<PAGE>
-1-
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 quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-11328
CAREMARK INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3838069
- ------------------------------- -------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2215 Sanders Road
Northbrook, Illinois 60062
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(847) 559-4700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ____X____ No ________
The number of shares of the registrant's Common Stock, $1 par value per share,
outstanding as of April 30, 1996, the latest practicable date, net of treasury
stock, was 81,991,075 shares.
<PAGE>
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Caremark International Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Three months ended March 31
(in millions, except per share data) 1996 1995
------ ------
<S> <C> <C>
Net revenues $764.0 $534.1
Cost of goods and services sold 654.0 463.4
Marketing and administrative expenses 68.4 40.4
Provision for doubtful accounts 7.0 4.6
- -------------------------------------------------------------------
Operating income from continuing operations 34.6 25.7
Non-operating expense (income):
Interest expense, net 4.2 4.3
Other, net (0.2) (0.4)
- -------------------------------------------------------------------
Income from continuing operations
before income taxes 30.6 21.8
Income tax expense 12.1 8.7
- -------------------------------------------------------------------
Income from continuing operations 18.5 13.1
Discontinued operations:
Operating loss from discontinued operations,
net of income taxes of ($39.5) and ($1.7)
in 1996 and 1995, respectively (68.9) (2.6)
Gain on sale of discontinued operations,
net of income taxes of $1.4 and $7.3
in 1996 and 1995, respectively 2.1 10.9
- -------------------------------------------------------------------
Income (loss) from discontinued operations (66.8) 8.3
- -------------------------------------------------------------------
Net income (loss) ($48.3) $21.4
===================================================================
Earnings per common and common equivalent
share:
Primary
Income from continuing operations $0.24 $0.18
Operating loss from discontinued operations ($0.89) ($0.04)
Gain on sale of discontinued operations $0.03 $0.15
Net income (loss) ($0.63) $0.29
Fully diluted
Income from continuing operations $0.24 $0.18
Operating loss from discontinued operations ($0.89) ($0.04)
Gain on sale of discontinued operations $0.03 $0.15
Net income (loss) ($0.63) $0.29
Weighted average common and common
equivalent shares outstanding:
Primary 77.1 73.7
Fully diluted 77.4 74.4
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
-3-
Caremark International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In millions, except shares) March 31 December 31
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $39.7 $28.4
Restricted cash 14.0 -
Accounts receivable, net 353.0 365.4
Inventories 119.4 112.5
Short-term deferred income taxes 73.9 41.1
Prepaid expenses and other current assets 22.7 18.6
- ----------------------------------------------------------------------------
Total current assets 622.7 566.0
Property and equipment:
Property and equipment, at cost 431.6 375.9
Accumulated depreciation and amortization (78.4) (76.7)
- ----------------------------------------------------------------------------
Property and equipment, net 353.2 299.2
Goodwill and other intangibles 313.0 259.3
Other noncurrent assets 69.5 69.7
Long-term deferred income tax asset 33.7 33.7
Net assets of discontinued operations - 36.3
- ----------------------------------------------------------------------------
Total assets $1,392.1 $1,264.2
============================================================================
Current liabilities:
Short-term debt $310.4 $85.8
Accounts payable 349.8 253.9
Accrued liabilities 159.0 135.0
- ----------------------------------------------------------------------------
Total current liabilities 819.2 474.7
Long-term debt and lease obligations 130.9 325.4
Long-term deferred income taxes 44.1 37.7
Other noncurrent liabilities 40.6 33.0
Contingent liabilities (Note 5)
Stockholders' equity:
Preferred stock, $.01 par value, authorized
20,000,000 shares, none issued - -
Common stock, $1 par value, authorized
200,000,000 shares, issued 81,911,474 shares
in 1996 and 81,497,489 shares in 1995 81.9 81.5
Additional contributed capital 194.2 188.2
Shares held in trust (150.2) (150.2)
Retained earnings 233.4 281.7
Common stock in treasury, at cost,
82,961 shares in 1996 and
406,136 shares in 1995 (2.0) (7.8)
- ----------------------------------------------------------------------------
Total stockholders' equity 357.3 393.4
- ----------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,392.1 $1,264.2
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
-4-
Caremark International Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Three months ended March 31 (in millions)
(Brackets denote cash outflows) 1996 1995
----- -----
<S> <C> <C>
Cash flows from continuing operations:
Income from continuing operations $18.5 $13.1
Adjustments for non-cash items:
Provision for doubtful accounts 7.0 4.6
Depreciation and amortization 11.1 5.8
Deferred income tax expense 5.6 12.9
Other - (1.9)
Changes in balance sheet items:
Accounts receivable 5.8 (65.5)
Inventories (5.0) 18.5
Accounts payable and accrued liabilities (9.0) 59.5
Prepaids and other 2.2 (5.2)
- ------------------------------------------------------------
Cash flows from continuing operations 36.2 41.8
- ------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (22.2) (16.6)
Acquisitions, net of cash received (63.7) (8.7)
- ------------------------------------------------------------
Cash flows from investing activities (85.9) (25.3)
- ------------------------------------------------------------
Cash flows from financing activities:
Net issuances of debt and lease obligations 18.6 6.9
Stock issued under employee benefit plans 12.1 3.7
Purchases of treasury stock - (9.1)
- ------------------------------------------------------------
Cash flows from financing activities 30.7 1.5
- ------------------------------------------------------------
Cash flows from discontinued operations,
net of divestiture proceeds 44.3 (30.9)
- ------------------------------------------------------------
Increase (decrease) in cash and equivalents 25.3 (12.9)
Cash and equivalents at beginning of period 28.4 32.1
- ------------------------------------------------------------
Cash and equivalents at end of period $53.7 $19.2
============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
-5-
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of Caremark
International Inc. and its subsidiaries (the "company" or "Caremark") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the company's 1995
Annual Report to Stockholders.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all normal and recurring adjustments necessary for a fair
presentation of the interim periods. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
year.
NOTE 2: INVENTORIES
Inventories of $119.4 and $112.5 million at March 31, 1996 and December 31,
1995, respectively, consist primarily of finished goods.
NOTE 3: DISCONTINUED OPERATIONS
During 1995 Caremark divested its Clozaril Patient Management System, Home
Infusion business, Oncology Management Services business and Caremark Orthopedic
Services, Inc. subsidiary. Effective February 29, 1996, the company sold its
Nephrology Services business to Total Renal Care, Inc. for $49.0 million in
cash, subject to certain post-closing adjustments. Caremark retained notes
payable related to previous acquisitions in the Nephrology Services business
totaling $3.0 million. The after-tax gain on disposition of this business, net
of disposal costs, was $2.1 million.
In accordance with APB 30, which addresses the reporting for disposition of
business segments, the company's consolidated financial statements present the
operating income and net assets of these discontinued operations separately from
continuing operations. Prior periods have been restated to conform with this
presentation.
First quarter 1996 discontinued operations also reflects a $65.6 million after-
tax charge related to the settlements with private payors discussed in Note 5
and a $3.3 million charge for a reduction in the amount expected to be realized
for deferred state income tax net operating loss benefits related to
discontinued operations.
NOTE 4: ACQUISITIONS
In January 1996, Caremark completed its agreement with CIGNA Healthcare of
California, a managed health care subsidiary of CIGNA Corporation, to acquire
substantially all of the assets of CIGNA Medical Group, CIGNA Healthcare's Los
Angeles-area staff model delivery system ("CIGNA"). The transaction has been
accounted for by the purchase method of accounting. The purchase accounting
related to this transaction, along with 1995 acquisitions, remain subject to
purchase accounting adjustments pending completion of valuations and analysis to
determine the respective fair values of assets received and liabilities assumed.
<PAGE>
-6-
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 5: CONTINGENT LIABILITIES
On September 11, 1995, Coram Healthcare Company ("Coram") filed a complaint in
the San Francisco Superior Court against Caremark International Inc. and its
subsidiary, Caremark Inc., and 50 unnamed individual defendants. The complaint,
which arises from Caremark's sale to Coram of Caremark's Home Infusion business
in April 1995 for approximately $209.0 million in cash and $100.0 million in
securities, alleges breach of the Asset Sale and Note Purchase Agreement dated
January 29, 1995 as amended on April 1, 1995 between Coram and the company,
breach of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Requested relief in Coram's amended complaint includes
specific performance, declaratory relief, injunctive relief, and damages of $5.2
billion. The company filed motions in October 1995 in the Superior Court of
California seeking (i) to strike certain causes of action due to the speculative
nature of the claims and damages asserted and (ii) dismissal of Coram's lawsuit
on grounds of lack of jurisdiction over Illinois-based Caremark. The Superior
Court of California subsequently dismissed the case against the company (but not
against Caremark Inc.) on the basis of lack of jurisdiction. Caremark also filed
a lawsuit in the U.S. District Court in Chicago claiming that Coram committed
securities fraud in its sale to the company of its securities in connection with
the sale of the company's Home Infusion business to Coram. This case, which has
been dismissed, is on appeal and the company has filed counterclaims to the
lawsuit pending in San Francisco. Coram's lawsuit is currently in the discovery
phase.
Although the company cannot predict with certainty the outcome of these
proceedings, based on information currently available, management believes that
the ultimate resolution of this matter is not likely to have a material adverse
effect on Caremark's results of operations, cash flows or financial position.
The company intends to defend these cases vigorously.
In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation discussed below. The complaints seek unspecified
damages, declaratory and equitable relief, and attorneys' fees and expenses. The
parties continue to engage in discovery proceedings. The company intends to
defend these cases vigorously. Management is unable at this time to estimate the
impact, if any, of the ultimate resolution of these matters.
In August 1994 and July 1995, stockholders filed derivative actions on behalf of
Caremark in the Court of Chancery of the State of Delaware, the United States
District Court for the Northern District of Illinois and the Circuit Court of
Cook County in Chicago, Illinois alleging breaches of fiduciary duty, negligence
in connection with Caremark's conduct of the business and lack of corporate
controls, and seeking unspecified damages, attorneys' fees and expenses. In June
1995, the parties to the Delaware derivative action entered into a memorandum of
understanding providing for the terms of settlement of all claims asserted in
that case. Although the proposed settlement does not contemplate the payment of
any damages by any defendant, plaintiffs are expected to seek an award of
attorneys' fees and expenses in
<PAGE>
-7-
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 5: CONTINGENT LIABILITIES-CONTINUED
conjunction with any approval of the settlement. The proposed settlement of the
Delaware derivative action is subject to a number of conditions and the Delaware
court is expected to consider the proposed settlement in mid-1996. The Illinois
and Cook County Courts have entered stays of all proceedings in those actions
pending resolution of the Delaware derivative action. In the event the proposed
settlement of the Delaware derivative action is approved by the Delaware court,
Caremark anticipates that the Illinois and Cook County derivative actions will
be dismissed. If the proposed settlement is not approved, Caremark intends to
defend these cases vigorously. Management is unable at this time to estimate the
impact, if any, of the ultimate resolution of these matters.
In late August 1994, certain patients of a physician who prescribed human growth
hormone distributed by Caremark and the sponsor of a health insurance plan of
one of those patients filed complaints against Caremark, employees of Caremark
and others in the United States District Court for the District of Minnesota.
Each complaint purported to be on behalf of a class and alleged violations of
the federal mail and wire fraud statutes, the federal conspiracy statute and the
state consumer fraud statute, as well as conspiracy to breach a fiduciary duty,
negligence and fraud. Each complaint sought unspecified treble damages, and
attorneys' fees and expenses. In July 1995, another patient of the same
physician filed a separate complaint in the District of South Dakota against the
physician, Caremark and another corporation alleging violations of the federal
laws prohibiting payment of remuneration to induce referral of Medicare and
Medicaid beneficiaries, and the federal mail fraud and conspiracy statutes. The
complaint also alleges the intentional infliction of emotional distress and
seeks trebling of at least $15.9 million in general damages, attorneys' fees and
costs, and an award of punitive damages. In August 1995, the parties to the case
filed in South Dakota agreed to a stay of all proceedings until final judgment
has been entered in a criminal case that is presently pending against this
physician. Caremark intends to defend these cases vigorously. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of these matters.
Beginning in September 1994, Caremark was named as a defendant in a series of
new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pre-trial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable to estimate at this time the impact, if any, of
the ultimate resolution of this matter.
<PAGE>
-8-
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 5: CONTINGENT LIABILITIES-CONTINUED
In December 1994, Caremark was notified by the Federal Trade Commission (the
"FTC") that it was conducting a civil investigation of the industry concerning
whether acquisitions, alliances, agreements or activities between pharmacy
benefit managers and pharmaceutical manufacturers, including Caremark's alliance
agreements with certain drug manufacturers, violate Sections 3 or 7 of the
Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of this investigation are not currently
determinable. Under the statutes, if violations are found, the FTC could seek
remedies in the form of injunctive relief to set aside or modify Caremark's
alliance agreements and an order to cease and desist from certain marketing
practices and from entering into or continuing with certain types of agreements.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of this matter.
In March 1996, the company agreed to settle all disputes with a number of
private payors. The settlements resulted in an after-tax charge of $42.3
million. These disputes relate to businesses that were covered by Caremark's
settlement with federal and state agencies in June 1995 discussed below. In
addition, Caremark will pay $23.3 million after-tax to cover the private payors'
pre-settlement and settlement-related expenses. An after-tax charge for the
above amounts has been recorded in first quarter 1996 discontinued operations.
