hills Austin TX X X AU
C/MS CTX Westminster HC Austin TX X X X X X X AU
</TABLE>
<PAGE> 84
SCHEDULE 1.1(d)
PERSONAL PROPERTY, FIXTURES AND EQUIPMENT
[SEE ATTACHED]
<PAGE> 85
November 19, 1996 Page 1
9:23 AM
American Pharmamceutical Services
DEPRECIATION EXPENSE REPORT
as of 09/30/1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
In Svc Acquired Dep P Est Salvage/ Depreciable Thru Prior Accum Depreciation Current Year Curr Accum
SYS No Ext Date Value Meth T Life Sect 179 Basis Date Depreciation This Run To Date Depreciation Key
- -----------------------------------------------------------------------------------------------------------------------------------
Book: Book 6 FY: September
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
000085 000 10/01/94 4206.02 SLMM P 04 07 0.00 4206.02 08/96 917.68 76.48 917.68 1835.36
000086 000 10/01/94 3923.73 SLMM P 04 08 0.00 3923.73 08/96 840.80 70.07 840.84 1681.64
000087 000 10/01/94 2376.87 SLMM P 04 10 0.00 2376.87 08/96 491.77 40.98 491.76 983.53
000088 000 10/01/94 4632.48 SLMM P 04 11 0.00 4632.48 08/96 942.20 78.52 942.24 1884.44
000089 000 07/01/94 69600.00 SLMM P 04 10 0.00 69600.00 08/96 14400.00 1200.00 18000.00 32400.00
000090 000 10/01/94 18191.29 SLMM P 04 09 0.00 18191.29 08/96 3829.75 319.14 3829.79 7659.54
000091 000 10/01/94 3062.40 SLMM P 04 10 0.00 3062.40 08/96 633.60 52.80 633.60 1267.20
000092 000 10/01/94 905.91 SLMM P 04 11 0.00 905.91 08/96 184.25 15.36 184.25 368.50
000093 000 10/01/94 7440.00 SLMM P 02 03 0.00 7440.00 08/96 3288.89 275.55 3324.44 6613.33
000094 000 10/01/94 16137.00 SLMM P 02 09 0.00 16137.00 08/96 5868.00 489.00 5868.00 11736.00
000095 000 10/01/94 1095.56 SLMM P 02 10 0.00 1095.56 08/96 386.67 32.22 386.66 773.33
000370 000 10/01/94 276.98 SLMM P 04 06 0.00 276.98 08/96 61.55 5.13 61.56 123.11
000371 000 10/01/94 34.88 SLMM P 04 06 0.00 34.88 08/96 7.75 0.64 7.79 15.54
000372 000 10/01/94 2.78 SLMM P 04 08 0.00 2.78 08/96 0.62 0.05 0.60 1.22
000373 000 10/01/94 133.90 SLMM P 04 06 0.00 133.90 08/96 29.76 2.48 29.76 59.52
000374 000 10/01/94 56.84 SLMM P 04 07 0.00 56.84 08/96 12.63 1.04 12.57 25.20
000375 000 10/01/94 226.24 SLMM P 04 06 0.00 226.24 08/96 50.28 4.19 50.28 100.56
000376 000 10/01/94 138.22 SLMM P 04 06 0.00 138.22 08/96 30.72 2.56 30.72 61.44
000377 000 10/01/94 988.20 SLMM P 04 06 0.00 988.20 08/96 219.60 18.30 219.60 439.20
000378 000 10/01/94 1312.20 SLMM P 04 06 0.00 1312.20 08/96 291.60 24.30 291.60 583.20
000379 000 10/01/94 2102.26 SLMM P 04 06 0.00 2102.26 08/96 467.17 38.93 467.16 934.33
000380 000 10/01/94 1341.19 SLMM P 04 06 0.00 1341.19 08/96 298.04 24.84 298.08 596.12
000381 000 10/01/94 6268.75 SLMM P 04 03 0.00 6268.75 08/96 1475.00 122.92 1475.04 2950.04
000663 000 10/01/94 97.90 SLMM P 04 06 0.00 97.90 08/96 21.76 1.82 21.76 43.52
000664 000 10/01/94 144.96 SLMM P 04 06 0.00 144.96 08/96 32.21 2.69 32.21 64.42
000666 000 10/01/94 4291.50 SLMM P 02 03 0.00 4291.50 08/96 1907.33 158.95 1907.39 3814.72
000667 000 10/01/94 5922.50 SLMM A 01 02 0.00 5922.50 11/95 2369.00 0.00 987.10 3356.10 d
000668 000 10/01/94 3742.99 SLMM A 02 06 0.00 3742.99 08/96 1497.20 124.77 1497.24 2994.44
000669 000 10/01/94 6742.35 SLMM A 02 06 0.00 6742.35 08/96 2696.94 224.74 2696.99 5393.93
000670 000 10/01/94 3240.00 SLMM A 02 03 0.00 3240.00 07/96 1440.00 0.00 1200.00 2640.00 d
000671 000 10/01/94 5359.50 SLMM A 02 03 0.00 5359.50 07/96 2382.00 0.00 1985.00 4367.00 d
001103 000 03/01/95 1495.30 SLMM P 05 00 0.00 1495.30 08/96 174.45 24.92 299.05 473.50
001104 000 05/01/95 1674.00 SLMM P 05 00 0.00 1674.00 08/96 139.50 27.90 334.80 474.30
001105 000 12/01/94 3122.00 SLMM P 05 00 0.00 3122.00 08/96 520.33 52.04 624.40 1144.73
001106 000 10/01/94 17426.80 SLMM P 04 00 0.00 17426.80 08/96 0.00 363.06 8713.40 8713.40
001107 000 10/01/94 1561.00 SLMM P 04 00 0.00 1561.00 08/96 0.00 32.52 780.49 780.49
001108 000 10/01/94 5855.00 SLMM P 04 00 0.00 5855.00 08/96 0.00 121.98 2927.50 2927.50
001109 000 10/01/94 3155.34 SLMM P 05 00 0.00 3155.34 08/96 105.18 52.59 1156.96 1262.14
001110 000 10/01/94 43.38 SLMM P 05 00 0.00 43.38 08/96 1.45 0.73 15.91 17.36
001111 000 08/01/95 2550.00 SLMM P 05 00 0.00 2550.00 08/96 85.00 42.50 510.00 595.00
001112 000 10/01/94 4152.80 SLMM P 05 00 0.00 4152.80 08/96 622.92 69.22 1038.20 1661.12
001113 000 01/01/95 3141.61 SLMM P 05 00 0.00 3141.60 08/96 471.27 52.36 628.32 1099.59
001114 000 05/01/95 1475.74 SLMM P 05 00 0.00 1475.74 08/96 122.98 24.59 295.19 418.17
001115 000 07/01/95 3190.32 SLMM P 05 00 0.00 3190.32 08/96 159.52 53.17 638.05 797.57
001116 000 10/01/94 1595.16 SLMM P 05 00 0.00 1595.16 08/96 26.59 26.58 611.46 638.05
001117 000 10/01/94 187.89 SLMM P 02 00 0.00 187.89 08/96 0.00 7.82 187.89 187.89
002811 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00 0.00 0.00
002812 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00 0.00 0.00
</TABLE>
<PAGE> 86
November 19, 1996
9:23 A.M. Page 2
American Pharmaceutical Services
DEPRECIATION EXPENSE REPORT
as of 09/30/1996
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
In Svc Acquired Dep P Est Salvage/ Depreciable Thru Prior Accum Depreciation
SYS No. Ext Date Value Meth T Life Sect 179 Basis Date Depreciation This Run
- --------------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
002814 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002815 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002816 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002817 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002818 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002819 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002820 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002821 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002822 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002823 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002824 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002825 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002826 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002837 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002842 000 10/01/94 0.00 SLMM P 01 00 0.00 0.00 08/96 0.00 0.00
002843 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002844 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002845 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002846 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002847 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002848 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002849 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002850 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002854 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002855 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
002856 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.00 0.00
003042 000 10/01/94 16308.48 SLMM A 03 02 0.00 16308.48 08/96 5150.05 429.17
003091 000 10/01/94 17190.22 SLMM A 03 04 0.00 17190.22 08/96 5157.07 429.75
003338 000 10/01/94 15859.49 SLMM R 04 10 0.00 15859.49 08/96 3281.27 273.44
003339 000 10/01/94 1497.37 SLMM P 04 10 0.00 1497.37 08/96 309.80 25.82
003340 000 10/01/94 7947.31 SLMM P 04 10 0.00 7947.31 08/96 1644.27 137.02
003341 000 10/01/94 8475.38 SLMM P 04 10 0.00 8475.38 08/96 1753.53 146.13
003342 000 10/01/94 1489.63 SLMM P 05 00 0.00 1489.63 08/96 308.20 24.83
003343 000 10/01/94 4632.48 SLMM P 04 11 0.00 4632.48 08/96 942.20 78.52
003344 000 02/01/95 444.18 SLMM A 02 00 0.00 444.18 08/96 148.06 18.51
003345 000 04/01/95 17466.81 SLMM A 04 00 0.00 17466.81 08/96 2138.98 363.89
003346 000 09/09/95 17722.38 SLMM A 03 04 0.00 17722.38 08/96 0.00 443.06
003347 000 12/01/95 15885.61 SLMM A 03 04 0.00 15885.61 08/96 0.00 397.14
003348 000 10/01/94 6850.25 SLMM P 02 09 0.00 6850.25 08/96 2491.00 207.59
003349 000 10/01/94 4067.91 SLMM P 02 09 0.00 4067.91 08/96 1479.24 123.27
003350 000 10/01/94 252.96 SLMM P 02 10 0.00 252.96 08/96 89.28 7.44
003351 000 10/01/94 760.77 SLMM P 02 10 0.00 760.77 08/96 268.51 22.37
003358 000 02/01/96 584.00 SLMM P 05 00 0.00 584.00 08/96 0.00 9.74
003359 000 10/01/95 2954.00 SLMM P 05 00 0.00 2954.00 08/96 0.00 49.24
003360 000 12/01/95 5866.00 SLMM P 05 00 0.00 5866.00 08/96 0.00 97.77
003361 000 01/01/96 722.86 SLMM P 05 00 0.00 722.86 08/96 0.00 12.05
003662 000 10/01/94 2395.88 SLMM P 01 02 0.00 2395.88 12/95 958.35 0.00
003664 000 10/01/94 19.51 SLMM P 01 01 0.00 19.51 10/95 4.34 0.00
003665 000 10/01/94 68.23 SLMM P 01 01 0.00 68.23 10/95 15.16 0.00
- -------------------------------------------------
Current Year Curr Accum
to Date Depreciation Key
- -------------------------------------------------
<S> <C> <C>
002814 0.00 0.00
002815 0.00 0.00
002816 0.00 0.00
002817 0.00 0.00
002818 0.00 0.00
002819 0.00 0.00
002820 0.00 0.00
002821 0.00 0.00
002822 0.00 0.00
002823 0.00 0.00
002824 0.00 0.00
002825 0.00 0.00
002826 0.00 0.00
002837 0.00 0.00
002842 0.00 0.00
002843 0.00 0.00
002844 0.00 0.00
002845 0.00 0.00
002846 0.00 0.00
002847 0.00 0.00
002848 0.00 0.00
002849 0.00 0.00
002850 0.00 0.00
002854 0.00 0.00
002855 0.00 0.00
002856 0.00 0.00
003042 5150.04 10300.09
003091 5157.11 10314.18
003338 3281.28 6562.55
003339 309.84 619.64
003340 1644.26 3288.53
003341 1753.56 3507.09
003342 306.46 614.66
003343 942.24 1884.44
003344 222.12 370.18
003345 4411.06 6550.04
003346 5759.77 5759.77
003347 3971.40 3971.40
003348 2491.00 4982.00
003349 1479.24 2958.48
003350 89.28 178.56
003351 268.55 537.06
003358 77.87 77.87
003359 590.80 590.80
003360 977.70 977.70
003361 108.45 108.45
003662 319.44 1277.79 d
003664 1.44 5.78 d
003665 5.04 20.20 d
</TABLE>
<PAGE> 87
November 19, 1996 Page 3
9:23 AM
American Pharmaceutical Services
DEPRECIATION EXPENSE REPORT
as of 09/30/1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Depre- Depre- Current Curr Accum
In Svc Acquired Dep P Est Salvage/ ciable Thru Prior Accum ciation Year Deprecia-
SYS No Ext Date Value Meth T Life Sec 179 Basis Date Depreciation This Run to Date tion Key
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
003666 000 10/01/94 61.71 SLMM P 01 01 0.00 61.71 10/95 13.71 0.00 4.56 16.27 d
003667 000 10/01/94 784.80 SLMM P 01 01 0.00 784.80 10/95 174.40 0.00 58.12 232.52 d
003668 000 10/01/94 162.34 SLMM P 01 01 0.00 162.34 10/95 36.08 0.00 12.04 48.12 d
003671 000 06/01/96 1821.08 SLMM P 10 00 0.00 1821.08 08/96 0.00 15.17 91.05 91.05
003687 000 09/30/96 16900.65 SLMM A 03 04 0.00 16900.65 00/00 0.00 0.00 0.00 0.00
003807 000 09/30/96 1431.41 SLMM P 05 00 0.00 1431.41 00/00 0.00 0.00 0.00 0.00
003808 000 09/30/96 1554.00 SLMM P 05 00 0.00 1554.00 00/00 0.00 0.00 0.00 0.00
Count= 104 --------- ---- --------- -------- -------- --------- ---------
Grand Total 396799.44 0.00 396799.44 75867.46 7672.37 106937.05 182804.51
Less disposals
and transfers 18014.47 0.00 18014.47 7393.04 11965.78
--------- ---- --------- -------- -------- --------- ---------
Net 378784.97 0.00 378784.97 68474.42 7672.37 106937.05 170838.73
========= ==== ========= ======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------Calculation Assumptions----------------------------------------------------------------
Book Short Years Midquarter Convention Adjustment Convention
------ ----------- --------------------- ---------------------
<S> <C> <C> <C>
Book 6 [N] [N] Immediate
</TABLE>
- -----------------------------Asset Grouping/Sorting----------------------------
Group: Location 125
Include Assets that meet the following conditions:
Location is 125
Sort Assets by:
- --------------------------------------Key--------------------------------------
d: Asset has been disposed of.
<PAGE> 88
SCHEDULE 1.1 (e)
LICENSES AND PERMITS
1. Texas Pharmacy License No.: 15974, expires 05/31/97
2. Medicaid No.: 350045
3. DEA No.: BA-4304109, expires 06/30/97
4. NABP No.: 4591637
5. NHIC No.: VP3500457
6. Texas Controlled Substances
Registration Certificate No.: X0088579, expires 08/31/97
<PAGE> 89
SCHEDULE 1.1(g)
LICENSED NAME
AMERICAN PHARMACEUTICAL SERVICES
<PAGE> 90
SCHEDULE 1.1 (i)
FACILITY RECORDS
Copies of all books and records, computer tapes, disks and data located at the
Facility that relate exclusively to the Facility and the Contributed Assets.
<PAGE> 91
SCHEDULE 3.4
ALLOCATION
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ----------- ------
<S> <C>
Inventories $ 388,403
Fixed Assets 198,214
Capital Leases (46,036)
----------
Total Net Assets $540,581
==========
Goodwill $2,459,419
----------
Total Value of Contributed Assets $3,000,000
==========
</TABLE>
<PAGE> 92
SCHEDULE 6.1
PERMITTED ENCUMBRANCES
NONE.
<PAGE> 93
EXHIBIT 6.1A
FINANCING STATEMENT FILINGS
<TABLE>
<CAPTION>
Debtor Name Records Searched Type of Secured Party
Search
============================================================================
<S> <C> <C> <C>
American Secretary of State UCC Cash Flow
Pharmaceutical State of Texas Management,
Services, Inc. Inc.
American Secretary of State Federal Internal
Pharmaceutical State of Texas Tax Revenue
Services, Inc., a Lien Service,
Corporation Dallas, Texas
American Secretary of State Federal
Pharmaceutical State of Texas Tax Internal
Services, Inc., a Lien Revenue
Corporation Service,
Dallas, Texas
</TABLE>
<TABLE>
<CAPTION>
Debtor Name Scope of Lien Date Continuations Document
Filed Assignments Number
============================================================================================================
<S> <C> <C> <C> <C>
American All accounts, instruments, 4/3/92 N/A 92-065309
Pharmaceutical documents, inventory, equipment,
Services, Inc. intangibles, all goods and inventory,
books, records, etc.
N/A 93-019604
American Taxes due for periods ending 1/29/93
Pharmaceutical 6/30/92 and 9/30/92 in the total
Services, Inc., a amount of $109,239.48 plus interest
Corporation and penalties
American
Pharmaceutical Taxes due for periods ending 5/26/93 N/A 93-103981
Services, Inc., a 6/30/92,9/30/92 and 12/31/92 in the
Corporation total amount of $161,528.71 plus
interest and penalties
</TABLE>
<PAGE> 94
SCHEDULE 6.2
NONCOMPLIANCE WITH LICENSING REQUIREMENTS
NONE.
<PAGE> 95
SCHEDULE 6.6
LEASES AND OTHER MATERIAL AGREEMENTS
[SEE ATTACHED]
<PAGE> 96
American Pharmaceutical Services
Vehicle Lease Schedule
As of September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ACCUM
PURCH TRM ORIGINAL GE Capital DEPRN
UNIT# BR YR MAKE MODEL SERIAL NUMBER DATE MOS COST Increase (S/L)
- ------ -- -- ---- ----- ------------- ---- --- ---- -------- -----
9409 #025 1994 FORD VAN IFTDA14U9RZB34046 08/10/94 40 17,166.84 524.71 10,542.75
9411 #025 1995 FORD VAN IFTDA14U8SZA00733 09/13/94 40 17,190.22 566.75 9,574.03
9516 #025 1995 FORD VAN IFTDA14UXSZA91066 07/24/95 40 17,722.39 847.82 5,200.91
9506 #025 1995 FORD VAN IFTDA14U4SZA35043 03/20/95 40 17,466.81 740.95 7,008.95
9528 #025 1995 FORD VAN IFTDA14U7SZC21093 12/25/95 36 15,885.61 901.48 2,929.94
96018 #025 1996 FORD ESCORT IFASP1536TW148995 06/30/96 13,318.91 0.00
--------------------------------
AUSTIN TOTAL 98,750.78 3,581.71 35,256.58
------------
NET ORGNL MNTHLY REMN PRIN LEASE
BOOK INT PRN PYMT MOS ON OBLGTN CUR LT
UNIT# VALUE RATE (DEPR) LEASE 12/31/94 PRTN PRTN
------ ----- ---- ------ ----- -------- ---- ----
9409 6,624.09 414.01 16 6,624.16 4,968.12 1,656.04
9411 7,616.91 400.85 19 7,616.15 4,810.20 2,805.95
9516 12,521.48 417.38 30 12,521.40 5,008.56 7,512.84
9506 10,457.86 418.31 25 10,457.75 5,019.72 5,438.03
9528 12,955.67 417.92 31 12,955.52 5,015.04 7,940.48
96018 13,318.91 0.00 1 0.00 0.00 0.00
--------- -------- --------- --------- ---------
AUSTIN TOTAL 63,494.20 2,068.47 50,174.98 24,821.64 25,353.34
- ------------
</TABLE>
<PAGE> 97
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL
SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09528
ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00
SERIAL # - 1FTDA14U7SZC21093 DELIVERY DATE - 12/25/95 REVISION DATE:02/13/96 REVISION NO: 02
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
VINYL INT
DUAL BUCKETS
P215/75R14 BSW
FXD SD DOOR GLS
SWING LOCK MIRR
MANUAL AIR COND
RADIO AM/FM CAS D
000000
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 14,783.35
P&H 150.00
SIDEBILL 225.00-
MODAGRAFICS BODY CST1 14.24
DLR INSTL ITEMS 225.00
SALES TAX 938.02
TOTAL COST 15,885.61
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 01/96 TOTAL CAPITALIZATION: 15,885.61
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02868 $455.60 PER MONTH DEPRECIATION PERIOD 36 MONTHS @ $441.30
13TH-24TH MONTH .02868 $455.60 PER MONTH
25TH-36TH MONTH .02868 $455.60 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS
ADDRESS: ATTN: LISA DILLON ADDRESS: AMERICAN PHARMACEUTICALS
1771 W DIEHL ROAD 2524 RIDGEPOINT DR.
SUITE 210 SUITE R1
NAPERVILLE IL 60563 AUSTIN TX 78754
Date 02/05/96 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 98
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL
SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1995 FORD MODEL - AEROSTAR VEHICLE # - 0043-09601
ENGINE - 6 CYL. 3.3 LITER EXT COLOR - WHITE LESSEE # - 0647-00
SERIAL # - 1FTDA14U2SZC22734 DELIVERY DATE - 01/27/96 REVISION DATE:04/17/96 REVISION NO: 02
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
CLOTH INT 004200
STD AIR COND
TINT GLASS ALL
AM-FM STEREO
PWR STEERING
PWR DISC BRAKES
CRUISE/TILT
DUAL BUCKETS
FRT LIC PLATE
FXD SD DOOR GLS
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 16,940.35
P&H 150.00
MODAGRAFICS BODY CST1 14.15
FLEET INCENTIVE 1,000.00-
TOTAL COST 16,104.50
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 02/96 TOTAL CAPITALIZATION: 16,104.50
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02868 $461.88 PER MONTH DEPRECIATION PERIOD 36 MONTHS @ $447.38
13TH-24TH MONTH .02868 $461.88 PER MONTH
25TH-36TH MONTH .02868 $461.88 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: JOHN KEELING
ADDRESS: ATTN: LISA DILLON ADDRESS: 34921 US HWY 19 NORTH
1771 W DIEHL ROAD PALM HARBOR FL 34684
SUITE 210
NAPERVILLE IL 60563
Date 02/02/96 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 99
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL
SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09516
ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00
SERIAL # - 1FTDA14UXSZA91066 DELIVERY DATE - 07/24/95 REVISION DATE:00/00/00 REVISION NO: 00
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
VINYL INT
DUAL BUCKETS
P215/75R14 BSW
FXD SD DOOR GLS
MANUAL AIR COND
AM/FM STEREO
0053000
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 16,191.35
P&H 150.00
MODAGRAFICS BODY CST1 14.08
DLR INSTL ITEMS 355.00
SALES TAX 1,011.95
TOTAL COST 17,722.38
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 08/95 TOTAL CAPITALIZATION: 17,722.38
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02590 $459.01 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $443.06
13TH-24TH MONTH .02590 $459.01 PER MONTH
25TH-36TH MONTH .02590 $459.01 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS
ADDRESS: ATTN: LISA DILLON ADDRESS: 2324 RIDGEPOINT DR.
1771 W DIEHL ROAD SUITE 41
SUITE 210 AUSTIN TX 78754
NAPERVILLE IL 60563
Date 09/21/95 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 100
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL
SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09506
ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00
SERIAL # - 1FTDA14U4SZA35043 DELIVERY DATE - 03/20/95 REVISION DATE:08/16/95 REVISION NO: 02
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
VINYL INT 000000
SWING LOCK MIRR
MANUAL AIR COND
CRUISE/TILT
AM/FM STEREO
DUAL BUCKETS
P215/75R14 BSW
FRONT LICENSE
3.73 AXLE RATIO
FXD SD DOOR GLS
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 15,955.35
P&H 150.00
MODAGRAFICS BODY CST1 9.25
DLR INSTL ITEMS 355.00
SALES TAX 977.21
TOTAL COST 17,466.81
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 04/95 TOTAL CAPITALIZATION: 17,466.81
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02590 $452.39 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $436.67
13TH-24TH MONTH .02590 $452.39 PER MONTH
25TH-36TH MONTH .02590 $452.39 PER MONTH
37TH-40TH MONTH .02590 $452.39 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS
ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR.
1771 W DIEHL ROAD SUITE E1
SUITE 210 AUSTIN TX 78754
NAPERVILLE IL 60563
Date 04/24/95 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 101
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to ABBEY PHARMACEUTICAL
SERVICES (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 05/28/92 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09411
ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-01
SERIAL # - 1FTDA14U8SZA00733 DELIVERY DATE - 10/13/94 REVISION DATE:00/00/00 REVISION NO: 00
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
VINYL INT S/DR FIXED GLS
STD AIR COND 1860#PAYLOAD
TINT GLASS ALL S/LK PLR MIRROR
RADIO AM/FM STE D 004200
PWR STEERING
PWR DISC BRAKES
STD TRIM
DUAL BUCKETS
P215/TIRES
3.73 AXLE RATIO
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 16,347.85
P&H 150.00
DLR INSTL ITEMS 290.00
FLEET INCENTIVE 400.00-
INCENTIVE 2 200.00-
SALES TAX 1,002.37
TOTAL COST 17,190.22
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 10/94 TOTAL CAPITALIZATION: 17,190.22
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02570 $441.79 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $429.76
13TH-24TH MONTH .02570 $441.79 PER MONTH
25TH-36TH MONTH .02570 $441.79 PER MONTH
37TH-40TH MONTH .02570 $441.79 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 108A
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS
ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR.
1771 W DIEHL ROAD SUITE E1
SUITE 210 AUSTIN TX 78754
NAPERVILLE IL 60563
Date 10/14/94 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 102
DUPLICATE
[ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT
AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to ABBEY PHARMACEUTICAL
SERVICES (Lessee), the vehicle referred to herein for the rental set forth
herein. This Lease Agreement and any assignment hereof is subject to all the
terms and conditions of the Agreement dated 05/28/92 between ARI and Lessee
covering the leasing of vehicles to Lessee all of which are incorporated herein
by reference.
ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and
interest of ARI in and to all moneys due and to become due under this Lease
Agreement and ARI hereby authorizes Assignee to collect all such moneys when
due, either in the name of Assignee or ARI. Lessee hereby agrees to this
assignment.
To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee
agrees that upon such assignment all rights and remedies of ARI hereunder shall
vest in and be exercisable by Assignee that Lessee will render performance of
Lessee's obligation hereunder to Assignee rather than ARI and that the rights of
Assignee to rentals and other sums due hereunder shall not be subject to any
defense (except payment), off-set, counter-claim or recoupment of Lessee
whatsoever arising from the breach of warranty or representation relating to the
motor vehicle whether made by the manufacturer thereof, ARI or any other
person, or arising from the breach or failure of ARI to observe or perform the
provisions of this Lease Agreement or any other agreement between ARI and Lessee
or arising from any course whatsoever. Lessee also agrees that nothing
(including termination of this Lease Agreement) except full payment to Assignee
of the Capitalized Value set forth below, with interest to date of such payment
as specified below, shall be sufficient to terminate liability of Lessee to make
payment to Assignee under this Lease Agreement. Lessee also agrees to continue
to make prompt payment to Assignee of the rentals due hereunder even if
bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution
proceedings are instituted by or against ARI and regardless whether a trustee or
receiver in any such proceedings shall assume or reject this Lease Agreement or
other agreement between ARI and Lessee. Lessee also agrees that Assignee does
not assume any obligations arising hereunder and Lessee will look solely to ARI
for the performance of any such obligations.
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------
VEHICLE INFORMATION
- ----------------------------------------------------------------------------------------------------------
YR & MAKE - 1994 FORD MODEL - A14 C VAN VEHICLE # - -09409
ENGINE - 6 CYL. 3.0 LITER EXT COLOR - WHITE LESSEE # - 0847-01
SERIAL # - 1FTDA14U9RZB34046 DELIVERY DATE - 08/10/94 REVISION DATE:00/00/00 REVISION NO: 00
- ----------------------------------------------------------------------------------------------------------
S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
VINYL INT 004200
TD AIR COND
INT GLASS ALL
AM-FM STEREO
PWR STEERING
PWR DISC BRAKES
STD TRIM
DUAL BUCKETS
FIXED GLS S/D
STLD WHEEL CVRS
- ----------------------------------------------------------------------------------------------------------
COST
- ----------------------------------------------------------------------------------------------------------
CAPPED CAPPED CAPPED
DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT
- ----------------------------------------------------------------------------------------------------------
BASE COST 16,415.85
P&H 150.00
FLEET INCENTIVE 400.00-
SALES TAX 1,000.99
TOTAL COST 17,166.84
- ----------------------------------------------------------------------------------------------------------
LEASE INFORMATION
- ----------------------------------------------------------------------------------------------------------
OPEN END LEASE - PERIOD BEGINS: 08/94 TOTAL CAPITALIZATION: 17,166.84
* * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * *
RATE AMT
1ST-12TH MONTH .02570 $441.19 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $429.17
13TH-24TH MONTH .02570 $441.19 PER MONTH
25TH-36TH MONTH .02570 $441.19 PER MONTH
37TH-40TH MONTH .02570 $441.19 PER MONTH
FINANCIAL INFO
INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 108A
- ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320
</TABLE>
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS
ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR.
1771 W DIEHL ROAD SUITE G1
SUITE 210 AUSTIN TX 78754
NAPERVILLE IL 60563
Date 08/11/94 By [SIG]
------------ --------------------------
Authorized Signature
<PAGE> 103
SCHEDULE 6.8
PENDING GOVERNMENT INVESTIGATIONS
NONE.