Caremark may pay the settlement amounts in 1996 and 1997 or, under certain
circumstances, in semi-annual installments, including interest, through 1999. No
agreement, contract or other business relationship in existence at the time of
the settlements will be terminated or negatively affected by the settlement
agreements. The parties have also agreed to negotiate in good faith to maintain
or enhance ongoing business relationships. The company's lenders have waived the
impact of these settlements on the financial covenants under its existing credit
facility through September 15, 1996. The company currently expects to enter into
revised credit facilities prior to this date.
In June 1995, Caremark agreed to settle an investigation of the company with the
U.S. Department of Justice, the Office of the Inspector General of the U.S.
Department of Health and Human Services, the Veterans Administration, the
Federal Employees Health Benefits Program, the Civilian Health and Medical
Program of the Uniformed Services and related state investigative agencies in
all 50 states and the District of Columbia (the "OIG investigation"). The
company took an after-tax charge to discontinued operations of $154.8 million in
1995 for these settlement payments, costs to defend ongoing derivative, security
and related lawsuits, and other associated costs.
The company does not believe that the above-referenced settlements will
materially affect its ability to pursue its long-term business strategy. There
can be no assurances, however, that additional costs, claims and damages will
not occur or that the ultimate costs related to the settlements will not exceed
these estimates.
Caremark is party to various other commitments, claims and routine litigation
arising in the ordinary course of business. Management does not believe that the
result of such commitments, claims and litigation, individually or in the
aggregate, will have a material effect on the company's business or its income,
cash flows or financial condition.
<PAGE>
-9-
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
NOTE 6: SUBSEQUENT EVENT
On May 13, 1996, Caremark and MedPartners/Mullikan, Inc. ("MedPartners") signed
a definitive agreement to merge. Under the terms of the agreement, which has
been approved by the Boards of Directors of both companies, each Caremark share
will be converted into MedPartners common stock at a fixed ratio of 1.21 shares
of MedPartners per Caremark share. The merger is expected to close in the third
quarter of 1996 and is subject to stockholder and regulatory approval.
<PAGE>
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The company's 1995 Annual Report to Stockholders ("Annual Report") contains
management's discussion and analysis of the company's financial condition and
results of operations at and for the year ended December 31, 1995. Management's
discussion and analysis which follows focuses on material changes since that
time and should be read in conjunction with the Annual Report. Relevant trends
that are reasonably likely to be of a material nature are discussed to the
extent known.
Summary of Results of Continuing Operations
- -------------------------------------------
The following table sets forth key income statement amounts pertaining to
continuing operations, percentage increases between periods, and the
relationship of such amounts to net revenues for the respective periods.
<TABLE>
<CAPTION>
======================================================================
Three Months Ended
(Unaudited, March 31
dollars in millions) 1996 1995 % change
======================================================================
<S> <C> <C> <C>
Net revenues $764.0 $534.1 43.0%
======================================================================
Cost of goods and services sold $654.0 $463.4 41.1%
% of net revenues 85.6% 86.8%
Gross margin $110.0 $70.7 55.6%
% of net revenues 14.4% 13.2%
Marketing and administrative expenses $68.4 $40.4 69.3%
% of net revenues 9.0% 7.6%
Provision for doubtful accounts $7.0 $4.6 52.2%
% of net revenues 0.9% 0.9%
Operating income from continuing
operations $34.6 $25.7 34.6%
% of net revenues 4.5% 4.8%
Interest expense, net $4.2 $4.3 -2.3%
% of net revenues 0.5% 0.8%
Income from continuing operations
before income taxes $30.6 $21.8 40.4%
% of net revenues 4.0% 4.1%
Income tax expense $12.1 $8.7 39.1%
% of net revenues 1.6% 1.6%
% of income before taxes 39.5% 39.9%
Income from continuing operations $18.5 $13.1 41.2%
% of net revenues 2.4% 2.5%
Primary earnings per share $0.24 $0.18 33.3%
===========================================================================
</TABLE>
<PAGE>
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-CONTINUED
Certain statements included in this document are forward-looking, such as
statements relating to estimates of operating and capital expenditure
requirements, future revenue and operating income, and cash flows and credit
availability. Such forward-looking statements are based on the company's current
expectations and are subject to a number of risks and uncertainties that could
cause actual results in the future to differ significantly from results
expressed or implied in any forward-looking statements made by, or on behalf of,
the company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic and business conditions, litigation outcomes,
governmental and regulatory policies, medical costs and the competitive
environment in which the company operates. These and other risks are detailed
below as well as in other documents filed by the company with the Securities and
Exchange Commission.
OVERVIEW
Many of the comparisons reflected in the company's Unaudited Consolidated
Statements of Operations are impacted by growth through new affiliations in the
Physician Practice Management segment. Since the first quarter of 1995, this
segment has affiliated with four new physician practices, which contributed in
excess of $150 million of incremental revenue to the company in the first
quarter of 1996. As a result of this incremental growth and growth from existing
clinics, 29.9% of the company's revenues were generated from the Physician
Practice Management segment in the first quarter of 1996 versus 12.8% in the
first quarter of 1995.
These incremental revenues, along with revenue growth in the Pharmaceutical
Services and International segments, has resulted in growth in cost of goods and
services sold and marketing and administrative expenses versus the first quarter
of 1995.
As a percentage of revenues, the Physician Practice Management segment typically
has higher gross margins and marketing and administrative expenses than the
Pharmaceutical Services segment. As a result, the shift in revenue mix noted
above has caused gross margins and marketing and administrative expenses as a
percentage of revenues to increase. Excluding the impact of new affiliations,
the gross margin rate has declined to 11.7% of revenues in the first quarter of
1996 due to lower revenues in the higher-margin Disease Management segment. At
the same time, marketing and administrative expenses excluding this impact have
declined to 6.5% of revenues in the first quarter of 1996 as a result of cost
controls in place throughout the company, and reduced general corporate spending
subsequent to the divestitures in 1995.
Operating income from continuing operations increased 34.6% over the first
quarter of the prior year as a result of growth in all segments except Disease
Management. While operating margins improved in both the Physician Practice
Management and Pharmaceutical Services segments versus the first quarter of
1995, overall operating margin rates declined due to the lower percentage of
sales generated from the higher-margin Disease Management segment.
Net interest expense has remained consistent with the first quarter of 1995 as a
result of lower interest rates offsetting higher average borrowings. Income tax
expense as a percent of revenues has declined between periods due primarily to
lower state income taxes. Income from continuing operations for the quarter
generated primary earnings per share of $0.24, up 33.3% from $0.18 in the prior-
year period. Net income reflected a loss of $0.63 in the first quarter of 1996
as a result of the private payor settlements discussed further below.
<PAGE>
-12-
Management's Discussion and Analysis of Financial Condition and
Results of Operations--continued
Continuing Operations--continued
The following tables summarize the results of continuing operations by industry
segment:
<TABLE>
<CAPTION>
Net Revenues
==========================================================
Three Months Ended
(Unaudited, March 31
dollars in millions) 1996 1995 % growth
==========================================================
<S> <C> <C> <C>
Physician Practice Management $228.2 $68.6 232.7%
% of net revenues 29.9% 12.8%
Pharmaceutical Services 422.7 343.7 23.0%
% of net revenues 55.3% 64.4%
Disease Management 92.3 102.9 -10.3%
% of net revenues 12.1% 19.3%
International 20.8 18.9 10.1%
% of net revenues 2.7% 3.5%
==========================================================
Net revenues $764.0 $534.1 43.0%
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Income from
Continuing Operations
==========================================================
Three Months Ended
(Unaudited, March 31
dollars in millions) 1996 1995 % change
==========================================================
<S> <C> <C> <C>
Physician Practice Management $8.0 $1.9 321.1%
% of segment revenues 3.5% 2.8%
Pharmaceutical Services 16.4 10.3 59.2%
% of segment revenues 3.9% 3.0%
Disease Management 15.1 18.4 -17.9%
% of segment revenues 16.4% 17.9%
International (1.2) (0.2) -500.0%
% of segment revenues -5.8% -1.1%
General Corporate (3.7) (4.7) -21.3%
==========================================================
Operating income from
continuing operations $34.6 $25.7 34.6%
% of net revenues 4.5% 4.8%
==========================================================
</TABLE>
<PAGE>
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-CONTINUED
CONTINUING OPERATIONS-CONTINUED
- -------------------------------
Caremark operates in four industry segments: Physician Practice Management,
Pharmaceutical Services, Disease Management and International.
PHYSICIAN PRACTICE MANAGEMENT
This segment's revenues of $228.2 million in the first quarter of 1996 increased
232.7% over the first quarter of 1995 as a result of same clinic revenue growth
and new affiliations in 1995 and early 1996 with Friendly Hills Healthcare
Network, Diagnostic Clinic, Glen Ellyn Clinic and CIGNA. Revenues for the
remainder of 1996 in this segment are expected to grow as compared to 1995, but
at a slower rate given the timing of new affiliations in 1995.
First quarter operating income in this segment grew 321.1% over the same period
of the prior year due to profits from new affiliations, lower headquarters staff
spending and efficiencies implemented at existing clinics. Operating margin
rates for this segment improved to 3.4% as compared to 2.1% in the first quarter
of 1995 as a result of higher margins being generated from new affiliations,
operating efficiencies being implemented at the clinics, and spreading fixed
overhead expenses over a larger revenue base.
PHARMACEUTICAL SERVICES
This segment's revenues grew 23.0% to $422.7 million during the first quarter of
1996 compared to the same period of 1995. This growth is attributable to
pharmaceutical price increases, the addition of customers, further penetration
of existing customers and the sale of new products.
Operating income in the first quarter of 1996 was $16.4 million, a 59.2%
increase over the same period of 1995. This growth is the result of the higher
revenues noted above and a reduction in outsourcing costs, offset partially by
higher amortization costs. As a percentage of revenues, operating income grew to
3.9% due to these factors and the spreading of fixed overhead expenses over a
larger revenue base.
DISEASE MANAGEMENT
Disease Management revenues declined in the first quarter of 1996 as compared to
the same period of 1995 as a result of lower volumes in the hemophilia business
resulting from new competition and continued government and managed care pricing
pressures for its growth hormone products. Hemophilia revenues declined 8.0%
versus the first quarter of 1995 and growth hormone sales declined 12.3%. In
April 1996, Caremark extended its contract with Genentech through 1999 to remain
the preferred provider of its growth hormone products in the United States.
Operating income in this segment declined to $15.1 million, a decrease of 17.9%
as compared to the first quarter of 1995, as a result of the lower pricing and
volume noted above. These factors have also caused a decline in the operating
margin of this business in the first quarter of 1996 versus the same period of
1995. Continuation of these trends could continue to have a negative impact on
this segments revenues and operating profits.
<PAGE>
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-CONTINUED
CONTINUING OPERATIONS-CONTINUED
- -------------------------------
INTERNATIONAL
International revenues increased 10.1% to $20.8 million in the first quarter of
1996 as compared to the same period of 1995 due to increased market penetration
and patient gains in most of the countries in which the company operates.
Expansion efforts continue in several countries where reform initiatives are
transforming health care delivery systems. Caremark has signed a contract to
provide prescription benefit management services in the Netherlands. First
quarter operating results for this segment declined over the first quarter of
1995 due to investment and start-up spending necessary to establish and grow
these businesses. Foreign exchange rates did not have a substantial impact on
first quarter revenues or operating profits.
GENERAL CORPORATE
General corporate spending declined $1.0 million in the first quarter of 1996 as
compared to the same period of 1995. This decrease is the result of the
divestiture of businesses during 1995 and early 1996 which has allowed the
company to reduce its overhead spending.
DISCONTINUED OPERATIONS
- -----------------------
During 1995 Caremark divested its Clozaril Patient Management System, Home
Infusion business, Oncology Management Services business and Caremark Orthopedic
Services, Inc. subsidiary. Effective February 29, 1996, the company sold its
Nephrology Services business to Total Renal Care, Inc. for $49.0 million in
cash, subject to certain post-closing adjustments. In accordance with APB 30,
which addresses the reporting for disposition of business segments, the
company's consolidated financial statements present the operating income and net
assets of these discontinued operations separately from continuing operations.
Prior periods have been restated to conform with this presentation.
The after-tax gain reflected in the first quarter of 1996 on disposition of the
Nephrology Services business, net of disposal costs, was $2.1 million. First
quarter 1996 discontinued operations also reflects a $65.6 million after-tax
charge related to the settlements with private payors discussed in Note 5 and a
$3.3 million charge for a reduction in the amount expected to be realized for
deferred state net operating loss benefits related to discontinued operations.
Discontinued operations for the first quarter of 1995 reflects the after-tax
gain on the disposal of the Clozaril Patient Management System which was
disposed of effective March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Management assesses Caremark's liquidity in terms of its overall ability to
mobilize cash to support ongoing operating needs, including capital
expenditures, and to fund future acquisitions.
Caremark's total assets as of March 31, 1996 increased 10.1% over December 31,
1995 primarily as a result of the acquisition of the assets of CIGNA and capital
expenditures. Net working capital declined $287.8 million due primarily to the
impact of the private payor settlements discussed in Note 5 and the
classification of $175.0 million of debt borrowed under Caremark's
<PAGE>
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
- -------------------------------------------
long-term credit facility as current as of March 31, 1996 as discussed further
below. Cash balances increased as a result of the timing of cash disbursements
and borrowings. Restricted cash relates to $14.0 million placed in escrow and
required to be applied to fund a portion of the private payor settlements
discussed in Note 5. Accounts receivable decreased as a result of collections in
the Disease Management segment. Short-term deferred tax assets increased due to
the deferred tax benefits related to the private payor settlements discussed in
Note 5. Property and equipment increased as a result of capital expenditures and
assets acquired in acquisitions. Goodwill and other intangibles increased due to
the acquisition of CIGNA. The increase in accounts payable is due entirely to
the pre-tax liability recorded in the first quarter of 1996 for the private
payor settlements discussed in Note 5. Accrued liabilities increased primarily
due to the acquisition of CIGNA.
Short-term debt increased since December 31, 1995 due to higher borrowings under
Caremark's short-term credit facility and the inclusion as short-term, at March
31, 1996, of $175.0 million borrowed under Caremark's long-term credit facility.
This amount has been classified as current since the waiver granted by the
company's lenders in connection with the private payor settlements discussed in
Note 5 does not extend beyond one year. Long-term debt decreased since December
31, 1995 due to the short-term classification of the credit facility borrowings.
In total, debt increased $30.1 million since December 31, 1995 due to higher
borrowings, however, total debt net of cash on hand increased $4.8 million.
Total equity declined since December 31, 1995 primarily as a result of the
private payor settlements discussed in Note 5, partially offset by net income
from continuing operations.
Caremark's current ratio (current assets divided by current liabilities) as of
March 31, 1996 has declined to .76 versus 1.19 at December 31, 1995. This
decline is the result of the private payor settlement amount included as
accounts payable along with the classification as short-term debt of $175.0
million of borrowings under Caremark's long-term credit facility.
Cash flows from continuing operations is the Company's principal source of
funding to support normal business activities. The Company's positive cash flow
from continuing operations was $36.2 million for the quarter ended March 31,
1996 versus $41.8 million for the same period of 1995.
Cash flows for investing activities consist of capital expenditures and business
acquisition spending. The increase in capital expenditures occurred primarily
within the expanding Physician Practice Management and Pharmaceutical Services
businesses, including investments in information systems and technology.
Acquisition spending in the first quarter of 1996 reflects the acquisition of
CIGNA as well as payments related to obligations from physician practice
affiliations initiated in prior years.
Cash flows from financing activities of $30.7 million in the first quarter of
1996 consist of $12.1 million of cash received upon issuances of common stock
under employee benefit plans and $18.6 million of net borrowings. Cash flows
from discontinued operations in the first quarter of 1996 include $49.0 million
of proceeds received upon the divestiture of the Nephrology Services business.
<PAGE>
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-CONTINUED
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
- -------------------------------------------
Management believes that the company's cash flows from operations and amounts
available under the company's existing credit facilities are sufficient to meet
its ongoing operating and capital expenditure requirements. The settlements with
private payors discussed in Note 5 require payments totaling $108.4 million of
which $3.3 million has been paid as of March 31, 1996, $101.8 million is due
during the remainder of 1996 and $3.3 million in 1997; or, under certain
circumstances, $113.9 million plus interest would be due as follows: $35.6
million in 1996 ($3.3 million of which has been paid), $33.3 million in 1997,
$25.0 million in 1998 and $20.0 million in 1999. The company will review various
financing alternatives, if necessary, to provide additional financial
flexibility. See Note 6 -- Susequent Event.
<PAGE>
-17-
PART II. OTHER INFORMATION
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
On September 11, 1995, Coram Healthcare Company ("Coram") filed a complaint in
the San Francisco Superior Court against Caremark International Inc. and its
subsidiary, Caremark Inc., and 50 unnamed individual defendants. The complaint,
which arises from Caremark's sale to Coram of Caremark's Home Infusion business
in April 1995 for approximately $209.0 million in cash and $100.0 million in
securities, alleges breach of the Asset Sale and Note Purchase Agreement dated
January 29, 1995 as amended on April 1, 1995 between Coram and the company,
breach of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Requested relief in Coram's amended complaint includes
specific performance, declaratory relief, injunctive relief, and damages of $5.2
billion. The company filed motions in October 1995 in the Superior Court of
California seeking (i) to strike certain causes of action due to the speculative
nature of the claims and damages asserted and (ii) dismissal of Coram's lawsuit
on grounds of lack of jurisdiction over Illinois-based Caremark. The Superior
Court of California subsequently dismissed the case against the company (but not
against Caremark Inc.) on the basis of lack of jurisdiction. Caremark also filed
a lawsuit in the U.S. District Court in Chicago claiming that Coram committed
securities fraud in its sale to the company of its securities in connection with
the sale of the company's Home Infusion business to Coram. This case, which has
been dismissed, is on appeal and the company has filed counterclaims to the
lawsuit pending in San Francisco. Coram's lawsuit is currently in the discovery
phase.
Although the company cannot predict with certainty the outcome of these
proceedings, based on information currently available, management believes that
the ultimate resolution of this matter is not likely to have a material adverse
effect on Caremark's results of operations, cash flows or financial position.
The company intends to defend these cases vigorously.
In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation. The complaints seek unspecified damages, declaratory
and equitable relief, and attorneys' fees and expenses. The parties continue to
engage in discovery proceedings. The company intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolution of these matters.
In August 1994 and July 1995, stockholders filed derivative actions on behalf of
Caremark in the Court of Chancery of the State of Delaware, the United States
District Court for the Northern District of Illinois and the Circuit Court of
Cook County in Chicago, Illinois alleging breaches of fiduciary duty, negligence
in connection with Caremark's conduct of the business and lack of corporate
controls, and seeking unspecified damages, attorneys' fees and expenses. In June
1995, the parties to the Delaware derivative action entered into a memorandum of
understanding providing for the terms of settlement of all claims asserted in
that case. Although the proposed settlement does not contemplate the payment of
any damages by any defendant, plaintiffs are expected to seek an award of
attorneys' fees and expenses in
<PAGE>
-18-
PART II. OTHER INFORMATION
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
conjunction with any approval of the settlement. The proposed settlement of the
Delaware derivative action is subject to a number of conditions and the Delaware
court is expected to consider the proposed settlement in mid-1996. The Illinois
and Cook County Courts have entered stays of all proceedings in those actions
pending resolution of the Delaware derivative action. In the event the proposed
settlement of the Delaware derivative action is approved by the Delaware court,
Caremark anticipates that the Illinois and Cook County derivative actions will
be dismissed. If the proposed settlement is not approved, Caremark intends to
defend these cases vigorously. Management is unable at this time to estimate the
impact, if any, of the ultimate resolution of these matters.
In late August 1994, certain patients of a physician who prescribed human growth
hormone distributed by Caremark and the sponsor of a health insurance plan of
one of those patients filed complaints against Caremark, employees of Caremark
and others in the United States District Court for the District of Minnesota.
Each complaint purported to be on behalf of a class and alleged violations of
the federal mail and wire fraud statutes, the federal conspiracy statute and the
state consumer fraud statute, as well as conspiracy to breach a fiduciary duty,
negligence and fraud. Each complaint sought unspecified treble damages, and
attorneys' fees and expenses. In July 1995, another patient of the same
physician filed a separate complaint in the District of South Dakota against the
physician, Caremark and another corporation alleging violations of the federal
laws prohibiting payment of remuneration to induce referral of Medicare and
Medicaid beneficiaries, and the federal mail fraud and conspiracy statutes. The
complaint also alleges the intentional infliction of emotional distress and
seeks trebling of at least $15.9 million in general damages, attorneys' fees and
costs, and an award of punitive damages. In August 1995, the parties to the case
filed in South Dakota agreed to a stay of all proceedings until final judgment
has been entered in a criminal case that is presently pending against this
physician. Caremark intends to defend these cases vigorously. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of these matters.
Beginning in September 1994, Caremark was named as a defendant in a series of
new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pre-trial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable to estimate at this time the impact, if any, of
the ultimate resolution of this matter.
<PAGE>
-19-
PART II. OTHER INFORMATION
CAREMARK INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
In December 1994, Caremark was notified by the Federal Trade Commission (the
"FTC") that it was conducting a civil investigation of the industry concerning
whether acquisitions, alliances, agreements or activities between pharmacy
benefit managers and pharmaceutical manufacturers, including Caremark's alliance
agreements with certain drug manufacturers, violate Sections 3 or 7 of the
Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of this investigation are not currently
determinable. Under the statutes, if violations are found, the FTC could seek
remedies in the form of injunctive relief to set aside or modify Caremark's
alliance agreements and an order to cease and desist from certain marketing
practices and from entering into or continuing with certain types of agreements.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of this matter.
Caremark is party to various other commitments, claims and routine litigation
arising in the ordinary course of business. Management does not believe that the
result of such commitments, claims and litigation, individually or in the
aggregate, will have a material effect on the company's business or its income,
cash flows or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index
(b) Reports on Form 8-K
None.
<PAGE>
-20-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAREMARK INTERNATIONAL INC.
---------------------------
(Registrant)
Date: May 15, 1996 By: /s/ Thomas W. Hodson
-----------------------------
Thomas W. Hodson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
duly authorized Officer of Registrant)
<PAGE>
-21-
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1 Caremark International Inc. Bylaws, amended as of March 11,
1996 (incorporated by reference to Exhibit 3.2 of the Registrant's
1995 Annual Report on Form 10-K, File No. 1-11328)
10.1 Amendment No. 1 and Consent, dated as of March 18, 1996, to the
Long Term Credit Agreement, the Short-term Credit Agreement and
the Letter of Credit Reimbursement Agreement, each dated as of
September 29, 1995, among the Registrant, The First National Bank
of Chicago, as agent, and the lenders listed therein
10.2 Asset Purchase Agreement, dated as of March 1, 1996, between Total
Renal Care, Inc. and Caremark Inc., Caremark Physician Services,
Caremark Nephrology Services Inc. and Dialysis Supplies, Inc.
11.1 Computation of Primary Earnings Per Common and Common Equivalent
Share
11.2 Computation of Fully Diluted Earnings Per Common and Common
Equivalent Share
12.1 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE>
-22-
Caremark International Inc. and Subsidiaries
Exhibit 11.1 - Computation of Primary Earnings per Common and Common Equivalent
Share
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Unaudited - in millions, Three months ended
except per share data) March 31
------------------
1996 1995
------------------
<S> <C> <C>
Earnings
Income from continuing operations $ 18.5 $ 13.1
Operating loss from discontinued operations, net of taxes (68.9) (2.6)
Gain on sale of discontinued operations, net of taxes 2.1 10.9
----------------
Net income (loss) $(48.3) $ 21.4
================
- ----------------------------------------------------------------------------------------
Shares
Weighted average number of common
shares outstanding 73.8 71.5
Additional shares assuming conversion
of stock options, stock purchase plan
subscriptions and contingent stock rights 3.3 2.2
- ----------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 77.1 73.7
================
Primary earnings per common and
common equivalent share (a)
Income from continuing operations $ 0.24 $ 0.18
Operating loss from discontinued operations, net of taxes $(0.89) $(0.04)
Gain on sale of discontinued operations, net of taxes $ 0.03 $ 0.15
Net income (loss) $(0.63) $ 0.29
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Earnings per share for net income may not equal the sum of respective
earnings per share amounts for continuing and discontinued operations due
to rounding.
<PAGE>
Caremark International Inc. and Subsidiaries
Exhibit 11.2 - Computation of Fully Diluted Earnings per Common and Common
Equivalent Share
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited - in millions, Three months ended
except per share data) March 31
----------------
1996 1995
----------------
Earnings
Income from continuing operations $18.5 $13.1
Operating loss from discontinued operations, net of taxes (68.9) (2.6)
Gain on sale of discontinued operations, net of taxes 2.1 10.9
----------------
Net income (loss) ($48.3) $21.4
================
- ---------------------------------------------------------------------------------------
Shares
Weighted average number of common
shares outstanding 73.8 71.5
Additional shares assuming conversion
of stock options, stock purchase plan
subscriptions and contingent stock rights 3.6 2.9
- ---------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 77.4 74.4
================
Fully diluted earnings per common and
common equivalent share (a)
Income from continuing operations $0.24 $0.18
Operating loss from discontinued operations, net of taxes ($0.89) ($0.04)
Gain on sale of discontinued operations, net of taxes $0.03 $0.15
Net income (loss) ($0.63) $0.29
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Earnings per share for net income may not equal the sum of respective
earnings per share amounts for continuing and discontinued operations due to
rounding.
<PAGE>
EXHIBIT 12.1
- -------------------------------------------------------------------------------
Computation of Ratio of Earnings to Fixed Charges
(In millions, except ratios)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year ended December 31 1995 (a) 1994 (a) 1993 (a)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax income from continuing operations $31.5 $ 91.2 $80.3
Add:
Interest costs 25.4 16.4 5.5
Estimated interest included in rentals (b) 13.2 15.3 12.6
- ---------------------------------------------------------------------------------------
Fixed charges as defined 38.6 31.7 18.1
Interest costs capitalized (4.0) (3.6) (0.8)
- ---------------------------------------------------------------------------------------
Income as adjusted $66.1 $119.3 $97.6
- ---------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.71 3.76 5.39
=======================================
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31 1996
-------
<S> <C>
Pretax income from continuing operations $30.6
Add:
Interest costs 4.2
Estimated interest included in rentals (b) 3.6
- ---------------------------------------------------------------------------------------
Fixed charges as defined 7.8
Interest costs capitalized (0.2)
- ---------------------------------------------------------------------------------------
Income as adjusted $38.2
- ---------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 4.90
========
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Results have been restated to adjust for discontinued operations.