<PAGE> 104
SCHEDULE 6.13
FINANCIAL STATEMENTS
[SEE ATTACHED]
<PAGE> 105
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April May June July
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Enteral 56,691 56,261 50,513 40,722 40,381 43,913 54,765 49,889 53,384 56,409
Wholesale 6,574 11,202 9,729 11,585 11,890 10,456 10,616 13,512 10,265 14,748
Billing Service Fee 1,000 1,100 1,000 520 890 450 770 810 1,790 660
Option 10,231 7,074 8,968 8,125 10,282 11,779 9,240 13,187 14,619 13,153
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Enteral Total 74,496 75,637 70,210 60,952 63,443 66,598 75,391 77,398 80,058 84,970
Urological 17,150 18,886 20,417 18,130 17,805 8,879 16,996 15,583 20,641 23,689
Wholesale 0 0 0 0 0 0 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Urological Total 17,150 18,886 20,417 18,130 17,805 8,879 16,996 15,583 20,641 23,689
Orthotics 9,514 8,244 5,616 4,017 5,003 0 0 0 3,006 3,409
Wholesale 0 0 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
Orthotics Total 9,514 8,244 5,616 4,017 5,003 0 0 0 3,006 3,409
Wound Care Part B 3,930 253 3,184 (493) 3,682 5,484 2,757 9,893 2,003 41,375
Wound Care Non B/Whse 0 0 0 0 0 56 258 450 (256) 371
------- ------ ------ ------ ------ ------ ------ ------ ------- ------
Wound Care Total 3,930 253 3,184 (493) 3,682 5,540 3,015 10,343 1,747 41,746
I.V. 3,420 5,376 10,281 7,610 11,726 26,079 5,791 7,964 14,379 17,159
Pharmacy 146,380 150,807 149,769 151,196 123,581 155,678 159,676 179,227 185,874 158,415
Medicaid 99,573 107,073 129,104 126,595 119,478 150,463 117,363 135,263 128,952 181,335
Contractual Allowance (6,876) (11,571) (16,346) (16,347) (16,347) (30,093) (23,473) (27,053) (25,791) (36,267)
Consulting 6,907 5,640 5,061 5,157 5,474 15,340 9,660 16,177 13,673 16,012
Correctional 0 0 0 0 0 0 0 0 0 0
Corr. Billing Serv. Fee 0 0 0 0 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0 0 0 0 0
Oxygen Medicaid 0 0 0 0 0 0 0 0 0 0
Retail 21,906 13,231 11,506 12,288 21,541 20,450 9,358 32,078 5,074 (4,940)
Other (92) 0 0 0 0 0 0 0 0 0
--------- ------- -------- -------- ------- ------- ------- -------- ------- -------
Pharmacy Total 267,798 265,180 279,094 278,889 253,727 311,838 272,594 335,692 307,982 314,555
-------- ------- -------- -------- ------- ------- ------- -------- ------- -------
Total Revenue 376,308 373,576 388,802 369,105 355,386 418,934 373,787 446,980 427,813 485,528
Contractual Allowance % (6.9%) (10.6%) (12.7%) (12.9%) (13.7%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%)
Desc August September YTD Actuals
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Enteral 61,139 74,608 638,675
Wholesale 13,434 10,961 134,972
Billing Service Fee 770 470 10,230
Option 4,975 7,284 118,917
------- ------ -------
Enteral Total 80,318 93,323 902,794
Urological 15,944 16,973 211,093
Wholesale 0 0 0
------ ------ -------
Urological Total 15,944 16,973 211,093
Orthotics 0 0 38,809
Wholesale 0 0 0
------ ------ -------
Orthotics Total 0 0 38,809
Wound Care Part B 21,099 33,076 126,243
Wound Care Non B/Whse 690 1,092 2,661
------ ------- -------
Wound Care Total 21,789 34,168 128,904
I.V. 9,022 13,841 132,648
Pharmacy 206,236 188,738 1,957,667
Medicaid 149,080 149,448 1,593,727
Contractual Allowance (29,816) (29,890) (269,870)
Consulting 16,639 15,671 131,611
Correctional 0 0 0
Corr. Billing Serv. Fee 0 0 0
Oxygen 0 0 0
Oxygen Medicaid 0 0 0
Retail 8,063 (258) 150,307
Other 0 0 (92)
Pharmacy Total 352,292 323,909 3,563,550
------- ------- ---------
Total Revenue 479,365 482,214 4,977,796
Contractual Allowance % (20.0%) (20.0%) (16.9%)
</TABLE>
Page 1
<PAGE> 106
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April May June July
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COGS
Enteral 29,242 34,793 23,236 18,732 18,575 20,200 25,192 22,949 24,556 25,948
Wholesale 3,391 0 4,475 5,329 5,469 4,810 4,883 6,216 4,722 6,784
Option 5,278 0 4,585 3,977 5,139 7,783 4,604 6,438 7,548 6,354
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Enteral Total 37,911 34,793 32,296 28,038 29,183 32,793 34,679 35,603 36,826 39,086
Urological 12,540 8,688 9,392 8,340 8,190 4,084 7,818 7,168 9,495 10,897
Wholesale 0 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Urological Total 12,540 8,688 9,392 8,340 8,190 4,084 7,818 7,168 9,495 10,897
Orthotics 0 3,792 2,584 1,848 2,301 0 0 0 1,383 1,568
Wound Care 0 116 1,465 (227) 1,694 2,546 1,658 5,689 961 22,960
I.V. 0 1,882 3,598 2,663 4,104 9,127 2,027 2,787 5,033 6,005
Pharmacy 170,221 169,221 178,669 178,473 161,861 193,317 226,693 146,588 188,680 194,650
Contractual Allowance 0 0 0 0 0 0 0 0 0 0
Correctional 0 0 0 0 0 0 0 0 0 0
Oxygen 0 0 0 127 0 0 0 174 0 0
Retail 0 0 0 0 0 0 0 0 0 0
Other 17,293 3,303 4,861 2,270 2,046 (6,592) 877 (206) 1,617 921
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Pharmacy Total 187,514 172,524 183,530 180,870 163,907 186,725 227,570 146,556 190,297 195,571
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total COGS 237,965 221,795 232,865 221,532 209,379 235,277 273,752 197,803 243,995 276,067
</TABLE>
<TABLE>
<CAPTION>
Desc August September YTD Actuals
- ----------------------------------------------------------------
<S> <C> <C> <C>
COGS
Enteral 26,124 4,152 275,699
Wholesale 6,180 5,042 57,301
Option 2,643 3,567 57,916
------- ------- ---------
Enteral Total 36,947 12,761 390,916
Urological 7,334 7,808 101,754
Wholesale 0 0 0
------- ------- ---------
Urological Total 7,334 7,808 101,754
Orthotics 0 0 13,476
Wound Care 11,984 21,408 70,256
I.V. 3,158 4,845 45,229
Pharmacy 218,845 200,841 2,228,059
Contractual Allowance 0 0 0
Correctional 0 0 0
Oxygen 0 0 301
Retail 0 0 0
Other 1,805 2,504 30,699
------- ------- ---------
Pharmacy Total 220,650 203,345 2,259,059
------- ------- ---------
Total COGS 280,073 150,167 2,680,690
</TABLE>
Page 2
<PAGE> 107
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Profit
Enteral 27,449 21,468 27,277 21,990 21,806 23,713 29,573
Wholesale 3,183 11,202 5,254 6,256 6,421 5,646 5,733
Billing Service Fee 1,000 1,100 1,000 520 890 450 770
Option 4,953 7,074 4,383 4,148 5,143 3,996 4,636
------- ------- ------- ------- ------- ------- -------
Total Enteral 36,585 40,844 37,914 32,914 34,260 33,805 40,712
Urological 4,610 10,198 11,025 9,790 9,615 4,795 9,178
Wholesale 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Total Urological 4,610 10,198 11,025 9,790 9,615 4,795 9,178
Total Orthotics 9,514 4,452 3,032 2,169 2,702 0 0
Total Wound Care 3,930 137 1,719 (266) 1,988 2,992 1,357
Total I.V. 3,420 3,494 6,683 4,947 7,622 16,952 3,764
Pharmacy 75,732 88,659 100,204 99,318 81,198 112,824 50,346
Contractual Allowance (6,876) (11,571) (16,346) (16,347) (16,347) (30,093) (23,473)
Consulting 6,907 5,640 5,061 5,157 5,474 15,340 9,660
Correctional 0 0 0 0 0 0 0
Oxygen 0 0 0 (127) 0 0 0
Retail 21,906 13,231 11,506 12,288 21,541 20,450 9,368
Other (17,385) (3,303) (4,861) (2,270) (2,046) 6,592 (877)
------- ------- ------- ------- ------- ------- -------
Total Pharmacy 80,284 92,656 95,564 98,019 89,820 125,113 45,024
------- ------- ------- ------- ------- ------- -------
Total Gross Profit 138,343 151,781 155,937 147,573 146,007 183,657 100,035
Enteral % 49.1% 54.0% 54.0% 54.0% 54.0% 50.8% 54.0%
Urological % 26.9% 54.0% 54.0% 54.0% 54.0% 54.0% 54.0%
Orthotics % 100.0% 54.0% 54.0% 54.0% 54.0% 0.0% 0.0%
Wound Care % 100.0% 54.2% 54.0% 54.0% 54.0% 54.0% 45.0%
I.V. % 100.0% 65.0% 65.0% 65.0% 65.0% 65.0% 65.0%
Pharmacy % 30.0% 34.9% 34.2% 35.1% 35.4% 40.1% 16.5%
Total Gross Profit % 36.8% 40.6% 40.1% 40.0% 41.1% 43.8% 26.8%
<CAPTION>
Desc May June July August September YTD Actuals
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Profit
Enteral 26,940 28,828 30,461 33,015 70,456 362,976
Wholesale 7,296 5,543 7,964 7,254 5,919 77,671
Billing Service Fee 810 1,790 660 770 470 10,230
Option 6,749 7,071 6,799 2,332 3,717 61,001
------- ------- ------- ------- ------- ---------
Total Enteral 41,795 43,232 45,884 43,371 80,562 511,878
Urological 8,415 11,146 12,792 8,610 9,165 109,339
Wholesale 0 0 0 0 0 0
------- ------- ------- ------- ------- ---------
Total Urological 8,415 11,146 12,792 8,610 9,165 109,339
Total Orthotics 0 1,623 1,841 0 0 25,333
Total Wound Care 4,654 786 18,786 9,805 12,760 58,648
Total I.V. 5,177 9,346 11,154 5,864 8,996 87,419
Pharmacy 167,902 126,146 145,100 138,561 137,345 1,323,335
Contractual Allowance (27,053) (25,791) (36,267) (29,816) (29,890) (269,870)
Consulting 16,177 13,873 16,012 16,639 15,871 131,811
Correctional 0 0 0 0 0 0
Oxygen (174) 0 0 0 0 (301)
Retail 32,078 5,074 (4,940) 8,063 (258) 150,307
Other 206 (1,617) (921) (1,805) (2,504) (30,791)
------- ------- ------- ------- ------- ---------
Total Pharmacy 189,136 117,685 118,984 131,642 120,564 1,304,491
------- ------- ------- ------- ------- ---------
Total Gross Profit 249,177 183,818 209,441 199,292 232,047 2,097,108
Enteral % 54.0% 54.0% 54.0% 54.0% 56.3% 56.7%
Urological % 54.0% 54.0% 54.0% 54.0% 54.0% 51.8%
Orthotics % 0.0% 54.0% 54.0% 0.0% 0.0% 65.3%
Wound Care % 45.0% 45.0% 45.0% 45.0% 37.3% 45.5%
I.V. % 65.0% 65.0% 65.0% 65.0% 65.0% 65.9%
Pharmacy % 56.3% 38.2% 37.8% 37.4% 37.2% 36.6%
Total Gross Profit % 55.7% 43.0% 43.1% 41.6% 48.1% 42.1%
</TABLE>
Page 3
<PAGE> 108
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April May
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries 72,497 91,062 79,699 81,379 76,071 91,354 83,801 90,038
Mtb Bonus 1,668 1,668 1,688 1,668 1,668 1,668 1,668 5,833
A/R Bonus (706) 0 0 0 7 2,174 1,171 428
Commissions 4,591 2,078 4,120 694 1,253 (8,802) 1,220 961
FICA Taxes 5,724 5,630 6,163 6,297 5,902 13,688 6,084 6,537
Unemployment Taxes 156 153 577 1,110 714 552 364 298
Workmen's Comp Insurance 4,328 4,204 6,403 4,995 (2,407) 8,603 3,692 2,709
General Insurance 1,510 1,510 5,896 390 8,171 4,271 3,197 5,108
Denver City Tax 0 0 0 0 0 0 0 0
Group Health Insurance 1,577 8,805 5,582 6,245 6,535 6,749 6,590 6,290
401K 0 98 163 110 105 298 267 279
------- ------- ------- ------- ------- ------- ------- -------
Salaries 91,343 115,206 110,269 102,886 98,019 20,553 111,052 118,479
Vehicle GE Capital 83 0 63 68 64 1,149 1,097 1,249
Vehicle Repairs 0 0 0 0 0 2,577 123 1,104
Vehicle Gasoline 697 0 0 1,462 0 0 1,614 1,385
Vehicle Misc. 0 1,428 155 629 924 0 0 202
------- -------- ------- ------- ------- ------- ------- -------
Vehicle 780 1,428 218 2,159 988 3,726 2,834 3,850
Travel & Lodging 883 3,465 1,781 2,683 3,228 4,864 (790) 2,152
Meats 535 219 161 334 527 489 266 332
Entertainment 255 333 497 62 122 50 77 (8)
Mileage 541 0 0 0 0 0 0 0
Car Allowance 1,200 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Shows & Conventions 4,907 381 0 0 0 0 81 191
------- ------- -------- ------- ------- ------- ------- -------
Travel Expense 8,321 5,898 3,939 4,579 5,375 6,903 1,134 4,167
Consulting Services 5000 1,600 610 575 575 350 350 0
Audit Fees 0 0 0 0 0 0 0 0
Legal Fees 0 0 0 0 0 846 138 (1,089)
Misc Professional Services 1,436 1,476 3,799 1,184 2,480 414 (486) 1,951
------- ------- ------- ------- ------- ------- ------- -------
Professional Services 1,936 3,078 4,409 1,759 3,055 1,610 2 862
Office Space 7,584 0 6,695 6,695 8,559 8,516 8,734 2,339
Other Space Rental 91 0 91 202 196 0 0 348
------- ------- ------- ------- ------ ------- ------- -------
Space Rental 7,675 0 6,766 6,897 8,755 8,516 8,734 2,687
<CAPTION>
Desc. June July August September YTD Actuals
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries 79,797 78,929 84,148 79,287 988,060
Mtb Bonus 4,833 3,633 4,933 5,833 36,727
A/R Bonus 184 0 0 (334) 5,924
Commissions 292 1,798 2,165 1,794 12,166
FICA Taxes 5,885 7,664 6,118 6,703 81,395
Unemployment Taxes 194 186 181 119 4,604
Workmen's Comp Insurance 6,499 3,448 (1,207) 1,028 42,293
General Insurance (1,845) 2,539 3,375 2,183 36,305
Denver City Tax 0 0 0 0 0
Group Health Insurance 5,486 5,904 5,528 4,832 70,123
401K 245 174 174 14 1,927
------- ------- ------- ------- ---------
Salaries 101,570 104,275 105,415 100,457 1,279,524
Vehicle GE Capital 1,126 1,117 1,117 1,110 8,243
Vehicle Repairs 213 1,056 1,528 1,969 8,480
Vehicle Gasoline 0 1,702 0 3,671 10,531
Vehicle Misc. 0 0 0 0 3,338
------- ------- ------- ------- ---------
Vehicle 1,339 3,875 2,645 6,750 30,592
Travel & Lodging 4,245 2,175 1,528 1,624 27,836
Meats 320 388 278 372 4,221
Entertainment 0 144 0 338 1,870
Mileage 0 0 0 0 541
Car Allowance 1,500 1,500 1,500 1,500 17,700
Shows & Conventions 403 0 0 0 5,963
------- ------- ------- ------- ---------
Travel Expense 6,468 4,207 3,306 3,834 58,131
Consulting Services 0 0 0 0 4,560
Audit Fees 0 0 0 0 0
Legal Fees 1,069 (138) (1,089) 75 (188)
Misc Professional Services 530 0 865 210 13,859
------- ------- ------- ----- ---------
Professional Services 1,619 (138) (224) 285 18,251
Office Space 7,203 7,627 6,127 6,127 76,206
Other Space Rental 168 256 394 230 1,976
------- ------- ------- ------- ---------
Space Rental 7,371 7,883 6,521 6,357 78,182
</TABLE>
Page 4
<PAGE> 109
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Machine & Equipment 1,022 1,337 1,412 (73) 925 925 925
Furn & Fixtures 412 412 392 (926) 687 550 550
Vehicles 818 2,154 1,724 6,228 2,201 2,201 (2,384
Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 1,468 1,473
Building Improvements 0 0 0 0 0 0 0
Durable Medical Equip 0 0 0 0 0 0 0
Computer Hardware 1,358 1,358 1,321 2,900 1,395 1,395 1,395
Computer Software 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
Depreciation Expenses 5,083 6,734 6,322 9,602 6,681 6,539 1,959
Employee Relations 375 107 202 827 342 273 119
Temporary Services 124 0 0 0 0 0 0
Employee Education 1,592 63 63 63 75 119 66
Recruiting 1,200 1,200 1,054 1,000 0 0 0
Office Supplies 1,728 2,063 3,691 2,708 1,428 2,000 843
Independent Business 0 0 776 200 875 75 781
Small Equipment 0 0 0 0 0 0 0
Furniture & Equip
Rentals 513 395 1,517 539 342 1,001 22
Repairs & Maintenance 52 3,159 2,162 1,135 373 495 326
Telephone 4,114 3,286 1,384 6,422 2,901 2,182 1,132
Cellular Phone 178 239 262 258 370 534 306
Advertising 583 421 307 618 935 (112) 400
Postage 483 581 527 103 811 343 1,781
Freight 94 54 0 1,149 488 89 144
Janitorial 351 351 351 351 351 351 351
Dues/Subscription 12 0 44 0 0 40 395
Professional Licenses 0 0 420 0 85 0 0
Uniforms 0 0 0 0 0 0 0
Computer 0 11 0 864 2,065 907 504
Utilities 1,189 0 827 2,622 2,404 602 661
General Taxes 0 0 0 (1,580) 0 294 152
Tax Penalty 0 147 0 0 0 0 0
Donations &
Contributions 0 0 0 0 0 0 0
Property Taxes 1,325 1,325 1,325 9,453 1,325 1,325 1,325
LTC Link 0 0 0 0 0 0 0
Other Misc Income 0 0 (1,706) 0 0 (500) 0
Other Misc Expenses 0 (61) 0 17,050 0 0 0
------ ------ ------ ------ ------ ------ ------
Other Misc. Expenses 13,911 13,361 13,204 43,862 15,170 10,018 9,308
------ ------ ------ ------ ------ ------ ------
Total Other Expenses 37,706 30,497 34,878 68,858 40,024 37,312 23,971
</TABLE>
<TABLE>
<CAPTION>
YTD
Desc May June July August September Actuals
------ ------ ------ ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Machine & Equipment 925 1,398 1,017 1,089 5,982 16,884
Furn & Fixtures 580 580 454 758 734 5,183
Vehicles 2,028 2,099 1,711 2,099 2,099 22,978
Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 17,671
Building Improvements 0 0 0 0 0 0
Durable Medical Equip 0 0 0 0 0 0
Computer Hardware 1,395 1,395 1,395 1,395 1,395 18,097
Computer Software 0 0 0 0 0 0
------ ------ ------ ------ ------ -------
Depreciation Expenses 6,401 6,945 6,050 6,814 11,683 80,813
Employee Relations 182 197 125 75 45 2,869
Temporary Services 0 0 65 100 0 289
Employee Education 66 74 72 101 66 2,420
Recruiting 0 0 0 0 0 4,454
Office Supplies 2,924 (340) 1,780 2,878 2,893 24,616
Independent Business 622 898 2,381 563 1,478 8,729
Small Equipment 9 0 0 0 0 9
Furniture & Equip
Rentals 469 972 678 2,142 1,315 9,905
Repairs & Maintenance 1,870 (2,159) 587 678 619 9,297
Telephone 2,461 2,575 3,018 2,725 1,673 33,873
Cellular Phone 319 864 47 1,285 687 5,347
Advertising 1,705 677 736 689 850 7,809
Postage 734 199 428 625 287 6,902
Freight 210 972 103 16 249 3,568
Janitorial 392 351 351 0 351 3,902
Dues/Subscription 0 6 0 80 0 577
Professional Licenses 0 0 0 0 0 505
Uniforms 0 0 0 843 136 979
Computer 1,560 2,039 2,387 1,329 1,347 13,013
Utilities 2,282 1,144 1,261 1,329 1,247 15,568
General Taxes 22 0 61 13 127 (911)
Tax Penalty 94 0 0 0 0 241
Donations &
Contributions 0 0 0 0 0 0
Property Taxes 1,325 1,325 1,325 1,325 1,325 24,028
LTC Link 0 0 0 (594) (108) (702)
Other Misc Income 0 0 0 (247) (13) (2,468)
Other Misc Expenses 0 128 (582) 0 0 16,535
------ ------ ------ ------ ------ -------
Other Misc. Expenses 17,246 9,922 14,823 15,955 14,574 191,354
------ ------ ------ ------ ------ -------
Total Other Expenses 35,213 33,684 36,700 35,017 43,483 457,323
</TABLE>
Page 5
<PAGE> 110
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1995
<TABLE>
<CAPTION>
Desc October November December January February March April May June July
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Partner Service Charges 0 0 0 0 0 0 0 0 0 0
Bad Debt Facility 1,663 671 1,920 2,068 2,068 2,004 2,030 2,153 1,968 2,449
Bad Debt Medicare 5,404 1,171 4,097 3,472 4,261 3,463 4,992 5,475 5,903 7,947
Bad Debt Medicaid 2,781 2,865 3,383 3,308 3,094 3,611 2,816 3,247 3,095 4,352
Bad Debt Private 5,259 3,286 4,990 5,060 4,518 5,808 5,361 6,824 6,145 5,085
Bad Debt Other 0 215 411 305 569 1,043 231 318 575 687
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Bad Debt 15,127 8,208 14,801 14,211 14,408 15,929 15,430 18,017 17,686 20,520
Total Operating Expense 144,178 153,911 159,948 185,955 152,451 173,794 150,453 171,709 152,920 161,495
Amortization Nondeductible 0 0 0 0 0 0 0 0 0 0
Amortization Deductible 0 0 0 0 0 0 0 0 0 0
Earnings From Operations (5,833) 2,130 (4,011) (38,382) (6,444) 9,663 (50,418) 77,468 30,898 47,946
Interest/Income/Dividend 0 0 0 0 0 0 0 0 0 0
Interest Expense 338 22 182 187 164 179 1,880 11,522 251 3,289
Minority Interest 0 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings Before Allocations (6,171) (2,152) (4,193) (38,569) (6,608) 9,684 (52,298) 65,946 30,647 44,657
Corporate Allocations 0 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings Before Taxes (6,171) (2,152) (4,193) (38,569) (6,608) 9,684 (52,298) 65,946 30,647 44,657
State Income Tax 0 0 0 0 0 0 0 0 0 0
Federal Income Tax 0 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income Tax 0 0 0 0 0 0 0 0 0 0
Net Income (6,171) (2,152) (4,193) (38,569) (6,608) 9,684 (52,298) 65,946 30,647 44,657
======= ======= ====== ======= ====== ====== ======= ====== ====== =======
Percent to Sales
----------------
Salaries % 24.3% 30.8% 28.4% 27.9% 27.6% 28.8% 29.7% 26.5% 23.7% 21.5%
Vehicle % 0.2% 0.4% 0.1% 0.6% 0.3% 0.9% 0.8% 0.9% 0.3% 0.8%
Professional Services % 0.5% 0.6% 1.1% 0.5% 0.9% 0.4% 0.0% 0.2% 0.4% (0.0%)
Space Rental % 2.0% 0.0% 1.7% 1.9% 2.5% 2.0% 2.3% 0.6% 1.7% 1.6%
Depreciation % 1.4% 1.8% 1.6% 2.6% 1.9% 1.6% 0.5% 1.4% 1.6% 1.2%
Other Misc. Expense % 3.7% 3.6% 3.4% 11.9% 4.3% 2.4% 2.5% 3.9% 2.3% 3.1%
Total Other Expenses % 10.0% 8.2% 9.0% 18.7% 11.3% 8.9% 6.4% 7.9% 7.9% 7.6%
Bad Debt % 4.0% 2.2% 3.8% 3.9% 4.1% 3.8% 4.1% 4.0% 4.1% 4.2%
Total Op. Expense % 38.3% 41.2% 41.1% 50.4% 42.9% 41.5% 40.3% 38.4% 35.7% 33.3%
Earnings From Operations % (1.6%) (0.6%) (1.0%) (10.4%) (1.8%) 2.4% (13.5%) 17.3% 7.2% 9.9%
Net Income % (1.6%) (0.6%) (1.1%) (10.4%) (1.9%) 2.3% (14.0%) 14.8% 7.2% 9.2%
</TABLE>
<TABLE>
<CAPTION>
Desc August September YTD Actuals
- ----------------------------------------------------------------
<S> <C> <C> <C>
Partner Service Charges 0 0 0
Bad Debt Facility 2,071 1,823 22,904
Bad Debt Medicare 4,663 8,701 59,749
Bad Debt Medicaid 3,578 3,587 39,717
Bad Debt Private 4,991 6,131 63,458
Bad Debt Other 361 554 5,169
------- ------- -------
Bad Debt 15,864 20,796 190,997
Total Operating Expense 156,296 164,736 1,927,844
Amortization Nondeductible 0 0 0
Amortization Deductible 0 0 0
Earnings From Operations 42,996 67,311 169,264
Interest/Income/Dividend 0 0 0
Interest Expense (12,568) 1,617 7,063
Minority Interest 0 0 0
------- ------- -------
Earnings Before Allocations 55,564 65,694 162,201
Corporate Allocations 0 0 0
------- ------- -------
Earnings Before Taxes 55,564 65,694 162,201
State Income Tax 0 0 0
Federal Income Tax 0 0 0
------- ------- -------
Income Tax 0 0 0
Net Income 55,564 65,694 162,201
======= ====== =======
Percent to Sales
----------------
Salaries % 22.0% 20.8% 25.7%
Vehicle % 0.6% 1.4% 0.6%
Professional Services % (0.0%) 0.1% 0.4%
Space Rental % 1.4% 1.3% 1.6%
Depreciation % 1.4% 2.4% 1.6%
Other Misc. Expense % 3.3% 3.0% 3.8%
Total Other Expenses % 7.3% 9.0% 9.2%
Bad Debt % 3.3% 4.3% 3.8%
Total Op. Expense % 32.6% 34.2% 38.7%
Earnings From Operations % 9.0% 14.0% 3.4%
Net Income % 11.6% 13.6% 3.3%
</TABLE>
<PAGE> 111
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
<CAPTION>
Desc October November December January February March April May June July
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Enteral 54,452 46,134 51,198 43,299 84,699 7,033 49,189 54,634 115,690 (16,489)
Wholesale 12,580 12,357 11,514 11,008 9,883 10,341 9,067 13,157 4,458 6,450
Billing Service Fee 600 720 540 300 330 480 70 170 (300) 300
Option 5,214 6,453 2,508 1,590 2,596 2,827 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------- -------
Enteral Total 72,846 85,664 65,760 56,197 97,508 20,681 58,326 67,961 119,848 (9,739)
Urological 12,527 13,658 13,522 16,062 14,967 12,837 10,736 10,848 3,829 8,514
Wholesale 0 0 0 0 0 0 0 0 0 0
------- ------- ------ ------ ------ ------ ------ ------ ------- -------
Urological Total 12,527 13,658 13,522 16,062 14,967 12,837 10,736 10,848 3,829 8,514
Orthotics 867 0 0 0 0 0 1,209 (312) (285) 6,106
Wholesale 0 0 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------- ------ ------- -------
Orthotics Total 867 0 0 0 0 0 1,209 (312) (285) 6,106
Wound Care Part B 32,328 40,130 (6,999) 21,377 19,380 15,588 11,588 17,501 14,102 20,744
Wound Care Non B/Whlse 879 510 1,130 2,052 (121) 53 291 1,036 18 104
------- ------ ------ ------ ------ ------ ------ ------- -------- -------
Wound Car Total 33,207 40,640 (5,869) 23,429 19,259 15,641 11,879 18,537 14,120 20,848
Vencor/Vencare 0 0 0 0 1,581 1,801 1,960 902 2,258 (485)
Resp Supplies 0 0 0 0 0 0 0 0 0 0
Concent Rentals 0 0 0 0 0 0 0 0 0 0
------- ------ ----- ----- ----- ------ ------ ------ ------- ------
Respiratory Total 0 0 0 0 1,581 1,801 1,960 902 2,258 (485)
I.V. 9,183 16,909 5,900 16,261 18,879 18,746 26,700 12,570 7,533 12,194
Pharmacy 209,510 164,770 192,077 214,848 200,433 195,235 184,017 213,930 170,710 220,500
Medicaid 158,068 146,975 150,098 158,402 122,383 173,868 235,650 230,258 219,281 251,311
Contractual Allowance (31,614) (29,395) (30,020) (31,680) (24,477) (34,774) (47,130) (46,052) (43,856) (50,262)
Consulting 18,697 16,049 10,286 8,947 13,579 13,586 13,855 13,925 13,819 13,793
Correctional 0 0 0 0 0 0 0 0 0 0
Corr. Billing Serv. Fee 0 0 0 0 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0 0 0 0 0
Oxygen Medicaid 0 0 0 0 0 0 0 0 0 0
Retail 4,176 1,744 3,041 3,742 1,993 2,133 3,022 8,783 2,466 2,333
Other 0 0 0 0 0 0 0 0 0 0
--------- ------- -------- -------- ------- ------- ------- -------- ------- -------
Pharmacy Total 358,837 300,143 325,482 354,259 313,911 350,048 389,414 420,910 362,420 437,585
-------- ------- -------- -------- ------- ------- ------- -------- ------- -------
Total Revenue 487,467 437,014 404,795 466,206 466,105 419,756 500,224 531,416 509,723 475,023
Contractual Allowance % (20.0%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%)
Desc August September YTD Actuals
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Enteral 15,208 49,457 654,504
Wholesale 3,020 8,259 112,094
Billing Service Fee (450) 0 2,760
Option 0 0 21,168
------- ------ -------
Enteral Total 17,778 57,716 690,546
Urological 7,014 7,335 131,849
Wholesale 0 0 0
------ ------ -------
Urological Total 7,014 7,335 131,849
Orthotics (2,052) 0 5,553
Wholesale 0 0 0
------ ------ -------
Orthotics Total (2,052) 0 5,533
Wound Care Part B 2,823 21,756 210,318
Wound Care Non B/Whlse (10) 338 6,280
------ ------- -------
Wound Car Total 2,813 22,094 216,598
Vencor/Vencare 1,631 1,539 11,187
Resp Supplies 0 0 0
Concent Rentals 0 0 0
------ ------ -------
Respiratory Total 1,631 1,539 11,187
I.V. 20,569 11,759 177,205
Pharmacy 196,643 195,336 2,360,009
Medicaid 261,053 239,651 2,346,996
Contractual Allowance (52,211) (47,930) (469,401)
Consulting 13,739 13,795 163,960
Correctional 0 0 0
Corr. Billing Serv. Fee 0 0 0
Oxygen 0 0 0
Oxygen Medicaid 0 0 0
Retail 2,442 1,983 37,858
Other 408 2,361 2,835
------- ------- ---------
Pharmacy Total 424,074 405,196 4,442,279
------- ------- ---------
Total Revenue 471,827 505,639 5,675,197
Contractual Allowance % (20.0%) (20.0%) (20.0%)
</TABLE>
<PAGE> 112
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
<CAPTION>
Desc October November December January February March April
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COGS
Enteral 24,367 20,645 22,911 19,376 37,903 3,147 22,012
Wholesale 5,629 5,530 5,152 4,926 4,423 4,627 4,057
Option 2,602 3,210 1,365 1,113 1,617 1,979 0
------- ------- ------- ------- ------- ------- -------
Enteral Total 32,598 29,385 29,428 25,415 44,143 9,753 26,069
Urological 7,720 8,417 8,333 9,899 9,224 7,911 6,617
Wholesale 534 (534) 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Urological Total 8,254 7,883 8,333 9,899 9,224 7,911 6,617
Orthotics 399 0 0 0 0 0 556
Wound Care 15,986 19,565 (2,825) 11,278 9,271 7,529 5,719
Vencor/Vencare 0 0 0 0 1,423 1,549 1,764
Resp Supplies 0 0 0 0 0 0 0
Concent Rentals 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Respiratory total 0 0 0 0 1,423 1,549 1,764
I.V. 3,306 6,087 2,124 5,854 6,796 6,749 9,612
Pharmacy 207,928 173,667 189,557 211,089 183,593 205,679 229,579
Contractual Allowance 0 0 0 0 0 0 0
Correctional 0 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0 0
Retail 0 2,570 (2,570) 0 0 0 0
Other 676 3,335 3,128 1,289 3,243 1,619 3,909
------- ------- ------- ------- ------- ------- -------
Pharmacy Total 208,604 179,572 190,115 212,378 186,836 207,298 233,488
------- ------- ------- ------- ------- ------- -------
Total COGS 269,147 242,492 227,175 264,824 257,693 240,789 283,825
</TABLE>
<TABLE>
<CAPTION>
Desc May June July August September YTD Actuals
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COGS
Enteral 24,448 43,962 (6,431) 5,931 19,288 237,559
Wholesale 5,888 4,059 5,937 7,780 7,601 60,609
Option 0 0 0 0 0 12,066
------- ------- ------- ------- ------- ---------
Enteral Total 30,336 48,021 (494) 8,711 26,889 310,254
Urological 6,686 2,642 5,960 4,910 5,134 83,453
Wholesale 0 0 0 0 0 0
------- ------- ------- ------- ------- ---------
Urological Total 6,686 2,642 5,960 4,910 5,134 83,453
Orthotics (143) (128) 2,809 (944) 0 2,549
Wound Care 8,924 6,919 10,424 1,407 11,047 105,244
Vencor/Vencare 785 1,959 (363) 1,468 1,320 9,905
Resp Supplies 0 0 0 0 0 0
Concent Rentals 0 0 0 0 0 0
------- ------- ------- ------- ------- ---------
Respiratory total 785 1,959 (363) 1,468 1,320 9,905
I.V. 4,525 4,608 9,705 12,788 7,311 79,465
Pharmacy 248,789 220,210 266,053 263,312 243,381 2,642,837
Contractual Allowance 0 0 0 0 0 0
Correctional 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0
Retail 0 0 0 0 0 0
Other 740 4,565 4 2,076 1,861 26,445
------- ------- ------- ------- ------- ---------
Pharmacy Total 249,529 224,775 266,057 265,388 245,242 2,669,282
------- ------- ------- ------- ------- ---------
Total COGS 300,642 288,796 294,098 293,728 296,943 3,260,152
</TABLE>
<PAGE> 113
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
<CAPTION>
Desc October November December January February March April
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross profit
Enteral 30,085 25,489 28,287 23,923 46,796 3,886 27,177
Wholesale 6,951 6,827 6,362 6,082 5,460 5,714 5,010
Billing Service Fee 600 720 540 300 330 480 70
Option 2,612 3,243 1,143 477 779 848 0
------- ------- ------- ------- ------- ------- -------
Total Enteral 40,248 36,279 36,332 30,782 53,365 10,928 32,257
Urological 4,807 5,241 5,189 6,163 5,743 4,926 4,119
Wholesale (534) 534 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Total Urological 4,273 5,775 5,189 6,163 5,743 4,926 4,119
Total Orthotics 468 0 0 0 0 0 653
Total Wound Care 17,221 21,075 (3,044) 12,151 9,988 8,112 6,160
Vencor/Vencare 0 0 0 0 158 252 196
Resp Supplies 0 0 0 0 0 0 0
Concent Rentals 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Respiratory Total 0 0 0 0 158 252 196
Total I.V. 5,877 10,822 3,776 10,407 12,083 11,999 17,088
Pharmacy 159,650 138,078 152,618 162,161 139,223 163,424 190,088
Contractual Allowance (31,614) (29,395) (30,020) (31,680) (24,477) (34,774) (47,130)
Consulting 18,697 16,049 10,286 8,947 13,579 13,586 13,855
Correctional 0 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0 0
Retail 4,176 (826) 5,611 3,742 1,993 2,133 3,022
Other (676) (3,335) (3,128) (1,289) (3,243) (1,619) (3,909)
------- ------- ------- ------- ------- ------- -------
Total Pharmacy 150,233 120,571 135,367 141,881 127,075 142,750 155,926
------- ------- ------- ------- ------- ------- -------
Total Gross Profit 218,320 194,522 177,620 201,384 208,412 178,967 216,399
Enteral % 55.3% 55.2% 55.2% 54.8% 54.7% 52.8% 55.3%
Urological % 34.1% 42.3% 38.4% 38.4% 38.4% 38.4% 38.4%
Orthotics % 54.0% 0.0% 0.0% 0.0% 0.0% 0.0% 54.0%
Wound Care % 51.9% 51.9% 51.9% 51.9% 51.9% 51.9% 51.9%
Respiratory % 0.0% 0.0% 0.0% 0.0% 10.0% 14.0% 0
I.V. % 64.0% 64.0% 64.0% 64.0% 64.0% 64.0% 64.0%
Pharmacy % 41.9% 40.2% 41.6% 40.1% 40.5% 40.8% 40.0%
Total Gross Profit % 44.8% 44.5% 43.9% 43.2% 44.7% 42.6% 43.3%
<CAPTION>
Desc May June July August September YTD Actuals
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross profit
Enteral 30,186 71,728 (10,058) 9,277 30,169 316,945
Wholesale 7,269 399 513 240 658 51,485
Billing Service Fee 170 (300) 300 (450) 0 2,760
Option 0 0 0 0 0 9,102
------- ------- ------- ------- ------- ---------
Total Enteral 37,625 71,827 (9,245) 9,067 30,827 380,292
Urological 4,162 1,187 2,554 2,104 2,201 48,396
Wholesale 0 0 0 0 0 0
------- ------- ------- ------- ------- ---------
Total Urological 4,162 1,187 2,554 2,104 2,201 48,396
Total Orthotics (169) (157) 3,297 (1,108) 0 2,964
Total Wound Care 9,613 7,201 10,424 1,406 11,047 111,354
Vencor/Vencare 117 299 (122) 163 219 1,282
Resp Supplies 0 0 0 0 0 0
Concent Rentals 0 0 0 0 0 0
------- ------- ------- ------- ------- ---------
Respiratory Total 117 299 (122) 163 219 1,282
Total I.V. 8,045 2,925 2,489 7,781 4,448 97,740
Pharmacy 195,399 169,781 205,758 196,384 191,606 2,064,170
Contractual Allowance (46,052) (43,856) (50,262) (52,211) (47,930) (469,401)
Consulting 13,925 13,819 13,703 13,739 13,795 163,960
Correctional 0 0 0 0 0 0
Oxygen 0 0 0 0 0 0
Retail 8,783 2,466 2,333 2,442 1,983 37,858
Other (674) (4,565) (4) (1,665) 500 (23,610)
------- ------- ------- ------- ------- ---------
Total Pharmacy 171,381 137,645 171,528 158,686 159,954 1,772,997
------- ------- ------- ------- ------- ---------
Total Gross Profit 230,774 220,927 180,925 178,099 206,696 2,415,045
Enteral % 55.4% 59.9% 94.9% 51.0% 53.4% 55.1%
Urological % 38.4% 31.0% 30.0% 30.0% 30.0% 36.7%
Orthotics % 54.2% 55.1% 54.0% 54.0% 0.0% 53.9%
Wound Care % 51.9% 51.0% 50.0% 50.0% 50.0% 51.4%
Respiratory % 13.0% 13.2% 25.2% 10.0% 14.2% 11.5%
I.V. % 64.0% 38.8% 20.4% 37.8% 37.8% 55.2%
Pharmacy % 40.7% 38.0% 39.2% 37.4% 39.5% 39.9%
Total Gross Profit % 43.4% 43.3% 38.1% 37.7% 41.3% 42.6%
</TABLE>
Page 15
<PAGE> 114
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
<CAPTION>
Desc October November December January February March April May
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries 79,945 76,423 79,141 78,665 72,718 72,842 81,405 79,025
MtB Bonus 1,668 1,666 1,666 (211) 1,197 1,197 (7,181) 0
A/R Bonus 4,509 4,489 (7,873) 573 248 (231) 186 73
Commissions 1,101 3,395 3,422 1,674 2,377 2,389 1,014 1,906
FICA Taxes 5,723 5,234 5,002 6,426 5,705 5,706 5,490 5,830
Unemployment Taxes 37 87 53 1,893 855 494 243 182
Workmen's Comp Insurance 3,407 3,212 3,662 3,129 3,023 3,087 3,489 3,349
General Insurance 2,069 1,975 2,228 1,925 1,857 1,862 2,080 2,041
Denver City Tax 0 0 0 0 0 0 0 0
Group Health Insurance 5,885 4,752 5,083 5,235 5,361 (2,098) 2,992 4,669
401K 0 0 0 287 153 241 183 308
------- ------- ------- ------- ------- ------- ------- -------
Salaries 104,342 101,233 92,384 99,596 93,494 85,489 89,901 97,383
Vehicle GE Capital 132 89 98 89 83 160 0 124
Vehicle Repairs 146 214 1,830 921 1,158 1,536 709 722
Vehicle Gasoline 0 3,785 53 4,056 1,863 10 2,372 3,377
Vehicle Misc. 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Vehicle 278 4,088 1,981 5,068 3,104 1,706 3,081 4,223
Travel & Lodging 1,529 1,162 249 406 (158) 172 0 173
Meals 95 288 222 292 146 141 22 103
Entertainment 0 0 742 75 45 98 84 61
Mileage 0 679 1,216 1,543 1,487 1,270 1,612 1,523
Car Allowance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Shows & Conventions 0 8 0 0 0 0 0 0
------- ------- -------- ------- ------- ------- ------- -------
Travel Expense 3,124 3,637 3,929 3,816 3,020 3,181 3,218 3,360
Consulting Services 0 0 2,198 1,060 0 0 0 0
Audit Fees 0 0 0 0 0 0 0 0
Legal Fees 0 0 0 216 221 325 125 549
Misc Professional Services 0 0 0 0 1,757 1,504 0 0
------- ------- ------- ------- ------- ------- ------- -------
Professional Services 0 0 2,198 1,276 1,978 1,829 125 549
Office Space 6,127 6,127 6,127 6,127 9,321 8,430 4,530 6,480
Other Space Rental 230 301 230 230 230 230 230 230
------- ------- ------- ------- ------ ------- ------- -------
Space Rental 6,357 6,428 6,357 6,357 9,551 8,660 4,760 6,710
<CAPTION>
Desc. June July August September YTD Actuals
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries 77,443 87,884 70,295 76,721 932,507
Mtb Bonus 0 0 2,394 1,197 3,591
A/R Bonus 0 0 54 269 2,297
Commissions 3,028 3,482 (771) 2,618 25,635
FICA Taxes 6,377 6,478 4,384 4,889 67,244
Unemployment Taxes 92 1,388 (1,088) 174 4,410
Workmen's Comp Insurance 3,113 713 (2,769) 2,808 30,221
General Insurance 1,818 2,240 (839) 1,640 20,896
Denver City Tax 0 0 0 0 0
Group Health Insurance 4,453 4,627 4,468 5,035 50,460
401K 262 1,666 (1,721) 0 1,379
------- ------- ------- ------- ---------
Salaries 96,586 108,478 74,405 95,349 1,138,640
Vehicle GE Capital 95 87 99 161 1,217
Vehicle Repairs 2,190 338 426 1,539 11,729
Vehicle Gasoline 1,460 2,878 2,888 2,133 24,875
Vehicle Misc. 0 0 0 0 0
------- ------- ------- ------- ---------
Vehicle 3,745 3,303 3,413 3,833 37,821
Travel & Lodging 140 0 101 (605) 3,169
Meals 146 83 54 114 1,706
Entertainment 86 0 0 0 1,191
Mileage 1,077 1,396 1,072 1,476 14,351
Car Allowance 1,500 1,875 1,685 1,419 18,479
Shows & Conventions 0 0 0 0 8
------- ------- ------- ------- ---------
Travel Expense 2,949 3,354 2,912 2,404 38,904
Consulting Services 505 1,050 1,110 0 5,923
Audit Fees 0 0 0 0 0
Legal Fees 329 (1,220) 0 1,382 1,927
Misc Professional Services 1,391 0 750 0 5,402
------- ------- ------- ----- ---------
Professional Services 2,225 (170) 1,860 1,382 13,252
Office Space 6,863 7,246 6,863 6,863 81,104
Other Space Rental 135 368 0 674 3,066
------- ------- ------- ------- ---------
Space Rental 6,998 7,612 6,863 7,537 84,190
</TABLE>
Page 16
<PAGE> 115
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
<CAPTION>
Desc October November December January February March April
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Machine & Equipment 534 1,854 2,582 1,547 1,547 1,547 1,547
Furn & Fixtures 734 490 734 893 714 1,498 882
Vehicles 2,099 3,003 3,463 2,588 2,582 2,365 2,365
Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 1,473 1,473
Building Improvements 0 0 0 0 0 0 0
Durable Medical Equip 0 0 0 0 0 0 0
Computer Hardware 1,395 528 1,418 1,413 1,325 1,325 1,325
Computer Software 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
Depreciation Expense 6,235 7,348 9,670 7,914 7,621 8,168 7,592
Employee Relations 23 16 658 163 15 194 202
Temporary Services 0 160 0 225 0 0 220
Employee Education 70 80 1,064 996 298 (904) 21
Recruiting 0 202 0 0 0 0 0
Office Supplies 184 4,072 3,192 3,390 3,358 2,002 2,050
Independent Business 95 745 900 733 1,084 54 1,100
Small Equipment 0 0 0 0 0 0 0
Furniture & Equip Rentals 1,459 443 1,266 634 1,218 517 1,007
Repairs & Maintenance 768 2,186 447 936 752 198 348
Telephone 2,738 2,307 1,680 3,167 3,312 (189) 2,619
Cellular Phone 953 342 568 1,069 305 539 1,025
Advertising 746 550 726 640 552 482 524
Postage 755 211 697 647 734 310 882
Freight 101 23 52 96 (171) 241 39
Janitorial 703 352 352 352 274 484 349
Dues/Subscription 0 15 0 100 0 342 0
Professional Licenses 0 0 0 0 0 0 0
Uniforms 0 44 0 0 0 0 0
Computer 619 744 791 677 558 1,307 1,091
Utilities 1,024 883 822 715 780 1,039 790
General Taxes 0 0 0 0 0 0 242
Tax Penalty 0 0 0 0 0 0 0
Donations & Contributions 0 0 0 0 0 0 0
Property Taxes 600 725 725 2,145 2,145 2,145 2,145
LTC Link 0 0 0 0 0 0 0
Other Misc Income (672) (63) (117) 2,860 0 0 0
Other Misc Expense 0 468 0 (24) 250 (477) 0
------ ------ ------ ------ ------ ------ ------
Other Misc. Expenses 10,164 14,535 13,858 19,527 15,464 8,284 14,654
------ ------ ------ ------ ------ ------ ------
Total Other Expenses 26,158 36,036 37,993 43,958 40,738 31,826 33,430
</TABLE>
<TABLE>
<CAPTION>
Desc May June July August September YTD Actuals
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Machine & Equipment 1,547 1,548 1,547 1,547 1,548 18,893
Furn & Fixtures 882 913 913 913 913 10,437
Vehicles 4,748 2,762 3,095 3,095 2,750 34,895
Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 17,678
Building Improvements 0 0 0 0 0 0
Durable Medical Equip 0 0 0 0 0 0
Computer Hardware 1,325 1,325 1,325 1,325 1,543 15,572
Computer Software 0 0 0 0 0 0
------ ------ ------ ------ ------ -------
Depreciation Expense 9,975 8,021 8,353 8,353 8,225 97,473
Employee Relations 273 78 113 106 245 2,066
Temporary Services 3,095 930 560 80 1,696 6,966
Employee Education 0 83 0 14 48 1,770
Recruiting 0 167 0 0 42 411
Office Supplies 1,679 2,118 588 2,183 1,826 26,612
Independent Business 945 548 1,850 148 1,404 9,602
Small Equipment 0 0 0 0 0 0
Furniture & Equip Rentals 1,293 634 1,269 363 1,238 11,361
Repairs & Maintenance 447 707 311 896 825 8,819
Telephone 2,311 1,011 1,416 1,243 2,891 24,506
Cellular Phone 534 968 494 516 869 8,182
Advertising 335 568 455 716 559 6,853
Postage 635 42 1,055 698 759 7,425
Freight 15 34 60 13 73 576
Janitorial 0 349 698 487 352 4,752
Dues/Subscriptions 75 240 0 0 0 772
Professional Licenses 0 0 0 0 0 0
Uniforms 0 0 0 0 0 44
Computer 941 1,357 497 1,008 1,505 11,123
Utilities 1,028 1,226 13 2,720 1,150 12,190
General Taxes 54 0 0 2,597 16,338 19,252
Tax Penalty 0 0 0 0 0 0
Donations & Contributions 30 0 0 0 0 30
Property Taxes 2,135 2,135 2,135 2,135 1,118 20,288
LTC Link 0 0 0 0 0 0
Other Misc Income 445 (145) 66 (46) (3) 2,292
Other Misc Expense 128 0 21 192 (210) 348
------ ------ ------ ------ ------ -------
Other Misc Expenses 16,398 13,045 11,571 16,065 32,695 186,260
------ ------ ------ ------ ------ -------
Total Other Expenses 41,215 36,983 34,023 39,468 56,076 457,900
</TABLE>
Page 17
<PAGE> 116
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
Desc October November December January February March April
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Partner Service Charges
Bad Debt Facility 2,104 2,033 1,785 1,754 1,642 1,503 1,070
Bad Debt Medicare 7,236 8,809 4,388 5,170 8,738 1,954 5,154
Bad Debt Medicaid 3,794 3,527 3,602 3,802 2,937 4,172 5,656
Bad Debt Private 6,972 5,477 6,162 6,828 8,840 6,329 6,027
Bad Debt Other 837 676 237 650 755 750 1,068
------- ------- ------- ------- ------- ------- -------
Bad Debt 20,473 20,522 16,174 18,202 20,552 14,708 18,975
Total Operating Expense 150,973 157,791 146,551 161,754 154,784 132,023 142,306
Amortization Nondeductible 0 0 0 0 0 0 0
Amortization Deductible 0 0 0 0 0 0 0
Earnings From Operations 67,347 36,731 31,069 39,630 53,628 46,944 74,093
Interest Income/Dividend 0 0 0 0 0 0 0
Interest Expense 1,692 1,465 1,381 1,371 1,334 1,510 1,000
Minority Interest 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Earnings Before Allocation 65,655 35,266 29,688 38,259 52,294 45,434 73,093
Corporate Allocations 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Earnings Before Taxes 65,655 35,266 29,688 38,259 52,294 45,434 73,093
State Income Tax 0 0 0 0 0 0 0
Federal Income Tax 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Income Tax 0 0 0 0 0 0 0
Net Income 65,655 35,266 29,688 38,259 52,294 45,434 73,093
======= ======= ======= ======= ======= ======= =======
Percent to Sales
- -----------------
Salaries % 21.4% 23.2% 22.8% 21.4% 20.1% 20.4% 18.0%
Vehicle % 0.1% 0.9% 0.5% 1.1% 0.7% 0.4% 0.6%
Professional Services % 0.0% 0.0% 0.5% 0.3% 0.4% 0.0% 0.0%
Space Rental % 1.3% 1.5% 1.6% 1.4% 2.0% 2.1% 1.0%
Depreciation % 1.3% 1.7% 2.4% 1.7% 1.6% 1.9% 1.5%
Other Misc. Expense % 2.1% 3.3% 3.4% 4.2% 3.3% 2.0% 2.9%
Total Other Expenses % 5.4% 8.2% 9.4% 9.4% 8.7% 7.6% 6.7%
Bad Debt % 4.2% 4.7% 4.0% 3.9% 4.4% 3.5% 3.8%
Total Op. Expense % 31.0% 36.1% 36.2% 34.7% 33.2% 31.5% 28.4%
Earnings From Operations % 13.5% 8.1% 7.3% 8.2% 11.2% 10.8% 14.6%
Net Income % 13.5% 8.1% 7.3% 8.2% 11.2% 10.8% 14.6
</TABLE>
AMERICAN PHARMACEUTICAL SERVICES, INC.