(b) Represents the estimated interest portion of rents.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of Caremark International Inc. as of
and for the three months ended March 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 54<F1>
<SECURITIES> 0
<RECEIVABLES> 414
<ALLOWANCES> 61
<INVENTORY> 119
<CURRENT-ASSETS> 623
<PP&E> 432
<DEPRECIATION> 78
<TOTAL-ASSETS> 1392
<CURRENT-LIABILITIES> 819
<BONDS> 100
<COMMON> 82
0
0
<OTHER-SE> 275
<TOTAL-LIABILITY-AND-EQUITY> 1392
<SALES> 764
<TOTAL-REVENUES> 764
<CGS> 654
<TOTAL-COSTS> 729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 31
<INCOME-TAX> 12
<INCOME-CONTINUING> 19
<DISCONTINUED> (67)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48)
<EPS-PRIMARY> (0.63)<F2>
<EPS-DILUTED> (0.63)<F2>
<FN>
<F1> $14 million in cash is restricted.
<F2> $0.24 from continuing operations.
</FN>
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
TOTAL RENAL CARE, INC.
AND
CAREMARK INC.,
CAREMARK PHYSICIAN SERVICES INC.,
CAREMARK NEPHROLOGY SERVICES INC.,
and
DIALYSIS SUPPLIES, INC.
As of March 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions 1
2. Basic Transaction
(a) Purchase and Sale of Assets 7
(b) Assumption of Liabilities 8
(c) Consideration 8
(d) Payment of Consideration 8
(e) Transition Service Estimate 9
(f) Allocation 10
3. The Closing
(a) The Closing 10
(b) Deliveries at the Closing 10
4. Representations and Warranties of the Seller
(a) Organization of the Seller 11
(b) Due Authorization 11
(c) Noncontravention 11
(d) Brokers' Fees 12
(e) Title to and Condition of Tangible Assets 12
(f) Financial Statements 12
(g) Events Subsequent to Most Recent Financial Statement 13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(h) Legal Compliance 13
(i) Intentionally Omitted 14
(j) Real Property 14
(k) Intellectual Property 14
(l) Contracts 15
(m) Litigation 15
(n) Labor and ERISA Matters 15
(o) Certain Environmental Matters 16
(p) Licenses and Permits 16
(q) Accounts Receivable 17
(r) Insurance 17
(s) Third Party Payor Reports and Claims 17
(t) Improper Payments 18
(u) Absence of Certain Changes 18
(v) Full Disclosure 19
5. Representations and Warranties of the Buyer
(a) Organization of the Buyer 19
(b) Due Authorization 19
(c) Noncontravention 20
(d) Brokers' Fees 20
(e) Available Financing 20
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(f) Litigation 20
(g) Consents 20
(h) The Buyer's Business Investigation 21
6. Intentionally Omitted 21
7. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer 21
(b) Conditions to Obligation of the Seller 22
8. Post-Closing Covenants
(a) Sales, Transfer and Other Taxes 24
(b) HCFA Database 24
(c) Lease and Contract Assignments 24
(d) Records 25
(e) Noncompetition 25
(f) Mutual Cooperation 26
(g) MSO II Partnership Interest 26
(h) RenlStar Software 27
9. Employees
(a) Nephrology Employees 27
(b) Accrued Salary 27
(c) Employee Benefit Plans 27
(d) Seller Employment Claims 30
</TABLE>
iii
<PAGE>
10. Intentionally Omitted 30
11. Survival and Indemnification
(a) Survival 30
(b) Indemnification 31
(c) Limitations on the Seller's Indemnification Obligation 32
(d) Procedure for Indemnification 32
(e) Exclusivity 33
12. Miscellaneous
(a) Press Releases and Public Announcements 34
(b) No Third Party Beneficiaries 34
(c) Entire Agreement 34
(d) Succession and Assignment 34
(e) Counterparts 35
(f) Headings 35
(g) Notices 35
(h) Governing Law 35
(i) Amendments and Waivers 35
(j) Severability 35
(k) Expenses 35
(l) Construction 36
(m) Incorporation of Exhibits and Schedules 36
(n) Bulk Transfer Laws 36
iv
<PAGE>
Exhibit A Assignment and Bill of Sale
Exhibit B Assumption Agreement
Exhibit C Database Support and License Agreement
Exhibit D Financial Statements
Exhibit E Form of Opinion of Counsel to the Seller
Exhibit F Form of Opinion of Counsel to the Buyer
Schedule 2(a) Excluded Assets
Schedule 2(b) Excluded Liabilities
Seller Disclosure Schedule
Buyer Disclosure Schedule
v
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, (this "Agreement") dated as of March 1,
1996, is between Total Renal Care, Inc., a California corporation (the "Buyer"),
and Caremark Inc., a California corporation ("Caremark"), Caremark Physician
Services Inc., a Delaware corporation ("CPSI"), Caremark Nephrology Services
Inc., a Delaware corporation ("CNSI"), and Dialysis Supplies, Inc., an Illinois
corporation ("DSI") (Caremark, CPSI, CNSI and DSI together, the "Sellers"). The
Buyer and the Sellers are sometimes collectively referred to as the "Parties"
and sometimes individually referred to as a "Party".
BACKGROUND
This Agreement contemplates a transaction in which the Buyer will purchase
substantially all of the assets (and assume certain specified liabilities)
related to Sellers' business of providing Nephrology Services (all such assets,
liabilities and Nephrology Services are collectively referred to as the
"Nephrology Business").
Caremark, CPSI, CNSI and DSI each own certain of the assets of the
Nephrology Business. As used in this Agreement, the term "Sellers" shall
collectively mean Caremark, CPSI, CNSI and DSI and the term "Seller" shall mean
each of the Sellers.
Accordingly, the Parties agree as follows.
1. DEFINITIONS.
"Acquired Assets" means all of the right, title, and interest that the
Sellers possess and have the right to transfer in and to all of the assets of
the Nephrology Business, including without limitation, all (a) leaseholds and
subleaseholds, improvements, fixtures, and fittings, and easements, rights of
way, and other appurtenants (such as appurtenant rights in and to public
streets), (b) tangible personal property (such as machinery, equipment,
inventories of raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods, furniture, automobiles and trucks), (c)
tradenames, trademarks, service marks and other intellectual property, any
associated goodwill, licenses and sublicenses granted and obtained that relate
to intellectual property, and any other rights related to intellectual property
under the laws of all jurisdictions, (d) leases, subleases, and related rights,
(e) agreements, contracts, indentures, mortgages,
1
<PAGE>
instruments, Security Interests, guaranties, other similar arrangements, and
related rights, (f) accounts, notes, and other receivables, (g) claims,
deposits, prepayments, refunds, causes of action, choses in action, rights of
recovery, rights of set off, and rights of recoupment (including any such item
relating to the payment of taxes), and Cash received on and after the Effective
Date, (h) franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, (i) books and records of the Nephrology Business,
including customer and supplier files, all accounting books, ledgers, files,
documents, correspondence, lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials (including computer
files of such materials and (j) the Sellers' telephone numbers used solely in
connection with the operation of the Nephrology Business; provided, however,
that the Acquired Assets shall not include (x) Cash (other than Cash received on
or after the Effective Date and Cash attributable to the operation of the
Nephrology Business on or after the Effective Date), (y) those assets listed on
Schedule 2(a), and (z) any of the rights of the Sellers under this Agreement or
under any other agreement between any Seller and the Buyer entered into on or
after the date of this Agreement (together, those assets described in clauses
1(x), 1(y) and 1(z), "the "Excluded Assets").
"Affiliate" has the meaning set forth in Rule 12b 2 of the regulations
promulgated under the Securities Exchange Act, provided, however, the term shall
not include those physician-owned organizations, including professional
corporations (i) whose business affairs are managed by any Seller or (ii) who
have other contractual relationships with any Seller.
"ANC" means Associated Nephrology Consultants, P.A.
"Assumed Liabilities" means all debts, claims, liabilities and obligations
relating solely and exclusively to the Nephrology Business as of and after the
Effective Date (a) reflected on the Sellers' financial statements used to
prepare the Final Differential (except with respect to liabilities related to
self-funded health and dental plans, only such liabilities as are reflected on
such financial statements), (b) assumed pursuant to Section 9 and (c) otherwise
arising out of the Ordinary Course of Business by the Sellers, except that the
Assumed Liabilities shall in no event include any of the Excluded Liabilities.
"Buyer" has the meaning set forth in the preface.
2
<PAGE>
"Buyer Disclosure Schedule" means the disclosures delivered by the Buyer to
the Sellers that correspond to and clarify the representations and warranties
made by the Buyer in Section 5, a correct and complete copy of which is attached
hereto.
"Buyer's Plans" has the meaning set forth in Section 9(c)(iii).
"Buyer's Savings Plan" has the meaning set forth in Section 9(c)(ii).
"Cash" means cash and cash equivalents including marketable securities and
short term investments calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Cash Purchase Price" has the meaning set forth in Section 2(c)(i).
"Claims" has the meaning set forth in Section 11(a).
"Closing" has the meaning set forth in Section 3(a).
"Closing Date" has the meaning set forth in Section 3(a).
"CNMG" means Chabot Nephrology Medical Group, a California professional
medical corporation.
"COBRA" means the requirements for health care coverage continuation set
forth in Code (S) 4980B and ERISA (S)(S) 601-607 and applicable regulations
thereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Sellers that is not already generally available to the
public, as more fully set forth in the Confidentiality Agreement.
"Confidentiality Agreement" means that certain letter agreement of
confidentiality dated September 19, 1995 (as amended) between the Buyer and
Caremark International Inc.
"Damages" has the meaning set forth in Section 11(b).
"Database Support and License Agreement" means the license agreement set
forth on Exhibit C.
3
<PAGE>
"Defined Contribution Plan" has the meaning set forth in ERISA (S)3(34).
"Differential" has the meaning set forth in Section 2(c)(ii).
"Effective Date" means 12:01 a.m., March 1, 1996.
"Employee Benefit Plan" means any Employee Pension Benefit Plan, Employee
Welfare Benefit Plan and other retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other material fringe benefit arrangements.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
(S) 3(1).
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
(S) 3(2).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estimated Differential" has the meaning set forth in Section 2(d)(i).
"Excluded Assets" means those assets of the Nephrology Business set forth
on Schedule 2(a) which are retained by the Sellers.
"Excluded Liabilities" means those liabilities of the Nephrology Business
set forth on Schedule 2(b) which are retained by the Sellers and any liabilities
which are not expressly assumed by Buyer under this Agreement.
"Final Differential" has the meaning set forth in Section 2(d)(ii).
"Financial Statements" has the meaning set forth in Section 4(f).
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"HCFA Database" means that data and information concerning Nephrology
Services and End-Stage Renal Disease patients (including data
4
<PAGE>
relating to dialysis services and outcomes and all outcomes and research data
and computer software (source and object codes) used for quality assurance,
utilization review and other purposes) that have been collected by the Health
Care Financing Administration.
"HFA" means Hennepin Faculty Associates.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indemnitee" has the meaning set forth in Section 11(d).
"Indemnitor" has the meaning set forth in Section 11(d).
"Knowledge" means actual knowledge without independent investigation.
"MMRF" means Minneapolis Medical Research Foundation, a Minnesota nonprofit
corporation.
"Most Recent Financial Statements" has the meaning set forth in Section
4(f).
"Multi-employer Plan" has the meaning set forth in ERISA (S) 3(37).
"Nephrology Benefit Plans" has the meaning set forth in Section 4(n)(ii).
"Nephrology Business" has the meaning set forth in the background
paragraph.
"Nephrology Employee" has the meaning set forth in Section 9(a).
"Nephrology Services" means the provision of a comprehensive range of
nephrology support services including acute, chronic, home, peritoneal and
method II dialysis, and aspheresis services and supplies, transplant and
vascular access support services, pharmacy and laboratory services. Such
services also include the development and management of integrated delivery
systems designed to provide the full continuum of care to patients with renal
disease.
5
<PAGE>
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice of the Sellers in operating the
Nephrology Business.
"Party" has the meaning set forth in the preface.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Purchase Price" has the meaning set forth in Section 2(c).
"RKDP Database" means that data and information concerning Nephrology
Services and End-Stage Renal Disease patients treated at RKDP facilities or to
whom RKDP provided services (including data relating to dialysis services and
outcomes and all outcomes and research data) used for billing, quality
assurance, utilization review and other purposes) and shall also include the
database maintained in connection with the transplant services provided by RKDP.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Securities Laws" means the Securities Act, the Securities Exchange Act and
similar state securities laws.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller Disclosure Schedule" means the disclosures delivered by the Sellers
to the Buyer that correspond to and clarify the representations and warranties
made by the Sellers in Section 4 of this Agreement, a correct and complete copy
of which is attached hereto.
6
<PAGE>
"Seller" and "Sellers" have the meanings set forth in the preface and
background paragraphs.
"Sellers' Defined Contribution Plans" means the Caremark International
Inc. 401 CARE Retirement Savings Plan for the Employees of RKDP, Chabot Dialysis
401(k) Profit Sharing Plan and any other Defined Contribution Plan which is
intended to be qualified under Code (S) 401(a) and in which employees of the
Nephrology Business participate.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall, profits, environmental (including taxes under Code (S)59A),
customs duties, capital stock, franchise, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Threshold Amount" has the meaning set forth in Section 11(c).
"Transferred Employee" has the meaning set forth in Section 9(a).
"Transition Services Agreement" means the Transition Services
Agreement between Caremark and Buyer dated as of the Effective Date.
"Working Capital" means the sum of the following categories on the
schedule to be prepared by the Sellers pursuant to Section 2(d)(ii) hereof: (A)
net patient accounts receivable, (B) Inventory, (C) other accounts receivable,
and (D) other current assets, less (E) accounts payable, (F) accrued expenses
and (G) other current liabilities, consistently calculated in accordance with
the "carve-out" financial statements referred to in Section 4(f). The following
categories shall not be included in the computation of Working Capital: (H)
current portion of capital leases, (I) current portion of long-term debt, (J)
the Excluded Assets, (K) the Excluded Liabilities and (L) deferred taxes.
2. BASIC TRANSACTION.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Sellers, and
the Sellers agree to assign, sell, transfer, convey, and deliver to the Buyer,
all of the Acquired Assets at the Closing for the consideration specified below.
The Buyer shall not purchase and the Sellers shall not
7
<PAGE>
assign, sell, transfer, convey, or deliver to the Buyer, however, the Excluded
Assets.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, the Buyer agrees at the Closing to assume and
become responsible for and discharge when and as due all of the Assumed
Liabilities. The Buyer shall not assume or have any responsibility, however,
with respect to the Excluded Liabilities.
(c) Consideration. The aggregate consideration (the "Purchase
Price") that the Buyer agrees to pay to the Sellers for the Acquired Assets and
for the provision of certain of the services set forth in the Transition
Services Agreement shall be:
(i) $48,800,000 (the "Cash Purchase Price"); and
(ii) an amount equal to the difference between the Working Capital at
December 31, 1995 and the Working Capital as of the Effective Date (the
"Differential"); and
(iii) the assumption of the Assumed Liabilities.
(d) Payment of Consideration.
(i) Prior to the Closing, the Sellers shall deliver to the Buyer a
certificate executed on the Sellers' behalf by a responsible officer setting
forth Sellers' estimate of the Differential as of the Effective Date (the
"Estimated Differential"). The Estimated Differential shall be based upon the
regularly prepared internal records of the Sellers, absent manifest error and
will be prepared in a manner consistent with the methodology utilized in the
preparation of the Most Recent Financial Statements. On the terms and subject
to conditions contained in this Agreement, at the Closing, Purchaser shall pay
to Seller, by wire transfer of immediately available funds, an amount equal to
(C) the Cash Purchase Price, plus or minus (D) an amount equal to the Estimated
Differential. Notwithstanding the foregoing to the contrary, the Parties hereby
agree that Two Hundred Thousand Dollars ($200,000) shall be paid to Sellers at
the Closing on account of the Estimated Differential, regardless of the amount
reflected on the Estimated Differential, and such payment shall in no way limit
the actual Differential calculation.
(ii) As soon as practicable, but in no event later than forty-five
(45) days after the Closing, the Sellers shall cause a schedule to be
8
<PAGE>
prepared and delivered to Buyer showing a calculation of the Differential (the
"Final Differential") as of the Effective Date derived by the Sellers from their
regularly prepared internal books and records. The Sellers shall provide Buyer,
upon request, with supporting information for such schedule. All determinations
with respect to the Final Differential shall be based upon the regularly
prepared internal records of the Sellers, absent manifest error. If such
schedule as submitted by the Sellers is not challenged in writing by the Buyer
within thirty (30) days of the Buyer's receipt thereof, then it shall be deemed
accepted by the Buyer. If it is so challenged, then, unless, otherwise resolved
by agreement of the Parties within thirty (30) days of the Buyer's challenge or
such later date as the Parties may mutually agree upon, such disagreement shall
be mutually submitted by the Parties to Price Waterhouse LLP, the Parties'
independent certified public accountants for resolution. If such accountants
cannot resolve the disagreement within thirty (30) days of such submission, then
the accountants shall submit the matter to another accounting firm of national
standing selected by them, whose determination shall be final and binding, and
shall be rendered within thirty (30) days of the date on which the matter is
submitted to such firm. Such accounting firms shall determine the issues and
disputes, following such procedures consistent with the language of this
Agreement as they deem appropriate to the circumstances and with reference to
the amounts in issue. No particular procedures are intended to be imposed upon
such accounting firms, it being the desire of the Parties that such dispute
shall be resolved as expeditiously and inexpensively as reasonably practicable.
Upon the final determination of the Final Differential, whether determined on
the basis of the schedule prepared by the Sellers or by agreement of the
Parties, or by decision of independent public accountants, as the case may be,
then and in such event, within five (5) business days following such
determination of the Final Differential, either Buyer shall pay to the Sellers,
or the Sellers shall pay to Buyer, as the case may be, in immediately available
funds, the amount by which the Final Differential differs from the Two Hundred
Thousand Dollars ($200,000) paid to Sellers on account of the Estimated
Differential. The pendency of a dispute will not affect the payment obligation
hereunder of either Buyer or the Sellers to the extent such payment is not
disputed. Each Party shall bear the entire cost of their respective accountants
at Price Waterhouse LLP and the Parties shall share equally in the cost of the
second accountant, if necessary.
(e) Transition Services Estimate. Insomuch as the Sellers and Buyer
shall work constructively in minimizing the costs attributable to the services
to be provided by the Sellers under Section 3 of the Transition Services
Agreement, the Parties hereby agree that in the event that such collaboration
results in Costs (as defined in the Transition Services
9
<PAGE>
Agreement) incurred by Caremark under such section are less than Eight Hundred
Fifty Thousand ($850,000), the differential between $850,000 and the actual
amount incurred by Caremark shall be paid to Buyer in full no later than thirty
(30) days following the end of the Transition Period (as defined in the
Transition Services Agreement). In the event that such collaboration results in
Costs incurred by Caremark under such section in excess of $850,000, the
differential between $850,000 and the actual Costs incurred by Caremark (net of
any prepayments made under such section of the Transition Services Agreement)
shall be paid to Caremark in immediately available funds within fifteen (15)
days after submission of the Cost Statement (as defined in the Transition
Services Agreement) which reflects such Costs).
(f) Allocation. The Parties agree to allocate the Purchase Price
(and all other capitalizable costs) among the Acquired Assets for tax purposes
in accordance with an allocation schedule to be mutually agreed upon within
ninety (90) days following the Closing Date, provided however, that between four
percent (4%) and eight percent (8%) of the Purchase Price shall be allocated to
the noncompetition covenant contained in Section 8(e).
3. THE CLOSING
(a) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Sellers in
Northbrook, IL, commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated by this Agreement (other
than conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"Closing Date"). The Closing shall be effective as of the Effective Date,
regardless of whether the Closing takes place on a different date.
(b) Deliveries at the Closing. At the Closing, (i) the Sellers shall
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below; (ii) the Buyer shall deliver to the Sellers
the various certificates, instruments, and documents referred to in Section 7(b)
below; (iii) the Sellers shall execute, acknowledge (if appropriate), and
deliver to the Buyer (A) assignments (including real property and intellectual
property transfer documents) and bills of sale in the forms attached as Exhibit
A and (B) such other instruments of sale, transfer, conveyance, and
10
<PAGE>
assignment as the Buyer and its counsel may reasonably request; (iv) the Buyer
shall execute, acknowledge (if appropriate), and deliver to the Sellers (A) an
assumption agreement in the form attached as Exhibit B and (B) such other
instruments of assumption as the Sellers and its counsel may reasonably request;
and (v) the Buyer shall deliver to the Sellers the consideration specified in
Section 2(c) above.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers jointly and
severally represent and warrant to the Buyer that the statements contained in
this Section 4 are correct and complete as of the Effective Date, except as set
forth in the Seller Disclosure Schedule. Any exception set forth in any
paragraph of the Seller Disclosure Schedule shall apply to all representations
made by the Sellers.
(a) Organization of the Seller. Each of the Sellers is a corporation
duly incorporated, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Sellers has all requisite
corporate power and authority to own, operate and lease its property and carry
on its business as now being conducted. Each of the Sellers is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction listed on Paragraph 4(a) of the Seller Disclosure Schedule.
(b) Due Authorization. Each of this Agreement and the other
instruments and agreements to which any Seller is a party and to be delivered
under this Agreement to Buyer by such Seller has been duly executed and
delivered by such Seller, has been authorized by all necessary corporate action
of such Seller, and constitutes a legally valid and binding obligation of such
Seller, enforceable against such Seller in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time which affect
creditors' right generally, and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding at law or in equity).
(c) Noncontravention. Assuming compliance with applicable requirements
of the HSR Act, any other state and federal anti-trust laws, the Securities Laws
and any federal, state or local laws and regulations governing the transfer of
pharmacy licenses and other licenses and permits, the execution, delivery or
performance of this Agreement and the other instruments and agreements to be
delivered under this Agreement to Buyer will not (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any government, governmental agency, or court to which
any Seller is subject or
11
<PAGE>
any provision of the charter or bylaws of any Seller, or (ii) subject to Section
8(c), conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any Person the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which any Seller is a party or by
which it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice would not have a material adverse effect on
(A) the operations, financial condition, or properties of the Nephrology
Business or (B) the ability of the Parties to consummate the transactions
contemplated by this Agreement.
(d) Brokers' Fees. No Seller has any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(e) Title to and Condition of Tangible Assets.
(i) The Sellers have good and marketable title to, or a valid
leasehold interest in, the Acquired Assets. Sellers have the full right to
sell, convey, transfer, assign and deliver the Acquired Assets free and clear of
any Security Interest other than those which, when taken together, would not
have a material adverse effect on the Nephrology Business. At the Closing and
as of the Effective Date, the Seller will convey the Acquired Assets to the
Buyer by deeds, bills of sale, certificates of title and instruments of
assignment and transfer effective to vest in the Buyer good and marketable title
to, or a valid leasehold interest in, all of the Acquired Assets free and clear
of any Security Interest other than those which, when taken together, would not
have material adverse effect on the Nephrology Business.
(ii) The Acquired Assets have been maintained in the Ordinary Course
of Business and are in good operating condition (with the exception of normal
wear and tear) sufficient for the operation of the Nephrology Business in
accordance with the Sellers' past practices, except for such operations which
relate to or employ the Excluded Assets. The Acquired Assets and the Assumed
Liabilities constitute all of the assets and properties used by the Sellers in
the operation of the Nephrology Business, except for the Excluded Assets.
(f) Financial Statements. Attached as Exhibit D are the following
financial statements (collectively the "Financial Statements") for the
Nephrology Business: (i) audited consolidated balance sheets and
12
<PAGE>
statements of income and cash flow as of and for the fiscal year ended December
31, 1994; (ii) audited consolidated balance sheets and statements of income and
cash flow as of and for the fiscal year ended December 31, 1995 (the "Most
Recent Financial Statements") and (iii) the Sellers' regularly prepared internal
financial statements used to prepare the Estimated Differential and Final
Differential (to be included and attached as part of Exhibit D as they become
available). The Financial Statements have been prepared on a carve-out basis in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the "carve out" financial condition of the
Nephrology Business as of such dates and the results of operations of the
Nephrology Business for such periods.
The Financial Statements have been prepared as if the Nephrology
Business had operated as a stand-alone entity for all periods presented, and
include those assets, liabilities, revenues and expenses directly attributable
to the operations of the Nephrology Business. Certain corporate general and
administrative expenses and related liabilities of the Sellers and their parent
corporations have been allocated to the Nephrology Business on various bases
which, in the opinion of the Sellers, are reasonable. However, such expenses
are not necessarily indicative of, and it is not practical for the Sellers to
estimate, the nature and level of expenses which might have been incurred had
the Nephrology Business been operating as a separate company. As a result, the
Financial Statements may not necessarily reflect what the financial position and
results of operations of the Nephrology Business would have been had it operated
as a stand-alone entity during the periods covered, and may not be indicative of
future operations or financial position.
(g) Events Subsequent to Most Recent Financial Statement. Since the
Most Recent Financial Statement, there has not been any material adverse change
in the financial condition or results of operations of the Nephrology Business.
Without limiting the generality of the foregoing and except as set forth on
Paragraph 4(g) of the Seller Disclosure Statement, since December 31,1995 no
Seller has engaged in any practice, taken any action, or entered into any
transaction outside the Ordinary Course of Business.