Austin
September 30, 1996
<TABLE>
Desc May June July August September YTD Actuals
- -------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Partner Service Charges
Bad Debt Facility 1,970 503 996 690 971 17,021
Bad Debt Medicare 5,391 10,331 98 1,832 5,014 64,115
Bad Debt Medicaid 5,526 5,263 6,031 6,268 5,752 56,328
Bad Debt Private 7,101 5,610 6,606 8,457 (78,596) (8,549)
Bad Debt Other 503 301 488 823 471 7,089
------- ------- ------- ------- ------- -------
Bad Debt 20,491 22,008 14,219 16,068 (66,388) 138,004
Total Operating Expense 159,089 155,577 156,720 129,039 85,037 1,732,544
Amortization Nondeductible 0 0 0 0 0 0
Amortization Deductible 0 0 0 0 0 0
Earnings From Operations 71,685 65,350 24,205 48,160 123,659 682,501
Interest Income/Dividend 0 0 0 0 0 0
Interest Expense 1,627 1,214 1,206 1,193 1,100 16,093
Minority Interest 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Earnings Before Allocation 70,058 64,136 22,999 46,967 122,559 666,408
Corporate Allocations 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Earnings Before Taxes 70,058 64,136 22,999 46,967 122,559 666,408
State Income Tax 0 0 0 0 0 0
Federal Income Tax 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Income Tax 0 0 0 0 0 0
Net Income 70,058 64,136 22,999 46,967 122,559 666,408
======= ======= ======= ======= ======= =======
Percent to Series
- -----------------
Salaries % 18.3% 18.9% 22.8% 15.8% 18.9% 20.1%
Vehicle % 0.8% 0.7% 0.7% 0.7% 0.8% 0.7%
Professional Services % 0.1% 0.4% (0.0%) 0.4% 0.3% 0.2%
Space Rental % 1.3% 1.4% 1.6% 1.5% 1.5% 1.5%
Depreciation % 1.9% 1.6% 1.8% 1.6% 1.6% 1.7%
Other Misc. Expense % 3.1% 2.6% 2.4% 3.4% 6.5% 3.3%
Total Other Expenses % 7.8% 7.3% 7.2% 8.4% 11.1% 8.1%
Bad Debt % 3.9% 4.3% 3.0% 3.4% (13.1%) 2.4%
Total Op. Expense % 29.9% 30.5% 33.0% 27.6% 18.8% 30.5%
Earnings From Operations % 13.2% 12.6% 4.6% 10.0% 24.2% 11.7%
Net Income % 13.2% 12.6% 4.6% 10.0% 24.2% 11.7%
</TABLE>
Page 18
<PAGE> 117
SCHEDULE 6.14
NONCOMPLIANCE WITH ENVIRONMENTAL LAWS
NONE.
<PAGE> 118
SCHEDULE 6.17
OUTSTANDING LITIGATION
NONE.
<PAGE> 1
EXHIBIT 10.46
AGREEMENT OF PURCHASE AND SALE OF ASSETS
INTRODUCTION AND RECITALS
This Agreement of Purchase and Sale of Assets (the "Agreement") is
made and entered into this 24th day of November, 1997, by and between Robert
Crone-South Texas Health Care, Inc., a Texas corporation ("Seller") and Summit
Care Texas, LP, a Texas limited partnership or its affiliated nominee, ("Buyer"
or "Summit Care").
RECITALS
WHEREAS, Seller is:
(i) The lessee of a certain One Hundred and Ninety Four (194)-bed
nursing facility, commonly known as Briarcliff Nursing and
Rehabilitation Center, located at 3201 North Ware Road,
McAllen, Texas 78501, more particularly described on Exhibit
1.01(a)(i) hereto and hereby incorporated herein by reference
(the "Facility"), pursuant to a lease, dated July 1, 1993, by
and between Seller, as "Lessee" and Lloyd Hobbs, as "Lessor,"
as amended by that certain First Amendment to Lease, dated
April 9, 1996, (collectively the "Lease"), between Seller and
Hobbs & Curry Family Limited Partnership, a Texas partnership
and successor-in-interest to Lloyd Hobbs, as "Lessor," copies
of which are also attached as part Exhibit 1.01(a)(i) hereto
and hereby incorporated herein by reference (hereinafter, the
term "Owner" shall be used to refer to both Lloyd Hobbs and to
Hobbs & Curry Family Limited Partnership during their
respective ownership of the Facility); and
(ii) A party to that certain "Option Agreement," dated August 2,
1992, as amended by that certain Amendment to Option
Agreement, dated April 9, 1996 (collectively the "Option
Agreement"), copies of which are attached as Exhibit
1.01(a)(ii) hereto and hereby incorporated herein by
reference, whereby Owner has granted Seller an option to
purchase fee title to the Facility, exercisable on the terms
therein set forth; and
(iii) The fee owner of a certain parcel of vacant land comprising
approximately 1.8 acres, situated adjacent to the Facility
(the "Adjacent Land"), more particularly described on Exhibit
1.01(a)(iii) hereto and hereby incorporated herein by
reference, subject to that certain deed of trust dated October
26, 1995 ("Trust Deed"), to Allen Shields, as "Trustee," a
copy of which is also attached as part of Schedule 1.01(a)
(iii) hereto and hereby incorporated by reference; and
<PAGE> 2
(iv) The owner or lessee of all supplies, machinery, equipment,
fixtures, inventory and all other items of personal property
utilized in the operation of all of the foregoing, as
hereinafter defined; and
WHEREAS, the Seller desires to sell and assign Buyer desires to
purchase and assume the Seller's interest in the Facility, and the Assets of
Seller, as more fully defined herein, on the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and for other good and valuable consideration, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Description of Assets. Subject to the terms and conditions of
this Agreement, as of the Closing Date, as defined in Article IX herein, Seller
shall convey, assign and transfer to Buyer and Buyer shall accept good and
indefeasible title to the following assets as the same may exist on the Closing
Date (collectively referred to as the "Assets").
(a) All of Seller's right, title and interest in and to
the Facility, including without limitation, the real property, structures,
fixtures, paving, surfacing and improvements therein (collectively referred to
as the "Premises"), which real property is more particularly described on
Exhibit 1.01(a)(i) attached hereto, and which shall be conveyed to Buyer
pursuant to an assignment of Seller's interest in the Lease and Option
Agreement, with the written consent of the Owner thereto;
(b) All personal property, except supplies, as defined
below, such as furniture, fixtures, vehicles, and equipment located in and upon
the Premises as of the Closing or used in the operation of the Premises as a
nursing facility (the "Personal Property"), more particularly described on
Exhibit 1.01(b) attached hereto;
(c) Seller's interest in any and all leases, contracts,
service contracts and other agreements used in the operation of the Facility
which Buyer has expressly agreed to assume in addition to the Lease and Option
Agreement, copies of which are attached hereto as set forth in Exhibit 1.01(c)
("the Contracts");
(d) Seller's interest in any and all patient records and
agreements, personnel records, provider agreements, records of inspection of the
Facility by local, state and federal agencies, records of construction,
architectural plans of the improvements on the Premises, including as built
plans and surveys, construction
2
<PAGE> 3
contracts and specifications, as such presently exist in and upon the Premises;
(e) All of Seller's right, title and interest in and to
the use of the name "Briarcliff Nursing and Rehabilitation Center";
(f) All of Seller's right, title and interest in and to
any and all drugs, medicines, foods, linens or other supplies used in connection
with the operation of the Facility, but in any event not less than the normal
and usual operating compliment of supplies necessary to last ten (10) days in
the ordinary course of Seller's business operations at the Facility (the
"Supplies"); and
(g) All of Seller's right, title and interest in and to
any and all licenses, permits and authorizations obtained in connection with the
operation of the Facility which are transferable, copies of which are attached
hereto as Exhibit 1.01(g).
1.02 Liabilities and Assets Excluded. The following tangible and
intangible assets and liabilities of Seller are being retained by Seller and are
expressly excluded from the Assets being Purchased by or transferred to Buyer:
(a) Seller's cash on hand, or in bank accounts and
investments;
(b) Seller's accounts receivable as of the Closing Date;
(c) All of Seller's leases, contracts, service contracts
or other commitments, if any, not expressly assumed by Buyer as provided on
Exhibit 1.01(c) hereto;
(d) Any and all property of patients held by Seller as
security for or in lieu of payment for Seller's accounts receivable;
(e) Any and all debts, obligations or liabilities of
Seller relating to the Assets, unless expressly assumed herein by Buyer on
Exhibit 1.01(c) attached hereto;
(f) Any and all liabilities of Seller for injuries,
damages, acts or omissions relating to the Facility or the Assets prior to the
Closing Date;
(g) Any and all claims of or obligations to the United
States under the Medicare Program, or to the State of Texas under the Medicaid
Program, or other third-party payors, arising out of the operations of the
Assets prior to the Closing Date;
3
<PAGE> 4
(h) Any and all federal and state tax liabilities
including for sales tax payable with respect to periods prior to the Closing and
sales, use or excise tax payable with respect to the within transaction and the
assets transferred hereunder;
(i) Seller's proprietary computer software, and those
proprietary forms and manuals owned by or developed for Seller for use at the
Facility; and
(k) All other items of personal property set forth on
Exhibit 1.02 hereto (collectively, the "Excluded Assets").
ARTICLE II
PURCHASE PRICE
The purchase price (the "Purchase Price") which Buyer agrees to pay and
Seller agrees to accept for the Assets is Three Million Nine Hundred Thousand
Dollars ($3,900,000.00), to be paid to Seller in accordance with the provisions
of this Article II.
2.01 Earnest Money Deposit. Seller acknowledges that Buyer has
deposited the sum of One Hundred Thousand Dollars ($100,000.00) as an earnest
money deposit ("Deposit") with Wanda Keller, Senior Vice President and Escrow
Officer, First American Title Company, Houston, Texas ("Escrow Holder"), to be
held in an interest-bearing escrow account pending the Closing and subject to
the terms and conditions of this Agreement, to be applied to the payment of the
Purchase Price at Closing. The Deposit and all interest accrued thereon shall be
refundable in full to Buyer upon written request of Buyer for any reason
delivered on or before September 16, 1997, and thereafter shall be refundable to
Buyer should the contemplated transaction fail to close on or before October 31,
1997, for any reason other than the default of Buyer hereunder, and as provided
by Section 7.18 of this Agreement.
2.02 Cash. Buyer shall pay in immediately available funds to Seller
the cash portion of the Purchase Price by wire deposit to Seller at Closing,
less the Deposit and all accrued interest thereon and less the Adjustment
Retention Fund (as provided in Section 2.04 below).
2.03 Adjustments. The Purchase Price shall be adjusted upward
within forty-five (45) days of the Closing as of the Effective Date to the
extent, if any, that Buyer derives a benefit from any prepaid items of Seller,
including, but not limited to taxes, expenses and insurance and to the extent
Buyer succeeds to Seller's position with respect to Seller's deposits for
utilities, such as telephone, water, gas, electricity or sewer. The Purchase
Price shall be adjusted downward within forty five (45) days of Closing as of
the Effective Date to the extent that Seller has not fully paid and discharged
all payables, charges, expenses, costs,
4
<PAGE> 5
taxes or assessments accruing on or before the Effective Date, including
employee vacation pay or for other employee benefit programs of Seller. All
adjustments at or after Closing shall be in cash.
2.04 Adjustment Retention Fund. Escrow Holder shall retain, from
the cash portion of the Purchase Price payable to Seller at Closing, the sum of
Twenty Thousand Dollars ($20,000.00) as a retention fund (the "Adjustment
Retention Fund") from which Escrow Holder shall, upon instructions from Buyer
and Seller, deduct adjustments to the Purchase Price, if any, to be made
following the Closing. The Adjustment Retention Fund, less any such adjustments,
shall be delivered to Seller and all adjustments shall be delivered to Buyer no
later than forty-five (45) days following the Closing Date.
2.05 Prorations, Credits, Costs. The following items shall be
apportioned and prorated as of the Closing Date:
(a) Property Taxes. General county, city and school taxes
on a fiscal year basis for the Premises and for the personal property (including
taxes impounded with Mortgage lenders).
(b) Insurance. There shall be no proration of Seller's
prepaid insurance premiums as Buyer shall provide its own insurance coverage.
Seller shall be entitled to receive any refunds of any such prepaid insurance
premiums.
(c) Rents, Utilities and Deposits. All rents, utilities
shall be paid to the Closing Date by Seller. Seller shall be entitled to a
refund for any utility deposits.
(d) Employee Sick, Holiday, Vacation Pay, Etc. Seller
shall credit to Buyer against the Purchase Price a sum equal to the equivalent
of employee wages for all employee vacation pay or other employee benefits
earned or accrued prior to the Closing Date. Such credit shall reduce the cash
payment required of Buyer at Closing as provided in Section 2.02 above.
(e) Closing Costs. Buyer shall pay for the cost of
recordation of the Assignment of Lease and the Assignment of Option Agreement.
Buyer and Seller shall each pay fifty percent (50%) of the statutory cost of a
leasehold title insurance policy with the survey exception removed. Buyer and
Seller shall each pay fifty percent (50%) for the cost of the survey and Seller
shall pay any transfer tax applicable to recordation of the Assignment of Lease
or the Assignment of Option Agreement, any recordation fees for other
instruments required to clear title hereunder, and any sales or use taxes, if
applicable, to this transaction. Personal and real property taxes will be
prorated as of the Closing Date.
5
<PAGE> 6
(f) Employer's Taxes. Seller shall be responsible for
all business, occupation, withholding, FICA, unemployment and similar taxes of
any kind, including both the employer's and employee's portion of any such tax,
relating to any period prior to the Closing Date, including taxes on employee
sick, holiday and vacation pay.
(g) Prepaid Services. Any advance payments made by
residents of the Facility for services to be rendered after the Closing Date
shall be paid to Buyer at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as of the Execution Date
and the Closing Date (the truth and accuracy of which shall constitute a
condition precedent to Buyer's obligations hereunder) as follows:
3.01 Organization. Seller is a duly organized and validly existing
Texas subchapter S corporation, and is in good standing in the State of Texas.
Seller has full power and authority to own and lease its properties and to carry
on its business as presently conducted. Robert Crone and Kelly Baily are the
sole shareholders of Seller.
3.02 Authority. The execution, delivery and performance of this
Agreement has been duly authorized by the Seller in accordance with its articles
of incorporation and bylaws and no further action by Seller will be required to
make this Agreement valid and binding upon Seller in accordance with its terms.
Except as provided on Exhibit 3.02 attached hereto, the execution, delivery and
performance of this Agreement will not cause any default in or breach of any
provisions of any applicable law, rules or regulations, or any indenture,
mortgage, loan agreement, contract, lease or other instrument to which Seller is
a party or by which it or any of its property or assets are bound.
3.03 Financial Statements. Exhibit 3.03 attached hereto sets forth
the unaudited balance sheets and operating statements of Seller for the eight
(8) months ended August 31, 1997 and shall be updated at Closing to include the
nine (9) ending on September 30, 1997, and unaudited financial statements
compiled and reviewed by Jody Turner, Seller's accountant, for the same period
(collectively, the "Financial Statements"). The Financial Statements attached
hereto as Exhibit 3.03 have been prepared in accordance with generally accepted
accounting principles consistently followed and fairly present the operating
position of the Facility as of the respective dates and the results of
operations for the respective periods indicated. Seller agrees to cooperate with
Buyer and use its best efforts in furnishing any
6
<PAGE> 7
financial information of Seller required by Buyer for filing with the Securities
and Exchange Commission after Closing.
3.04 Tax Returns. Within the times and in the manner prescribed by
law, Seller has filed all federal, state and local tax returns required by law
and has paid all taxes, assessments, and penalties due and payable. The
provisions for taxes reflected in Seller's Financial Statements, are adequate
for any and all county, school and local property taxes for the period ending on
the date of the most recent balance sheet and for all prior periods, whether or
not disputed. There are no present disputes as to taxes of any nature payable by
Seller.
3.05 Absence of Changes. Except as provided on Exhibit 3.05, since
the date of the latest Financial Statements of Seller, there has not been any
material change in the financial condition or operations of Seller, except
changes in the ordinary course of business.
3.06 Liabilities. Exhibit 3.06 to this Agreement contains a true
and complete schedule of all known liabilities and obligations of Seller except
those incurred in the ordinary course of business. Seller acknowledges that
Buyer shall not be obligated for any liabilities or obligations of Seller of any
kind or nature in connection with this Agreement, whether absolute, accrued,
contingent, known, unknown or otherwise, except for liabilities of Seller which
Buyer has expressly agreed to assume as provided on Exhibit 1.01(c) and Seller
hereby indemnifies and holds Buyer harmless from any such liabilities not so
assumed.
3.07 Title to Property. Seller is the lessee of the Property
subject only to the Permitted Exceptions provided for in paragraph 5.01, Seller
will deliver to Buyer at Closing good and marketable leasehold title to the
Property. Seller is in possession of all Property leased from others.
3.08 Condition of Property. To the best of Seller's knowledge and
except as provided on Exhibit 3.08 attached hereto, as of the Closing Date, the
Premises and personal property of Seller being conveyed or assigned herein will
be in good operating condition and repair, subject only to ordinary wear and
tear. Seller shall disclose to Buyer on Exhibit 3.08 any known material defect
or deficiency with regard to the structure, soil, fixtures or equipment of the
Premises which would materially impair the use or value of the Premises, and any
known material defect or deficiency with regard to the plumbing, electrical,
mechanical or other system of the Premises which would materially impair the use
or value of the Premises.
3.09 Real Property Description and Zoning. Exhibit 1.01(a) to this
Agreement is a legal description of the Premises leased by Seller and included
in this transaction. To the best of Seller's
7
<PAGE> 8
knowledge, the zoning of each parcel of property described on, Exhibit 1.01(a)
permits the existing improvements as constituted and the continuation of the
business presently being conducted on each such parcel.
3.10 Encroachments. To the best of Seller's knowledge, there are no
encroachments onto the Property except as may be revealed by the Survey, and all
improvements constituting part of such real properties located thereon are
entirely located on the real properties being conveyed or transferred to Buyer
pursuant to this Agreement without encroachment on any other property
whatsoever, and none of such improvements encroach upon any known easement or
right of way affecting such real property. As a condition to Closing, Buyer and
Seller shall each pay fifty percent (50%) of the cost of a real property survey
of the Property, by a registered land surveyor in the State of Texas, in a form
reasonably satisfactory to Buyer, certifying such facts which shall be attached
hereto as Exhibit 3.10.
3.11 Personal Property Description. Exhibit 1.01(b) to this
Agreement is a schedule of machinery, equipment, furniture, supplies, vehicles,
tools, and other tangible personal property owned by, in the possession of, or
used by Seller in connection with the business now being conducted at the
Facility (except fixtures and inventories of Supplies and items excluded
pursuant to this Agreement). Except as provided on Exhibit 3.11 or on the list
of Contracts attached as Exhibit 1.01(c), no personal property used by Seller
in connection with the Facility or the business conducted thereon is held under
a security agreement, conditional sales contract, lease, or other title
retention or security arrangement or is located other than in the possession of
Seller at the Facility. Exhibit 1.02 lists personal property on the premises of
the Facility which is excluded from sale and which may be removed from the
Facility by Seller at any time prior to or after the Closing Date, except that
all such items shall be removed within five (5) business days of request by
Buyer after the Closing Date.
3.12 Contracts, Leases, Commitments. Except as provided on Exhibit
1.01 (c) as of the date of Closing, there will be no contracts, agreements, or
commitments of any kind relating to the business at the Facility which will
affect Buyer on the Premises subsequent to the Closing Date, other than those
that can be terminated on thirty (30) days, notice, without penalty or further
payment. Seller is not a party to, nor is the Premises bound by any agreement
that is materially adverse to the business as presently conducted at the
Facility or those that have been excluded from sale by mutual written agreement
of the parties and for which Seller shall remain liable.
3.13 Defaults. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any of
the following: (1) any violation or breach of
8
<PAGE> 9
any term or provision of this Agreement; (2) a default or an event that with
notice or lapse of time or both, would result in a default, breach, adverse
modification or violation of any lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, deed of trust, or any other
agreement, instrument or arrangement to which Seller is a party or by which
Seller or the Premises is or may be bound; (3) an event that would permit any
party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of Seller or the Facility, or; (4) the creation
or imposition of any lien, charge or encumbrance on any of the Property.
3.14 Adverse Claims, Litigation and Proceedings. Except as shown on
Exhibit 3.14, Seller knows of no material claims by creditors or other parties
against Seller, actual or contingent, direct or indirect, liquidated or
unliquidated, or otherwise affecting Seller, at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
which involve the possibility of any judgment or liability not fully covered by
casualty or liability insurance or for which provision for payment has not been
made or which would impose any liability on Buyer or the Facility. Seller is not
in default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitration or governmental department,
commission, board, bureau, agency or instrumentality. Seller is not aware of any
pending or potential condemnation action with respect to the property to be
transferred hereby. Seller acknowledges that Buyer shall not be obligated for
any liabilities or obligations of Seller of any kind or nature in connection
with this Agreement, whether absolute, accrued, contingent, known, unknown or
otherwise, except for liabilities of Seller which Buyer has expressly agreed to
assume as provided herein and Seller hereby indemnifies and holds Buyer harmless
from any such liabilities not so assumed.
3.15 Labor Relations, Employment Policies and Benefits. Seller is
not a party to nor is it bound by any employment contracts, collective
bargaining agreements, pension, bonus, profit sharing, stock option or other
agreements or arrangements for the benefit of or relating to its employees.
Seller agrees to save, indemnify and hold Buyer harmless of and from any and all
liability, responsibility, loss, cost or expense of any nature whatsoever,
arising out of or relating to any of Seller's employment policies for all
periods prior to the Closing Date. Seller acknowledges that, except to the
extent required by law, or to the extent disclosed by Seller and assumed by
Buyer, Buyer is not assuming any of Seller's obligations to its employees.
Attached as a part of Exhibit 3.15 hereto are copies of Seller's vacation and
holiday policies and all other employment policies and practices not set out in
those policies, to which Seller is a party or by which Seller may be bound, and
Seller is not in default under
9
<PAGE> 10
any of them. There have been no claims of default, and, to the best knowledge of
Seller, there are no facts or conditions which, by their existence or on notice,
will result in a default under these policies. Except as set forth in Exhibit
3.15 hereto, there has been no union election or material organizational
activity affecting the employees of Seller. Except as described in Exhibit 3.15,
there is not, to Seller's knowledge, any pending or threatened labor dispute or
work stoppage affecting Seller's business. Exhibit 3.15 attached hereto sets
forth a list of all employees of Seller at the Facility and a schedule of their
rates of pay, length of employment, and earned (and accrued, if any) vacation
and sick leave benefits, as of the Closing Date. Such earned and accrued
vacation and sick leave benefits shall be calculated for each employee on a true
accrual basis (to include both earned and unearned benefits).
3.16 Compliance with Laws, Regulations and Licensure.
(a) Seller has complied with and is not in violation of
applicable federal, state or local statutes, laws or regulations (including,
without limitation, any applicable building, zoning, or other law, ordinance or
regulation affecting the Premises) in the operation of the Facility as now
conducted. To Seller's knowledge, except as set forth in the most recent survey
and certification inspection reports and plan of correction on the Facility,
dated which are attached hereto as Exhibit 3.16, there have been no notices of
violation of any applicable law, order, ordinance, rule, regulation or
requirement, or of any covenant, condition or restriction affecting or relating
to the use of occupancy of the Premises issued by any governmental agency having
jurisdiction over the Premises or by any other person entitled to enforce the
same. To the best of Seller's knowledge, Seller shall have fully complied at its
sole expense prior to Closing with the requirements of any outstanding plan of
correction formulated in response to any inspection survey, with the exception
of those items listed on the latest survey and plan of correction, attached as
Exhibit 3.16 hereto, which Buyer agrees to review and, unless Buyer notifies
Seller to the contrary on or before September 16, 1997, which Buyer agrees to
correct at Buyer's expense.
(b) Seller has obtained and is not currently in violation
under all permits, licenses, provider agreements and other authorizations
required by Seller for the operation of the Facility as now conducted, all of
which are in full force and effect. There is no suit, action, administrative, or
other proceeding, or governmental investigation pending or threatened to
withdraw or revoke such permits, licenses, provider agreements or other
authorizations.
10
<PAGE> 11
(c) The Facility is currently licensed as follows: 194
beds, of which 120 are licensed Medicaid, 36 are licensed Medicare/Medicaid, and
38 are Private.
3.17 Cost Reports. Seller shall deliver to Buyer prior to Closing
copies of Seller's last three (3) fiscal year cost reports, as filed with and
audited by desk audit by the appropriate Medicare and Medicaid agencies. To the
extent either or both of the Medicare or Medicaid reimbursement Programs have
not audited the last three (3) fiscal year cost reports filed with the
respective agency, Seller shall, in addition, deliver to Buyer a copy of the
most recently audited cost report for each reimbursement program, such copy to
include a copy of the audit report and all adjustments made pursuant to or
subsequent to the said audit. Seller shall prepare and file with the appropriate
Medicare and Medicaid agencies its final cost reports in respect to its
operation of the Facility as soon as practicable after the Closing Date. In the
event the federal or state agencies making payments to Seller for services
performed prior to the Closing Date make any claim for reimbursement of
overpayment occurring for any such period, then Seller agrees to save, indemnify
and hold Buyer harmless from and against any and all loss, damage, injury or
expense incurred by Buyer because of any such claim, or in the event that a
claim is made against Buyer in respect to the right to reimbursement for periods
prior to the Closing Date. It is specifically contemplated by the parties that
indemnification shall include, without limitation, any liability under Section
1128A of the Social Security Act, as amended. If, following the transfer of
licensure, Buyer receives payment from any federal or state agency which
represents reimbursement in respect to underpayments made to Seller for services
rendered prior to the Closing Date, then Buyer shall promptly remit such
payments to Seller.
3.18 Insurance. Exhibit 3.18 contains a description of all
insurance policies held by Seller concerning the Premises and the business as
now conducted. All the insurance policies are in the respective principal
amounts as set forth on Exhibit 3.18 and Seller has maintained continuously,
without gaps in coverage for the five (5) years preceding the Closing Date
insurance as described Exhibit 3.18. Seller shall obtain, if necessary, tail
coverage for any gap in coverage for occurrences up to the Closing Date.
3.19 Patient Trust Accounts. Exhibit 3.19 contains a true, correct,
and complete accounting, properly reconciled as of the Closing Date, of all
patient trust funds held by Seller in respect to the Facility.
3.20 Average Patient Census. Attached hereto as Exhibit 3.20 are
true and correct summaries of the current patient census ("Census") of the
Facility showing the sources of payments (i.e.
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Medicare, Medicaid, private or other) for each of the last two (2) years of
Seller.
3.21 Full Disclosure. Seller has disclosed all facts, information,
events and transactions relating to the Facility and the assets transferred
herein, to the best of its knowledge and ability. Seller has made no
representation which it knows to be false or inaccurate or which it knows
contains or will contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein misleading.
Seller shall make such additions, corrections and supplements to the Exhibits as
are necessary up to the Closing Date to make disclosures complete in all
respects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as of the Execution Date
and the Closing Date (the truth and accuracy of which shall constitute a
condition precedent to Seller's obligations hereunder) as follows:
4.01 Organization. Buyer is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Texas,
having full power and authority to enter into this Agreement and to perform its
obligations hereunder. Buyer is in good standing or authorized to do business in
the State of Texas.
4.02 Authority. The execution, performance and delivery of this
Agreement by Buyer has been duly authorized by Buyer and no further action of
Buyer will be required in order to make this Agreement valid and binding upon
Buyer in accordance with its terms and conditions. This Agreement will not
violate or breach Buyer's constituting instruments, any contract to which Buyer
is a party or by which Buyer may be bound, or any judgment, ruling or court
order purporting to bind Buyer.
4.03 Third Party Consults. Except for licensure and other normal
approvals for a transaction of this type, this purchase and sale is not subject
to approval or consent of any governmental or regulatory authority and no such
consent or approval is required as a condition to the validity or enforceability
of the obligations of Buyer hereunder.