(h) Legal Compliance. Except as set forth on Paragraph 4(h) of the
Seller Disclosure Schedule, the operation of the Nephrology Business has
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
13
<PAGE>
except where the failure to comply would not have a material adverse effect upon
the Nephrology Business. Without limiting the generality of the foregoing and
except as set forth on Paragraph 4(h) of the Seller Disclosure Schedule, the
Nephrology Business has been conducted in compliance in all material respects
with all Medicare and Medicaid or other third-party reimbursement programs,
except where non-compliance would not have a material adverse effect on the
Nephrology Business, and no Seller has any Knowledge of any notice from any
Person that any such program has any claims for disallowance of costs against
which could result in offsets against future reimbursement or recovery of prior
payments. No Seller has received any written notice from any third party that
such Seller (with respect to its operation of the Nephrology Business) or any
part of the Nephrology Business is the target of any investigation or proceeding
by any governmental authority, and no Seller has any Knowledge that any such
investigation or proceeding is pending or threatened.
(i) Intentionally Omitted.
(j) Real Property. No Seller owns any real property that is used in
the Nephrology Business. Paragraph 4(j) of the Seller Disclosure Schedule lists
all real property leased or subleased to any Seller and used in the Nephrology
Business. The Sellers have delivered to the Buyer correct and complete copies
of the applicable leases and subleases (as amended to date). Except as set
forth on Paragraph 4(j) of the Seller Disclosure Schedule, no Seller is, and to
the Sellers' Knowledge, no landlord is in default in any material respect under
any such lease or sublease. To the Knowledge of the Sellers, each such lease
and sublease is legal, valid, binding, enforceable, and in full force and
effect, except where the illegality, invalidity, nonbinding nature,
unenforceability, or ineffectiveness would not have a material adverse effect on
the Nephrology Business.
(k) Intellectual Property.
(i) Paragraph 4(k) of the Seller Disclosure Schedule identifies all
material intellectual property used in the Nephrology Business, including (A)
patents or registrations which have been issued to any Seller with respect to
any of such intellectual property; (B) each pending patent application or
application for registration which a Seller has made with respect to any of its
intellectual property used in the Nephrology Business; and (C) each material
license, agreement, or other permission which the Seller has been granted by any
third party with respect to the use of any other intellectual property used in
the Nephrology Business.
14
<PAGE>
(ii) To the Knowledge of the Sellers, no Seller has infringed on the
intellectual property of another Person, and no Person is asserting or, to the
Knowledge of the Sellers, has threatened to assert that the operation of the
Nephrology Business conflicts with or infringes on any intellectual property of
any Person; and
(iii) All such intellectual property is valid, in good standing and
free and clear of any Security Interests, the Sellers have good title to the
intellectual property rights owned by the Sellers that are set forth on
Paragraph 4(l) of the Seller Disclosure Schedule, and no Seller has Knowledge of
any Person who is infringing on such intellectual property rights. Except
pursuant to contracts disclosed on Paragraph 4(l) of the Seller Disclosure
Schedule, no third party has a right to royalties or other payments in
connection with any of the intellectual property rights or the use thereof.
(l) Contracts. Paragraph 4(l) of the Seller Disclosure Schedule
lists all material written contracts used in the Nephrology Business to which
the Seller is a party, including all contracts the performance of which will
involve consideration in excess of $50,000 in any twelve (12) month period. No
Seller is, and to the Sellers' Knowledge, no other party is, in default in any
material respect under any such contract. To the Knowledge of the Sellers, each
such contract is legal, valid, binding, enforceable, and in full force and
effect, except where the illegality, invalidity, nonbinding nature,
unenforceability, or ineffectiveness would not have a material adverse effect on
the Nephrology Business. The Sellers have delivered to the Buyer a correct and
complete copy of each such contract (as amended to date).
(m) Litigation. Paragraph 4(m) of the Seller Disclosure Schedule
sets forth each instance in which any Seller (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge related to the Nephrology
Business or (ii) is a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court, arbitrator or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
related to the Nephrology Business. There is no litigation or claim pending
or, to Sellers' Knowledge, threatened against any Seller which if determined
adversely would have a material adverse effect on the Nephrology Business.
(n) Labor and ERISA Matters.
(i) No Seller is a party to any collective bargaining agreements or
other contracts with any labor unions for employees of the Nephrology
15
<PAGE>
Business. There are not in existence any (A) work stoppages respecting employees
of the Nephrology Business, or (B) except as set forth on Paragraph 4(n)(i) of
the Seller Disclosure Schedule, to the Knowledge of the Sellers, any material
charges, complaints or citations threatened or pending against any Seller before
any government agency with respect to unfair labor practices, discrimination or
other material grievances or arbitration proceedings related to the Nephrology
Business.
(ii) Paragraph 4(n)(ii) of the Seller Disclosure Schedule lists all
Employee Benefit Plans currently maintained, established or contributed to by
each Seller and its affiliates for employees who provide services primarily in
connection with the Nephrology Business (the "Nephrology Benefit Plans"). To
the extent applicable, the Sellers have delivered to the Buyer copies of the
most current plan documents and trust agreements for each Nephrology Benefit
Plan. Each Nephrology Benefit Plan that is an Employee Pension Benefit Plan
which is intended to be qualified under Code (S) 401(a) (has received a
favorable determination letter from the Internal Revenue Service with respect to
its qualified status under the Code or, if such determination letter has not
been received, a request for a favorable determination letter has been filed
with the IRS. To the knowledge of each Seller, each Nephrology Benefit Plan has
been administered in substantial compliance with all material provisions of
ERISA and the Code applicable thereto. To the Knowledge of each Seller, there
have been no violations of the prohibited transaction provisions (as set forth
in Code (S) 4975 or in ERISA (S) 406) with respect to any Nephrology Benefit
Plan which violations would have a material adverse effect on the Nephrology
Business. None of the Nephrology Benefit Plans is subject to Title IV of ERISA
and none of the Nephrology Benefit Plans is a Multi-employer Plan. There are no
pending lawsuits in connection with any Nephrology Benefit Plan which if
adversely determined would have a material adverse affect on the Nephrology
Business.
(o) Certain Environmental Matters. The Sellers have operated the
Nephrology Business in compliance in all material respects with all material
environmental health and safety laws and regulations and, with respect to the
Nephrology Business, no Seller has received any written notice of any pending or
threatened action, claim or proceeding under any environmental law or
regulation.
(p) Licenses and Permits. Paragraph 4(p) of the Seller Disclosure
Schedule is a complete and accurate list of all provider numbers and all
material permits, licenses, franchises, authorizations and certifications, and
all current requests or applications therefor held by Seller (the "Sellers'
16
<PAGE>
Permits"). The Sellers' Permits constitute all of the material permits,
licenses, franchises, authorizations and certifications necessary to the
Sellers' conduct of the Nephrology Business in material compliance with
applicable law, except where the Sellers' failure to hold such permits,
licenses, franchises, authorizations and certificates would not have a material
adverse effect on the Nephrology Business. Each of the Sellers is certified as
a provider under all applicable Medicare and Medicaid programs to the extent
required to be so certified to operate the portion of the Nephrology Business
owned and operated by such Seller, and are in material compliance with all
Sellers' Permits, except where non-compliance would not have a material adverse
effect on the Nephrology Business. To the Knowledge of the Sellers, all of the
employees employed in the Nephrology Business (including all independent
contractors utilized by Sellers therein) are properly licensed to the extent
required to perform the duties of their employment in each jurisdiction where
such duties are performed, except where the failure to be so licensed would not
have a material adverse effect on the Nephrology Business. No Seller has
received any notice that any Sellers' Permit has been canceled, challenged,
threatened, terminated or otherwise adversely affected or will or might be so
adversely affected.
(q) Accounts Receivable. All accounts receivable of the Nephrology
Business included on the Financial Statements have arisen out of bona fide
transactions in the Ordinary Course of Business and are collectible in the
ordinary course of business, subject to such reserves as may be taken on the
Financial Statements.
(r) Insurance. Insurance policies (other than insurance policies
relating to any Employee Benefit Plan) held by the Sellers and applicable to the
Nephrology Business and now in force, together with the self insurance program
of the Sellers and their Affiliates, provide normal and customary insurance
coverage for the Nephrology Business as it is now conducted. Paragraph 4(r) of
the Seller Disclosure Schedule contains a list of claims pending under such
policies related to the Nephrology Business. All such insurance policies and
programs are in full force and effect and the premiums have been paid on all
applicable policies. The Seller will use commercially reasonable efforts to
maintain, or cause to be maintained, such insurance coverage for the Nephrology
Business until the Closing Date.
(s) Third Party Payor Reports and Claims. All Medicare, Medicaid,
fiscal intermediary and other third party payor cost reports (including reports
relating to health maintenance organizations, preferred provider organizations
and employer self insured plans, if any) and other reports and claims filed or
required to be filed by or on behalf of the Nephrology
17
<PAGE>
Business have been filed, and are complete and accurate. Such cost reports,
other reports and claims properly claim and disclose, where appropriate, only
allowable costs and all claims information and other items required to be
disclosed for the periods covered thereby. There are no outstanding, pending or,
to the Knowledge of Sellers, threatened negative adjustments, recoupments or
deficiencies pertaining to the cost reports or claims filed by or on behalf of
the Nephrology Business.
(t) Improper Payments. No Seller nor, to the Knowledge of the
Sellers, any of their officers, directors, agents, employees or any other Person
on behalf of a Seller, has made directly or indirectly any illegal or improper
payment to or on behalf of, or provided any illegal or improper benefit or
inducement for, any governmental official, physician, supplier, customer or
patient, in any manner related to the Nephrology Business.
(u) Absence of Certain Changes. Since December 31, 1995, Sellers have
operated the Nephrology Business in the Ordinary Course of Business and, except
as set forth on Paragraph 4(u) of the Seller Disclosure Schedule or as expressly
directed by this Agreement:
(i) no Seller has entered into any material transaction relating to
the Nephrology Business or the Acquired Assets;
(ii) neither Seller nor Parent has sold, assigned or transferred any
assets that are material to the Nephrology Business other than in the Ordinary
Course of Business;
(iii) there has not been any damage, destruction or loss to, or of,
the Acquired Assets, in an aggregate amount exceeding $100,000, for which (A) an
insurance claim has not been made and recovery is not reasonably expected to be
received in an amount equal to the extent of loss, or (B) an insurance recovery
has not been made;
(iv) there has not been any incurrence of debts, liabilities or
obligations of any nature, whether accrued, absolute, contingent, direct,
indirect, perfected or otherwise, and whether due or to become due, except
current liabilities incurred in the Ordinary Course of Business, liabilities on
account of taxes and governmental charges (but not penalties, interest or fines
in respect thereof), and obligations or liabilities incurred by virtue of the
execution of this Agreement;
(v) none of the Acquired Assets have been pledged or subjected to any
Security Interest;
18
<PAGE>
(vi) no Seller has adopted any change in accounting methods, practices
or in the application of any accounting principle;
(vii) except in the Ordinary Course of Business, no Seller has made
or indicated or promised to any person that any increase in employee
compensation or benefits will be made with respect to any employee of the
Nephrology Business; and
(viii) no Seller has canceled or waived any amount payable to a
Seller relating to the Nephrology Business or waived any rights to which the
Sellers are entitled relating to the Nephrology Business.
(v) Full Disclosure. This Agreement and the Exhibits and Schedules
hereto do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements made not misleading (other
than facts of a general economic or political nature).
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Sellers that the statements contained in this Section 5 are
correct and complete as of the Effective Date, except as set forth in the Buyer
Disclosure Schedule. Any exception set forth in any paragraph of the Buyer
Disclosure Schedule shall apply to all representations made by the Buyer.
(a) Organization of the Buyer. The Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer has all requisite corporate power
and authority to own, operate and lease its property and carry on its business
as now being conducted. The Buyer is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction listed on Paragraph
5(a) of the Buyer Disclosure Schedule.
(b) Due Authorization. Each of this Agreement and the other
instruments and agreements to which Buyer is a party and to be delivered under
this Agreement to Seller by Buyer has been duly executed and delivered by Buyer,
has been authorized by all necessary corporate action of Buyer, and constitutes
a legally valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
from time to time which affect creditors' right generally, and by general
equitable principles (regardless of
19
<PAGE>
whether such enforceability is considered in a proceeding at law or in equity).
(c) Noncontravention. Assuming compliance with applicable requirements
of the HSR Act, any other state and federal anti-trust laws, the Securities Laws
and any federal, state or local laws and regulations governing the transfer of
pharmacy licenses and other licenses and permits, the execution, delivery or
performance of this Agreement and the other instruments and agreements to be
delivered under this Agreement to the Sellers will not (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of the charter or bylaws of
the Buyer, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any Person the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice would not have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by the Agreement.
(d) Brokers' Fees. The Buyer has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
(e) Available Financing. The Buyer has available to it or can borrow
under existing lines of credit or other existing financing arrangements
sufficient funds to enable the Buyer to deliver the Cash Purchase Price to the
Sellers at the Closing and make any other payments provided for herein, and such
funding and/or financing arrangements will be available to the Buyer at the
Closing.
(f) Litigation. There are no actions, suits, proceedings or
investigations pending, or to Buyer's Knowledge, threatened, which question the
validity of this Agreement or of any actions taken or to be taken in connection
with this Agreement or the consummation of the transactions contemplated hereby.
(g) Consents. No consent is required to be obtained by Buyer in
connection with the execution and delivery of this Agreement by Buyer or
20
<PAGE>
the consummation by Buyer of the transactions contemplated herein, other than as
required by the HSR Act.
(h) The Buyer's Business Investigation. The Buyer has not relied upon
any financial projections or pro forma financial information provided by the
Sellers, including the pro forma statements described in Section 8(f) of this
Agreement.
6. INTENTIONALLY OMITTED.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of the Sellers set forth in
Section 4 shall be true and correct in all material respects at and as of the
Effective Date and the Seller shall have updated the Seller Disclosure Schedule;
(ii) the Seller shall have performed and complied with all of its
covenants in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) the Sellers shall have executed and delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Paragraphs 7(a)(i) through 7(a)(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions) under the HSR
Act and the Corporate Integrity Agreement dated June 15, 1995 between Caremark
International Inc., Caremark Inc. and the U.S. Department of Health and Human
Services shall have expired or otherwise been terminated and the Sellers and the
Buyer shall have received, subject to Section 8(c), all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Paragraphs 4(c) and 5(c);
21
<PAGE>
(vi) the Sellers shall have delivered to Buyer the Assignment and Bill
of Sale in form and substance as set forth in Exhibit A.
(vii) the Buyer shall have received from the Acting General Counsel
of the Sellers an opinion in form and substance as set forth in Exhibit E,
addressed to the Buyer, and dated as of the Effective Date;
(viii) Buyer shall have entered into Medical Director Agreements with
HFA, ANC and CNMG and a CNMG side letter regarding potential joint ventures
between the Buyer and CNMG in Alameda County, California and other related
matters on terms acceptable to the Buyer; and
(ix) all actions to be taken by the Sellers in connection with
consummation of, and all certificates, instruments, and other documents required
to effect the transactions contemplated by, this Agreement will be completed in
form and substance reasonably satisfactory to the Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing. For purposes of this Section
7, (a) the cessation of employment, including head count reductions in the
Ordinary Course of Business, of or by any employees of the Nephrology Business,
(b) the inability of the Sellers to obtain consents from landlords of leased
real property or other third parties contracting with the Sellers regarding the
Nephrology Business other than the lease assignments relating to the space
occupied in the HFA Building located at 914 South Eight Street, Minnesota,
Minnesota and the Metropolitan Medical Office Building located at 825 South
Eight Street, Minneapolis, Minnesota, or (c) the results of operations of the
Nephrology Business as reflected in Financial Statements, shall not be a basis,
individually or collectively, for Buyer to fail to purchase the Acquired Assets.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of the Buyer set forth in
Section 5 above shall be true and correct in all material respects at and as of
the Effective Date and the Buyer shall have updated the Buyer Disclosure
Schedule;
(ii) the Buyer shall have performed and complied with all of its
covenants in all material respects through the Closing;
22
<PAGE>
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) the Buyer shall have executed and delivered to the Seller a
certificate to the effect that each of the conditions specified above in
Paragraphs 7(b)(i) through 7(b)(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
the HSR Act and the Corporate Integrity Agreement dated June 15, 1995 between
Caremark International Inc., Caremark Inc. and the U.S. Department of Health and
Human Services shall have expired or otherwise been terminated and the Sellers,
and the Buyer shall have received, subject to Section 8(c), all other
authorizations, consents, and approvals of governments and governmental agencies
referred to in Paragraphs 4(c) and 5(c) above;
(vi) the Buyer shall have executed and delivered to the Seller the
Assumption Agreement in form and substance as set forth in Exhibit B;
(vii) the Sellers shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit F, addressed to the
Sellers, and dated as of the Effective Date;
(viii) the Database Support and License Agreement granting the
Sellers, the Buyer and their affiliates rights to the HCFA Database and the RKDP
Database in form and substance as set forth in Exhibit C shall have been
executed and delivered by the parties thereto;
(ix) the Sellers shall have terminated their contractual relationships
with HFA, ANC and CNMG on terms acceptable to the Sellers; and
(x) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated will be completed in form and substance reasonably
satisfactory to the Seller.
The Sellers may waive any condition specified in this Section 7(b) if it
executes a writing so stating at or prior to the Closing.
8. POST-CLOSING COVENANTS
23
<PAGE>
(a) Sales, Transfer and Other Taxes. The Buyer shall be responsible
for the payment of all sales, transfer and other taxes arising out of the
transactions contemplated by this Agreement. Sellers warrant that Sellers have
not relied upon the Occasional sale exemption under Section 6006.5 of the
California Revenue and Taxation Code in more than one other instance in the
previous 12 month period prior to the Effective Date.
(b) HCFA Database. Caremark shall contribute to MMRF the Excluded
Assets which comprise the HCFA Database. In connection with that contribution,
Caremark International Inc., Buyer and MMRF will execute and deliver the
Database Support and License Agreement.
(c) Lease and Contract Assignments. Buyer and Sellers will cooperate
and use their respective commercially best efforts to obtain any consents of
real property landlords and other third parties to the material contracts and
agreements disclosed on Paragraph 4(l) of the Seller Disclosure Schedule
necessary or advisable in connection with the transactions contemplated by this
Agreement, including, without limitation, the Buyer providing to such landlords
(i) its parent company's guarantee of the obligations of the Buyer, as assignee,
under such leases, contracts and agreements and (ii) furnishing such financial
statements and other financial information with respect to Buyer and its parent
company as such third parties may reasonably request. If any such consent is
not obtained, (i) this Agreement shall not constitute or be deemed to be a
contract to assign the same if an attempted assignment without such consent,
approval or waiver would constitute a breach of such lease contract or agreement
or create in any party thereto the right or power to cancel or terminate such
lease contract or agreement; and (ii) the Sellers will cooperate with Buyer, in
any reasonable arrangement requested by Buyer designed to provide to Buyer the
benefit, monetary or otherwise, of the Sellers' rights under such lease,
contract or agreement, including enforcement of any and all rights of the
Sellers against the other party thereto arising out of a breach or cancellation
thereof by such other party. If any lease provides that the lease may not be
assigned by a Seller without the written consent of a third party but that the
Seller may sublet the property covered by such lease without such consent, then
if any third party refuses to give its written consent to an assignment of such
lease, or conditions its consent on terms unacceptable to the Seller or Buyer,
then in lieu of assigning such lease to Buyer, the Seller shall sublet the
property covered by such lease to Buyer on the same terms and conditions
(including rental and other payments) that are contained in the existing lease,
for the balance of the term thereof. The failure of any third party to consent
to the assignment or transfer of any lease, contract or agreement from a Seller
to the Buyer shall not constitute a breach of this
24
<PAGE>
covenant or the breach of the representation and warranty set forth in Section
4(c)(ii).
(d) Records. Each Party shall provide the other Party with access to
all relevant documents and other information pertaining to the Nephrology
Business which are needed by such other Party for the purposes of preparing tax
returns, responding to an audit by any governmental agency, defending or
prosecuting claims or litigation or for any other reasonable purpose. Such
access will be during normal business hours and not subject to time limitations,
except as provided below. Further, for a period extending seven (7) years after
the Effective Date, Buyer shall not destroy or otherwise dispose of any records
of the Nephrology Business relating to the period prior to the Effective Date.
After such seven (7) year period Buyer may destroy or otherwise dispose of such
records.
(e) Noncompetition. As a material inducement to Buyer to enter into
this Agreement, in consideration of the Purchase Price, and for other good and
valid consideration, the receipt and sufficiency of which is hereby
acknowledged, each Seller covenants and agrees that it will not for a period of
ten (10) years, directly or indirectly, own any interest in, lease, operate, or
extend credit to, any corporation, partnership, management services
organization, independent practice association, proprietorship, firm or
association which engages in or derives any economic benefit from, or otherwise
participate in (as medical director, contractor, or consultant, to, for or with
any such entity), the business of providing, offering, arranging or
subcontracting Nephrology Services. Each Seller further agrees that for a
period of ten (10) years, it will not directly or indirectly (i) induce any
customer of the Buyer (either individually or in the aggregate) to patronize any
competing dialysis facility; (ii) request or advise any patient or customer of
the Buyer to withdraw, curtail or cancel such Person's business with the Buyer;
(iii) enter into any agreement, the purpose of which would benefit such Seller
if any customer of the Buyer were to withdraw, curtail or cancel such Person's
business with the Buyer; (iv) solicit, induce or encourage any Person affiliated
with the Buyer or other Person employed by the Buyer to curtail or terminate
such Person's affiliation or employment; or (v) disclose to any other Person,
the names or addresses of any customer of the Buyer. If the provisions of this
Section 8(e) are violated, in whole or in part, Buyer shall be entitled, upon
application to any court of proper jurisdiction, to a temporary restraining
order or preliminary injunction to restrain and enjoin the breaching Seller from
such violation without prejudice as to any other remedies Buyer may have at law
or in equity. In the event of a violation, each Seller agrees that it would be
virtually impossible for Buyer to calculate its monetary damages and that Buyer
would be irreparably harmed. If Buyer
25
<PAGE>
seeks such temporary restraining order or preliminary injunction, Buyer shall
not be required to post any bond with respect thereto, or, if a bond is
required, it may be posted without surety thereon. If any restriction contained
in this Section 8(e) is held by any court to be unenforceable, or unreasonable,
as to time, geographic area or business limitation, Buyer and the Seller agree
that such provisions shall be and are hereby reformed to the maximum time,
geographic area or business limitation permitted by applicable laws. The parties
further agree that the remaining restrictions contained in this Section 8(e)
shall be severable and shall remain in effect and shall be enforceable
independently of each other. Notwithstanding the foregoing, the Seller and any
of its subsidiaries, division or Affiliates may provide services that compete
with the Nephrology Business: (i) in the form of developing or providing health
care management information, programs or protocols to other Persons for the
patients of Seller or its Affiliates (including, for this Section 8(e), those
physician-owned organizations, including professional corporations (x) whose
business affairs are managed by any Seller or (y) who have other contractual
relationships with any Seller, so long as such information, programs or
protocols are not intended to result in the withdrawal, curtailment or
cancellation of any business of Buyer; (ii) as part of the services provided to
or in connection with physician practices whose business affairs are managed by
the Seller's physician practice management business: (iii) in Japan, Central
America and South America and (iv) any other international market after December
31, 1997, in each case whether such services are currently provided or
established on or after the Closing Date.
(f) Mutual Cooperation. Following the Closing, the Parties shall
reasonably cooperate with each other to effect this transaction, including
without limitation, the Sellers' cooperation with the Buyer in (i) the
collection of any accounts receivable included in the Acquired Assets and (ii)
at Buyer's sole expense, Buyer's preparation of the financial information needed
to file Buyer's Report on Form 8-K under the Securities Exchange Act of 1934 as
a result of the transactions contemplated by this Agreement, including proforma
(unaudited) statements of income for the periods June 1, 1995 through December
31, 1995 and the twelve months ended May 31, 1995.
(g) MSO II Partnership Interest. CNSI owns a fifty percent 50%
general partnership interest (the "MSO II Interest") in Golden State Management
Services LP, a California limited partnership ("MSO II"). CNSI agrees to assign
the MSO II Interest to Buyer if the Buyer is approved, without conditions placed
upon Buyer by the Sellers within one hundred twenty (120) days from the Closing
Date as a replacement partner in MSO
26
<PAGE>
II. If so approved, Buyer shall pay promptly CNSI Four Hundred Thousand Dollars
($400,000) and CNSI shall deliver to Buyer such bill of sale, assignment or
other instruments necessary to transfer the MSO II Interest to Buyer. If Buyer
is not so approved, CNSI may assign the MSO II to another Person.
(h) RenlStar Software. As soon after the Closing as is reasonably
practicable, the Sellers shall obtain a software license from RenlStar to
upgrade the RenlStar software used currently in the Sellers' Chabot clinics.
The Sellers' obligation under this Section 8(h) shall not exceed One Hundred
Thousand Dollars ($100,000). Sellers shall transfer such software license to
Buyer and it shall constitute an Acquired Asset.
9. EMPLOYEES
(a) Nephrology Employees. Prior to the Closing, Buyer shall select
those employees of the Nephrology Business which the Buyer desires to employ and
shall notify the Sellers of such employees (the "Nephrology Employees"). Each
Nephrology Employee who accepts Buyer's offer of employment shall be referred to
as a "Transferred Employee". Buyer represents and warrants to the Sellers that
it has no plan or intention of offering employment within six months of the
Effective Date to any employee of the Nephrology Business who is not a
Nephrology Employee, provided however, that the Buyer may offer employment to
such employees within such six (6) month period with the Sellers' prior consent,
which shall not be unreasonably withheld.
(b) Accrued Salary. As of the Effective Date, the Buyer shall assume
Sellers' obligations for and, in the ordinary course of Buyer's business, pay
all accrued but unpaid salary and other amounts (including accrued vacation and
sick pay) owing to each Transferred Employee accrued in the Ordinary Course of
Business for periods ending on the Effective Date.
(c) Employee Benefit Plans.
(i) The Sellers acknowledge that Buyer will not assume and will not be
obligated to assume any Nephrology Benefit Plans. Sellers shall indemnify, in
compliance with Section 11, Buyer for any loss (whether in the form of benefit
payments, contributions, attorneys' fees, or otherwise) that it incurs as a
result of the operation of the Nephrology Benefit Plans prior to the Effective
Date. Buyer will indemnify, in compliance with Section
27
<PAGE>
11, the Sellers for any loss (whether in the form of benefit payments,
contributions, attorneys' fees, or otherwise) that they incur as a result of the
operation of Buyer's Plans on or after the Effective Date or with respect to the
Nephrology Benefit Plans for periods after the Effective Date in accordance with
the provisions of the Transition Services Agreement.