4.04 Litigation. Buyer is not aware of any litigation pending,
threatened or anticipated involving Buyer which would or might materially,
adversely, directly or indirectly affect the enforceability of this Agreement or
the ability of Buyer to perform its obligations hereunder.
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ARTICLE V
CONDUCT OF SELLER PRIOR TO CLOSING
Seller hereby covenants and agrees as follows (the fulfillment of which
constitutes a condition precedent to Buyer's performance hereunder):
5.01 Title Insurance Commitment. Not later than thirty (30) days
prior to Closing, Buyer shall obtain a title insurance commitment with respect
to the Premises (Texas Department of Insurance promulgated form) attached hereto
as Exhibit 5.01, issued by such title insurer as is agreed upon by the parties.
Buyer shall have twenty (20) days from the date of receipt of title commitment
to examine the condition of Seller's title. If Buyer determines title to be
defective, Buyer shall notify Seller, in writing, within said twenty (20) day
period of its objections to title. Seller shall have fifteen (15) days from
receipt of such notice to remove the defects of title at Seller's expense. If
Seller is unable to remove them within the aforesaid period, Buyer shall have
the option of (a) accepting title in its defective condition or, (b) terminating
this Agreement, whereupon Buyer and Seller shall be released of all further
obligations hereunder and the Deposit, with all accrued interest, shall be
returned to Buyer. Seller shall use its best efforts to correct any defects of
title within the applicable time period, including applying Purchase Price
proceeds reasonably required to remove the disapproved items and, if necessary,
by filing law suits. Any exceptions to or conditions upon or defects of title as
reflected in said Title insurance commitment which (a) are not specifically and
timely objected to by Buyer; or (b) which after objection are waived by Buyer,
shall be deemed to be Permitted Exceptions and Buyer agrees to accept title at
Closing with all Permitted Exceptions.
5.02 Survey: Environmental Report Study. Not later than twenty (20)
days prior to Closing, Buyer shall receive a survey of the Premises identified
on Exhibit 1.01 certified by a registered surveyor, sufficient to remove the
survey exception from the aforementioned title insurance policy. The survey
shall indicate all setbacks, structures, easements, encroachments, routes of
access and dimensions. If the survey indicates an encroachment or violates the
terms of this Agreement, the encroachment or violation shall be resolved or
accepted in the manner specified in paragraph 5.01 above for removing defects of
title. Concurrently with obtaining the survey, Buyer shall obtain at Buyer's
expense, a Phase I Environmental Study ("Environmental Study") with respect to
the Premises. If the Environmental Study indicates a problem it shall be
resolved or accepted in the manner set forth in Paragraph 5.01 above.
5.03 UCC Clearance. Within fifteen (15) days after the date hereof,
Seller shall deliver to Buyer an appropriate certificate from the Uniform
Commercial Code filing officer of the State of
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Texas with respect to the Personal Property to be transferred herein, showing
all existing creditors of Seller having a security interest in any of such
Personal Property.
5.04 Conduct of Business. Prior to the Closing Date, Seller shall
carry on its business substantially in the manner as previously carried out at
the Facility in its ordinary course, including doing the following:
(a) Seller shall, to the best of its ability, maintain
the goodwill of suppliers, distributors, residents, employees, and others having
a business relationship with Seller;
(b) Seller shall, to the best of its ability, perform all
maintenance and repairs necessary to keep the Facility in good operating
condition and repair, including maintaining supplies and inventory at levels
consistent with Seller's operations in the ordinary course of business;
(c) Except with the prior approval of Buyer, Seller shall
not enter into or terminate any agreements, leases, or commitments, except in
the ordinary course of business;
(d) Seller shall maintain an average occupancy rate and
patient mix at the Facility consistent with the representations made by Seller
in Section 3.20 above;
(e) Except in the ordinary course of business, Seller
shall not increase the rate of compensation payable to become payable to
Seller's employees;
(f) Seller shall not execute any union agreement with any
collective bargaining unit or union representatives without Buyer's prior
consent;
(g) Seller shall maintain all permits, licenses and other
authorizations required for the lawful operation of the Facility;
(h) Seller shall not sell or remove any of the Property
on the Premises without Buyer's prior approval except in the ordinary course of
business or those items listed on Exhibit 1.02;
(i) Seller shall not implement any new employment
agreements, bonus plans, employee benefit plans, etc. without Buyer's prior
written approval; and
(j) Seller shall not change its personnel policies
without Buyer's prior written approval.
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5.05 Feasibility Inspection of Premises. The exhibits were not
available for the Buyer's review and approval prior to execution of this
Agreement. Therefore, Buyer and Seller agree that the following dates shall
govern with respect to the Buyer's review and approval of exhibits and Facility.
On or before September 1, 1997 shall be the date for all of Seller's preliminary
exhibits. Buyer shall have until September 16, 1997, at 5:00 p.m., Central
Standard Time, (the "Feasibility Period") to review, approve and inspect the
Facility, Assets, exhibits and all of the books and records maintained at the
Facility relevant to the operation of the Facility. Buyer shall maintain strict
confidentiality of all information obtained during its inspection. Buyer shall
have the right to terminate this Agreement if it is not satisfied with any
material aspect of the condition of the Assets, including but not limited to,
the Property, Premises, Personal Property and operations of the Facility at the
end of the Feasibility Period. Buyer's failure to terminate this Agreement on or
before the expiration of the Feasibility Period shall be deemed as Buyer's
agreement to proceed to Closing. Exhibits that state information as of the
Closing Date will be amended three (3) days before the Closing Date and
substituted on the Closing Date.
5.06 Insurance. Seller shall maintain until Closing all existing
insurance policies covering the Facility and the Premises, including those
policies listed on Exhibit 3.18 attached hereto.
5.07 Accounts Payable. Seller shall pay all accounts payable at the
Facility for goods received prior to the Closing Date, the liability for which
has been incurred by Seller.
ARTICLE VI
BUYER'S CONDUCT PRIOR TO CLOSING
6.01 Licensure. Buyer shall use its best efforts and due diligence
to obtain a license from the Department of Human Services of the State of Texas
authorizing Buyer to operate the Facility as presently represented to be
licensed and to obtain Medicare and Medicaid certification and provider
agreements thereunder.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before Closing, of all of the conditions set forth in this
Article VII. Buyer may waive any or all of these conditions in whole or in part
without prior notice; provided that no such waiver shall constitute a waiver by
Buyer of any of its other rights or remedies at law or in equity if Seller shall
be in default of any of its representations, warranties or covenants under this
Agreement.
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7.01 Certificate Regarding the Accuracy of Representations. Except
as provided otherwise on an exhibit attached hereto, all representations of
Seller in this Agreement or in any written statement delivered to Buyer under
this Agreement shall be true at Closing as though made again at that time. A
certificate of Seller dated the Closing Date executed by an officer of Seller
shall be provided to Buyer at Closing to certify the same.
7.02 Good Standing Certificate. Seller shall deliver to Buyer a
certificate of good standing issued by the Secretary of State of Texas.
7.03 UCC Clearance. Seller shall deliver an appropriate certificate
from the Uniform Commercial Code filing officer of the State of Texas with
respect to the Personal Property to be transferred herein, showing all existing
creditors of Seller having a security interest in any of such Personal Property.
All such security interests shall be released prior to Closing or through escrow
at Closing.
7.04 Opinion of Seller's Counsel. Seller shall deliver a favorable
opinion of counsel to Seller, dated the Closing Date, in form and substance
satisfactory to Buyer, stating that (i) the instruments of conveyance,
assignment and transfer of the Property delivered by Seller to Buyer hereunder
have been duly authorized, executed and delivered, and are legal, valid and
effective for the purpose of conveying to Buyer Seller's, good and marketable
title to the Property; (ii) except as may be specified by such counsel, counsel
does not know of any litigation, proceeding or governmental investigation
pending or threatened against or relating to the Facility, Seller or the
Property, nor of any basis for any such litigation, proceeding or governmental
investigations; (iii) all proceedings required by law or by this Agreement to be
taken by Seller in connection with the transactions contemplated hereunder have
been duly and validly taken; (iv) Seller has complete and unrestricted corporate
power to convey, assign and deliver to Buyer all of the Property, and the
conveyance and transfer of the Property has been duly authorized by Seller's
Board of Directors and are not Contrary to Seller's articles of incorporation or
bylaws; (v) such Counsel has no knowledge of any defects in the title to any of
the Property, or of any claims asserted by others of rights or interests in such
Property, and there are no restrictions upon the vesting of title to the
Property in Buyer; (vi) no consent or approval of any third party not obtained
and in effect on the Closing Date is required to vest good and indefeasible
title to the Property in Buyer or to consummate the transactions contemplated
hereunder; (vii) such counsel has no knowledge or belief that would lead such
counsel to doubt the veracity of any of the covenants, representations or
warranties of Seller in this Agreement; and (viii) as to such other matters as
Buyer may reasonably request. In rendering the opinion, such counsel may rely as
to factual matters on certificates of Seller's
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officers and upon such other evidence as such counsel may deem necessary or
appropriate.
7.05 Consents. All third parties whose consents or authorizations
are required in order to convey and transfer to Buyer unencumbered, good and
marketable title to the Property shall have given such consents or
authorizations in writing.
7.06 Seller's Compliance. Seller shall have performed satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by Seller.
7.07 Actions, Suits, Proceedings. No action, suit or proceeding
before any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall have
been instituted on or before the Closing Date.
7.08 Title Insurance. At the Closing, there shall be delivered to
Buyer, as the insured, a standard Texas Department of Insurance promulgated form
extended coverage policy of title insurance, with endorsements sufficient to
remove the survey exception and other standard exceptions, in the amount of the
Purchase Price, issued by a qualified title insurance company, as provided in
Section 5.01 above, insuring Buyer as the fee owner of the Premises, showing as
exceptions only the permitted exceptions.
7.09 Survey; Environmental Study. Buyer and Seller shall each pay
fifty percent (50%) of the cost of a boundary line survey of the Premises
acceptable to Buyer and sufficient to remove the survey exception from the
aforementioned policy of title insurance showing the location of all structures,
improvements, rights of way, easements, setbacks, encroachments, access,
dimensions, and other matters affecting the Premises; prepared by a registered
land surveyor and a, at Buyer's expense, a Phase I Environmental Study, both of
which shall comply with the requirements of Section 5.02 hereof.
7.10 Licenses, Permits. Seller and Buyer agree that Buyer shall
have obtained in its name all permits, licenses and other governmental approvals
required for the operation of the Facility before the Effective Date, including,
but not limited to, the following: written approval or a waiver of the need for
such approval pursuant to Certificate of Need or Capital Expenditure Review
(Section 1122 of the Social Security Act, as amended), or any federal or state
Successor legislation, and a license issued by the State Department of Health to
operate the Facility with the same licensed bed capacity of the Facility as set
forth herein.
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7.11 Provider Agreements, Approvals, Certification. Buyer shall be
satisfied that, if applied for, signed provider agreements, new provider
numbers, and all appropriate Medicaid and Medicare approvals and certification,
if any, shall be obtainable.
7.12 Correction, Improvements. All corrections or improvements
required to be made to the improvements, to the Property by any federal, state
or local governmental agency or by any third party payor to effect transfer of
licensure, the Premises and all provider agreements to Buyer at Closing shall be
made or performed in accordance with Section 3.16 hereof prior to Closing. If
such corrections or improvements are due to deficiencies cited prior to the
Closing Date, they shall be made at Seller's expense. If Seller elects not to
make the required corrections or improvements, Buyer may terminate this
Agreement and receive a refund of Deposit, or accept the Facility without such
corrections or improvements and proceed to Closing. If such corrections or
improvements are due to deficiencies cited after the Closing Date, they shall be
made at the expense of Buyer.
7.13 List of Seller's Creditors. The Seller shall furnish to the
Buyer, in accordance with the requirements of the Uniform Commercial Code, a
list of Seller's existing creditors, signed and sworn to by an officer of the
Seller containing the names and business addresses of all existing creditors of
the Seller, with the amounts due to each creditor, and also the names of all
persons who are known to the Seller to assert claims against it even though such
claims are disputed. The Seller understands that, in accordance with the
provisions of the Uniform Commercial Code, the Buyer intends to deliver or send
appropriate notice to all the persons shown on the list of creditors furnished
by the Seller and to other persons, if any, who are known to the Buyer to hold
or assert claims against the Seller. The Seller will cooperate with the Buyer in
all matters relating to such notice and will furnish any additional information
that may be required by the Buyer to satisfy the statutory provisions in this
regard.
7.14 Tax and Assessment Clearance Certificate. Seller shall provide
to Buyer a certificate from the applicable taxing and assessing authorities as
Buyer may reasonably request as evidence that all property tax liabilities and
assessments of Seller accruing for all tax years prior to the current tax year,
have been fully satisfied or provision for such satisfaction has been made.
7.15 Exterminator's Report. Seller shall have delivered to Buyer an
exterminator's certification attached hereto as Exhibit 7.15, to the effect that
there is no evidence of infestation or infection of structurally damaging pests
or organisms nor damage to the Facility caused by same. If such exists, repair
and treatment shall be done prior to the Closing Date at the sole expense of
Seller.
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7.16 Seller's Noncompete Agreement. Robert Crone and any members of
his immediate family who are presently involved in the operation of the
Facility, shall have executed and delivered their Non-Competition Agreements,
the form of which is attached as Exhibit 9.01(c) whereby they agree that they
will not directly or indirectly compete with Buyer in the County of Hidalgo,
Texas for a term of seven (7) ears following the Closing Date.
7.17 Extraordinary Events. There shall not have been (i) any
suspension of trading in or limitation on prices for securities generally on any
national securities exchange, or (ii) the declaration or a bank moratorium or
any suspension of payment of banks, or (iii) the commencement of armed
hostilities or other national or international calamity directly involving the
United States which directly and materially affects the business or Property of
the Seller.
7.18 Concurrent Sale of Adjacent Land To Buyer. Prior to the
Closing, Buyer and Seller shall have entered into a binding and definitive
mutual written agreement whereby Seller agrees to sell its fee interest in the
Adjacent Land to Buyer and Buyer agrees to purchase Seller's interest in the
Adjacent Land. Buyer shall further have satisfied itself that the Adjacent Land
may be purchased by Buyer on such terms and conditions as therein contained.
Buyer's purchase of the Adjacent Land shall take place concurrently with the
Closing. Notwithstanding anything to the contrary contained in this Agreement,
if this condition is not satisfied at Closing, at Closing Buyer may, at its sole
discretion and upon written notice to Seller and Escrow Holder, elect not to
purchase the Facility and Buyer shall thereupon be entitled to receive a return
of its Deposit, plus all accrued interest thereon.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below in
this Article VIII. Seller may waive any or all of these conditions in whole or
in part without prior notice, provided, however, that no such waiver of a
condition shall constitute a waiver by Seller of any of its other rights or
remedies, at law or in equity, if Buyer shall be in default of any its
representations, warranties or covenants under this Agreement.
8.01 Accuracy of Representations and Warranties. Except as
otherwise permitted by this Agreement, all representations and warranties by
Buyer in this Agreement or in any written statement delivered by Buyer under
this Agreement shall be true on and as of the Closing as though made at that
time.
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8.02 Good Standing Certificate. Buyer shall deliver a good standing
certificate issued by the Secretary of State of the State of Texas and of each
other state in which Buyer transacts business.
8.03 Opinion of Buyer's Counsel. Buyer shall deliver an opinion of
counsel to Buyer, dated the Closing Date, and in form and substance satisfactory
to Seller, stating that (i) Buyer is a corporation duly incorporated in the
state of its incorporation or a partnership validly existing and authorized to
do business in the State of Texas, (ii) that Buyer has complete and unrestricted
power to transact the purchase of the Property hereunder and that the purchase
of said Property has been duly authorized by Buyer's Board of Directors and is
not contrary to Buyer's articles of incorporation, bylaws or partnership
agreement, if applicable; (iii) such counsel has no knowledge or belief that
would lead such counsel to doubt the veracity of any of the covenants,
warranties or representations of Buyer in this Agreement; and (iv) as to such
other matters as Seller may reasonably request. In rendering the opinion, such
counsel may rely as to factual matters on certificates of Buyer's officers and
upon such other evidence as such counsel may deem necessary or appropriate.
8.04 Buyer's Compliance. Buyer shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by Buyer.
8.05 Actions, Suits, Proceedings. No action, suit or proceeding
before any court or governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation shall have
been instituted on or before the Closing Date.
ARTICLE IX
CLOSING
The Closing of this Agreement shall take place at the offices of
Hidalgo County Abstract and Title, at 4900 N. Tenth Street, Suite E-2, McAllen,
Texas, 78504 at 10:00 a.m. local time, on or before Monday, November 24, 1997,
to be effective as of 12:00 a.m., local time, December 1, 1997 (the "Closing
Date" or "Closing"). The parties hereto may by mutual consent expressed in
writing fix another time to be the Closing Date or another location for the
Closing. In the event the conditions precedent to the closing of this
transaction listed in Articles VII and VIII hereof have not occurred in time to
allow the Closing to take place on the Closing Date, the transaction shall close
as soon thereafter as possible and such Closing shall be effective as of that
date and time. The Parties hereto agree to use their best efforts to ensure that
the transaction closes on the Closing Date as specified herein or as soon
thereafter as possible. If the Closing has not occurred on or
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prior to December 1, 1997, either party may, by written notice to the other,
terminate this transaction without liability to the other providing the party
giving notice is not then in default.
9.01 Se11er's Obligations at Closing. At the Closing, in addition
to having satisfied the conditions precedent provided in Article VII, Seller
shall deliver or cause to be delivered to Buyer:
(a) For all real property and interests in real property,
an Assignment of Lease, sufficient to convey to Buyer all of Seller's right to
any options to purchase the Facility, as contained in the Lease, with the
written consent of the Owner, properly executed and acknowledged, conforming to
and conveying the agreed state of the title, in recordable form as shall be
reasonably acceptable to Buyer;
(b) For all Personal Property, a general warranty bill of
sale with full covenants of warranty, in the form set forth on Exhibit 9.01(b)
hereto, properly executed and acknowledged, conforming to the terms of this
Agreement; for all supplies, a general warranty bill of sale in the form set
forth on Exhibit 9.01(b) hereto, properly executed and acknowledged, and
conforming to the terms of this Agreement (the "Bills of Sale") ;
(c) A Non-Competition Agreement, the form of which is
attached as Exhibit 9.01(c), executed by Seller;
(d) For all leases, maintenance contracts, service
contracts and other agreements which are transferable, an assignment of Seller's
interest (the "Assignment", in the form set forth on Exhibit 9.01(d) hereto,
properly executed and acknowledged, and conforming to the terms of this
Agreement;
(e) A Schedule of Seller's Accounts Receivable as of the
Closing Date;
(f) A list of all present employees, their rates of pay,
length of employment, and vacation, holiday and sick leave accruals as of the
Effective Date;
(g) All other Exhibits to this Agreement which are
required to be updated by Seller to the Closing Date; and
(h) Seller, at any time before or after the Closing Date,
will execute, acknowledge, and deliver any further assignments, conveyances, and
other assurances, documents, and instruments of transfer, reasonably requested
by Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Buyer for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all of the Property to be
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conveyed or transferred by this Agreement. If requested by Buyer, Seller further
agrees to prosecute or otherwise enforce in their name for the benefit of Buyer
any claims, rights or benefits that are transferred to Buyer by this Agreement
and that require, in Buyer's opinion, prosecution or enforcement of claims,
rights or benefits, and such prosecution or enforcement under this paragraph
shall be solely at Buyer's expense, unless the prosecution or enforcement is
made necessary by a breach of this Agreement by Seller. On the Closing Date,
Seller shall put Buyer into full possession and enjoyment of the Property.
9.02 Buyer's Obligations at Closing. At the Closing, in addition to
having satisfied the conditions precedent provided in Article VIII, Buyer shall
deliver or cause to be delivered to Sellers:
(a) The Purchase Price specified in Article II hereof and
all costs and expenses payable by or under the terms of this Agreement (see (b)
and (e) attached);
(b) All documents, required of Buyer by the Title Company
for issuance of the Owner's title policy to be issued at the Closing; and
(c) The certificates and opinion of Counsel set forth in
Article VIII hereof.
ARTICLE X
POST-CLOSING OBLIGATIONS OF PARTIES
10.01 Post-Closing Obligations of Seller. Subsequent to the Closing
Date, in addition to that provided above, Seller covenants and agrees as
follows:
(a) Accounts Payable. Seller is responsible for payment
of all accounts payable that have accrued from or in connection with the
operation of the Facility for any period prior to the Closing Date. Seller,
therefore, agrees to save, indemnify and hold Buyer harmless from any and all
loss, damage, injury or expense incurred by Buyer as a result of Seller's
non-payment of such accounts payable.
(b) Survival of Representations. All statements contained
in any certificate or other instrument delivered by or on behalf of Seller
pursuant hereto, or in connection with the transactions contemplated hereby,
shall be deemed representations of Seller. All representations of Seller shall
survive for one (1) year following the Closing.
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(c) Records. Seller agrees to make available to Buyer all
current patient accounts and current patient financial records which may
reasonably be required by Buyer.
10.02 Post-Closing Obligations of Buyer. Subsequent to the Closing
Date, in addition to that provided above, Buyer covenants and agrees as follows:
(a) Assumption of Leases, Contracts and Commitments.
Buyer agrees to assume and be bound by all of the terms and provisions of the
Contracts referred to in Exhibit 1.01(c) hereof. Buyer shall indemnify and hold
Seller harmless from any matter or loss, damage, injury or expense related to
the performance of, services rendered, or goods sold under or pursuant to such
Contracts after the Closing Date;
(b) Accounts Receivable. Buyer agrees that the Accounts
Receivable of Seller as of the Closing Date are not being transferred or sold
hereunder (the "Accounts Receivable") . At Closing, Seller will deliver a
Schedule of the Accounts Receivable, acknowledged by Buyer, which will list said
Accounts Receivable by Patient. Those receipts from patients designated on such
schedule of Accounts Receivable will be paid by Buyer to Seller up to the total
account for each such patient so listed that are attributable to the period of
Seller's operation of the Facility prior to the Closing Date. Buyer acknowledges
that whereas room and board charges are billed in advance, miscellaneous
services are billed in arrears. Buyer, therefore, agrees to cooperate with
Seller in billing and collecting miscellaneous services provided by Seller prior
to the Closing Date. Buyer and Seller agree that, for patients continuing as
patients in the Facility after the Closing Date, payments made shall be first
applied to past due charges unless otherwise agreed for specified accounts or
indicated on the payment itself. It is understood that Buyer is agreeing merely
to receive payments on Seller's Accounts Receivable and not to actively collect
same. As to Seller's Accounts Receivable that have not been collected at the end
of the ninety (90) day collection period, Seller thereafter shall collect such
Accounts Receivable for its own account and Buyer shall have no further
responsibility therefor, except that Buyer agrees to promptly forward any
payments received by Buyer on Seller's account, to Seller;
(c) Patient Trust Accounts. Buyer acknowledges that
Seller will transfer all of its patient trust accounts to Buyer as of the
Closing Date, which patient trust accounts are attached as Exhibit 3.19 hereto.
With respect to such patient trust accounts, Buyer agrees to assume custody of
such accounts and deal with them in a fiduciary capacity required by law;
23
<PAGE> 24
(d) Maintenance of Patient Records. Buyer understands
that all the Seller's current patient records are being transferred hereunder to
Buyer, as required by law, and with respect to all current patient records,
Buyer agrees to diligently maintain such records as prescribed by law and to
allow Seller or its agents or representatives to reasonably examine such records
relating to the period of Seller's operation of the Facility from time to time
and to make copies thereof at Seller's expense; and
(e) Survival of Representations. All statements
contained in any certificate or other instrument delivered by or on behalf of
Buyer pursuant hereto, or in connection with the transaction contemplated
hereby, shall be deemed representations of Buyer. All representations,
warranties and covenants made by Buyer shall survive the Closing.
ARTICLE. XI
INDEMNIFICATION
11.01 Indemnity by Seller. Seller hereby agrees to indemnify,
defend and hold Buyer harmless from and against any and all claims, demands,
obligations, losses, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, costs and
expenses, which Buyer may suffer as a result of the untruth of any of the
representations made herein, or any default by Seller in the performance of any
of its commitments, covenants or conditions under this Agreement, or for any
liabilities which may arise from operation or ownership of the Property by
Seller prior to the Effective Date. For the purposes hereof, any representation
shall be deemed to be inaccurate if it omits to state any fact which is
necessary in order to make the statements contained therein not false or
misleading. The rights of Buyer under this Section 11.01 are without prejudice
to any other remedies not inconsistent herewith which Buyer may have against
Seller.
Seller hereby indemnities and agrees to defend and hold Buyer harmless
from any and all claims, demands, obligations, losses, liabilities, damages,
recoveries and deficiencies except as stated in Section 3.16(a) (including
interest, penalties, reasonable attorneys' fees, costs and expenses) which Buyer
may suffer as a result of Seller's failure to file cost reimbursement reports
with all written proposed audit adjustments to such cost reports for the period
of its operation of the Facility, or its failure to correct any deficiencies
with respect to such reports, or its failure to accurately compute and bill
charges for reimbursement which results in liability for any overcharge, or as a
result of any liability arising pursuant to Section 1128A of the Social Security
Act for the period of its operation of the Facility. This indemnification shall
survive for a term of one (1) year from the Closing date.
24
<PAGE> 25
11.02 Indemnity by Buyer. Buyer hereby agrees to indemnify,
defend and hold Seller harmless from and against any and all claims, demands,
obligations, losses, liabilities including interest, penalties and reasonable
attorneys' fees, costs and expenses, which Seller may suffer as a result of the
untruth of any of the representations or warranties of Buyer herein or given
pursuant hereto, or any default by Buyer in the performance of any of its
commitments, covenants or conditions under this Agreement, or for any
liabilities which may arise from operation or ownership of the Property by Buyer
from and after the Closing Date. For the purposes hereof, any representation
shall be deemed to be inaccurate if it omits to state any fact which is
necessary in order to make the statements contained therein not false or
misleading. The rights of Seller under this Section 11.02 are without prejudice
to any other remedies not inconsistent herewith which Seller may have against
Buyer.
11.03 Contested Claims. Upon receiving notice of a claim for
indemnification, the receiving party shall be entitled to defend, compromise, or
otherwise contest such claim at its own cost and expenses. In the event the
notifying party determines that it may, in light of such claim, be subject to
any loss, damage or expense, the notifying party shall have the right, but not
the obligation, to participate at its own expense in the defense, compromise or
contest of such claim; provided, however, the receiving party shall be entitled
to control such defense unless the notifying party assumes all liability
thereof.
ARTICLE XII
MISCELLANEOUS
12.01 Legal Expenses. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged or
actual dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys, fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
12.02 Expenses. Each of the parties shall pay all costs and
expenses incurred or to be incurred by it in negotiating and preparing this
Agreement and in carrying out the transactions contemplated herein, except as
otherwise provided herein.
12.03 Assignment. Neither this Agreement nor the rights, duties
or obligations arising hereunder shall be assignable or delegable by either
party without the express prior written consent of the other, which consent will
not unreasonably be withheld; provided, however, that Buyer may assign this
Agreement or its rights, duties or obligations hereunder to a wholly-owned
25
<PAGE> 26
subsidiary of Buyer, or to a corporation which is a member of an affiliated
group of companies of which Buyer is the common parent corporation (within the
meaning of Section 1540 of the Internal Revenue Code, as amended) which group is
permitted to file a consolidated federal income tax return. Neither shall the
restriction on assignment or delegation apply to a merger or consolidation
involving Buyer and any other corporation. In the event of such a permitted
assignment, Buyer shall not be released from its obligations hereunder without
the express written consent of Seller, nor shall a notation be deemed to have
occurred without such written consent. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Buyer and Seller and their respective permitted successors and assigns.
Seller hereby further consents in advance to an assignment by Buyer to a real
estate investment trust.
12.04 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than Buyer and Seller and their
respective permitted successors and assigns, nor is anything in this Agreement
intended to relieve or discharge the obligations or liability of any third
persons to any party to this Agreement, nor shall any provisions give any third
persons any right of subrogation or action over or against any party of this
Agreement.
12.05 Notices. All notices, requests, demands, and other
communications hereunder shall be in writing, and shall be deemed to have been
duly given when personally delivered or, if mailed, seventy-two (72) hours after
mailing the said notice, registered or certified mail, postage prepaid, return
receipt requested, and properly addressed as follows:
To Buyer (if by mail): Summit Care Corporation
2600 W. Magnolia Blvd.
Burbank, California 95107-2100
Attn: President or
Chairman of the Board
With Copies to: Frank S. Osen, Esq.
9454 Wilshire Boulevard
Suite 800
Beverly Hills, CA 90210
To Seller: Robert Crone -
South Texas Health Care, Inc.
3201 North Ware Road
McAllen, Texas 78501
Attn: Robert Crone, President
26
<PAGE> 27
With Copies to: Larry W. Langley, Esq.
Akin, Gump, Strauss,
Hauer, Feld, LLP
816 Congress Avenue
Austin, Texas 78701
or at such other address as either party may by like notice designate to the
other in writing.
12.06 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Texas.
12.07 Counterparts. This Agreement may be executed simultaneously
in one or more Counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
12.08 Effect of Captions. The captions of section and subsections
of this Agreement have been inserted solely for convenience and reference, and
shall not control or effect the meaning or construction of any of the provisions
of this Agreement.
12.09 Entire Agreement; Modification; Waiver. This Agreement and
the exhibits hereto, constitute the entire Agreement between Seller, on the one
hand, and Buyer, on the other, pertaining to the subject matter contained in it
and supersedes all prior agreements, representations and all understandings of
the parties. No supplement, modification or amendment of this Agreement shall be
binding unless expressed as such and executed in writing by Buyer and Seller. No
waiver of any of the provisions of this Agreement shall be deemed to be or shall
constitute a waiver of any other provisions hereof, whether or not similar, nor
shall any such waiver constitute a continuing waiver. No waiver shall be binding
unless expressed as such in a document executed by the party making the waiver.
12.10 Publicity. Seller agrees to consult with Buyer concerning
any notice to employees, patients, families, referral sources or government
agencies concerning the transactions contemplated by this Agreement. All other
notices to third parties and all other publicity concerning the transactions
contemplated by this Agreement shall be jointly planned, mutually coordinated
and released by and between Buyer and Seller. Buyer shall make no public
disclosure without Seller's consent which may not be unnecessarily withheld or
delayed. None of the parties shall act unilaterally in this regard without the
prior written approval of the other; however, the approval shall not be
unreasonably withheld.
27
<PAGE> 28
12.11 Risk of Loss. Seller shall bear the risk of loss or damage
to the Premises from fire or other casualty until the Closing Date. In the event
of any material damage to or destruction of the Premises by fire or other
casualty, whether or not insured, or the taking of all or any material part of
the Premises by power of eminent domain or deed in lieu thereof, prior to the
Closing Date, Buyer may, at its option and, as its sole and exclusive remedy,
either (a) terminate this Agreement and all rights and obligations hereunder, in
which event all funds and documents deposited by Buyer into the Escrow shall be
returned promptly to Buyer and all documents and other items deposited by Seller
into the Escrow shall be returned promptly to Seller, or (b) elect to proceed
with the purchase of the Premises, in which event Seller shall deliver
possession of the Premises to Buyer at the close of the Escrow together with (i)
all insurance proceeds received by Seller in connection with such damage or
destruction and (ii) an assignment of all rights and claims of Seller under any
applicable insurance policies. Should Buyer elect to proceed with the purchase
of the Premises as provided in the foregoing subclause (b), Seller agrees to
fully cooperate with and assist Buyer in adjusting any loss and perfecting and
pursuing any claim under any applicable insurance policy. For purposes of this
Agreement, the phrase "material" damage to or destruction of the Premises shall
mean any damage to or destruction of any part of the Premises, the effect of
which would materially impair the current use and operation of the Premises.
12.13 Broker and Professional Fees. Tesch & Associates ("Tesch")
are the only brokers in this transaction. Buyer agrees to pay any brokerage
commission claimed to be due from Tesch with respect to this transaction. Tesch
is acting as agent for the Buyer and does not represent the interests of any
other party hereto.
12.14 Waiver of Deceptive Trade Practices - Consumer Protection
Act. Buyer represents, covenants and agrees that Buyer is not in a significantly
disparate bargaining position. Further, Buyer represents, warrants and agrees
that Buyer is represented by legal counsel in seeking or acquiring goods or
services, other than the purchase or lease of a family residence occupied or to
be occupied as Buyer's residence, by a purchase or a lease for a consideration
paid or to be paid that exceeds $500,000.00. Finally, Buyer represents,
warrants, and agrees that it waives all of the provisions of the Deceptive Trade
Practices Consumer
28
<PAGE> 29
Protection Act, other than Section 17.555, by this express provision in this
written contract signed by both Buyer and Buyer's legal counsel.
[SIG]
-------------------------------
Buyer
[SIG]
-------------------------------
Buyer's Legal Counsel
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
In the Presence of SELLER
ROBERT CRONE-SOUTH TEXAS
HEALTH CARE, INC.,
a Texas Subchapter S corporation
BY: [SIG]
-------------------------------
President
BUYER
SUMMIT CARE TEXAS, L.P.,
a Texas limited partnership
By: Summit Care Texas Management, Inc.,
a Texas corporation and sole general
partner
By: [SIG]
-------------------------------
Sr. V.P. Finance
-------------------------------
[Title]
29
<PAGE> 30
EXHIBIT LIST
<TABLE>
<CAPTION>
Page.
<S> <C> <C>
1.01(a)(i) Facility Legal Description and Lease
1.01(a)(ii) Facility Option Agreement
1.01(a)(iii) Adjacent Land Legal Description and Trust Deed
1.01(b) Personal Property
1.01(c) Contracts
1.01(g) Transferable Licenses and Permits
1.02 Excluded Assets
3.02 Authority Exceptions
3.03 Financial Statements
3.05 Changes
3.06 Liabilities
3.08 Condition of Property
3.10 Survey
3.11 Personal Property Leases; Liens
3.14 Adverse Claims; Litigation
3.15 Labor; Vacation and Holiday Policies
3.15 Employee List
3.16 Current Inspection Reports
3.17 Cost Reports
3.18 Description of Insurance Policies
3.19 Schedule of Patient Trust Accounts
3.20 Current Patient Census
5.01 Title Commitment
7.01 Certificate of Seller
7.02 Seller's Good Standing Certificate
7.03 UCC Clearance
7.04 Opinion of Seller's Counsel
7.05 Consents of Third Parties(i)
7.14 Tax Clearance Certificate
7.15 Exterminator's Report
8.03 Opinion of Buyer's Counsel
9.01(a) Form of Assignment of Lease
9.01(b) Form of Bills of Sale
9.01(c) Form of Seller's Non-Compete Agreement
9.01(F) Seller's Accounts Receivable
</TABLE>
30
<PAGE> 31
EXHIBIT 3.08
CONDITION OF PROPERTY
THIS IS TO ACKNOWLEDGE THAT TO THE BEST OF MY KNOWLEDGE AS OF DECEMBER 1, 1997
THE BRIARCLIFF NRS. & REHAB CTR. PREMISES AND PERSONAL PROPERTY ARE IN GOOD
OPERATING CONDITION AND REPAIR, SUBJECT ONLY TO ORDINARY WEAR AND TEAR.
/s/ ROBERT J. CRONE
-------------------------------
ROBERT J. CRONE
11/24/97
-------------------------------
DATE
<PAGE> 32
EXHIBIT 3.14
ADVERSE CLAIMS; LITIGATION
AS OF NOVEMBER 19, 1997 TO MY KNOWLEDGE BRIARCLIFF NURSING AND REHABILITATION
CENTER HAS NO MATERIAL CLAIMS FILED AGINST THEM.
/s/ ROBERT J. CRONE
-------------------------------
ROBERT J. CRONE
11/24/97
-------------------------------
DATE
<PAGE> 33
CERTIFICATE OF OFFICER
OF
ROBERT CRONE-SOUTH TEXAS HEALTH CARE, INC.
A
TEXAS CORPORATION
I, Robert Crone, the duly elected and acting President of Robert
Crone-South Texas Health Care, Inc., a Texas Corporation (the "Buyer") , DO
HEREBY CERTIFY in connection with Article 7. 01 of that certain Agreement of
Purchase and Sale of Assets, (the "Agreement"), dated November 24, 1997, by and
between Summit Care Texas, LP, a Texas Limited Partnership as Seller, the terms
of which are hereby incorporated herein by reference, that the representations
of Buyer set forth in the Agreement are true and correct as of December 1, 1997:
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
twenty-fourth (24th) day of November, 1997, effective as of the first (1st) day
of December, 1997,
/s/ ROBERT J. CRONE
-------------------------------
ROBERT J. CRONE
<PAGE> 34
AMERICAN TITLE COMPANY
SF 355545-A
-------------------
CLOSER 157 W. KELLER
---------------
CONSENT TO ASSIGNMENT OF LEASEHOLD ESTATE OF
BRIARCLIFF NURSING & REHABILITATION CENTER, MCALLEN, TEXAS
On August 12, 1992, Robert Crone/South Texas Healthcare, Inc., entered
into a Lease Agreement as Lessee, with Lloyd Hobbs, as Lessor (Owner) of the
Briarcliff Nursing & Rehabilitation Center, in McAllen, Texas. Legal Description
attached as Exhibit "A".
On January 1, 1995, Lloyd Hobbs assigned all his right, title and
interest in the Lease Agreement to Hobbs & Curry Family Limited Partnership, and
on April 19, 1997 this Lease was amended to add a seventy-four bed addition and
increase the monthly rental payment.
Now comes Summit Care Texas, L.P., whose address is 2600 West Magnolia
Boulevard, Burbank, California 95107-2100 agreeing to assume and perform all of
the terms, covenants and conditions, as Lessee under this Lease and further
agreeing to keep the Certificate and License in full force and effect during the
term of the Lease. Summit Care specifically acknowledges the escalation
provision of Paragraph 2 of the Lease Agreement.
The Lease will be considered in default if the Lessee (Summit Care)
shall fail or neglect to pay the rentals when due, or to pay any other sums of
money which they are required by this Lease to pay, and such non-payment shall
continue on the tenth day after written notice of the same has been posted to
Lessees. In the event of default of this Lease, Lessee will forfeit and transfer
any rights, or ownership of contracts and ownership of the Certificate of Need
at this location, with the State of Texas or the United States Government, to
Lessor.
Summit Care Texas, L.P. ("Lessee") agrees to assume all other terms,
covenants and conditions of this Lease as originally written and amended.
Robert Crone/South Texas Healthcare, Inc. agrees to remain liable to the
Lessor on this Lease if Summit Care should default.
Subject to the above terms and conditions, any other terms and
conditions of the Lease, Hobbs & Curry Family Limited Partnership hereby agrees
to consent to the Assignment of this Lease and Option on the Briarcliff Nursing
& Rehabilitation Center, McAllen, Texas to Summit Care Texas, L.P.
The next rental payment of $53,218.75 will be due December 1st, 1997
and monthly thereafter.
The Option may be exercised on October 1, 2003, provided the lease
payments are current and the Lease is in full force and effect. The amended
option price will be Four Million Seven Hundred Thousand Dollars
($4,700,000.00).
<PAGE> 35
WITNESS OUR HANDS this 20th day of November, 1997.
SUMMIT CARE, TEXAS, L.P.
By: /s/ DERWIN L. WILLIAMS
-------------------------------
NAME: Derwin L. Williams
-------------------------------
Title: Sr. V.P. Finance
-------------------------------
Date: 11/24/97
-------------------------------
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
By: /s/ ROBERT CRONE
-------------------------------
Robert Crone, President
-------------------------------
Date: 11/24/97
-------------------------------
HOBBS AND CURRY FAMILY LIMITED
PARTNERSHIP
By. /s/ C. DAVID CURRY
-------------------------------
Name: C. David Curry
-------------------------------
Title: General Partner
-------------------------------
Date: November 20, 1997
-------------------------------
2
<PAGE> 36
EXHIBIT "A"
Lot One (1), PRIMO SUBDIVISION No. 2, an Addition to the City of McAllen,
Hidalgo County, Texas; according to map or plat thereof recorded in Volume 31,
Page 40B, Map Records, Hidalgo County, Texas.
<PAGE> 37
ACKNOWLEDGEMENT
STATE OF ARKANSAS
COUNTY OF SEBASTIAN
On this the 20th day of November, 1997, before me, the undersigned
officer, personally appeared C. David Curry, known to me to be the person whose
name is subscribed to the within Consent To Assignment of Leasehold Estate of
Briarcliff Nursing & Rehabilitation Center, McAllen, Texas, and acknowledged
that he executed the same for the purposes therein contained.
In Witness Whereof I hereunto set my hand and official seal.
[SIG]
-------------------------------
Notary Public`
My Commission expires:
November 1, 2000
- -------------------------------
[SEAL]
<PAGE> 38
THE STATE OF TEXAS )
COUNTY OF HIDALGO )
This instrument was acknowledged before me this 24th day of November,
1997, by DERWIN L. WILLIAMS, SR. V.P. FINANCE, of SUMMIT CARE TEXAS, L.P., a
Texas Limited Partnership.
WANDA KELLER
[SEAL] MY COMMISSON EXPIRES
August 19, 2000
/s/ WANDA KELLER
-------------------------------
NOTARY PUBLIC, STATE OF TEXAS
THE STATE OF TEXAS )
COUNTY OF HIDALGO )
This instrument was acknowledged before me on this 24th day of November,
1997, by ROBERT J. CRONE, PRESIDENT of ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC.
WANDA KELLER
[SEAL] MY COMMISSON EXPIRES
August 19, 2000
/s/ WANDA KELLER
-------------------------------
NOTARY PUBLIC, STATE OF TEXAS
AFTER RECORDING RETURN TO:
AMERICAN TITLE CO. OF HOUSTON
SPRING OFFICE - BRANCH
25317 I-45 NORTH
THE WOODLANDS, TEXAS 77380
<PAGE> 39
FIRST AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement entered into this 9th day of April,
1996, amending the Lease Agreement dated August 12, 1992, on Briarcliff Nursing
& Rehabilitation Center of McAllen, Texas between Lloyd G. Hobbs as Lessor and
ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC., as Lessee. Lloyd G. Hobbs assigned
his interest in this lease agreement to Hobbs & Curry Family Limited Partnership
on January 1, 1995.
Now, Lessor and Lessees have agreed to add seventy-four beds to the
Briarcliff Nursing & Rehabilitation Center, making a total of 194 beds. Lessor
and Lessee have also agreed to increase the monthly rent by Nineteen Thousand
Nine Hundred Sixty-Seven Dollars and Fifty-Eight Cents ($19,967.58) per month
beginning when construction of the addition is complete and is ready for
occupancy.
Lessor is presently paying $30,027.81 per month rental on the original
120 beds and the increase of $19,967.58 for the addition would make a total
monthly rental payment of $49,995.39, until such time as there is an increase
in the Medicaid rates. It is expressly understood by both parties that the
escalation clause in Paragraph 2 of the Lease Agreement will prevail and that
this escalation clause will pertain to the total of 194 beds, after completion
of the addition, and that any increase in Medicaid rates will increase the
monthly rental payments accordingly for the balance of the lease term.
All other terms of the Lease Agreement, dated August 12, 1992, will
remain the same as originally written.
Witness our hands this 9th day of April, 1996.
HOBBS & CURRY FAMILY LIMITED
PARTNERSHIP
/s/ LLOYD HOBBS
----------------------------------------
Lloyd Hobbs, General Partner
Lessor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ ROBERT CRONE
----------------------------------------
Robert Crone, President, Lessee
<PAGE> 40
LEASE AGREEMENT
THIS LEASE AGREEMENT entered into this 12th day of August, 1992, by and
between LLOYD HOBBS as LESSOR, and ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC.,
213 North 40th, McAllen, TX 78501, as LESSEE,
WITNESSETH:
THAT for and in consideration of the covenants herein contained and the
rent hereby reserved, the Lessor has hereby let and rented to Lessee and Lessee
has hired and taken from the Lessor, the following described property,
consisting of one, 120-bed nursing home, commonly known as Briarcliff Nursing &
Rehabilitation Center of McAllen, Texas, located on the premises in Hidalgo
County, Texas, more particularly described in Exhibit "A" attached hereto,
including all furniture, fixtures and equipment located therein, provided and
installed by Lessor, paid for by Lessor, more particularly described in Exhibit
"B" attached hereto, to have and to hold the same for the period of years and
upon the terms and conditions hereinafter stated:
1. The term of this Lease shall be for the period of Fifteen (15)
years, commencing July 1, 1993 and ending June 30, 2008.
2. The rental shall be Twenty-Eight Thousand Four Hundred Seventy-Six
Dollars ($28,476.00) per month, payable in advance on or before the first day
of each month, except the rent shall be reduced to Twenty-Three Thousand Four
Hundred Seventy-Six Dollars ($28,476.00) for the first three (3) months of the
Lease, then back to $28,476.00 per month for the balance of the term of the
Lease, plus escalation as provided below. If the Lease shall commence on a day
other than the first day of the month, the rent will be pro-rated for the first
month. The rental payment will be mailed to Lloyd Hobbs, P.O. Box 126, Fort
Smith, Arkansas 72902, or to such other address as may be directed in writing.
The escalation clause is based upon increases in the Medicaid rates of 13.7% of
the Texas 207 Tile rates, times 120 beds times 30.4 average days per month and
shall be adjusted on the first day of the month following the effective date of
each and every rate increase. As an example, the 207 Texas Tile rate is now
$56.62 per day, times 120 beds, equals $6,794.40, times 365 days, equals
$2,479,958.00. $28,478 per month rent times 12 equals $341,712 annual rent.
$341,712 divided by $2,479,956 equals 13.7% of any 207 Tile rate increase, times
50%.
3. Lessee agrees to pay all taxes, general or special, assessed
against the land, buildings and personal property, from the time the property
is deeded to Lessor forward. An escrow for taxes is required; therefore, an
escrow payment of $1,500.00
1
<PAGE> 41
forward. An escrow for taxes is required; therefore, an escrow payment of
$1,500.00 per month will be deposited with the Lessor for payment of taxes. This
escrow payment will be adjusted annually, to cover the taxes as levied against
the real and personal property by all taxing authorities using the previous
year as a guide.
4. The Lessee shall be responsible for and pay for fire and extended
coverage on the building and contents in such amount as shall be reasonably
requested by Lessor, being at least replacement value. The Insurance policy
shall designate Lessor and Lessee as named insured and loss payee, as
their interests may appear. If Lessee fails or neglects to provide this
insurance as required, Lessor may obtain same and add the premium cost to the
next lease payment due.
5. In the event of partial destruction of the building and contents
(that is, destruction of less than half, in value of the building and contents)
by fire or other casualty, then the Lessee shall be entitled to the insurance
proceeds and shall be obligated to restore the premises, including furniture,
furnishings, fixtures and equipment, to at least as good condition as it was,
prior to the destruction. Any insurance proceeds, in the event of loss, will be
escrowed with Owner of the building. Owner will pay bills incurred, as
directed by Lessee, from insurance proceeds, to repair damages as presented by
repair contractors. If repairs cost more than insurance proceeds Lessee will
be obligated to pay the difference from Lessee's own funds. If destruction is
fifty percent (50%) or more, of value, Lessor shall be entitled to the
insurance proceeds and shall, at his option, restore the premises as above
provided or cancel the Lease. In the event of destruction of fifty percent
(50%) or more of value, Lessor shall advise Lessee, within thirty (30) days
following the destruction, of his election in this regard.
6. In the event of a taking of all or of part of the land and buildings
as a result of eminent domain, condemnation or other governmental taking,
the consideration paid therefore shall be paid to the Lessor, and from the
date of payment of such consideration, the rental amount shall abate and be
reduced in proportion to the relation of the amount of the consideration to
$2,400,000.00 in value.
7. Lessee shall, as long as this Lease remains in effect, procure and
keep in effect, general public liability insurance against claims for bodily
injury or death occurring upon, in or about the demised premises, and on, in or
about the adjoining streets and passageways, with limits of not less than
$3,000,000.00 any one person or incident. Lessee shall also provide for
malpractice insurance. Lessor shall be a
2
<PAGE> 42
named insured on all policies.
8. Lessee agrees that it will at all times, during the term of
this Lease or any extension thereof, indemnify, protect, defend and save
harmless, the Lessor, against any and all claims, costs, charges, liabilities,
or expenses arising from damage or injury, actual or claimed, of whatever kind
or character, to property or persons occurring in or about the demised
premises, streets, sidewalks, passageways, parking lots, and alleys adjacent
thereto, and agree to resist or defend such action or proceedings, and cause
the same to be defended at his expense.
9. The premises shall be used as a licensed nursing home and for
no other purpose without the written consent of Lessor, Lessee agrees to
maintain the entire premises, including buildings, drives, parking area,
furniture, fixtures, equipment, and decoration in good and tenable repair and
condition. Lessee shall, at its expense, repair or replace items as may be
necessary to comply with this covenant, and such that the premises shall at all
times qualify for and remain, licensed as, at least an ICF II or private pay
for a 120-bed nursing home under the laws and regulations of the United States
and the State of Texas. A reduction in, or loss of, this or equivalent license
rating, in the event license ratings are changed, will be considered a default
in this Lease.
10. Lessee, with the prior written consent of the Lessor, which
consent shall not be unreasonably withheld, shall have the right to make such
additions, alterations, changes and improvements on the demised premises as
Lessee shall deem necessary or desirable; provided that no such addition,
alteration, change or improvement shall be made which will weaken the
structural strength of the building, deminish its utility or value, and all
additions, alterations, changes and improvements shall be made in a workmanlike
manner in full compliance with all building laws and ordinances applicable
thereto, and shall become part thereto upon termination of this Lease. Lessee
may erect and maintain such signs upon the premises as they may desire, and as
may be permitted by laws or ordinances pertaining thereto, but at its sole
expense and responsibility.
11. Lessee shall keep the demised premises in a clean, safe and
sanitary condition, and shall comply with all municipal, county, state and
federal laws and regulations governing the conduct of the activities conducted,
suffered or permitted by the Lessee on the demised premises and the Lessee
shall obtain appropriate permits from all such authorities required.
3
<PAGE> 43
shall have the right to sub-lease any or all of the leased premises, with the
prior written consent of Lessor, first obtained, which consent will not be
unreasonably withheld, provided that the Lessee will remain liable for the
performance of the covenants and obligations of this Lease. If the property is
sub-leased, the Lessor will have the right to a reasonable adjustment in the
rent.
13. Lessee agrees to permit Lessor, or his authorized representative to
enter the demised premises at all reasonable times during usual business hours
for the purpose of inspecting the same, provided that this shall not be
construed to obligate Lessor to notify Lessee of any defect observed therein.
14. Lessee shall not do or suffer anything to be done whereby the demised
premises, or any part thereof, may be encumbered by a mechanic's or similar
lien, and in the event such lien is filed against the demised premises, or any
part thereof, purporting to be for or on account of any labor done or material
or services furnished in connection with any work in or about the demised
premises, Lessee shall discharge the same of record within ten days after the
date of such claim, or if Lessee desires to contest the validity or amount of
such claim, they may do so provided that they first post security acceptable to
Lessor, fully indemnifying Lessor and the premises from any claim, charge, or
demand arising from such claim or expenses incurred in connection therewith.
15. The occurrence of any one or more of the following events shall
constitute an "event of default" in the performance of the covenants of the
Lessee:
a. The Lessee shall fail or neglect to pay the rentals when due, or
to pay any other sums of money which it is required by this Lease to pay, and
such non-payment shall continue on the tenth day after written notice of the
same has been posted to Lessee. In the event of default of this Lease, Lessee
will forfeit any rights, or ownership of contracts and ownership of Certificate
of Need at this location, with the State of Texas or the United States
Government, to Lessor, and will assign all its rights in the Medicaid or
Medicare Contract to Lessor without any cost to Lessor.
b. The Lessee shall fail, refuse or neglect to perform or observe
any other covenant required of it herein, and such non-performance or
non-observance shall continue on the thirtieth (30th) day (unless a later date
be slated in the notice) after written notice of the same has been posted to
the Lessee.
c. This Lease, or the premises itself, or any property of the Lessee
is levied upon the process of law, and such levy be not completely discharged
or secured to the
4
<PAGE> 44
upon by process of law, and such levy by not completely discharged, or secured
to the satisfaction of the Lessor, within fifteen (15) days after service of the
process.
d. Lessee becomes involved in financial difficulties as evidenced by
(1) an admission in writing of its inability to pay its debts generally as they
become due, (2)becoming petitioner in any voluntary debtor or bankruptcy
proceedings, whether asking arrangement, composition, reorganization,liquidation
or other relief, suspension or modification of their obligations, (3) becoming
a party respondent to any involuntary proceeding the purpose of which is to
subject the assets of the Lessees to the control of a court of creditor's
committee, (4) making an assignment of all or of a substantial part of their
property for the benefit of their creditors, or (5) seeking, consenting to, or
failing to avert the appointment of a receiver or a trustee for all or a
substantial part of its property, or of the demised premises, or of its interest
in this Lease.
16. If an event of default occurs, Lessor shall have the option to:
a. Terminate this Lease by service of written notice of termination,
and Lessees right to the possession of the premises shall cease upon the date
stated in such notice, without prejudice to Lessors' right to recover all sums
due as of the date possession is surrendered, plus any damage or loss suffered
on or prior to such date, including any expenses such as court costs, attorney's
fees and similar expenses incurred by Lessor in recovering possession, rent,
and/or damages due from Lessee; or
b. Re-enter and take possession of the premises without further
demand or notice, and expel Lessee, or those claiming under it, and remove the
effects of both, or either (forcibly if necessary) without being deemed guilty
of any manner of trespass and without prejudice to Lessor's further rights under
this Lease. In such event, the obligations of the Lessee under this Lease shall
continue, but Lessor may from time to time upon such terms and conditions, and
for such bona fide rental as it may be able reasonably to negotiate, sub-let the
premises for the account of Lessee, and all sums received by Lessor shall be
credited to the account of Lessee, and all sums received by Lessor shall be
credited to the account of Lessee, less all reasonable expenses actually
incurred by Lessor, including, but not limited to brokerage fees, advertising
expense, preparation including re-decoration, of the premises for sub-letting,
legal expenses, cost of performing such of Lessees obligations as Lessor finds
it necessary to perform at his expense and all other items necessary and
proper to procure suitable
5
<PAGE> 45
tenants for the premises. Lessee shall remain liable to Lessor for any
deficiency between the amounts properly credited to Lessee, and the amount due
Lessor under this Lease.
c. If Lessor, after taking possession of the premises pursuant to
subparagraph (b) above, is unable to make a bona fide sub-lease with a new
tenant for a term which equals or exceeds the balance of the period for which
Lessee is then obligated, Lessor shall have the right forthwith to demand and
recover from Lessee, the present value of the difference between the amount to
be received by Lessor under the new sub-lease, and the amount which would have
been payable by Lessee under this Lease for the remainder of the term hereof,
plus the expenses of Lessor as defined above.
d. Notwithstanding any election by Lessor to retake possession
pursuant to subparagraph (b) above, Lessor may at any time thereafter, upon
written notice to Lessee, terminate this Agreement in all respects, and in such
event, Lessee shall have no further liability, obligation or responsibility
after the date of such termination.
e. In order that Lessor may be indulgent when it deems the
circumstances warrant without prejudicing his right under this Lease, Lessee now
expressly agrees that no indulgence or extension, waiver or forgiveness,
variation by practice, nor any neglect or abstention by Lessor in strictly
enforcing the covenants of Lessee on any one or more occasions shall ever be
deemed a waiver of or estoppel against the right of Lessor to insist upon strict
compliance with each and every covenant herein, without any further or special
notice or warning, the existence of a covenant in this Lease and the provisions
of this paragraph being deemed adequate notice of the rights of the Lessor. No
property belonging to the Lessee shall ever be removed from the premises at any
time when there exists any default in the performance of any other covenant or
obligation assumed herein by Lessee.
17. Lessee agrees to execute any instrument reasonably required by Lessor
reflecting attornment to its prior interest which may be required by Lessor in
connection with mortgaging their interest in the demised premises, and/or
refunding or refinancing in the future of any mortgage which Lessor may place
upon the premises, subject to right of option of even date herewith.
18. Upon any termination of this Lease, whether by lapse of time,
cancellation pursuant to an election provided for therein, forfeiture, or
otherwise, Lessees shall surrender, immediately, possession of the demised
premises and all buildings and
6
<PAGE> 46
improvements then on the same, to Lessor in good and tenantable repair,
reasonable wear and damage from fire or other casualty or peril excepted. If
possession be not immediately surrendered, Lessor, with or without process of
Law may forthwith re-enter said premises and repossess the same, all persons
and property, without being deemed guilty of any unlawful act and without
prejudice to any other legal remedy available to Lessor.
19. Lessor has the right to assign all or any part of this Lease.
Lessor will notify Lessee in the event of an Assignment.
20. It is the intention of the parties that this is to be a net, net
net Lease.
21. Lessee agrees that if a default on this Lease occurs, resulting in
foreclosure or assignment, Lessees interest in the certificate of need will be
assigned to Lessor immediately and forthwith, at no cost to Lessor.
22. This Lease shall be construed and interpreted in accordance with
the laws of the State of Texas.
23. Any notice or demand required or permitted by law or by any of the
provisions of this Lease shall be in writing. All notices or demands by Lessor
to or upon Lessee shall be deemed to have been properly given when sent by
certified mail, addressed to Lessee, Robert Crone/South Texas Healthcare, Inc.,
213 North 40th, McAllen, TX 78501, or such other place as Lessee may from time
to time, designate in a written notice to Lessor; and to Lessor by Lessee,
addressed to Lloyd Hobbs, P.O. Box 126, Fort Smith, Arkansas 72902, or at such
other place as Lessor may from time to time, designate in a written notice to
Lessee.
24. This Lease and all provisions herein shall be binding upon and
inure to the benefit of the parties hereto, their heirs, legal representatives,
successors and assigns.
25. Time is of the essence in this Lease.
IN WITNESS WHEREOF the parties have caused this instrument to be
properly executed the day and year first above written.
/s/Lloyd Hobbs
---------------------------------------
Lloyd Hobbs Lessor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/Robert Crone
---------------------------------------
Robert Crone, PRESIDENT -- LESSEE
7
<PAGE> 47
Exhibit A
McAllen, Texas
The East 425.0 fee of the North 375.0 feet of the South 734.55 feet of
Lot 125, La Lomita Irrigation & Construction Company's Subdivision, of
Porciones 61, 62 and 63, Hidalgo County, Texas, as per map or plat thereof
recorded in Volume 24, Page 68, Deed Records, Hidalgo County, Texas, and
described as follows:
BEGINNING at a point on the East line of Lot 125, North 8 degrees 42 minutes 30
seconds East, 359.55 feet from the Southeast corner of Lot 125, for the
Southeast corner of the following described tract of land, said point being in
North Ware Road (F.M. #2220);
THENCE, with the East line of Lot 125, in Ware Road, North 8 degrees 42 minutes
30 seconds East, 375.0 feet to a point, for the Northeast corner hereof; said
point being on the projection of the South line of Gardenia Avenue;
THENCE, with he South line of Gardenia Avenue and its projection, North 81
degrees 17 minutes 30 seconds West, at 40.91 feet pass an iron pin on the West
line of North Road and at 425.0 feet an iron pin on the East line of North 38th
Street, for the Northwest corner hereof;
THENCE, with the East line of North 38th Street, and its Southerly projection,
South 8 degrees 42 minutes 30 seconds West, 375.00 feet to a point, for the
Southwest corner hereof;
THENCE, parallel to the South line of Lot 125, South 81 degrees 17 minutes 30
seconds East, at 384.09 feet pass an iron pin on the West line of North Ware
Road and at 425.0 feet the PLACE OF BEGINNING, containing 3.66 acres of land,
more or less, of which the East 10.91 feet, comprising 0.35 acre, lies in North
Ware Road (F.M. #2220).
EDWARDS ABSTRACT AND TITLE CO.
<PAGE> 48
FIRST AMENDMENT TO OPTION
This Amendment to Option entered into this 9th day of April, 1996,
amending the Option Agreement dated August 12, 1992, on Briarcliff Nursing &
Rehabilitation Center of McAllen, Texas between LLOYD G. HOBBS, as Grantor, and
ROBERT CRONE/SOUTH TEXAS HEALTHCARE, INC., as Grantee. Lloyd G. Hobbs assigned
his Interest in this Option to Hobbs & Curry Family Limited Partnership on
January 1, 1995.
Now, Grantor and Grantee have agreed to add seventy-four beds to the
Briarcliff Nursing & Rehabilitation Center, making a total of 194 beds. Grantor
and Grantee have also agreed to increase the Option Price for this nursing home
as follows:
The Option is amended to state that the Option may be exercised by
Grantee at any time after eighty-four (84) monthly rental payments have been
paid which would include the increased rental payments for the new addition. For
example, if the first monthly rental payment to include the new addition is
made on October 1, 1996, then the option could be exercised on October 1, 2003,
providing all 84 payments had been paid. The option price will be $4,700,000.00
All other terms of the Option Agreement, dated August 12, 1992, will
remain the same as originally written.
Witness our hands this 9th day of April, 1996.
H0BBS & CURRY FAMILY LIMITED
PARTNERSHIP
/s/ Lloyd Hobbs
-------------------------------
Lloyd Hobbs, General Partner
Grantor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ Robert Crone
-------------------------------
Robert Crone, President-Grantee
<PAGE> 49
OPTION AGREEMENT
For and in consideration of the sum of ten dollars cash in hand paid,
receipt of which is hereby acknowledged and for other good and valuable
considerations, LLOYD HOBBS, hereinafter called "Grantor", does hereby give and
grant unto Robert Crone/South Texas Healthcare, Inc., 214 North 40th, McAllen,
TX 78501, together with all improvements now or hereafter constructed upon the
same, and including all personal property shown upon Exhibit "B" attached
hereto, and in addition, any renewals, substitutions, replacements or additions
thereto, which may be on the premises and belonging to Grantor at the time of
the exercise of this Option, To-Wit:
Legal description attached hereto as exhibit "A".
1. This Option may be exercised by Grantees at any time after one
hundred Twenty (120) payments have been paid, provided all lease payments are
current, conditioned upon the Grantees, their successors or assigns being in
possession of the home at the time of exercise and upon the express condition
and understanding that the Grantees herein have fully performed all of the terms
and conditions contained in that certain Lease Agreement dated the 12th day of
August, 1992, to be kept and performed by the Lessees therein and more
particularly are current in the payment of all sums due under the terms of said
Lease Agreement. If at any time, the above Lease shall be terminated, this
Option will immediately become null and void. This Option may be exercised by
means of Grantee giving written notice by certified mail, return receipt
requested, of such election to Lessor, Lloyd Hobbs, Box 126, Fort Smith, AR
72902 or at such other place as may be directed in writing, accompanied by
$10,000.00 earnest money deposit. The earnest money deposit will be applied on
the purchase price if purchase is concluded.
2. The price for the assets to be sold shall be Two Million Four Hundred
Thousand Dollars ($2,400,000.00). The purchase price is payable in cash unless a
financing arrangement is worked out at the time of purchase with Seller.
The purchase price herein stated shall include the personal property
consisting of furniture, furnishings, fixtures and equipment located on said
premises as of the date of beginning of this Lease, and such as may thereafter
be placed upon the
1
<PAGE> 50
premises by way of substitution for or addition to such furniture, furnishings,
fixtures and equipment, less any furniture and equipment removed for replacement
during the Lease term by Lessor or Lessee.
3. Upon receipt of notice of intent to exercise this Option, Grantor
shall promptly furnish to Grantees, a Warranty Dead, subject only to recorded
easements, rights-of-way, mineral interests and etc. Recorded easements and
restrictions shall not be deemed to impair title.
4. Closing shall be at a time and place mutually agreeable. In the
absence of agreement, Grantor may obligate Grantees to perform by giving written
notice that he is ready, willing and able to execute the Deed and Bill of Sale.
Grantees shall have ten (10) business days to execute the instruments required
to consummate this transaction, and to pay the purchase price. If purchase price
is not tendered or other arrangements made within the ten-day period, the option
will be null and void and the $10,000.00 earnest money deposit will be
considered liquidated damages and the Lease will continue in force, except no
option will be in force and effect. Grantees shall designate some place in Fort
Smith, Arkansas at which they will appear prepared to perform, and Grantor shall
have ten (10) business days after receipt of such demand in which to execute and
deliver the documents required by this Option. If Grantor fails, neglects or
refuses to perform, Grantees shall have the right to seek specific performance
of this Option.
5. This Option may not be assigned by Grantees without the written
consent of the Grantor, which consent will not be unreasonably withheld.
Notices required or permitted by this Option may be given to Grantor by
certified mail, return receipt requested, addressed to Lloyd Hobbs, P. O. Box
126, Fort Smith, Arkansas 72902 and to Grantees by certified mail, return
receipt requested, to Robert Crone/South Texas Healthcare, Inc., 213 North 40th,
McAllen, TX 78601. Either party may change the person to whom or the place to
which notice is to be given by written request.
This Agreement shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
2
<PAGE> 51
Dated this 12th day of August, 1992.
/s/ Lloyd Hobbs
-------------------------------
Lloyd Hobbs, Grantor
ROBERT CRONE/SOUTH TEXAS
HEALTHCARE, INC.
/s/ Robert Crone
-------------------------------
Robert Crone, President-Grantee
3
<PAGE> 52
BILL OF SALE FOR SUPPLIES
Robert Crone-South Texas Health Care, Inc., a Texas corporation
("SELLER"), as owner of certain supplies used in the operation of the facility
more particularly described in Exhibit "A" hereto for Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, does hereby grant, sell and transfer unto Summit Care
Texas, LP, a Texas limited partnership or its affiliated nominee, ("BUYER" or
"SUMMIT"), the Personal property more particularly set forth and described on
Exhibit "B" attached hereto and incorporated herein by reference.
To have and to hold the same to BUYER and its successors and assigns for
their use forever.
SELLER hereby covenants and warrants to the BUYER that it is the lawful
owner of said goods; that said goods are free and clear from all encumbrances
except as set forth; and that SELLER has the right to sell the same.
IN WITNESS WHEREOF, SELLER has executed this Bill of Sale on November
24, 1997, to be effective as of the first (1st) day of December, 1997.
IN THE PRESENCE OF: SELLER:
ROBERT CRONE-SOUTH TEXAS
HEALTH CARE, INC.
[SIG] By: /s/ Robert Crone
- ------------------------------- -------------------------------
Robert Crone
-1-
<PAGE> 53
NON-COMPETE AGREEMENT
This Non-Compete Agreement (the "Agreement") is entered into this 24th
day of November, 1997 by and among Summit Care Texas, LP, a Texas limited
partnership ("Summit Care") and Robert Crone, an individual and resident of the
State of Texas (hereinafter referred to as "Seller")
RECITALS
A. Summit Care and Seller have entered into an Agreement of Purchase and
Sale of Assets (the "Purchase Agreement"), whereby Seller has agreed to sell to
Summit Care that certain One Hundred and Ninety Four (194)-bed nursing facility,
commonly known as Briarcliff Nursing and Rehabilitation Center, located at 3201
North Ware Road, in the City of McAllen, County of Hidalgo, State of Texas, more
particularly described on Exhibit A hereto and herein incorporated by reference
(the "Facility"). The terms and provisions of the Purchase Agreement are hereby
incorporated herein as if set forth in full. All capitalized, undefined terms
used herein shall have the meanings given to them in the Agreement.
B. Seller has knowledge and expertise in the ownership and operation of
nursing homes.
C. Summit Care intends to operate the Facility and real property held
and operated by Seller and sold to Summit Care as a nursing home.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein, the parties hereto agree as follows:
1. For good and valuable consideration, the receipt of which is hereby
acknowledged, Seller agrees for seven (7) calendar years following the Closing
Date of the Agreement not to compete with Summit Care within the County of
Hidalgo, State of Texas.
2. For purposes of this Agreement, Seller shall be deemed to be in
competition with Summit Care if Seller either separately or jointly, owns,
operates, or has a direct or indirect interest in the operation of a Nursing
Home (which, for purposes of this Agreement shall mean, a facility engaged in
the provision of long
-1-
<PAGE> 54
term care, an extended care facility, assisted living facility, retirement
center or any similar facility) or the provision of any service or ancillary
service that is provided in the operation of the Facility during the term of
this Agreement, in the County of Hidalgo; or if Seller engages in the operation
of a Nursing Home or the provision of long term care in Hidalgo County as an
affiliate, investor, officer, director, administrator, employee, consultant,
agent, or in any other material capacity.
3. Seller also covenants that he shall not during the term hereof,
solicit Summit Care's or its affiliates' patients or current employees for the
purpose of providing long term care, long term care, or any other medical
services, and will not hire any of said employees for the provision of services
associated with a Nursing Home, long term care, or any other medical services.
4. For purposes of this Agreement a "current employee" is defined to
mean any person who has been employed by Summit Care for at least four hundred
(400) hours during any continuous one hundred twenty (120) day period within the
past twelve (12) months preceding any particular date in question during the
term of this Agreement.
5. Seller acknowledges that the restrictions in this Agreement are
reasonable, as to substance, geographical area and duration, for the protection
of Summit Care. Nonetheless, if a court finds this covenant not to compete to be
too broad, said court shall have the ability to narrow the substance,
geographical area or duration to the extent necessary for the covenant to become
reasonable and enforceable. If Seller knowingly or intentionally violates this
section, Summit Care may exercise any or all remedies provided by law, including
but not limited to a temporary restraining order without notice and without
bond, temporary injunction without bond, and a permanent injunction without bond
in addition to other equitable or legal remedies, if any, Summit Care may have
against Seller or others acting in concert with Seller. In addition to and
without waiving other remedies available to Summit Care under law or pursuant to
this Section, Summit Care may require Seller to account and remit to Summit an
amount equal to one hundred and fifty percent (150%) of all gross fees earned by
Seller from such customers and patients as liquidated damages for such breach.
6. This Agreement shall not be changed or canceled without the express
written consent of Summit Care and shall be binding upon and shall inure to the
benefit of the heirs, successors and assigns of the parties.
-2-
<PAGE> 55
7. This Agreement shall last for a term of seven (7) calendar years from
the date hereof and shall be construed and interpreted in accordance with the
laws of the state of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
SUMMIT CARE TEXAS, LP
a Texas limited partnership
By:
--------------------------------
The Sr. V.P. Finance
---------------------------
of its General Partner
Summit Care Management, Inc.
a California Corporation
SELLER
/s/ Robert Crone
-------------------------------
Robert Crone
-------------------------------
[SIG]
-------------------------------
Family Member
-------------------------------
-3-
<PAGE> 56
BILL OF SALE FOR PERSONAL PROPERTY
Robert Crone-South Texas Health Care, Inc., a Texas corporation
("SELLER"), in consideration of Ten Dollars ($10. 00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, does hereby grant, bargain, sell, convey and transfer to Summit
Care Texas, LP, a Texas limited partnership or its affiliated nominee, ("BUYER"
or "SUMMIT CARE"), all right, title and interest, as of December 1, 1997, in and
to, all and singular, the following:
(1) all existing personal property such as furniture, fixtures, and
equipment (the "Personal Property") including, but not limited to the items
listed on Exhibit "A" attached hereto which are presently located on the real
property of and/or used in connection with the ownership, maintenance or
operation of the facility more particularly described in Exhibit "B" attached
hereto (the "Facility"), other than that Personal property specifically excluded
under the terms of the Agreement of Purchase and Sale of Assets dated November
24, 1997, by and between Buyer and Seller (the "Purchase Agreement"); and
(2) all licenses, occupancy agreements, certificates, permits,
accreditation, registrations and authorizations of all federal, state and local
governmental or regulatory authorities, or other agreements providing for the
use or occupancy of, the Facility and Personal Property (to the extent each may
be transferred).
(3) any and all plans, drawings, specifications, surveys, engineering
reports, and other technical descriptions owned or held by Seller which relate
in any way to the design, construction, ownership, use, maintenance, service, or
operation of the Facility or the Personal property to the extent any of the
above are transferable.
(4) all rights, title, and interest in and to the names and the
telephone numbers for the Facility set forth on Exhibit "A" hereto.
TO HAVE AND TO HOLD, all and singular, the Personal Property hereby
sold, assigned, transferred and conveyed to Buyer, its successors and assigns,
to and for its own use and benefit.
Seller hereby represents and warrants to Buyer that Seller is the owner
of said Personal Property, that Seller has full right,
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<PAGE> 57
power and authority to sell said Personal Property and to make this Bill of
Sale, and that said Personal Property is not encumbered. Subject to the
foregoing limitations, representations and warranties, and to the
representations and warranties contained in the Purchase Agreement, the Personal
Property is hereby conveyed by Seller to Buyer. Seller does hereby bind itself,
its successors and assigns and the heirs, executors, administrators and assigns
of Seller, to forever WARRANT AND DEFEND the title to the said Personal property
unto the said Buyer and its successor and assigns; against every person
whosoever lawfully claiming, or declaiming the same, or any part thereof.
Signed this twenty-fourth (24th) day of November, 1997, to be effective
as of the first (1st) day of December, 1997.
IN THE PRESENCE OF: SELLER:
ROBERT CRONE-SOUTH TEXAS
HEALTH CARE, INC.
/s/ By: /s/ Robert Crone
- ------------------------------- -------------------------------
Robert Crone
-2-
<PAGE> 58
BILL OF SALE FOR SUPPLIES
Robert Crone-South Texas Health Care, Inc., a Texas corporation
("SELLER"), as owner of certain supplies used in the operation of the facility
more particularly described in Exhibit "A" hereto for Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, does hereby grant, sell and transfer unto Summit Care
Texas, LP, a Texas limited partnership or its affiliated nominee, ("BUYER" or
"SUMMIT") , the Personal property more particularly set forth and described on
Exhibit "B" attached hereto and incorporated herein by reference.
To have and to hold the same to BUYER and its successors and assigns for
their use forever.
SELLER hereby covenants and warrants to the BUYER that it is the lawful
owner of said goods; that said goods are free and clear from all encumbrances
except as set forth; and that SELLER has the right to sell the same.
IN WITNESS WHEREOF, SELLER has executed this Bill of Sale on November
24, 1997, to be effective as of the first (1st) day of December, 1997.
IN THE PRESENCE OF: SELLER:
ROBERT CRONE-SOUTH TEXAS
HEALTH CARE, INC.
/s/ By: /s/ Robert Crone
- ------------------------------- -------------------------------
Robert Crone
-1-
<PAGE> 1
EXHIBIT 10.47
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
SUMMIT CARE CORPORATION,
FOUNTAIN VIEW, INC.,
FV-SCC ACQUISITION CORP.
AND
HERITAGE FUND II, L.P.
DATED AS OF FEBRUARY 6, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.3. Boards of Directors and Committees; Section 14(f) . . . . . . . . . . . . . . 5
ARTICLE 2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3. Closing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.4. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5. Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . 7
Section 2.6. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8. Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9. Shares of Dissenting Holders . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.11. Company Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . 11
Section 3.2. Capitalization of the Company and its Subsidiaries . . . . . . . . . . . . . 12
Section 3.3. Authority Relative to this Agreement; Consents and Approvals . . . . . . . . 13
Section 3.4. SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.5. Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.6. Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . 15
Section 3.7. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.8. No Undisclosed Liabilities; Absence of Changes . . . . . . . . . . . . . . . 15
Section 3.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.10. Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.11. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.12. Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . 17
Section 3.13. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.14. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.15. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.16. Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . 18
Section 3.17. No Other Representations or Warranties . . . . . . . . . . . . . . . . . . . 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION . . . . . . . . . . . . . . . 19
Section 4.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.2. Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . 19
Section 4.3. Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.4. Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . 20
Section 4.5. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.6. Availability of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.7. No Prior Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.8. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.9. No Other Representations or Warranties . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.1. Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . 22
Section 5.2. Other Potential Acquirers . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.3. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4. Shareholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.5. Additional Agreements; Reasonable Efforts . . . . . . . . . . . . . . . . . . 26
Section 5.6. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.8. Indemnification; Directors' and Officers' Insurance . . . . . . . . . . . . . 27
Section 5.9. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.10. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.11. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.12. Guarantee of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.13. Financing Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.14. Efforts re Other Financing Commitment . . . . . . . . . . . . . . . . . . . 29
Section 5.15. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.16. Parent Stock Option; Exercise; Adjustments . . . . . . . . . . . . . . . . . 29
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.1. Conditions to Each Party's Obligations to Effect the Merger . . . . . . . . . 31
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.3. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.4. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.5. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 8 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . 35
Section 8.2. Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.3. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.6. Construction; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.7. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.9. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
ii
<PAGE> 4
TABLE OF DEFINED TERMS
<TABLE>
<S> <C> <C>
Term Cross Reference in Agreement Page
---- ---------------------------- ----
Acquisition . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . 1
Acquisition Proposal . . . . . . . . . . . . . . . . . Section 5.2 . . . . . . . . . . . 23
Agreement . . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . 1
Business Day . . . . . . . . . . . . . . . . . . . . . Section 1.1(a) . . . . . . . . . 2
Certificates . . . . . . . . . . . . . . . . . . . . . Section 2.10(a) . . . . . . . . . 8
CGCL . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(a) . . . . . . . . . 4
Closing . . . . . . . . . . . . . . . . . . . . . . . . Section 2.3 . . . . . . . . . . . 7
Closing Date . . . . . . . . . . . . . . . . . . . . . Section 2.3 . . . . . . . . . . . 6
Commitment . . . . . . . . . . . . . . . . . . . . . . Section 4.6 . . . . . . . . . . . 20
Company . . . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . 1
Company Board . . . . . . . . . . . . . . . . . . . . . Recitals . . . . . . . . . . . . 1
Company Common Stock . . . . . . . . . . . . . . . . . Section 2.8(a) . . . . . . . . . 1
Company Dissenting Shares . . . . . . . . . . . . . . . Section 2.9(a) . . . . . . . . . 8
Company ERISA Plans . . . . . . . . . . . . . . . . . . Section 3.11 . . . . . . . . . . 16
Company Permits . . . . . . . . . . . . . . . . . . . . Section 3.10 . . . . . . . . . . 16
Company Plan . . . . . . . . . . . . . . . . . . . . . Section 2.12 . . . . . . . . . . 10
Company Securities . . . . . . . . . . . . . . . . . . Section 3.2(a) . . . . . . . . . 12
Company Stock Option(s) . . . . . . . . . . . . . . . . Section 2.12 . . . . . . . . . . 10
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1 . . . . . . . . . . . 6
Effective Time . . . . . . . . . . . . . . . . . . . . Section 2.2 . . . . . . . . . . . 7
Employee Severance Plan . . . . . . . . . . . . . . . . Section 3.8 . . . . . . . . . . . 15
Environmental Claim . . . . . . . . . . . . . . . . . . Section 3.12(a) . . . . . . . . . 17
Environmental Laws . . . . . . . . . . . . . . . . . . Section 3.12(a) . . . . . . . . . 16
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11 . . . . . . . . . . 16
Exchange Act . . . . . . . . . . . . . . . . . . . . . Section 1.1(a) . . . . . . . . . 2
Exchange Agent . . . . . . . . . . . . . . . . . . . . Section 2.10(a) . . . . . . . . . 8
Exercise Notice . . . . . . . . . . . . . . . . . . . . Section 5.16(a) . . . . . . . . . 28
Financial Adviser . . . . . . . . . . . . . . . . . . . Section 1.2(a) . . . . . . . . . 4
Governmental Entity . . . . . . . . . . . . . . . . . . Section 3.6 . . . . . . . . . . . 14
Heritage . . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . 1
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . Section 3.6 . . . . . . . . . . . 14
Lien . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(b) . . . . . . . . . 12
Material Adverse Effect (Company) . . . . . . . . . . . Section 3.1(b) . . . . . . . . . 11
Material Adverse Effect (Parent) . . . . . . . . . . . Section 4.1(a) . . . . . . . . . 18
Merger . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1 . . . . . . . . . . . 6
Merger Agreement . . . . . . . . . . . . . . . . . . . Recitals . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . Section 2.8(a) . . . . . . . . . 7
Minimum Condition . . . . . . . . . . . . . . . . . . . Section 1.1(a) . . . . . . . . . 2
Offer . . . . . . . . . . . . . . . . . . . . . . . . . Recitals . . . . . . . . . . . . 1
Offer Documents . . . . . . . . . . . . . . . . . . . . Section 1.1(d) . . . . . . . . . 3
Option Closing Date . . . . . . . . . . . . . . . . . . Section 5.16(d) . . . . . . . . . 29
Option Price . . . . . . . . . . . . . . . . . . . . . Section 5.16(a) . . . . . . . . . 28
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Term Cross Reference in Agreement Page
---- ---------------------------- ----
Option Shares . . . . . . . . . . . . . . . . . . . . . Section 5.16(a) . . . . . . . . . 28
Parent . . . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . 1
Parent Option . . . . . . . . . . . . . . . . . . . . . Section 5.16(a) . . . . . . . . . 28
Per Share Amount . . . . . . . . . . . . . . . . . . . Recitals . . . . . . . . . . . . 1
Proxy Statement . . . . . . . . . . . . . . . . . . . . Section 5.4(a) . . . . . . . . . 24
Schedule 14D-9 . . . . . . . . . . . . . . . . . . . . Section 1.2(b) . . . . . . . . . 4
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(b) . . . . . . . . . 2
SEC Reports . . . . . . . . . . . . . . . . . . . . . . Section 3.4(a) . . . . . . . . . 13
Securities Act . . . . . . . . . . . . . . . . . . . . Section 3.4(a) . . . . . . . . . 13
Shareholders Meeting . . . . . . . . . . . . . . . . . Section 5.4(a) . . . . . . . . . 24
Shares . . . . . . . . . . . . . . . . . . . . . . . . Section 2.8(a) . . . . . . . . . 7
Subsidiary(ies) . . . . . . . . . . . . . . . . . . . . Section 3.1(b) . . . . . . . . . 11
Surviving Corporation . . . . . . . . . . . . . . . . . Section 2.1 . . . . . . . . . . . 6
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.13 . . . . . . . . . . 17
Third Party . . . . . . . . . . . . . . . . . . . . . . Section 7.3(a) . . . . . . . . . 33
Third Party Acquisition . . . . . . . . . . . . . . . . Section 7.3(a) . . . . . . . . . 32
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 6th day of
February, 1998 (this "Agreement"), is made by and among SUMMIT CARE
CORPORATION, a California corporation (the "Company"), FOUNTAIN VIEW, INC., a
Delaware corporation ("Parent"), FV-SCC ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("Acquisition") and, with
respect to Sections 5.7, 5.13 and 5.14 hereof, HERITAGE FUND II, L.P., a
Delaware limited partnership ("Heritage").
R E C I T A L S
WHEREAS, the Board of Directors of the Company (the "Company Board")
has, in light of and subject to the terms and conditions set forth herein, (i)
determined that each of the Offer (as defined in the recitals) and the Merger
(as defined in Section 2.1) is fair to, and in the best interests of, its
shareholders and (ii) approved and adopted this Agreement, an Agreement of
Merger in the form attached as Exhibit A (the "Merger Agreement") and the
transactions contemplated hereby and resolved to recommend acceptance of the
Offer and approval and adoption of this Agreement by the shareholders of the
Company;
WHEREAS, in furtherance thereof, it is proposed that Acquisition shall
commence a tender offer (the "Offer") to acquire all of the outstanding shares
of common stock, no par value per share, of the Company (Company Common Stock")
at a price equal to $21.00 per share (such amount, or any greater amount per
share paid pursuant to the Offer, being hereinafter referred to as the "Per
Share Amount"), net to the seller in cash, in accordance with the terms and
subject to the conditions provided herein;
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company, Parent and
Acquisition hereby agree as follows:
ARTICLE 1
THE OFFER
SECTION 1.1. THE OFFER.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 7.1 and none of the events or conditions set forth in
Annex A shall have occurred and be existing, as promptly as practicable after,
but in no event later then five (5) Business Days after, the public
announcement of the execution of this Agreement by the parties hereto,
Acquisition shall commence (within the meaning of the Rule 14d-2
<PAGE> 7
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Offer for all the outstanding shares of Company Common Stock, at the Per Share
Amount. Acquisition shall use all commercially reasonable efforts to
consummate the Offer. Acquisition shall accept for payment all outstanding
shares of Company Common Stock which have been validly tendered and not
withdrawn pursuant to the Offer at the earliest time following the expiration
of the Offer that all conditions to the Offer shall have been satisfied or
waived by Acquisition. The obligation of Acquisition to accept for payment,
purchase and pay for shares of Company Common Stock tendered pursuant to the
Offer shall be subject only to the conditions set forth in Annex A and to the
further condition that a number of shares of Company Common Stock which,
together with shares of Company Common Stock then owned directly or indirectly
by Acquisition, would equal not less than ninety percent (90%) of the shares of
Company Common Stock then outstanding shall have been validly tendered and not
withdrawn prior to the expiration date of the Offer (the "Minimum Condition").
Acquisition expressly reserves the right to increase the price per share of
Company Common Stock payable in the Offer or to make any other changes in the
terms and conditions of the Offer (provided that, unless previously approved by
the Company in writing, no change may be made which decreases the Per Share
Amount payable in the Offer, which changes the form of consideration to be paid
in the Offer, which reduces the maximum number of shares of Company Common
Stock to be purchased in the Offer, which imposes conditions to the Offer in
addition to those set forth in Annex A or which broadens the scope of such
conditions except as provided in clause (c) of this Section 1.1). It is agreed
that the conditions set forth in Annex A are for the sole benefit of
Acquisition and may be asserted by Acquisition regardless of the circumstances
giving rise to any such condition (including any action or inaction by
Acquisition) or may be waived by Acquisition, in whole or in part at any time
and from time to time, in its sole discretion. The failure by Acquisition at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time. Any determination (which
shall be made in good faith) by Acquisition with respect to any of the
foregoing conditions (including, without limitation, the satisfaction of such
conditions) shall be final and binding on the parties. The Per Share Amount
shall be paid net to the seller in cash, less any required withholding of
taxes, upon the terms and subject to such conditions of the Offer. The Company
agrees that no shares of Company Common Stock held by the Company or any of its
subsidiaries will be tendered in the Offer. "Business Day" means any day other
than Saturday, Sunday or a federal holiday.
(b) Subject to the terms and conditions hereof, the Offer shall
expire at midnight, New York City time, on the date that is twenty (20)
Business Days after the Offer is commenced; provided, however, that without the
consent of the Company Board, Acquisition may (i) extend the Offer, if at the
scheduled expiration date of the Offer any of the conditions to the Offer shall
not have been satisfied or waived, until such time as such conditions are
satisfied or waived, (ii) extend the Offer for any period required for any
rule, regulation, interpretation or position of the Securities and Exchange
Commission ("SEC") or the staff thereof applicable to the Offer or (iii) extend
the Offer for any reason
2
<PAGE> 8
on one or more occasions for an aggregate period of not more than ten (10)
Business Days beyond the latest expiration date that would otherwise be
permitted under clause (i) or (ii) of this sentence if on such expiration date
there shall not have been tendered that number of shares of Company Common
Stock which, together with shares of Company Common Stock then owned directly
or indirectly by Acquisition, would equal at least ninety percent (90%) of the
shares of Company Common Stock. Acquisition agrees that if all of the
conditions to the Offer set forth in Annex A are not satisfied on any scheduled
expiration date of the Offer then, provided that all such conditions are
reasonably capable of being satisfied prior to July 31, 1998, Acquisition shall
extend the Offer from time to time until such conditions are satisfied or
waived, provided that Acquisition shall not be required to extend the Offer
beyond July 31, 1998. Subject to the terms and conditions of the Offer and
this Agreement, Acquisition shall accept for payment, and pay for, all shares
of Company Common Stock validly tendered and not withdrawn pursuant to the
Offer that Acquisition becomes obligated to accept for payment and pay for
pursuant to the Offer, as promptly as practicable after the expiration of the
Offer.
(c) In the event that the Minimum Condition is not satisfied on or
before the tenth (10th) Business Day after all other conditions set forth in
Annex A have been satisfied (the "Initial Expiration Date"), (i) the Minimum
Condition shall be automatically amended to mean that a number of shares of
Company Common Stock which, together with shares of Company Common Stock then
owned directly or indirectly by Acquisition, would equal not less than
forty-nine and nine-tenths percent (49.9%) of the outstanding shares of Company
Common Stock (calculated as of the Initial Expiration Date) shall have been
validly tendered and not withdrawn prior to the expiration date of the Offer,
as extended as provided in clause (ii)(B) below, and (ii) Acquisition shall
forthwith amend the Offer (A) to provide that Acquisition will purchase, on a
pro rata basis in the Offer, that number of shares of Company Common Stock
which, together with shares of Company Common Stock then owned directly or
indirectly by Acquisition, would equal forty-nine and nine-tenths percent
(49.9%) of the outstanding shares of Company Common Stock (calculated as of the
Initial Expiration Date) and (B) to extend the Offer for a period of not less
than ten (10) Business Days following the public announcement of such amendment
of the Offer (the Offer, as so amended, being sometimes hereinafter referred to
as the "49.9% Offer").
(d) As soon as practicable after the public announcement of the
receipt of the Commitment and the satisfaction or waiver of the Diligence
Condition, Acquisition shall file with the SEC a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer which will reflect the existence of
this Agreement (together with any supplements or amendments thereto and any
other related documents, including, if required, a Schedule 13E-3, collectively
the "Offer Documents"). The Offer Documents will comply in all material
respects with the provisions of applicable federal securities laws. The
information provided and to be provided by the Company, Parent and Acquisition
for use in the Offer Documents shall not, on the date filed with the SEC and on
the date first published or sent or given to the Company's shareholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
3
<PAGE> 9
which they were made, not misleading. Parent, Acquisition and the Company each
agrees to correct promptly any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect and Acquisition further agrees to take all steps necessary
to cause the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to holders of shares of Company Common Stock, in each case as and
to the extent required by applicable federal securities laws and the securities
laws of the State of California.
SECTION 1.2. COMPANY ACTION.
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that the Company Board, at a meeting duly called and
held, has, subject to the terms and conditions set forth herein, (i) determined
that this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, are fair to, and in the best interests of, the
shareholders of the Company, (ii) approved this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, in all respects and
that such approval constitutes approval of the Offer, this Agreement and the
Merger for purposes of Section 1201 of the California General Corporation Law
(the "CGCL"), and similar provisions of any other similar state statutes that
might be deemed applicable to the transactions contemplated hereby, and (iii)
resolved to recommend that the shareholders of the Company accept the Offer,
tender their shares of Company Common Stock thereunder to Acquisition and
approve and adopt this Agreement and the Merger; provided, however, that such
recommendation may be withdrawn, modified or amended to the extent that the
Company Board by a majority vote determines in its good faith judgment, based
on the advice of counsel, that it is required to do so in the exercise of its
fiduciary duties under the CGCL. The Company consents to the inclusion of such
recommendation and approval in the Offer Documents. The Company further
represents and warrants that Donaldson, Lufkin & Jenrette (the "Financial
Adviser") has delivered to the Company Board its written opinion, dated as of
the date hereof, that the cash consideration to be received by the shareholders
of the Company pursuant to the Offer and the Merger is fair to such
shareholders. The Company has been authorized by the Financial Adviser to
permit, subject to the prior review and consent by the Financial Adviser (such
consent not to be unreasonably withheld), the inclusion of the fairness opinion
(or a reference thereto) in the Schedule 14D-9 and, if required, the Schedule
13E-3 (each, as defined in Section 1.2(b)).
(b) Contemporaneously with the commencement of the Offer as
provided in Section 1.1, the Company hereby agrees to file with the SEC a
Solicitation/ Recommendation Statement on Schedule 14D-9 pertaining to the
Offer (together with any amendments or supplements thereto, the "Schedule
14D-9") containing the recommendation described in Section 1.2(a), and to
promptly mail the Schedule 14D-9 to the shareholders of the Company. The
Schedule 14D-9 will comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with the SEC and on
the date first published, sent or given to the Company's shareholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light
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of the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Acquisition in writing for inclusion in the Schedule 14D-9. The
Company, Parent and Acquisition each agrees to correct promptly any information
provided by it for use in the Schedule 14D-9 if and to the extent that it shall
have become false or misleading in any material respect and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to the holders of shares of Company
Common Stock, in each case as and to the extent required by applicable federal
securities laws. Notwithstanding anything to the contrary in this Agreement,
if the Company Board by majority vote determines in its good faith judgment,
based on the advice of counsel, that it is required in the exercise of its
fiduciary duties to withdraw, modify or amend the recommendation of the Board,
such withdrawal, modification or amendment shall not constitute a breach of
this Agreement, provided that the Company complies with the provisions of
Section 7.3.
(c) In connection with the Offer, the Company will promptly
furnish to Parent and Acquisition mailing labels, security position listings
and any available listing or computer files containing the names and addresses
of the record holders of shares of Company Common Stock as of a recent date and
shall furnish Acquisition with such additional information and assistance
(including, without limitation, updated lists of shareholders, mailing labels
and lists of securities positions) as Acquisition or its agents may reasonably
request in communicating the Offer to the record and beneficial holders of
shares of Company Common Stock. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Merger, Parent, Acquisition
and their affiliates, associates, agents and advisors shall use the information
contained in any such labels, listings and files only in connection with the
Offer and the Merger, and, if this Agreement shall be terminated, will deliver
to the Company all copies of such information then in their possession.
SECTION 1.3. BOARDS OF DIRECTORS AND COMMITTEES; SECTION 14(F).
(a) Promptly upon the purchase by Acquisition of shares of Company
Common Stock pursuant to the Offer and from time to time thereafter,
Acquisition shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Company Board as will give
Acquisition representation on the Company Board equal to the product of the
number of directors on the Board (giving effect to any increase in the number
of directors pursuant to this Section 1.3) and the percentage that such number
of shares of Company Common Stock so purchased bears to the total number of
outstanding shares of Company Common Stock on a fully diluted basis, and the
Company shall use its reasonable best efforts to, upon request by Acquisition,
promptly, at the Company's election, either increase the size of the Board or
secure the resignation of such number of directors as is necessary to enable
Acquisition's designees to be elected to the Company Board and to cause
Acquisition's designees to be so elected. At such times, the Company will use
its reasonable best efforts to cause persons designated by Acquisition to
constitute the same percentage as is on the Company Board of (i) each
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committee of the Company Board (other than any committee of the Company Board
established to take action under this Agreement), (ii) each board of directors
of each subsidiary of the Company and (iii) each committee of each such board.
Notwithstanding the foregoing, Parent and Acquisition agree that, until the
consummation of the Merger, Parent and Acquisition will not cause the removal
of Messrs. Brende, Casey or Massimino from the Board of Directors of the
Company and shall permit such persons to remain as members of the Special
Committee of the Board of Directors responsible for addressing on behalf of the
Company any issues that arise under this Agreement between the Company, on the
one hand, and Parent and Acquisition, on the other hand.
(b) The Company's obligation to appoint designees to the Company
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all action required
pursuant to such Section and Rule in order to fulfill its obligations under
this Section 1.3 and shall include in the Schedule 14D-9 such information with
respect to the Company and its officers and directors as is required under such
Section and Rule in order to fulfill its obligations under this Section 1.3.
Acquisition will furnish to the Company in writing and be solely responsible
for any information with respect to itself and its nominees, officers,
directors and affiliates required by such Section and Rule.
(c) Following the election or appointment of Acquisition's
designees pursuant to this Section 1.3 and prior to the Effective Time, if
there shall be any directors of the Company who were directors as of the date
hereof, any amendment of this Agreement, any termination of this Agreement by
the Company, any extension by the Company of the time for the performance of
any of the obligations or other acts of Acquisition or Parent or waiver of any
of the Company's rights hereunder, will require the concurrence of a majority
of such directors.
ARTICLE 2
THE MERGER
SECTION 2.1. THE MERGER. At the Effective Time (as defined below)
and upon the terms and subject to the conditions of this Agreement and the
Merger Agreement and in accordance with the CGCL and the Delaware General
Corporation Law (the "DGCL"), Acquisition shall be merged with and into the
Company (the "Merger"). Following the Merger, the Company shall continue as
the surviving corporation of the Merger (the "Surviving Corporation"), and the
separate corporate existence of Acquisition shall cease.
SECTION 2.2. EFFECTIVE TIME. Subject to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 2.3),
the Merger Agreement shall be duly executed and acknowledged by Acquisition and
the Company and thereafter delivered to the Secretary of State of the State of
California for filing pursuant to the CGCL, and a Certificate of Merger in such
form as required by, and executed in accordance with, the relevant provisions
of the DGCL shall be filed with the Secretary of State of the State of
Delaware. The Merger shall become effective upon the later to occur
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of such filings (the time the Merger becomes effective being referred to herein
as the "Effective Time").
SECTION 2.3. CLOSING OF THE MERGER. The closing of the Merger
(the "Closing") shall take place at a time and on a date to be specified by the
parties, which shall be no later than the second Business Day after
satisfaction (or waiver) of the latest to occur of the conditions precedent set
forth in Article 6 (the "Closing Date"), at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California 90071, unless
another time, date or place is agreed to in writing by the parties.
SECTION 2.4. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the CGCL and the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Acquisition shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Acquisition shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 2.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles
of Incorporation of the Company in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The Bylaws of the Company in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation until amended
in accordance with applicable law.
SECTION 2.6. DIRECTORS. The directors of Acquisition at the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
SECTION 2.7. OFFICERS. The officers of Acquisition at the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Articles of Incorporation and Bylaws of
the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
SECTION 2.8. CONVERSION OF SHARES.
(a) At the Effective Time, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (individually a
"Share" and, collectively, the "Shares") (other than (i) Shares held by the
Company or any subsidiaries of the Company, (ii) Shares held by Parent,
Acquisition or any other subsidiary of Parent and (iii) Company Dissenting
Shares (as defined in Section 2.9(a))) shall, by virtue of the Merger and
without any action on the part of Parent, Acquisition, the Company or the
holder thereof, be converted into and shall become the right to receive a cash
payment per Share, without interest, equal to the Per Share Amount (the "Merger
Consideration") upon the surrender of the certificate representing such Share.
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(b) At the Effective Time, each issued and outstanding share of
the common stock, par value $21.00 per share, of Acquisition shall be converted
into one share of common stock, no par value per share, of the Surviving
Corporation.
(c) At the Effective Time, each Share held by the Company as
treasury stock or held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Parent, Acquisition,
the Company or the holder thereof, be canceled, retired and cease to exist, and
no consideration shall be delivered with respect thereto.
SECTION 2.9. SHARES OF DISSENTING HOLDERS.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any holder of Shares with respect to which dissenters' rights, if
any, are granted by reason of the Merger under the CGCL and who does not vote
in favor of the Merger and who otherwise complies with Chapter 13 of the CGCL
("Company Dissenting Shares") shall not be entitled to receive any Merger
Consideration pursuant to Section 2.8(a), unless such holder fails to perfect,
effectively withdraws or loses his or her right to dissent from the Merger
under the CGCL. Such holder shall be entitled to receive only the payment
provided for by Chapter 13 of the CGCL. If any such holder so fails to
perfect, effectively withdraws or loses his or her dissenters' rights under the
CGCL, each Company Dissenting Share of such holder shall thereupon be deemed to
have been converted, as of the Effective Time, into the right to receive the
Per Share Amount pursuant to Section 2.8(a).
(b) Any payments relating to Company Dissenting Shares shall be
made solely by the Surviving Corporation and no funds or other property have
been or will be provided by Acquisition, Parent or any of Parent's other direct
or indirect subsidiaries for such payment, nor shall the Company make any
payment with respect to, or settle or offer to settle, any such demands.
(c) The Company shall give Acquisition prompt notice of any
demands received by the Company for the payment of fair value for shares, and
Acquisition shall have the right to participate in all negotiations and
proceedings with respect to such demands.
SECTION 2.10. EXCHANGE OF CERTIFICATES.
(a) ChaseMellon Shareholder Services, or another bank or trust
company designated by Parent and reasonably acceptable to the Company, shall
act as the exchange agent (in such capacity, the "Exchange Agent"), for the
benefit of the holders of Shares, for the exchange of a certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") that were converted into the right to receive the Per
Share Amount pursuant to Section 2.8(a), all in accordance with this Article 2.
Parent will make available to the Exchange Agent from time to time the Merger
Consideration to be paid in respect of the Shares.
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<PAGE> 14
(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of Certificates: (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for a cash payment of the proper Merger Consideration pursuant to Section
2.8(a). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent and Acquisition,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor by check an
amount equal to (A) the Per Share Amount, multiplied by (B) the number of
Shares represented by such Certificate, which such holder has the right to
receive pursuant to the provisions of this Article 2, and the Certificate so
surrendered shall forthwith be canceled. No interest shall be paid or accrued
on any Merger Consideration upon the surrender of any Certificates. In the
event of a transfer of ownership of Shares which is not registered in the
transfer records of the Company, payment of the proper Merger Consideration may
be paid to a transferee if the Certificate representing such Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer or other taxes required as a result of such payment to a Person other
than the registered holder of such shares have been paid. Until surrendered
and exchanged as contemplated by this Section 2.10, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender an amount equal to (A) the Per Share Amount,
multiplied by (B) the number of Shares represented by such Certificate, as
contemplated by this Section 2.10.
(c) In the event that any Certificate shall have been lost, stolen
or destroyed, the Exchange Agent shall pay, upon the making of an affidavit of
that fact by the holder thereof, the proper Merger Consideration as may be
required pursuant to this Section 2.10, provided, however, that Parent may, in
its discretion, require the delivery of a suitable bond and/or indemnity.
(d) The Merger Consideration paid upon the surrender for exchange
of Shares in accordance with the terms hereof shall be deemed to have been paid
in full satisfaction of all rights pertaining to such Shares, subject, however,
to the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such Shares in accordance with the
terms of this Agreement or prior to the date hereof and which remain unpaid at
the Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article 2.
(e) Any portion of the Merger Consideration which remains
undistributed to the shareholders of the Company for six months after the
Effective Time shall be delivered
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to Parent, upon demand, and any shareholders of the Company who have not
theretofore complied with this Article 2 shall thereafter look only to Parent
for payment of their claim for any Merger Consideration.
(f) Notwithstanding Section 2.11(e), neither Parent nor the
Company shall be liable to any holder of Shares for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) Any amounts remaining unclaimed by holders of Shares two years
after the Effective Time (or such earlier date immediately prior to such time
as such amounts would otherwise escheat to or become property of any
governmental entity) shall to the extent permitted by applicable law, become
the property of Parent free and clear of any claim or interest of any Person
previously entitled thereto.
(h) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.10(a) to pay for shares for which
dissenters' rights have been perfected shall be returned to the Parent upon
demand.
SECTION 2.11. COMPANY STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (a "Company Stock Option" or collectively,
"Company Stock Options") issued pursuant to the Summit Care Corporation Stock
Option Plan, as amended, of the Company (the "Company Plan"), whether vested or
unvested, shall be converted into and shall become the right to receive a cash
payment per Company Stock Option, without interest, determined by multiplying
(i) the excess, if any, of the Per Share Amount over the applicable per share
exercise price of such Company Stock Option (without taking into account
whether such Company Stock Option was in fact exercisable at such time), by
(ii) the number of shares of Company Common Stock into which such Company Stock
Option was exercisable immediately prior to the Effective Time (less any
amounts required to be deducted pursuant to any applicable income and
employment tax withholding requirements). At the Effective Time, all Company
Stock Options (including those options with an exercise price equal to or in
excess of the Per Share Amount) shall be canceled and be of no further force or
effect except for the right to receive cash to the extent provided in this
Section 2.12. Prior to the Effective Time, the Company shall take all actions
(including, if appropriate, amending the terms of the Company Plan) that are
necessary to give effect to the transactions contemplated by this Section 2.12.
(b) As soon as practicable after the Effective Time (but no later
than thirty (30) days following the Effective Time), Parent shall establish a
procedure to effect the surrender of Company Stock Options in exchange for the
cash payment to which the holder of a Company Stock Option shall be entitled
under Section 2.11(a), and, upon surrender of such Company Stock Option, Parent
shall pay to the holder thereof in cash the amount, if any, to which such
holder shall be entitled thereunder.
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ARTICLE 3
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Acquisition
as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its businesses as now being conducted.
(b) Except as publicly disclosed by the Company (which, for all
purposes of this Agreement, means disclosed in filings with the SEC made prior
to the date hereof), the Company has no equity interests in any corporations,
partnerships, limited liability companies, trusts or similar business entities.
Each of the subsidiaries listed in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 (each a "Subsidiary" and, collectively,
"Subsidiaries") is a corporation or a limited partnership, as the case may be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power and authority
would not have a Material Adverse Effect (as defined below) on the Company.
When used in connection with the Company or its Subsidiaries, the term
"Material Adverse Effect" means any change or effect that is or is reasonably
likely to be materially adverse to the business, assets, results of operations
or condition (financial or otherwise) of the Company and its Subsidiaries taken
as whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which the Company or any of its
Subsidiaries is engaged.
(c) Each of the Company and its Subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have, individually or in the aggregate, a Material Adverse
Effect on the Company.
(d) The Company has heretofore delivered to Acquisition or Parent
accurate and complete copies of the Articles of Incorporation and Bylaws, as
currently in effect, of the Company.
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SECTION 3.2. CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES.
(a) The authorized capital stock of the Company consists of:
100,000,000 shares of Company Common Stock, of which, as of December 31, 1997,
6,812,500 shares of Company Common Stock were issued and outstanding, and
2,000,000 shares of preferred stock, no par value per share, no shares of which
are issued. All of the shares of Company Common Stock have been validly
issued, and are fully paid, nonassessable and free of preemptive rights. As of
December 31, 1997, approximately 909,500 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Company Stock Options issued pursuant to the
Company Plan. Since December 31, 1997, no shares of the Company's capital
stock have been issued other than pursuant to Company Stock Options already in
existence on such date, and, since December 31, 1997, no stock options have
been granted. Except as set forth above, there are outstanding (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company or its Subsidiaries convertible into or exchangeable for shares
of capital stock or voting securities of the Company, (iii) no options or other
rights to acquire from the Company or its Subsidiaries, and no obligations of
the Company or its Subsidiaries to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (iv) no equity equivalents, interests in the
ownership or earnings of the Company or its Subsidiaries or other similar
rights (collectively, "Company Securities"). There are no outstanding
obligations of the Company or its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities.
(b) Except as set forth on Schedule 3.2(b) of the disclosure
schedule delivered by the Company to Parent concurrently herewith (the
"Disclosure Schedule") or as publicly disclosed by the Company, all of the
outstanding capital stock of each Subsidiary is owned by the Company, directly
or indirectly, free and clear of any Lien (as hereinafter defined) or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of law). There are no
securities of the Company or its Subsidiaries convertible into or exchangeable
for, no options or other rights to acquire from the Company or its
Subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any Subsidiary. There are no outstanding contractual
obligations of the Company or its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any Subsidiary. For purposes of this Agreement, "Lien" means,
with respect to any asset (including, without limitation, any security) any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset.
(c) The Company Common Stock constitutes the only class of equity
securities of the Company registered or required to be registered under the
Exchange Act.
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SECTION 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT; CONSENTS AND
APPROVALS.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Merger Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the Merger Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
Company Board and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the Merger Agreement or to consummate
the transactions contemplated hereby or thereby (other than, with respect to
the Merger, the approval and adoption of this Agreement and the Merger
Agreement by the holders of a majority of the then outstanding shares of
Company Common Stock). This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid, legal and binding agreement
of the Company, enforceable against the Company in accordance with its terms.
(b) The Company Board has duly and validly approved, and taken all
corporate actions required to be taken by the Company Board for the
consummation of, the transactions, including the Offer and the Merger,
contemplated hereby and by the Merger Agreement, and resolved to recommend that
the shareholders of the Company approve and adopt this Agreement and the Merger
Agreement; provided, however, that such approval and recommendation may be
withdrawn, modified or amended in the event that the Company Board by majority
vote determines in its good faith judgment, based on the advice of counsel,
that the Board is required to do so in the exercise of its fiduciary duties
under the CGCL.
SECTION 3.4. SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has filed all required forms, reports and
documents with the SEC since June 30, 1995 (the "SEC Reports"), each of which
has complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, each as in effect on the dates such forms, reports and documents were
filed. The Company has delivered to Acquisition or Parent, in the form filed
with the SEC (including any amendments thereto), (i) its Annual Reports on Form
10-K for each of the fiscal years ended June 30, 1996 and 1997, (ii) all
definitive proxy statements relating to the Company's meetings of shareholders
(whether annual or special) held since June 30, 1995, and (iii) all other
reports or registration statements filed by the Company with the SEC since June
30, 1995. None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company and its Subsidiaries included
in the Annual Reports on Form 10-K referred to in the second sentence of this
Section 3.4(a) and the unaudited
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consolidated interim financial statements of the Company and its Subordinaries
included in the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of the Company and
its Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments).
(b) The Company has heretofore made available to Acquisition or
Parent a complete and correct copy of any amendments or modifications, which
have not yet been filed with the SEC, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC
pursuant to the Exchange Act.
SECTION 3.5. INFORMATION SUPPLIED. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the Offer Documents, the Schedule 13E-3 or the Proxy Statement or
provided by the Company in the Schedule 14D-9 will, at the respective times
that the Offer Documents, the Proxy Statement, the Schedule 13E-3 and the
Schedule 14D-9 or any amendments or supplements thereto are filed with the SEC
and are first published or sent or given to holders of Shares, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
SECTION 3.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky laws, the Hart-Scott- Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and applicable health care
laws (federal, state and local), the filing and recordation of the Merger
Agreement as required by the CGCL and the filing and recordation of a
Certificate of Merger as required by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the Merger Agreement or the consummation by the
Company of the transactions contemplated hereby or thereby, except where the
failure to obtain such permits, authorizations, consents or approvals or to
make such filings or give such notice would not have a Material Adverse Effect
on the Company. Neither the execution, delivery and performance of this
Agreement or the Merger Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby or thereby will (a) conflict
with or result in any breach of any provision of the Articles of Incorporation
or Bylaws (or similar governing documents) of the Company, (b) except as set
forth on Schedule 3.6 of the Disclosure Schedule, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement
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or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (c) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Company or any of
its Subsidiaries or any of their respective properties or assets, except in the
case of (b) or (c) for violations, breaches or defaults which would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.7. NO DEFAULT. None of the Company or its Subsidiaries
is in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its Articles of Incorporation or Bylaws (or
similar governing documents), (b) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is now a party or by which any of them or
any of their respective properties or assets may be bound or (c) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company, its Subsidiaries or any of their respective properties or assets,
except in the case of (b) or (c) for violations, breaches or defaults that
would not have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 3.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES.
Except as publicly disclosed, as of September 30, 1997, none of the Company or
its Subsidiaries had any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its Subsidiaries (including the notes thereto) or which
would have, individually or in the aggregate, a Material Adverse Effect on the
Company. Except as publicly disclosed by the Company, except for the adoption
of the Summit Care Corporation Special Severance Pay Plan, a copy of which has
been provided to Acquisition or Parent (the "Employee Severance Plan") and
except as set forth on Schedule 3.8 of the Disclosure Schedule, since September
30, 1997, none of the Company or its Subsidiaries has incurred any liabilities
of any nature, whether or not accrued, contingent or otherwise, which would
have, and there have been no events, changes or effects with respect to the
Company or its Subsidiaries having, individually or in the aggregate, a
Material Adverse Effect on the Company. Except as publicly disclosed, except
as disclosed on Schedule 3.8 and Schedule 5.1 of the Disclosure Schedule and
except for the acquisition of the Briarcliff Nursing and Rehabilitation Center
located at or near McAllen, Texas and the adoption of the Employee Severance
Plan, since September 30, 1997, the Company and its Subsidiaries have conducted
their business in the ordinary course consistent with past practice and there
has not been any event, occurrence or development or state of circumstances or
facts as described in Sections 5.1(a) through 5.1(l).
SECTION 3.9. LITIGATION. Except as publicly disclosed by the
Company, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries or any of their respective properties or assets before any
Governmental Entity which would have a Material Adverse Effect on the Company
or would prevent or delay the consummation of
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the transactions contemplated by this Agreement. Except as publicly disclosed
by the Company, none of the Company or its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen in the future, would have, individually or in the
aggregate, a Material Adverse Effect on the Company or would prevent or delay
the consummation of the transactions contemplated hereby.
SECTION 3.10. COMPLIANCE WITH APPLICABLE LAW. Except as publicly
disclosed by the Company, the Company and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"Company Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which would not have, individually
or in the aggregate, a Material Adverse Effect on the Company. Except as
publicly disclosed by the Company, the Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except where the failure so
to comply would not have a Material Adverse Effect on the Company. Except as
publicly disclosed by the Company, the businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or warranty
is made in this Section 3.10 with respect to Environmental Laws (as defined in
Section 3.12) and except for violations or possible violations which do not,
and, insofar as reasonably can be foreseen, in the future will not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Except as publicly disclosed by the Company, no investigation or review by any
Governmental Entity with respect to the Company or its Subsidiaries is pending
or, to the best knowledge of the Company, threatened, nor, to the best
knowledge of the Company, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which the Company reasonably
believes will not have a Material Adverse Effect on the Company.
SECTION 3.11. EMPLOYEE PLANS. Except as publicly disclosed by the
Company, and except for the Employee Severance Plan, there are no "employee
benefit plans" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or contributed to by the
Company or its Subsidiaries ("Company ERISA Plans"). The Company ERISA Plans
are in compliance with the applicable provisions of ERISA and the Code, except
for instances of non-compliance that would not have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.12. ENVIRONMENTAL LAWS AND REGULATIONS.
(a) Except as publicly disclosed by the Company, (i) each of the
Company and its Subsidiaries is in compliance with all applicable federal,
state and local laws and regulations relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) (collectively,
"Environmental Laws"), except for non- compliance that would not have a
Material Adverse Effect on the Company, which compliance includes, but is not
limited to, the possession by the Company and its Subsidiaries of all material
permits and other governmental authorizations required under applicable
Environmental
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Laws, and compliance with the terms and conditions thereof; (ii) since July 1,
1992, none of the Company or its Subsidiaries has received written notice of,
or, to the best knowledge of the Company, is the subject of, any material
action, cause of action, claim, investigation, demand or notice by any person
or entity alleging liability under or non-compliance with any Environmental Law
(an "Environmental Claim"); and (iii) to the best knowledge of the Company,
there are no circumstances that are reasonably likely to prevent or interfere
with such material compliance in the future.
(b) Except as publicly disclosed by the Company, there are no
Environmental Claims which would have a Material Adverse Effect on the Company
that are pending or, to the best knowledge of the Company, threatened against
the Company or its Subsidiaries or, to the best knowledge of the Company,
against any person or entity whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
SECTION 3.13. TAX MATTERS. The Company and its Subsidiaries have
accurately prepared and duly filed with the appropriate federal, state, local
and foreign taxing authorities all tax returns, information returns and reports
required to be filed with respect to the Company and its Subsidiaries and have
paid in full or made adequate provision for the payment of all Taxes (as
defined below). Neither the Company nor any of its Subsidiaries is delinquent
in the payment of any Taxes. As used herein, the term ("Taxes") means all
federal, state, local and foreign taxes, including, without limitation, income,
profits, franchise, employment, transfer, withholding, property, excise, sales
and use taxes (including interest and penalties thereon and additions thereto).
SECTION 3.14. BROKERS. No broker, finder or investment banker
(other than the Financial Advisor and the Company's former financial advisor,
SBC Warburg Dillon Read, true and correct copies of whose engagement agreements
have been provided to Acquisition or Parent) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company.
SECTION 3.15. RELATED PARTY TRANSACTIONS. Since June 30, 1995,
neither the Company nor any officer or director of the Company has engaged in
any transactions required to be disclosed by the Company in its SEC Reports
pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act,
except as have been publicly disclosed by the Company or disclosed herein.
SECTION 3.16. RESTRICTIONS ON BUSINESS ACTIVITIES. There is no
judgment, injunction, order or decree binding upon the Company or any of its
Subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company or any
of its Subsidiaries, any acquisition of property by the Company or any of its
Subsidiaries or the conduct of business by the Company or any of its
Subsidiaries as currently conducted.
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SECTION 3.17. NO OTHER REPRESENTATIONS OR WARRANTIES. No
representations or warranties have been made by or on behalf of the Company or
any of its Subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement other than those expressly set forth in this
Article 3. Without limiting the generality of the foregoing, no
representations or warranties are being made with respect to financial
projections or the future financial performance or prospects of the Company,
its Subsidiaries or their respective businesses.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 4.1. ORGANIZATION.
(a) Each of Parent and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not
have a Material Adverse Effect (as defined below) on Parent. When used in
connection with Parent or Acquisition, the term "Material Adverse Effect" means
any change or effect that is or is reasonably likely to be materially adverse
to the business, assets, results of operations or condition (financial or
otherwise) of Parent and its subsidiaries, taken as a whole, other than any
change or effect arising out of general economic conditions unrelated to any
businesses in which Parent or any of its subsidiaries is engaged.
(b) Parent has heretofore delivered to the Company accurate and
complete copies of the Articles of Incorporation and Bylaws, as currently in
effect, of Parent and Acquisition. Each of Parent and its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on
Parent.
SECTION 4.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and the Merger Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the boards of
directors of Parent and Acquisition and by Parent as the sole shareholder of
Acquisition, and no other corporate proceedings on the part of Parent or
Acquisition are necessary to authorize this Agreement or the Merger Agreement
or to consummate the transactions contemplated hereby or thereby. This
Agreement has
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been duly and validly executed and delivered by each of Parent and Acquisition
and constitutes a valid, legal and binding agreement of each of Parent and
Acquisition, enforceable against each of Parent and Acquisition in accordance
with its terms.
SECTION 4.3. INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Heritage, Parent or Acquisition for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9, the
Schedule 13E-3, or the Proxy Statement will, at the respective times that the
Offer Documents, the Schedule 14D-9, the Schedule 13E-3, the Proxy Statement,
or any amendments or supplements thereto, are filed with the SEC and are first
published or sent or given to holders of shares of Company Common Stock,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
SECTION 4.4. CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming the
truth and accuracy of the Company's representations and warranties contained in
Section 3.6, except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Securities Act, the Exchange Act, state securities or blue sky laws, the HSR
Act and applicable state health care laws, the filing and recordation of the
Merger Agreement as required by the CGCL and the filing and recordation of a
Certificate of Merger as required by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and delivery by Parent or Acquisition of this
Agreement or the Merger Agreement or the consummation by Parent or Acquisition
of the transactions contemplated hereby or thereby, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings or give such notice would not have a Material Adverse Effect on Parent
or on the ability of Parent or Acquisition to consummate the Offer or the
Merger. Neither the execution, delivery and performance of this Agreement or
the Merger Agreement by Parent or Acquisition nor the consummation by Parent or
Acquisition of the transactions contemplated hereby or thereby will (i)
conflict with or result in any breach of any provision of the respective
certificate or articles of incorporation or Bylaws (or similar governing
documents) of Parent or Acquisition or any of Parent's subsidiaries, (b) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or Acquisition or
any of Parent's subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or (c) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or
Acquisition or any of Parent's subsidiaries or any of their respective
properties or assets, except in the case of (b) or (c) for violations, breaches
or defaults which would not have a Material Adverse Effect on Parent or on the
ability of Parent or Acquisition to consummate the Offer or the Merger.
SECTION 4.5. NO DEFAULT. None of Parent or any of its
subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both
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would constitute a default or violation) of any term, condition or provision of
(a) its certificate or articles of incorporation or Bylaws (or similar
governing documents), (b) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (c) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent, its
subsidiaries or any of their respective properties or assets, except in the
case of (b) or (c) for violations, breaches or defaults that would not have a
Material Adverse Effect on Parent.
SECTION 4.6. AVAILABILITY OF FINANCING. Parent and Acquisition
have received a valid and enforceable commitment from Heritage to provide $82
million of the funds necessary to purchase shares of Company Common Stock in
the Offer and/or the Merger, which commitment is conditioned only upon the
satisfaction of Parent's and Acquisition's conditions to consummation of the
Offer contained herein and the other conditions specified in Section 5.13.
Parent and Acquisition have received a commitment letter from Bank of Montreal,
a copy of which is attached hereto as Exhibit B (the "Commitment"), covering
not less than $248 million of the funds necessary to purchase all of the shares
of Company Common Stock outstanding on a fully diluted basis in the Offer
and/or the Merger, to refinance existing Company and Subsidiary indebtedness
and to pay any and all of the costs and expenses incurred and to be incurred by
Parent and Acquisition in connection with the transactions contemplated by this
Agreement. Parent hereby guaranties the performance by Acquisition of its
obligations under this Agreement.
SECTION 4.7. NO PRIOR ACTIVITIES. Except for obligations incurred
in connection with its incorporation or organization, the making of the Offer
or the negotiation and consummation of this Agreement and the transactions
contemplated hereby, Acquisition has neither incurred any obligation or
liability or engaged in any business or activity of any type or kind whatsoever
or entered into any agreement or arrangement with any person or entity.
SECTION 4.8. BROKERS. Except for Sutro & Co., no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Acquisition.
SECTION 4.9. NO OTHER REPRESENTATIONS OR WARRANTIES. No
representations or warranties are made by or on behalf of Parent or Acquisition
in connection with the transactions contemplated by this Agreement other than
those expressly set forth in this Article 4. Without limiting the generality
of the foregoing, no representations or warranties are being made with respect
to financial projections or the future financial performance or prospects of
Parent, Acquisition or their businesses.
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ARTICLE 5
COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement, during the period from the date hereof to the
Effective Time, the Company Board will not permit the Company or its any of its
Subsidiaries to conduct their operations otherwise than in the ordinary course
of business consistent with past practice. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, the Company will not, without the prior written
consent of Parent or Acquisition, and will not permit any of its Subsidiaries
to:
(a) amend its Articles of Incorporation or Bylaws (or other
similar governing instrument);
(b) amend or modify (except as contemplated herein) the terms of
the Company Plan or authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents
(including, without limitation, any stock options or stock appreciation
rights), except for the issuance or sale of shares of Company Common Stock
pursuant to the exercise of Company Stock Options;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem or otherwise acquire any Company Securities or any securities of its
Subsidiaries;
(d) except in connection with the exercise of purchase options
under existing leases, (i) incur or assume any long-term or short- term debt or
issue any debt securities, except for borrowings under existing lines of credit
in the ordinary course of business and in amounts not material to the Company
and its Subsidiaries taken as a whole and except for indebtedness not exceeding
$250,000 in the aggregate; (ii) except as described in Schedule 5.1 of the
Disclosure Schedule, assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person, except in the ordinary course of business consistent with
past practice and in amounts not material to the Company and its Subsidiaries
taken as a whole and except for obligations of its Subsidiaries; (iii) except
for investments not exceeding $500,000 in the aggregate, make any loans,
advances or capital contributions to, or investments in, any other person
(other than to its Subsidiaries of the Company or customary loans or advances
to employees in the ordinary course of business consistent with past practice
and in amounts not material to the maker of such loan or advance); (iv) except
as described in Schedule 5.1 of the Disclosure Schedule, pledge or otherwise
encumber shares of capital stock of the Company or its Subsidiaries; or (v)
except as described in Schedule 5.1 of the Disclosure Schedule, mortgage or
pledge any of its
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material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon except for Liens securing indebtedness not exceeding
$250,000 in the aggregate;
(e) except as may be required by law or as contemplated by this
Agreement and except in connection with the hiring of officers (to replace any
officer who retires or is terminated for any reason) or employees in the
ordinary course of business, enter into, adopt or amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreement, trust, plan, fund or other
arrangement for the benefit or welfare of any director, officer or employee in
any manner, or (except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, except as
required under existing agreements and except for the payment of bonuses and
severance payments in the ordinary course of business generally consistent with
past practice) increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units);
(f) except as described in Schedule 5.1 of the Disclosure Schedule
or with the consent of Parent or Acquisition, which consent will not be
unreasonably withheld, acquire, sell, lease or dispose of any assets outside
the ordinary course of business or any assets which have a value in excess of
$5.0 million;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) except in connection with the exercise of purchase options
under existing leases, (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein (except for transactions having
an aggregate value not exceeding $500,000 in the aggregate); (ii) authorize or
make any new capital expenditure or expenditures which, individually, is in
excess of $250,000 or, in the aggregate, are in excess of $1.0 million;
provided, however, that none of the foregoing shall limit any capital
expenditure already included in the Company's 1998 capital expenditure budget
previously provided to Parent or Acquisition; or (iii) enter into or amend any
contract, agreement, commitment or arrangement providing for the taking of any
action that would be prohibited hereunder;
(i) make any tax election or settle or compromise any income tax
liability material to the Company and its Subsidiaries taken as a whole;
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(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto)
of the Company and its Subsidiaries at September 30, 1997 or incurred in the
ordinary course of business consistent with past practice;
(k) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby; or
(l) take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through 5.1(k) or any action which would
make any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect as of the date when made.
SECTION 5.2. OTHER POTENTIAL ACQUIRERS. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties (other than the parties to this Agreement) conducted
heretofore with respect to any offer or proposal for a merger or other business
combination involving the Company or any of its Subsidiaries or the acquisition
of all or any material portion of the assets of, or any equity interest in, the
Company or its Subsidiaries or any business combination with the Company or its
Subsidiaries (each an "Acquisition Proposal"). The Company may, directly or
indirectly, furnish information and access, in each case only in response to
unsolicited requests therefor, to any corporation, partnership, limited
liability company or other entity or group pursuant to confidentiality
agreements on terms no less favorable to the Company than the confidentiality
agreement that has been entered into by and between the Company and Parent, and
may participate in discussions and negotiate with such entity or group
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any Subsidiary or division thereof,
if such entity or group has submitted a written proposal to the Company Board
relating to any such transaction and the Company Board by a majority vote
determines in its good faith judgment, based on the advice of counsel, that it
is required to do so in the exercise of its fiduciary duties under the CGCL.
The Company Board shall promptly (and in no event later than 24 hours after
receipt of the relevant Acquisition Proposal) notify (which notice shall be
provided orally and in writing and shall identify the Person making the relevant
Acquisition Proposal and set forth material terms thereof) Acquisition after (i)
the Company has received any Acquisition Proposal or (iii) one of Messrs.
Brende, Casey or Massimino has actual knowledge that any Person has taken
concrete steps that could reasonably be expected to result in an Acquisition
Proposal, and thereafter shall keep Parent and Acquisition promptly advised of
any development with respect thereto. Except as set forth above, neither the
Company or any of its affiliates, nor any of its or their respective officers,
directors, employees, representatives or agents, shall, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to, any corporation, partnership, limited liability
company or other entity or group (other than Parent and Acquisition, any
affiliate or associate of Parent and
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Acquisition or any designees of Parent and Acquisition) concerning any merger,
sale of assets, sale of shares of capital stock or similar transaction
involving the Company, any Subsidiary or any division of the Company or any
Subsidiary; provided, however, that nothing herein shall prevent the Company
Board from taking, and disclosing to the Company's shareholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to any tender offer; and provided further, however, that nothing herein
shall prevent the Board from making such disclosure to the Company's
shareholders as, in the good faith judgment of the Company Board, is required
in the exercise of its fiduciary duties under the CGCL, provided that the
Company complies with the provisions of Section 7.3.
SECTION 5.3. ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, the Company
will provide to Parent and Acquisition and their authorized representatives
reasonable access to all employees, plants, offices, warehouses and other
facilities and to all books and records of the Company and its Subsidiaries,
will permit Parent and Acquisition to make such inspections as Parent and
Acquisition may reasonably require and will cause the Company's officers and
those of its subsidiaries to furnish Parent and Acquisition with such financial
and operating data and other information with respect to the business and
properties of the Company and its Subsidiaries as Parent or Acquisition may
from time to time reasonably request.
(b) Each of Parent and Acquisition will hold and will cause its
consultants and advisors to hold in confidence all documents and information
concerning the Company and its Subsidiaries furnished to Parent or Acquisition
in connection with the transactions contemplated by this Agreement pursuant to
the terms of that certain Confidentiality Agreement entered into between the
Company and Heritage dated October 31, 1997.
SECTION 5.4. SHAREHOLDERS MEETING.
(a) If a vote of the Company's shareholders is required by law,
the Company will, as promptly as practicable following the acceptance for
payment of shares of Company Common Stock by Acquisition pursuant to the Offer,
take, in accordance with applicable law and its articles of incorporation and
by-laws, all action necessary to convene a meeting of holders of shares of
Company Common Stock (the "Shareholders Meeting") to consider and vote upon the
approval of this Agreement. The Company shall, promptly following the
acceptance for payment of shares of Company Common Stock by Parent pursuant to
the Offer, prepare and file with the SEC a proxy statement for the solicitation
of a vote of holders of shares of Company Common Stock approving the Merger
(the "Proxy Statement"), which shall include the recommendation of the Company
Board that shareholders of the Company vote in favor of the approval and
adoption of this Agreement and the written opinion of the Financial Advisor
that the cash consideration to be received by the shareholders of the Company
pursuant to the Merger is fair to such shareholders from a financial point of
view. The Company shall use all reasonable efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable after such
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filing, and promptly thereafter mail the Proxy Statement to the shareholders of
the Company. The Company shall also use its best efforts to obtain all
necessary state securities law or "blue sky" permits and approvals required in
connection with the Merger and to consummate the other transactions
contemplated by this Agreement and will pay all expenses incident thereto.
Notwithstanding the foregoing, if Parent, Acquisition and/or any other
subsidiary of Parent shall acquire at least 90% of the outstanding shares of
Company Common Stock, the parties shall take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after the
expiration of the Offer without a Shareholders Meeting in accordance with
Section 1110 of the CGCL.
(b) Parent and Acquisition agree to cause all shares of Company
Common Stock purchased pursuant to the Offer and all other shares of Company
Common Stock owned by Parent, Acquisition or any Subsidiary of Parent to be
voted in favor of the Merger.
SECTION 5.5. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject
to the terms and conditions herein provided, each party agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (a) cooperation in the preparation and filing of the Offer
Documents, the Schedule 14D-9, the Schedule 13E-3, the Proxy Statement, any
filings that may be required under the HSR Act and any amendments thereto; (b)
the taking of all action reasonably necessary, proper or advisable to secure
any necessary consents under existing debt obligations of the Company and its
Subsidiaries or to amend the notes, indentures or agreements relating thereto
to the extent required by such notes, indentures or agreements or redeem or
repurchase such debt obligations; (c) contesting any legal proceeding relating
to the Offer or the Merger and (d) the execution of any additional instruments,
including the Merger Agreement, necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
Parent and Acquisition agree to use all reasonable efforts to cause the
Effective Time to occur as soon as practicable after the shareholder vote with
respect to the Merger. In case at any time after the Effective Time any
further action is necessary to carry out the purposes of this Agreement, the
proper officers and directors of each party hereto shall take all such
necessary action.
SECTION 5.6. CONSENTS. Parent, Acquisition and the Company each
will use all commercially reasonable efforts to obtain consents of all third
parties and Governmental Entities necessary, proper or advisable for the
consummation of the transactions contemplated by this Agreement.
SECTION 5.7. PUBLIC ANNOUNCEMENTS. Parent, Acquisition and the
Company, as the case may be, will consult with one another before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation, the
Offer or the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation,
25
<PAGE> 31
except as may be required by applicable law or by obligations pursuant to any
listing agreement with the New York Stock Exchange, Inc. or the NASDAQ Stock
Market, as determined by Parent, Acquisition or the Company, as the case may
be.
SECTION 5.8. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) Parent and Acquisition agree that all rights to
indemnification or exculpation now existing in favor of the directors,
officers, employees and agents of the Company and its Subsidiaries as provided
in their respective charters or bylaws (or other similar governing instruments)
or otherwise in effect as of the date hereof with respect to matters occurring
prior to the Effective Time shall survive the Merger and shall continue in full
force and effect. To the maximum extent permitted by the CGCL, such
indemnification shall be mandatory rather than permissive and the Surviving
Corporation shall advance expenses in connection with such indemnification
(subject to the Surviving Corporation's receipt of an undertaking by the
indemnified party to return such advanced expenses to the Surviving Corporation
if it is determined by a final, non-appealable order of a court of competent
jurisdiction that such indemnified party is not entitled to retain such
advanced expenses).
(b) Parent shall cause the Surviving Corporation to maintain in
effect for not less than three (3) years from the Effective Time the policies
of the directors' and officers' liability and fiduciary insurance most recently
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the beneficiaries thereof so long
as such substitution does not result in gaps or lapses in coverage) with
respect to matters occurring prior to the Effective Time; provided, however,
that in satisfying its obligation under this Section, the Surviving Corporation
shall not be obligated to pay premiums in excess of 150% of the amount per
annum incurred by the Company in the twelve months ended December 31, 1997 with
respect to such insurance, which amount has been disclosed to Parent.
(c) In the event the Surviving Corporation or its successor (i) is
consolidated with or merges into another person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any other
person in a single transaction or a series of related transactions, then in
each such case Parent shall make or cause to be made proper provision so that
the successor or transferee of the Surviving Corporation shall comply in all
material respect with the terms of this Section 5.8.
SECTION 5.9. NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent and Acquisition, and Parent and Acquisition shall
give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty of the notifying party contained in this Agreement to
be untrue or inaccurate in any material respect as if made at the Effective Time
and (b) any material failure of the notifying party to comply with or satisfy
any covenant, condition or agreement to be complied with or
26
<PAGE> 32
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.10. EMPLOYEE MATTERS.
(a) Employees of the Company and its Subsidiaries shall be
treated after the Merger no less favorably under Parent ERISA Plans, to the
extent applicable, than other similarly situated employees of Parent and its
subsidiaries.
(b) For a period of one year following the Merger, Parent
shall and shall cause its subsidiaries to maintain with respect to their
employees who had been employed by the Company or any of its Subsidiaries prior
to the Effective Time and who remain employed following the Effective Time (i)
base salary or regular hourly wage rates for each such employee at not less than
the rate applicable immediately prior to the Merger to such employee, and (ii)
employee benefits (as defined for purposes of Section 3(3) of ERISA), other than
stock option plans) which are substantially comparable in the aggregate to such
employee benefits provided by the Company and its Subsidiaries immediately prior
to the Merger.
(c) To the extent they participate under such plans, Parent
and its subsidiaries shall credit employees of the Company and its Subsidiaries
for purposes of determining eligibility to participate or vesting under Parent
ERISA Plans with their service prior to the Merger with the Company and its
Subsidiaries to the same extent such service was counted under similar benefit
plans of the Company prior to the Merger.
(d) Parent and Acquisition agree to, and agree to cause the
Surviving Corporation to, honor the Company's obligations to employees under
the Employee Severance Plan.
(e) Except as provided in paragraph (d), above, nothing contained
herein shall be construed as requiring Parent or the Surviving Corporation to
continue any specific plans or to continue the employment of any specific
person.
SECTION 5.11. SEC FILINGS. Each of Parent and the Company shall
promptly provide the other party (or its counsel) with copies of all filings
made by the other party or any of its subsidiaries with the SEC or any other
state or federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 5.12. GUARANTEE OF PERFORMANCE. Parent hereby guarantees
the performance by Acquisition of its obligations under this Agreement and the
indemnification obligations of the Surviving Corporation pursuant to Section
5.8(a).
SECTION 5.13. FINANCING COMMITMENTS. Subject only to the
satisfaction of Parent's and Acquisition's conditions to consummation of the
Offer contained herein, Heritage hereby agrees to provide to Parent and
Acquisition not later than the purchase
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<PAGE> 33
under the Offer $82 million of the funds necessary to purchase shares of
Company Common Stock in the Offer and/or the Merger.
SECTION 5.14. EFFORTS RE OTHER FINANCING COMMITMENT. Parent,
Acquisition and Heritage agree to use their commercially reasonable efforts to
consummate the transactions contemplated by the Commitment and to obtain the
funding contemplated thereunder and, if the Commitment is terminated for any
reason, then promptly to obtain another commitment letter or letters or similar
documents covering at least the same amount of funds and for the same purpose,
containing conditions excusing funding that are at least as restrictive on the
issuer of such commitment letter or letters as those contained in Exhibit B
with respect to Bank of Montreal.
SECTION 5.15. NOTICE OF CERTAIN EVENTS. The Company shall promptly
notify Acquisition, and Acquisition shall promptly notify the Company, of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) with respect only to the Company, any actions, suits, claims,
investigations or proceedings commenced or, to the best of its knowledge,
threatened which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.9 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 5.16. PARENT STOCK OPTION; EXERCISE; ADJUSTMENTS.
(a) Subject to the terms and conditions set forth herein, the
Company hereby grants to Parent an irrevocable option (the "Parent Option") to
purchase up to that number of authorized and unissued shares of Company Common
Stock equal to 19.99% of the shares of Company Common Stock outstanding
immediately prior to the exercise of the Parent Option (the "Option Shares") at
a purchase price of $21.00 per Option Share (the "Option Price"). Subject to
the conditions set forth in subsection (c) below, the Parent Option may be
exercised by Parent, in whole or in part, at any time or from time to time
after the date on which Parent has accepted for payment the shares of Company
Common Stock tendered pursuant to the Offer and prior to the termination of
this Agreement pursuant to Article 7. If Parent wishes to exercise the Parent
Option, Parent shall send a written notice to the Company (the "Exercise
Notice") specifying a date (not earlier than the next Business Day following
the date such notice is given) for the closing of such purchase and containing
a representation by Parent that upon the issuance and delivery of the Option
Shares, there will be no further conditions precedent that need to be satisfied
for Parent and Acquisition to purchase shares of Company Common Stock in the
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<PAGE> 34
Offer, and that Parent and Acquisition will take all actions required on their
respective parts to purchase shares of Company Common Stock in the Offer.
(b) In the event of any change in the number of issued and
outstanding shares of Company Common Stock outstanding by reason of any stock
dividend, stock split, split-up, recapitalization, merger or other change in
the corporate or capital structure of the Company, the number of Option Shares
and the Option Price shall be appropriately adjusted to restore Parent to its
rights hereunder.
(c) The Company's obligation to issue and deliver the Option
Shares upon exercise of the Parent Option is subject only to the following
conditions:
(i) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States prohibiting the delivery of the Option Shares shall be
in effect;
(ii) Any applicable waiting periods under the HSR Act, or
other applicable United States or foreign Laws shall have expired or
been terminated; and
(iii) The number of Option Shares plus the number of shares
of Company Common Stock accepted for payment by Parent pursuant to the
Offer will, upon issuance of the Option Shares, constitute at least
ninety percent (90%) of the issued and outstanding shares of Company
Common Stock (provided, however, that, if the 49.9% Offer is in
effect, the condition contained in this clause (iii) will be deemed
satisfied if, after the Offer has been consummated and prior to the
consummation of the Merger, any Company Stock Options have been
exercised and, upon exercise of the Parent Option, the number of
Option Shares to be purchased plus the number of shares of Company
Common Stock purchased by Parent pursuant to the Offer and the number
of shares of Company Common Stock then owned directly or indirectly by
Parent will, upon issuance of the Option Shares, constitute 49.9% of
the issued and outstanding shares of Company Common Stock).
(d) Any closing hereunder shall take place on the date specified
by Parent in its Exercise Notice delivered pursuant to subsection (a) above at
9:00 a.m., California time, or the first day thereafter on which all of the
conditions in subsection (c) above are met, at the office of Company's counsel,
or at such other time and place as the parties may agree (the "Option Closing
Date"). On the Option Closing Date, the Company will deliver to Parent a
certificate or certificates representing the Option Shares in the denominations
designated by Parent in its Exercise Notice and Parent will purchase such
Option Shares from the Company at a price per Option Share equal to the Option
Price. Any payment made by Parent to the Company pursuant to this subsection
(d) shall be made (i) by certified, cashier's or bank check or by wire transfer
of immediately available funds to an account designated by the Company or (ii)
by the delivery of a promissory note in the amount of the purchase price
adequately secured by collateral other than the Option
29
<PAGE> 35
Shares as required by Section 409 of the CGCL. The certificates representing
the Option Shares may bear an appropriate legend relating to the fact that such
Option Shares have not been registered under the Securities Act.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger is
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the shareholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger and the other
transactions described in the recitals to this Agreement under the HSR Act
shall have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received; and
(d) Acquisition shall have purchased the shares of Company Common
Stock pursuant to the Offer.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1. TERMINATION. This Agreement may be terminated and
the Offer and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of Parent, Acquisition and the
Company;
(b) by Parent or Acquisition or the Company if any court of
competent jurisdiction in the United States or other United States governmental
authority shall have issued a final order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting the Offer or the
Merger and such order, decree, ruling or other action is or shall have become
nonappealable;
(c) by Parent and Acquisition if, on or prior to July 31, 1998,
due to an occurrence or circumstance which would result in a failure to satisfy
any of the conditions set forth in Annex A, Acquisition shall have (i)
terminated the Offer or (ii) failed to pay for
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<PAGE> 36
shares of Company Common Stock pursuant to the Offer; provided, however, that
the right to terminate this Agreement pursuant to this clause (c) shall not be
available to Parent or Acquisition if either of them has breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure referenced in this clause (c);
(d) by the Company if, by July 31, 1998, Acquisition shall have
failed to pay for the shares of Company Common Stock properly tendered and not
withdrawn pursuant to the Offer; provided, however, that the right to terminate
the Agreement pursuant to this clause (d) shall not be available to the Company
if it has breached in any material respect its obligations under this Agreement
that in any manner shall have proximately contributed to the failure referenced
in this clause (d);
(e) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement, or if any representation or warranty of Parent or Acquisition
shall have become untrue, in either case which materially adversely affects (or
materially delays) the consummation of the Offer, (ii) there shall have been a
breach on the part of Parent or Acquisition of any of their respective
covenants or agreements hereunder having a Material Adverse Effect on Parent or
materially adversely affecting (or materially delaying) the consummation of the
Offer, and Parent or Acquisition, as the case may be, has not cured such breach
prior to the earlier of (A) ten (10) days following notice by the Company
thereof and (B) two (2) Business Days prior to the date on which the Offer
expires, provided that the Company has not breached any of its obligations
hereunder in a manner that proximately contributed to such breach by Parent or
Acquisition, or (iii) prior to the purchase of Shares pursuant to the Offer,
the Company Board by a majority vote shall have determined in its good faith
judgment, based on the advice of counsel, that it is required to do so in the
exercise of its fiduciary duties under the CGCL, provided that such termination
under this clause (iii) shall not be effective until payment of the fee
required by Section 7.3(a), or
(f) by Parent or Acquisition prior to the purchase of shares of
Company Common Stock pursuant to the Offer if (i) the Company Board withdraws
or modifies in a manner materially adverse to Parent or Acquisition its
favorable recommendation of the Offer or the approval or recommendation of the
Merger or shall have recommended a Third Party Acquisition, (ii) a Third Party
Acquisition occurs, (iii) there shall have been a breach of any representation
or warranty on the part of Company set forth in this Agreement, or any
representation or warranty of Company shall have become untrue, in either case
if the respects in which the representations and warranties made by the Company
are inaccurate would in the aggregate have a Material Adverse Effect on the
Company or materially adversely affect (or delay) the consummation of the Offer
or the Merger, (iv) there shall have been a breach on the part of the Company
of its covenants or agreements hereunder having, individually or in the
aggregate, a Material Adverse Effect on the Company or materially adversely
affecting (or materially delaying) the consummation of the Merger, and, with
respect to clauses (iii) and (iv) above, the Company has not cured such breach
prior to the earlier of (A) ten (10) days following notice by the Parent or
Acquisition thereof and (B) two (2) Business Days prior to the
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date on which the Offer expires, provided that, with respect to clauses (iii)
and (iv) above, neither Parent or Acquisition has breached any of their
respective obligations hereunder in a manner that proximately contributed to
such breach by the Company or (v) Parent or Acquisition shall have discovered
that any information supplied to Parent or Acquisition by the Company
(excluding, for such purposes, any projections or forecasts or other forward
looking information supplied by the Company), at the time provided to Parent or
Acquisition, contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and such misstatement
or omission would have a Material Adverse Effect on the Company.
SECTION 7.2. EFFECT OF TERMINATION. In the event of the
termination and abandonment of this Agreement pursuant to Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party or its affiliates, directors, officers or
shareholders, other than the provisions of this Section 7.2 and Sections 5.3(b)
and 7.3. Nothing contained in this Section 7.2 shall relieve any party from
liability for any breach of this Agreement.
SECTION 7.3. FEES AND EXPENSES.
(a) In the event that this Agreement shall be terminated pursuant
to:
(i) Section 7.1(e)(iii);
(ii) Section 7.1(f)(i) or (ii); or
(iii) Sections 7.1(f)(iii) or (iv) as a result of a willful
breach of any representation, warranty, covenant or agreement of the
Company and, within twelve (12) months thereafter, the Company enters
into an agreement with respect to a Third Party Acquisition (as
defined below), or a Third Party Acquisition occurs, involving any
party (or any affiliate thereof) (x) with whom the Company (or its
agents) had discussions with a view to a Third Party Acquisition, (y)
to whom the Company (or its agents) furnished information with a view
to a Third Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, in the case of
each of clauses (x), (y) and (z) during the period commencing on
October 1, 1997 and continuing until such termination;
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent
and Acquisition for such damages, the Company shall pay to Parent the amount of
$7 million as liquidated damages. It is specifically agreed that the amount to
be paid pursuant to this Section 7.3(a) represents liquidated damages and not a
penalty.
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or otherwise by any
person (which includes a "person" as such term is defined in Section 13(d)(3)
of the Exchange Act) or entity other
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than Parent, Acquisition or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of 30% or more of the total assets of the Company
and its Subsidiaries, taken as a whole; or (iii) the acquisition by a Third
Party of shares of Company Common Stock resulting in such person holding at
least 30% or more of the outstanding shares of Company Common Stock.
(b) Upon the termination of this Agreement prior to the purchase
of Shares by Acquisition pursuant to the Offer pursuant to Section 7.1(f)
(unless such termination is also covered by Section 7.3(a)), the Company shall
reimburse Parent, Acquisition and their affiliates (not later than ten (10)
Business Days after submission of statements therefor) for all actual
documented out-of-pocket fees and expenses, not to exceed $2,000,000, actually
and reasonably incurred by any of them or on their behalf in connection with
the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, filing fees, printing and mailing
costs, fees payable to investment bankers, counsel to any of the foregoing, and
accountants). Parent and Acquisition have provided the Company with an
estimate of the amount of such fees and expenses and, if Parent or Acquisition
shall have submitted a request for reimbursement hereunder, will provide the
Company in due course with invoices or other reasonable evidence of such
expenses upon request. The Company shall in any event pay the amount requested
(not to exceed $2,000,000) within ten (10) Business Days of such request,
subject to the Company's right to demand a return of any portion as to which
invoices are not received in due course. Nothing in this Section 7.3(b) shall
relieve any party from any liability for breach of this Agreement.
(c) Upon the termination of this Agreement pursuant to Sections
7.1(e)(i) or (ii), Parent shall reimburse the Company and their affiliates (not
later than ten (10) Business Days after submission of statements therefor) for
all actual documented out-of-pocket fees and expenses, not to exceed $1.0
million, actually and reasonably incurred by any of them or on their behalf in
connection with the Merger and the consummation of all transactions
contemplated by this Agreement (including, without limitation, filing fees,
printing and mailing costs, fees payable to investment bankers, counsel to any
of the foregoing, and accountants). The Company has provided Parent with an
estimate of the amount of such fees and expenses and, if the Company shall have
submitted a request for reimbursement hereunder, will provide Parent in due
course with invoices or other reasonable evidence of such expenses upon
request. Parent shall in any event pay the amount requested (not to exceed
$1.0 million) within ten (10) Business Days of such request, subject to
Parent's right to demand a return of any portion as to which invoices are not
received in due course. Nothing in this Section 7.3(c) shall relieve any party
from any liability for breach of this Agreement.
(d) Except as specifically provided in this Section 7.3, each
party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
SECTION 7.4. AMENDMENT. This Agreement may be amended by action
taken by the Company, Parent and Acquisition at any time before or after
approval of the Merger
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by the shareholders of the Company (if required by applicable law) but, after
any such approval, no amendment shall be made which requires the approval of
such shareholders under applicable law without such approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of the
parties.
SECTION 7.5. EXTENSION; WAIVER. At any time prior to the
Effective Time, each party may (a) extend the time for the performance of any
of the obligations or other acts of the other party or parties, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document, certificate or writing delivered pursuant
hereto or (c) waive compliance by the other parties with any of the agreements
or conditions contained herein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to assert any
of its rights hereunder shall not constitute a waiver of such rights.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 8.2. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or otherwise;
provided, however, that Acquisition may assign any or all of its rights and
obligations under this Agreement to any wholly owned subsidiary of Parent, but
no such assignment shall relieve Acquisition of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 8.3. VALIDITY. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
SECTION 8.4. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telegram, facsimile or telex, or by registered or certified mail
(postage prepaid, return receipt requested), to the other party as follows:
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if to Parent or Acquisition: Fountain View, Inc.
11900 W. Olympic Boulevard
Suite 680
Los Angeles, CA 90064
Attention: Robert Snukal
- and -
Heritage Partners, Inc.
30 Rowes Wharf, Suite 300
Boston, MA 02110
Attention: Michel Reichert
with a copy to: Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Stephen M. L. Cohen, Esq.
if to the Company to: Summit Care Corporation
2600 W. Magnolia Road
Burbank, CA 91505-3031
Attention: William C. Scott
with a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Bradford P. Weirick, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 8.5. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to the principles of conflicts of law thereof.
SECTION 8.6. CONSTRUCTION; INTERPRETATION. The headings contained
in this Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement. Article, section,
exhibit, schedule, annex, party, preamble and recital references are to this
Agreement unless otherwise stated. No party, nor its respective counsel, shall
be deemed the drafter of this Agreement for purposes of construing the
provisions hereof, and all provisions of this Agreement shall be construed
according to their fair meaning, and not strictly for or against any party.
SECTION 8.7. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party and its successors and
permitted assigns, and except as provided in Section 8.2, nothing in this
Agreement, express or implied, is
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intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.8. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or unenforceable, all other provisions of this
Agreement shall remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party.
SECTION 8.9. SPECIFIC PERFORMANCE. The parties acknowledge that
irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific
performance issued by a court of competent jurisdiction. Such remedy shall,
however, not be exclusive and shall be in addition to any other remedies,
including arbitration, which any party may have under this Agreement or
otherwise.
SECTION 8.10. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed on its behalf as of the day and year first above written.
ATTEST: SUMMIT CARE CORPORATION, a California
corporation
By: By:
------------------------------ ---------------------------------
Name: Name:
---------------------------- -------------------------------
Title: Title:
--------------------------- ------------------------------
ATTEST: FOUNTAIN VIEW, INC., a Delaware
corporation
By: By:
------------------------------ ---------------------------------
Name: Name:
---------------------------- -------------------------------
Title: Title:
--------------------------- ------------------------------
ATTEST: FV-SCC ACQUISITION CORP., a Delaware
corporation
By: By:
------------------------------ ---------------------------------
Name: Name:
---------------------------- -------------------------------
Title: Title:
--------------------------- ------------------------------
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<PAGE> 43
Agreed to and acknowledged with respect to Sections 5.7, 5.13, 5.14:
ATTEST: HERITAGE FUND II, L.P., a Delaware
limited partnership
BY: HF PARTNERS II, L.L.C.,
as general partner
By:
------------------------------
Name:
---------------------------- By:
---------------------------------
Title:
--------------------------- Name:
-------------------------------
Title:
------------------------------
38
<PAGE> 44
ANNEX A
THE CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS SET FORTH IN THE
AGREEMENT AND PLAN OF MERGER TO WHICH THIS ANNEX A IS ATTACHED.
Notwithstanding any other provisions of the Offer, Acquisition shall
not be required to accept for payment or pay for, and shall delay the
acceptance for payment of, or the payment for, any Shares and, if required
pursuant to Section 1.1(b) of the Agreement, shall extend the Offer by one or
more extensions until July 31 1998, and may terminate the Offer at any time
after July 31, 1998, if (i) immediately prior to the expiration of the Offer
(as extended in accordance with the Offer), the Minimum Condition shall not
have been satisfied, (ii) any applicable waiting period under the HSR Act shall
not have expired or been terminated or (iii) prior to the acceptance for
payment of Shares, Acquisition makes a determination (which shall be made in
good faith) that any of the following conditions exist:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, enacted, entered,
enforced or deemed applicable to the Offer, or any other action shall have been
taken, by any state or federal government or governmental authority or by any
U.S. court, other than the routine application to the Offer or the Merger of
waiting periods under the HSR Act, that (i) restrains, prohibits, or makes
illegal, the acceptance for payment of, or the payment for, some or all of the
Shares or otherwise prohibits consummation of the Offer or the Merger, (ii)
restrains, prohibits, or imposes material limitations on, the ability of
Acquisition to acquire or hold or to exercise effectively all rights of
ownership of the Shares, including, without limitation, the right to vote any
Shares purchased by Acquisition on all matters properly presented to the
shareholders of the Company, or effectively to control in any material respect
the business, assets or operations of the Company, its subsidiaries,
Acquisition or any of their respective affiliates, or (iii) otherwise has a
Material Adverse Effect on the Company, Parent or Acquisition; or there shall
be any litigation or suit pending by any person or governmental authority
seeking to do any of the foregoing; or
(b) (i) the representations and warranties of the Company set
forth in the Merger Agreement (without giving effect to any "materiality"
limitations or references to "Material Adverse Effect" set forth therein) shall
not be true and correct in any material respect as of the date of the Merger
Agreement and as of consummation of the Offer as though made on or as of such
date, but only if the respects in which the representations and warranties made
by the Company are inaccurate and would in the aggregate have a Material
Adverse Effect on the Company, (ii) the Company shall have breached or failed
to comply in any material respect with any of its obligations under the Merger
Agreement or (iii) any material adverse changes shall have occurred that have
had a Material Adverse Effect on the Company; or
A-1
<PAGE> 45
(c) it shall have been publicly disclosed that any person (which
includes a "person" as such term is defined in Section 13(d)(3) of the Exchange
Act) other than Parent, Acquisition, any of their affiliates, or any group of
which any of them is a member, shall have acquired beneficial ownership of more
than 30% of the outstanding Shares or shall have entered into a definitive
agreement or an agreement in principle with the Company with respect to a
tender offer or exchange offer for any Shares or a merger, consolidation or
other business combination with or involving the Company, any of its
subsidiaries or any of their material assets; or
(d) the Merger Agreement shall have been terminated in accordance
with its terms;
(e) prior to the purchase of Shares pursuant to the Offer, the
Company Board shall have withdrawn or modified (including by amendment of the
Schedule 14D-9) in a manner adverse to Acquisition its approval or
recommendation of the Offer, this Agreement or the Merger or shall have
recommended another offer, or shall have adopted any resolution to effect any
of the foregoing which, in the good faith judgment of Acquisition in any such
case, and regardless of the circumstances (including any action or omission by
Acquisition) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment; or
(f) any authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
governmental entity, required in order to consummate the Offer or the Merger or
to permit the Company and its Subsidiaries to conduct their businesses after
the Offer and the Merger as currently conducted, shall not have been filed,
granted, given, occurred or satisfied.
A-2
<PAGE> 46
EXHIBIT A
MERGER AGREEMENT
A-1
<PAGE> 47
EXHIBIT B
COMMITMENT LETTER
B-1
<PAGE> 48
DISCLOSURE SCHEDULE
TO
AGREEMENT AND PLAN OF MERGER
AMONG
SUMMIT CARE CORPORATION, FOUNTAIN VIEW, INC.,
TARGET ACQUISITION CORP. AND HERITAGE FUND II, L.P.
All terms used in this Disclosure Schedule to the Agreement and Plan of
Merger among Target, Inc., Parent, Inc. and Target Acquisition Corp. dated as
of February ____, 1998 (the "Agreement") that are not otherwise defined herein
shall have the meanings given to them in the Agreement. Disclosure of
information in any Schedule contained herein shall be deemed to constitute
disclosure under all other Schedules.
<PAGE> 49
SCHEDULE 3.2(b)
OWNERSHIP OF CAPITAL STOCK OF COMPANY SUBSIDIARIES
We call your attention to the fact that APS-Summit Care Pharmacy, L.L.C. is
not wholly owned by the Company and that, under certain circumstances, the
other member of APS-Summit Care Pharmacy, L.L.C. has the right to acquire the
Company's membership interest therein. We call your attention to the existence
of certain restrictions on transfer of membership interests contained in the
Limited Liability Company Agreement of APS-Summit Care Pharmacy, L.L.C., dated
as of November 30, 1996.
<PAGE> 50
SCHEDULE 3.6
CONSENTS AND APPROVALS
We call your attention to the fact that the provisions of that certain
Third Amended and Restated Credit Agreement, dated as of December 15, 1995,
between the Company, the lenders named therein and the Bank of Montreal, as a
lender and the agent, as amended from time to time, contain prohibitions
against the merger of the Company with or into any other entity.
We call your attention to the fact that the provisions of (i) that certain
Amended and Restated Note Purchase Agreement, dated as of December 15, 1995,
between the Company and the note purchasers named therein, as amended from time
to time, and (ii) that certain Note Purchase Agreement, dated as of December
15, 1995, between the Company and the note purchasers named therein, as amended
from time to time, contain certain conditions that must be satisfied prior to
the effectuation of the merger of the Company with or into any other entity,
including, without limitation, the assumption by such other entity of the
Company's obligations, including financial covenant obligations, under such
agreements and the notes issued by the Company thereunder.
The following agreements require consents to the consummation of the Offer
or the Merger, require consents as a consequence of the deemed assignment of
the agreements by operation of law pursuant to the Merger and/or may experience
an acceleration of rights or obligations thereunder as a result of the Offer or
the Merger:
I. Real Property Leases:
A. Oakland Manor Nursing Center: Nursing Home Lease Agreement,
dated June 29, 1992, between Gotcher Construction, Inc., as
Lessor, and May Joint Venture, as Lessee; Assignment Of Lease
With Option To Purchase, dated September 30, 1994, by which
Summit Care Corporation was substituted as Lessee; Addendum to
Assignment of Lease and Option to Purchase, dated October,
1994; Consent To Assignment Of Lease dated September 26, 1994;
Agreement Re Option dated September 30, 1994; Assignment and
Assumption of Lease, dated September 1, 1997, by which Summit
Care Texas was substituted as Lessee and Letter Agreement
consenting to Assignment and Assumption of Lease dated June
27, 1997.
B. Southern Manor Nursing Center: Nursing Home Lease Agreement,
dated June 29, 1992, between R.W. McDonnell Construction Co.,
Inc., as Lessor, and May Joint Venture, as Lessee; Assignment
Of Lease With Option To Purchase, dated September 30, 1994, by
which Summit Care Corporation was substituted as Lessee;
Addendum to Assignment of Lease and Option to Purchase dated
October, 1994; Consent To Assignment Of Lease dated September
26, 1994; Agreement Re Option dated September 30, 1994;
Assignment and Assumption of Lease, dated September 1 1997,
<PAGE> 51
SCHEDULE 3.6
CONSENTS AND APPROVALS
(CONTINUED)
by which Summit Care Texas, L.P. was substituted as Lessee and
Letter Agreement consenting to Assignment and Assumption of
Lease dated January 3, 1997.
C. Phoenix Living Center: Lease Agreement, dated August 1, 1993,
between Sierra Land Group, Inc., as Landlord, and Summit
Health, Ltd, as Tenant; Sublease Agreement, dated January 4,
1994, between Summit Health Ltd., as Sublessor, and Summit
Care Corporation, as Sublessee.
II. The Burbank Office Building Loan Agreement, dated March 28, 1994,
between the Company and Union Bank.
III. Material Ancillary Agreements
A. Master Therapy and Supplies Services Agreement, dated June 30,
1995, between the Company and TheraTx, Incorporated, which
requires the written consent of TheraTx, Incorporated to an
"assignment" or "delegation" by the Company of its rights or
duties under the Agreement, but which does not define
"assignment" or "delegation."
B. Respiratory Therapy Management Services Agreement, dated
November 1, 1996, by and between the Company and TheraCare.
C. Limited Liability Company Agreement of APS-Summit Care
Pharmacy, L.L.C., dated as of November 30, 1996. See Schedule
3.2(b).
D. Various pharmacy service contracts between Skilled Care
Pharmacy and nursing home operators, which require the prior
consent of such nursing home operators to an "assignment" by
Skilled Care Pharmacy of its rights and duties under the
contract, but which do not define "assignment."
E. Various skilled nursing services agreements between the
Company or one of its affiliates and various nursing home
operators and hospital operators, which require the prior
consent of such nursing home or hospital operators to an
"assignment" by the Company or its affiliate of its rights and
duties under the agreement, but which do not define
"assignment."
F. Various medical care services agreements between the Company
or one of its affiliates and various health maintenance
organizations and health insurance plans, which require the
prior consent of such health maintenance organizations or
health insurance plans to an "assignment" by the Company or
its affiliate of its rights and duties under the agreement,
but which do not define "assignment."
IV. Pursuant to the Company's Special Severance Pay Plan, dated February
_______, 1998, as described in Schedule 3.8 (the "Employee Severance
Plan"), the Company may become
<PAGE> 52
SCHEDULE 3.6
CONSENTS AND APPROVALS
(CONTINUED)
subject to severance payment obligations to certain employees following
the consummation of the Merger.
V. At a meeting of the Board of Directors of the Company held on December
19, 1997, the Board approved, effective upon a sale of the Company,
the vesting of all pension benefits owing to William C. Scott under
the Company's pension plan. The Board of Directors of the Company
also approved the payment of $100,000 to William C. Scott upon the
successful consummation of the Merger.
VI. Pursuant to the terms of the Company Plan, all Company Stock Options
will vest and become exercisable prior to consummation of the Merger.
<PAGE> 53
SCHEDULE 3.8
COMPANY LIABILITIES
1. We call your attention to the fact that the Company's liabilities as
of December 31, 1997 were approximately $182,699,000. We also call
your attention to the fact that the Company has an account payable to
TheraTx, Incorporated as of January 31, 1998 in the amount of
approximately $20,009,000.
2. We call your attention to the fact that the Company has disclosed to
Parent the financial statements of the Company for the second fiscal
quarter ended December 31, 1997 and that the Company and Parent agree
that neither the results reflected in such financial statements nor
the public disclosure of such financial statements constitutes a
breach of this Agreement nor a circumstance constituting a Material
Adverse Event hereunder.
3. The Company has entered into an agreement with certain of its
noteholders to pay such noteholders approximately $228,000 as
consideration for the waiver of certain financial covenants contained
in (i) the $75,000,000 Note Purchase Agreement, dated as of December
15, 1995, among the Company and the note purchasers named therein and
(ii) the $25,000,000 Amended and Restated Note Purchase Agreement,
dated as of December 15, 1995, among the Company and the note
purchasers named therein (amending and restating the Note Purchase
Agreement, dated as of December 15, 1992, among the Company and the
note purchasers named therein).
4. Blue Cross has informed the Company that it is reclaiming
approximately $1,500,000 in Medicare payments previously made by Blue
Cross to the Company on the grounds that the Company failed to timely
obtain the requisite physician signatures authorizing such payments.
Blue Cross has initiated the process of reclaiming such amounts by
withholding such amounts from payments that have become due to the
Company subsequent to those which are being reclaimed. The Company has
sufficient reserves against the payments being reclaimed by Blue Cross
and the payments will thus not have a Material Adverse Effect on the
Company.
5. The Board of Directors of the Company has adopted the Employee
Severance Plan. See Schedule 3.6.
6. The Board of Directors of the Company has approved the vesting of all
pension benefits owing to William C. Scott effective upon a sale of
the Company. The Board of Directors of the Company has also approved
the payment of $100,000 to William C. Scott upon the successful
consummation of the Merger. See Schedule 3.6.
<PAGE> 54
SCHEDULE 5.1
CONDUCT OF THE BUSINESS OF THE COMPANY
1. We call to your attention the fact that the Company is currently
undertaking a restructuring of its assets in the State of Texas, which
restructuring includes, among other things, (i) the transfers of
certain real property and other assets located in the State of Texas
(the "Transferred Property") and currently owned by the Company and
one or more of its Subsidiaries to one or more other indirect
Subsidiaries of the Company; (ii) the execution of certain collateral
documents pursuant to which the transferees of such Transferred
Property will grant deeds of trust and other security interests in
such Transferred Property to certain existing creditors of the
Company; (iii) the execution by certain newly-formed Subsidiaries of
the Company of guarantees securing certain currently-existing
indebtedness of the Company; (iv) the execution by the Company,
certain Subsidiaries of the Company and certain of the Company's
creditors of amendments and waivers of certain provisions of the
agreements evidencing the Company's outstanding indebtedness; and (v)
the execution by the Company and certain Subsidiaries of the Company
of additional documentation necessary to consummate such
restructuring.
2. The Board of Directors of the Company has approved the Employee
Severance Plan. See Schedule 3.6.
3. The Board of Directors of the Company has approved the acceleration of
vesting of pension benefits owing to William C. Scott and the payment
of $100,000 to William C. Scott upon the successful consummation of
the Merger. See Schedule 3.6.
<PAGE> 1
EXHIBIT 10.48
SUMMIT CARE CORPORATION
SPECIAL SEVERANCE PAY PLAN
ARTICLE 1.
PURPOSE OF THE PLAN
The Summit Care Corporation Special Severance Pay Plan (the "Plan")
has been established by Summit in connection with, and effective upon the
consummation of, the "Offer," as defined in and, pursuant to the Agreement and
Plan of Merger, dated as of February 6, 1998 (as amended), among Summit,
Fountain View, Inc. ("Fountain View"), FV-SCC Acquisition Corp. ("Acquisition
Corp.") and Heritage Fund II, L.P. The Plan provides for the payment of
severance benefits to Participants whose employment is terminated under the
circumstances described herein. As of the Effective Date, the Plan supersedes
any and all previous severance pay practices, plans or policies of Summit or
any Subsidiary applicable to Participants.
ARTICLE 2.
DEFINITIONS
2.1 "Acquisition Corp." means FV-SCC Acquisition Corp. and any
successor thereto.
2.2 "Administrator" means Summit or any other person or committee
designated in writing by Summit from time to time to perform all or a specified
portion of the duties and responsibilities of the Administrator hereunder.
2.3 "Base Pay" means:
<PAGE> 2
(a) in the case of a Participant who is compensated on an hourly
basis, his or her monthly base pay, determined as the product of (i) his or her
highest standard hourly rate of pay (excluding overtime, holiday, vacation and
any other special rates of pay -- "Excluded Pay") in effect during the
Measurement Period and (ii) the number of hours he or she is regularly
scheduled to work (excluding Excluded Pay) in a standard work month (determined
on the basis of a regular work year of 2,080 hours), as determined by the
Administrator in its sole discretion; and
(b) in the case of each other Participant, his or her highest
monthly rate of base salary in effect during the Measurement Period.
2.4 "Cause" for termination of a Participant's employment means
such Participant's (i) dishonesty, fraud, willful misconduct or self-dealing;
(ii) breach of fiduciary duty (whether or not involving personal profit); (iii)
failure, neglect or refusal to perform the Participant's duties in any material
respect; or (iv) conviction of a crime involving moral turpitude; provided,
however, that a failure to achieve or meet business objectives as defined by
Summit, Fountain View or a Subsidiary, as applicable, shall not be considered
cause so long as the Participant has devoted his or her best and good faith
efforts and full attention to the achievement of such business objectives.
2.5 "Effective Date" means the date on which the "Offer" as
defined in the Merger Agreement is consummated.
2.6 "Fountain View" means Fountain View, Inc. a Delaware
corporation and, following the consummation of the Merger, parent of Summit.
2
<PAGE> 3
2.7 "Good Reason" for termination by a Participant of his or her
employment means the occurrence (without such Participant's express written
consent) of any one of the following acts or failures to act by Summit,
Fountain View or any Subsidiary that employs the Participant, as the case may
be, unless, in the case of any act or failure to act described below, such act
or failure to act is corrected prior to such Participant's Termination Date:
(a) a material diminution in such Participant's title, authorities
or responsibilities from those in effect immediately prior to such termination
or, if greater, those in effect immediately prior to the Effective Date:
(b) a reduction in such Participant's Base Pay as in effect
immediately prior to the Effective Date except for across-the-board pay
reductions similarly affecting all similarly situated employees of Summit and
all similarly situated employees of any entity and/or person then in control of
Summit.
(c) the relocation of such Participant's office at which he or she
is to perform his or her duties to a location that increases his or her one-way
commute by more than 30 miles from his or her commute to the location at which
such Participant performed his or her duties immediately prior to the Effective
Date, except for required travel on Summit's business to an extent
substantially consistent with his or her business travel obligations prior to
the Effective Date; or
(d) the failure to continue to provide such Participant with
benefits substantially similar in value in the aggregate to those enjoyed by
such Participant under Summit's medical, health, accident plans in which such
Participant was participating immediately prior to the Effective Date, unless
such Participant participates from and after the Effective Date in other
3
<PAGE> 4
comparable benefit plans generally available to employees of Summit and
employees of any person then in control of Summit.
2.8 "Measurement Period" means, with respect to a Participant, the
period beginning on the Effective Date and ending on such Participant's
Termination Date.
2.9 "Merger" means the merger of Summit with Acquisition Corp.
pursuant to the Agreement and Plan of Merger, dated as of February 6, 1998, as
amended, among Summit, Fountain View, Acquisition Corp. and Heritage Fund II,
L.P.
2.10 "Notice of Termination" means a written notice of termination
indicating the Termination Date and delivered (i) to the Participant in the
case of a termination by Fountain View, Summit or a Subsidiary and, if such
termination is for Cause, specifying in reasonable detail the facts and events
forming a basis for such termination and (ii) to the Administrator in the case
of a termination by the Participant and, if such termination is for Good
Reason, specifying in reasonable detail the facts and events forming a basis
for such termination.
2.11 "Summit" means Summit Care Corporation and any successor
thereto.
2.12 "Participant" means each individual who (i) is employed as of
the day prior to the Effective Date by Summit or a Subsidiary and (ii) is
listed on Exhibits I through VI attached hereto.
2.13 "Severance Pay" means the applicable amount determined under
Section 6.1 which a Terminated Participant will be entitled to receive as
severance benefits under the Plan, subject to the provisions of Article 5.
4
<PAGE> 5
2.14 "Subsidiary" means any corporation, partnership, joint venture
or entity, a majority of whose outstanding voting securities is owned, directly
or indirectly, by Summit and any successor thereto.
2.16 "Term of the Plan" means the period commencing on the
Effective Date and ending on the second anniversary of the Effective Date for
Plan Participants.
2.17 "Terminated Participant" has the meaning set forth in Article
5.
2.18 "Termination Date" means the date as of which a Participant's
employment with Summit or a Subsidiary terminates as specified in the
applicable Notice of Termination, which date, in the case of any termination by
Fountain View, Summit or a Subsidiary, other than any such termination for
Cause, shall be thirty (30) days from the date such Notice of Termination is
provided to the Participant and, in the case of any termination by the
Participant, shall be thirty (30) days from the date such Notice of Termination
is provided to the Administrator.
ARTICLE 3.
ADMINISTRATION
The Plan shall be administered by the Administrator.
The Administrator shall have the exclusive authority and
responsibility for all matters in connection with the operation and
administration of the Plan. The Administrator's powers and duties shall
include, but not be limited to, the following: (i) discretionary authority to
interpret and construe the Plan; (ii) discretionary authority to determine
eligibility for benefits under the Plan; (iii) authorizing the payment of all
benefits under the Plan; (iv) authority to engage such
5
<PAGE> 6
legal, accounting and other professional services as it may deem proper; and
(v) responsibility for the compilation and maintenance of all records necessary
in connection with the Plan. Decisions by the Administrator shall be final and
binding upon the Company and each Participant, unless arbitrary or capricious.
The Administrator shall be the Plan Administrator of the Plan for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Accordingly, it is intended that, insofar as the Administrator acts
in a fiduciary capacity in the performance of any of its duties or obligations
under the Plan, the standards of fiduciary conduct set forth in ERISA shall
apply.
ARTICLE 4.
ELIGIBILITY
Participation in the Plan is limited to those individuals who fall
within the definition of a "Participant" as defined in Section 2.10. No other
individual shall be eligible to participate in the Plan.
ARTICLE 5.
ENTITLEMENT TO BENEFITS
If a Participant's employment with Fountain View, Summit or a
Subsidiary is terminated during the Term of the Plan either (i) by Fountain
View, Summit or a Subsidiary other than for Cause or (ii) by such Participant
for Good Reason (such a Participant referred to herein as a "Terminated
Participant"), such Terminated Participant shall be entitled to receive the
greater of the applicable severance benefits described in Article 6 or the
severance benefits to which
6
<PAGE> 7
Terminated Participant is entitled under a then effective severance program of
Fountain View, but not both; provided, however that no such benefits shall be
payable unless and until the Terminated Participant executes a standard form of
general release, substantially in the form attached hereto as Exhibit A, to be
furnished by Fountain View, Summit or a Subsidiary, as applicable, of all
claims arising out of his or her employment with Fountain View, Summit and any
Subsidiary or affiliate thereof, other than claims hereunder or for vested
amounts or benefits under any other applicable plan, policy, payroll practice
or policy of Fountain View, Summit or a Subsidiary.
In the event a Participant's employment is terminated during the Term
of the Plan by Fountain View, Summit or a Subsidiary without delivery of a
Notice of Termination to the Participant, it shall be presumed for purposes of
the Plan that such termination is Without Cause. In the event a Participant's
employment is terminated during the Term of the Plan by the Participant without
delivery of a Notice of Termination to the Administrator, it shall be presumed
for purposes of the Plan that such termination is not for Good Reason.
A Participant whose employment is terminated after the expiration of
the Term of the Plan for any reason shall not be entitled to receive any
benefits hereunder.
ARTICLE 6.
CASH SEVERANCE BENEFITS
6.1 Severance Pay.
(a) Exempt Employees. A Terminated Participant who is classified
as an exempt employee (Exhibits I through V) immediately prior to the Effective
Date will be entitled to receive severance pay under the Plan determined by
taking the maximum number of months of severance
7
<PAGE> 8
pay to which the Terminated Participant is entitled as set forth below,
subtracting the number of whole months in the Terminated Participant's
Measurement Period and multiplying the result by the Participant's Base Pay.
Title Prior to Effective Date Severance Pay
----------------------------- -------------
Senior Executives and Related Positions See Exhibit I
Vice President, Regional Vice President or See Exhibit II
Pharmacy President
Title Prior to Effective Date Severance Pay
----------------------------- -------------
Center Administrator, Executive Twelve months
Director or Corporate Main
Office Department Head (Exhibit III)
Directors and Related
Positions (Exhibit IV) Nine months
Other exempt employee (Exhibit V) Six months
(b) Non-Exempt Employees. A Terminated Participant who is
classified as a non-exempt employee (Exhibit VI) immediately prior to the
Effective Date will be entitled to receive severance pay under the Plan
determined by taking the maximum number of months of severance pay to which the
Terminated Participant is entitled as set forth below, subtracting the number
of whole months in the Terminated Participant's Measurement Period and
multiplying the result by the Participant's Base Pay.
8
<PAGE> 9
<TABLE>
<S> <C>
Number of Years of
Service Completed
Prior to Termination Severance Pay
-------------------- -------------
Less than one Two months
At least one but less than three Three months
At least three but less than five Five months
Five or more Six months
</TABLE>
6.2 Manner and Timing of Payment. Severance benefits, if any,
payable under Section 6.1 shall be paid in cash, in a lump sum, less deductions
required by law, within two weeks after execution of the release provided for
in Article 5 above.
ARTICLE 7.
AMENDMENT AND TERMINATION
During the Term of the Plan, Fountain View, Summit and/or Subsidiary
shall have the right to amend the Plan, by resolution of the appropriate Board
of Directors, in a manner that does not and will not, in any way, (i) reduce
any benefits paid or that may become payable hereunder, (ii) modify the
circumstances upon which a Participant is or may become eligible to receive
benefits hereunder, (iii) modify the class of individuals who qualify as
"Participants" hereunder or (iv) otherwise adversely affect the interests of
any Participant hereunder.
9
<PAGE> 10
The Plan shall terminate upon expiration of the Term of the Plan;
provided, that the Plan shall continue to be administered in accordance with
its terms until all benefits accrued hereunder as of such expiration date have
been paid and satisfied.
ARTICLE 8.
NOTICES
For the purpose of the Plan, notices and all other communications
provided for in the Plan shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed, if to a Participant, to the
address on file with the Participant's employer and, if to the Administrator,
to the address set forth below, or to such other address as either the
Participant or the Administrator may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
Chairman
Summit Care Corporation
2600 West Magnolia Blvd.
Burbank, CA 91505
with a copy to:
Senior Vice President, Human Resources
_________________________
_________________________
_________________________
10
<PAGE> 11
ARTICLE 9.
CLAIMS PROCEDURE
9.1 Claim for Benefits: Written Notice of Denial. A Participant
may file with the Administrator a written claim for benefits under the Plan.
The Administrator shall, within a reasonable time not to exceed thirty (30)
days, unless special circumstances require an extension of time of not more
than an additional twenty (20) days (in which event a Participant will be
notified of the delay during the first thirty (30) day period), provide
adequate notice in writing to any Participant whose claim for benefits shall
have been denied, setting forth the following in a manner calculated to be
understood by the Participant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to the provision or provisions of the, Plan
on which the denial is based;
(iii) a description of any additional material or information
required to perfect the claim, and an explanation of why such material or
information is necessary; and
(iv) information as to the steps to be taken in order that the
detail of the claim may be reviewed.
9.2 Appeal of Denied Claim. A Participant whose claim for
benefits shall have been denied in whole or in part, may, within thirty (30)
days from the date notice is provided of the denial of the claim (unless the
notice of denial grants a longer period within which to respond), appeal such
denial to the Administrator. During the thirty (30) day appeal period, the
Participant
11
<PAGE> 12
may, upon request, review documents pertinent to his or her claim and may
submit written issues and comments to the Administrator. Failure to file such
appeal within the applicable time period shall be a bar to all further
proceedings with respect to the claim.
9.3 Notice of Determination of-Claim upon Appeal. The
Administrator shall notify a Participant of its decision within thirty (30)
days after an appeal is received by the Administrator, unless special
circumstances require an extension of time of not more than an additional
twenty (20) days (in which event a Participant will be notified of the delay
during the first thirty (30) day period). Such decision shall be given in
writing in a manner calculated to be understood by the Participant and shall
include the following:
(i) specific reasons for the decision; and
(ii) specific reference to the provision or provisions of the Plan
on which the decision is based.
9.4 Arbitration. Any dispute or controversy arising under or in
connection with the Plan that cannot be settled through the procedures set
forth in Sections 9.1 through 9.3 hereof shall be first submitted to mediation
administered by the American Arbitration Association ("AAA"). In the event the
dispute or controversy cannot be resolved through mediation, it shall be
settled exclusively by arbitration in the location in which the Participant was
employed immediately prior to the Termination Date by an arbitrator in
accordance with the rules of the AAA in effect at the time of submission to
arbitration. The arbitrator shall be authorized to award to either party to
the arbitration reimbursement for his, her or its reasonable costs and expenses
incurred in any such arbitration if such award of costs is warranted in the
judgment of the
12
<PAGE> 13
arbitrator. The arbitrator's authority shall be limited to questions involving
the interpretation and/or application of this Plan. The arbitrator shall not
have authority to add to or modify the Plan or to award relief, monetary or
otherwise, different from or in addition to that provided for by the Plan.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
ARTICLE 10.
GENERAL PROVISIONS
10.1 Waiver; Entire Plan. No waiver by Fountain View, Summit, any
Subsidiary or any Participant at any time of any breach by any other such
person of, or of any lack of compliance with, any condition or provision of the
Plan to be performed by such other person shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or
subsequent time. All other plans, policies and arrangements of Fountain View,
Summit or any Subsidiary in which the Participant participates during the Term
of the Plan shall be interpreted so as to avoid the duplication of benefits
provided hereunder, and each Participant's participation in the Plan shall be
in lieu of his or her rights under any other plan of Fountain View, Summit or
any Subsidiary providing severance benefits of any kind.
10.2 No Right to Employment. Nothing contained in this Plan or any
documents relating to the Plan shall (i) confer upon any Participant any right
to continue in the employ of Fountain View, Summit or any Subsidiary or
affiliate thereof, (ii) constitute any contract or agreement of employment, or
(iii) interfere in any way with the right of Fountain View, Summit or any
Subsidiary to reduce such Participant's compensation, to change the position
held by such Participant, or terminate the employment of such Participant, with
or without Cause.
13
<PAGE> 14
10.3 No Assignment of Benefits. No right or interest of any
Participant under the Plan shall be assignable or transferable, in whole or in
part, either directly or by operation of law or otherwise, including, without
limitation, by execution, levy, garnishment, attachment, pledge or in any
manner; no attempted assignment or transfer thereof shall be effective; and no
right or interest of any Participant under the Plan shall be subject to any
obligation or liability of such Participant to any third party. When a payment
is due under the Plan to a Participant who is unable to care for his or her
affairs, payment may be made directly to his or her legal guardian or personal
representative.
10.4 Governing Law. Except to the extent preempted by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Plan shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California without reference to the principles of conflicts of law.
10.5 Severability; Validity. In the event that a court of
competent jurisdiction determines that any provision of the Plan is in
violation of any statute or public policy, only those provisions of the Plan
that violate such statute or public policy shall be stricken. All provisions
the Plan that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any provision of the
Plan shall modify the stricken terms as narrowly as possible to give as much
effect as possible to the intentions of Summit in establishing the Plan.
10.6 Payroll and Withholding Taxes. Fountain View, Summit or a
Subsidiary, as applicable, shall withhold from any amounts payable to a
Terminated Participant hereunder all
14
<PAGE> 15
federal, state, local and other taxes required to be withheld in connection
with the benefits provided hereunder pursuant to any applicable law or
regulation.
10.7 Unfunded Status of the Plan. The Plan shall be unfunded for
purposes of ERISA and the Internal Revenue Code of 1986, as amended. Benefits
under the Plan shall be paid from the general assets of Fountain View, Summit
or a Subsidiary, as applicable.
10.8 Construction of the Plan. The titles to Articles and Sections
are for general information only and the Plan is not to be construed by
reference thereto. As used in the Plan, the masculine pronoun includes the
feminine and, except as may otherwise be apparent from the context, the
singular form includes the plural.
IN WITNESS WHEREOF, Summit has caused this plan document to be
executed by its duly authorized officer, this 6th day of February, 1998.
SUMMIT CARE CORPORATION
By: ____________________________________
Chairman and Chief Executive Officer
15
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