(ii) Effective as of the earliest Employee Transition Date or
Transition Date (as such terms are defined in the Transition Services
Agreement), Buyer shall cause a Defined Contribution Plan maintained by Buyer
which is designed to be qualified under Code (S) 401(a) (the "Buyer's Savings
Plan") to accept rollover contributions, including direct transfers of rollover
distributions (of the type referred to in Code (S) 401(a) (31)), from Sellers'
Defined Contribution Plans. The Sellers and Buyer shall each provide
documentation to each other which demonstrates to the other Party's reasonable
satisfaction, that each of their respective Defined Contribution Plans satisfy
the requirements of Code (S) 401(a). To the extent required, Buyer and Sellers
shall amend their respective Defined Contribution Plans to effectuate the
provisions of this Section 9(c)(ii). Subject to the Transition Services
Agreement, Transferred Employees shall cease contributions to the Seller's
Defined Contribution Plans and shall begin contributions to the Buyer's Savings
Plan. Seller shall make all contributions required by the Seller (if any) with
respect to the period prior to the Effective Date and pursuant to the Transition
Services Agreement before rollover contributions including direct transfers, are
made from the Sellers' Defined Contribution Plans to the Buyer's Savings Plan.
(iii) Subject to the Transition Services Agreement, the Transferred
Employees (and, to the extent applicable, their respective dependents) shall
cease participation in the Nephrology Benefit Plans, except as specifically
provided by the terms of such Plans or as required by law, and for periods on
and after the Effective Date, shall be eligible to participate in Employee
Benefit Plans, arrangements, programs and policies maintained by Buyer
(collectively referred to herein as "Buyer's Plans") which shall provide
benefits (other than stock based or related benefits or severance benefits) to
the Transferred Employees (and, to the extent applicable, their dependents and
beneficiaries) which, in the aggregate, are substantially comparable in all
material respects to the benefits provided to Buyer's other employees in
comparable positions. Buyer shall use all commercially reasonable efforts to
cause its "group health plans", as defined in Code (S) 5000(b), which cover any
Transferred Employees or in which Transferred Employees (and their dependents)
are eligible to participate, to waive any limitations or exclusions on pre-
existing conditions, except to the extent that such limitations or exclusions
are applied as of the Effective Date to a Transferred Employee or
28
<PAGE>
a dependent under the group health plans included in the Nephrology Benefit
Plans; provided, however, that to the extent that (A) Buyer shall incur any
additional premium charges for waiving any otherwise applicable limitation or
exclusion for pre-existing conditions under Buyer's "group health plans" or (B)
Buyer is unable to cause its "group health plans" to waive limitations and
exclusions for pre-existing conditions with respect to Transferred Employees
(and, to the extent applicable, their respective dependents), with the result,
in either case, that such Transferred Employees (and, to the extent applicable,
their respective dependents) obtain group health benefits under Sellers' "group
health plans" pursuant to COBRA, and with the result that the Sellers are
required to incur the costs of providing health benefits to any such Transferred
Employee (and, to the extent applicable, his or her respective dependents) for
periods after the Closing Date, then Buyer shall pay the additional costs
imposed by the group health plans under Subsection 9(c)(iii)(A) above or
reimburse Sellers for additional costs attributable to the Transferred Employee
(and, to the extent applicable, his or her respective dependents) pursuant to
COBRA. To the extent applicable, Transferred Employees (and their eligible
dependents) shall be given credit for all purposes under each of Buyer's Plans
(other than benefit accrual purposes under any such plan which is an Employee
Pension Benefit Plan) for their service with Sellers including the following
purposes: eligibility for participation, vesting, satisfying any waiting
periods, evidence of insurability requirements and determining benefits based on
length of service (such as vacation and severance). To the extent applicable,
Transferred Employees (and their eligible dependents) shall be given credit
under each of the applicable Buyer's Plans which is an Employee Welfare Benefit
Plan for amounts paid under a corresponding Nephrology Benefit Plan during the
same period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of Buyer's Plans. Sellers shall provide to Buyer appropriate
information with respect to the service of the Transferred Employees and amounts
paid under the Nephrology Benefit Plans to enable Buyer to properly provide
credit for such service and amounts as required pursuant to this Section 9(c)
and Buyer shall be entitled to rely on such information. To the extent that
Buyer's contractual obligations under its benefit programs prevent it from
granting full service credit to any Transferred Employee, Buyer may in its
discretion establish a bonus or unfunded reimbursement program which places the
affected employee in substantially the same financial position as if he or she
had been given full service credit.
(iv) Except as set forth in the foregoing provisions of this Section
9(c), the Transferred Employees shall be eligible to participate in the Buyer's
29
<PAGE>
Plans on the same terms and conditions as Buyer's other employees in comparable
positions.
(v) Notwithstanding the foregoing provisions of this Section 9,
nothing in this Agreement shall limit or restrict in any way the rights of Buyer
to modify, amend, terminate or establish Employee Benefit Plans or arrangements
in whole or in part at any time after the Closing Date, nor shall it require
Buyer to provide any form or level of benefit to any employee, including any
Transferred Employee, after the Closing Date.
(vi) The provisions of this Section 9(c) shall constitute a
contractual agreement binding upon only the Sellers and the Buyer.
Specifically, no third party beneficiaries are intended to be created, with the
effect that only the Sellers and the Buyer may enforce the provisions of this
Section 9(c).
(d) Seller Employment Claims. The Sellers shall indemnify and hold
harmless the Buyer and its Affiliates, in accordance with Section 11, from all
Damages (as hereinafter defined) which may be imposed upon, incurred by or
asserted against the Buyer or its Affiliates in connection with any of the
Nephrology Benefit Plans or any other liabilities relating to Nephrology
Employees including benefits payable under the Nephrology Benefit Plans, other
than benefits pursuant to COBRA relating to Transferred Employees for which
Buyer is required to reimburse Sellers pursuant to Section 9(c)(iii) or for
amounts for which Buyer is required to reimburse Sellers pursuant to the
Transition Services Agreement or this Agreement as a result of the Effective
Date preceding the Closing Date.
10. INTENTIONALLY OMITTED.
11. SURVIVAL AND INDEMNIFICATION
(a) Survival. All representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement shall be
deemed to be material and to have been relied upon by the Parties, and shall
survive the Closing and shall be fully effective and enforceable for the period
following the Effective Date ending on December 31, 1997 (unless a different
period is specifically assigned to the applicable provision) (provided that
claims based on (i) a willful or intentional misrepresentation or breach of a
warranty made in this Agreement, (ii) the death or injury to any individual,
(iii) Taxes (subject to Section 8(a)) or (iv) overpayments or duplicate payments
(including without limitation overpayments due to the
30
<PAGE>
application of the Omnibus Budget Reconciliation Act of 1993 Amendment to
Medicare Secondary Payer End Stage Renal Disease Provision ("OBRA")) by any
Party shall survive the Closing and shall be fully effective and enforceable for
the applicable statute of limitations), but shall thereafter be of no further
force or effect, except as such provision relates to claims for indemnification
timely made pursuant to this Section 11. Any claim for indemnification asserted
in writing before December 31, 1997 or other applicable survival period shall
survive until resolved or judicially determined.
(b) Indemnification. Each Party shall indemnify and hold harmless the
other from and against any and all loss, damage, expense (including court costs,
amounts paid in settlement, judgments, reasonable attorneys' fees or other
expenses for investigating and defending), suit, action, claim, liability or
obligation (collectively, "Damages") related to, caused by or arising from any
misrepresentation, breach of warranty or failure to fulfill any covenant
contained in this Agreement. In addition, and without regard to any survival
period, (i) the Sellers shall indemnify and hold Buyer harmless from and against
any and all Damages related to, caused by or arising from (A) any Excluded
Liabilities and (B) Taxes (subject to Section 8(a)) related to or arising out of
the operation of the Nephrology Business prior to the Effective Date and (C) the
landlords' consents to the assignment of the Nephrology Business' real estate
leases (other than any consent to assignment or sublease of RKDP leased premises
at 825 S. Eighth St., Minneapolis, Minnesota), and (ii) Buyer shall indemnify
and hold the Sellers harmless from any and all (X) Damages related to, caused by
or arising from any Assumed Liability, (Y) Taxes related to or arising out of
the operation of the Nephrology Business after the Effective Date and (Z)
Damages related to, caused by and arising from Buyer's operation of the
Nephrology Business after the Effective Date. Notwithstanding any term or
provision contained herein to the contrary, Buyer shall use all reasonable
efforts to cooperate with Sellers to minimize the Sellers' indemnification
obligations, if any, relating to the consent to the assignment of the real
estate leases, including the acts described in Section 8(c). Furthermore, such
lease related Damages shall be limited to the Damages applicable only to the
current terms of such leases, without regard to any options to renew or extend.
The obligations of the Sellers under this Section 11 shall be joint and several.
No Party shall be entitled to indemnity under this Section 11 except for out-of-
pocket Damages actually suffered or sustained by the Indemnified Party, and such
indemnitee (as defined below) shall not include Damages in the nature of
consequential damages, lost profits, diminution in value, diminution in value,
damage to reputation or the like.
31
<PAGE>
(c) Limitations on The Sellers' Indemnification Obligation. The
Sellers shall not be liable and the Buyer agrees not to enforce any claim
relating to Damages ("Claims"), for indemnification under this Agreement for a
misrepresentation or breach of warranty until the aggregate amount of all such
Claims exceeds One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Threshold Amount"), and then the Buyer shall be entitled to recover only the
amount of such Claims in excess of the Threshold Amount, except in the case of
any Claims which relate to (i) a willful or intentional misrepresentation or
breach of a warranty made in this Agreement, (ii) the death or injury to any
individual, (iii) Taxes (subject to Section 8(a)) or (iv) overpayments or
duplicate payments (including without limitation overpayments due to the
application of OBRA) by any Party, in which cases such indemnity obligation
begins at dollar one. The Buyer shall provide the Sellers with notice of all
Claims included in the Threshold Amount. The maximum aggregate liability of the
Sellers for all Claims and Damages of every kind and character arising under or
in connection with this Agreement and the transactions contemplated by this
Agreement, including indemnification, shall be Thirty Nine Million One Hundred
Twenty Five Thousand Dollars ($39,125,000), except, however, in the case of (i)
a willful or intentional misrepresentation or breach of warranty made in this
Agreement, (ii) the death or injury to any individual, (iii) Taxes (subject to
Section 8(a)) or (iv) any overpayment or duplicate payment from any party, in
which cases there shall be no limit to the Sellers' indemnity obligation.
Claims for indemnification in excess of the Threshold Amount shall be made only
in increments of $50,000 or more, and claims relating to similar products or
materials or constituting like Claims may be aggregated in determining such
amount.
(d) Procedure For Indemnification.
(i) The Party seeking indemnification (the "Indemnitee") shall give
prompt written notice to the Party from whom indemnification is being sought
(the "Indemnitor") of any Claim which it discovers or of which it receives
notice after the Closing and which might give rise to a Claim by it against
Indemnitor, stating the nature, basis and (to the extent known) amount thereof;
provided that failure to give prompt notice shall not jeopardize Indemnitee's
right to indemnification unless such failure shall have materially prejudiced
the ability of Indemnitor to defend such Claim.
(ii) In case of any Claim, including but not limited to a suit by a
third party or by any governmental body, Indemnitor shall be entitled to
participate therein, and, to the extent desired by Indemnitor, to assume the
defense thereof and of any related suit or proceeding, and after notice from
32
<PAGE>
Indemnitor to Indemnitee of the election so to assume the defense thereof,
Indemnitor shall not be liable to Indemnitee for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof,
other than reasonable costs of investigation, unless Indemnitor does not
actually assume the defense thereof following notice of such election. The
parties will render to each other such assistance as may reasonably be required
of each other at Indemnitor's expense in order to insure proper and adequate
defense of any such suit, Claim or proceeding. Any Indemnitee shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnitee unless (i) the Indemnitor and the
Indemnitee shall have mutually agreed to the retention of such counsel or (ii)
in the reasonable judgment of counsel to such Indemnitee representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. If Indemnitor actually assumes the defense of
Indemnitee, Indemnitee will not make any settlement of any claim which might
give rise to liability of Indemnitor under this Section 11 or otherwise without
the written consent of Indemnitor; and Indemnitor shall not agree to a
compromise or settlement of any such suit, Claim or proceeding that would
require the payment of any amounts by Indemnitee, or would affect the manner in
which Indemnitee may conduct its business, without the written consent of
Indemnitee; provided that if Indemnitor shall be able to effect a bona fide
compromise or settlement of any such suit, Claim, or proceeding not otherwise
prohibited hereby and Indemnitee shall unreasonably refuse to consent to such
compromise or settlement, then Indemnitor's liability with respect to such suit,
Claim or proceeding shall be limited to the amount so offered in compromise or
settlement, together with all legal and other expenses which may have been
incurred prior to the date on which Indemnitee unreasonably refused to consent
to such compromise or settlement. If Indemnitor shall not have assumed the
defense of Indemnitee and Indemnitee is able to effect a bona fide compromise or
settlement of such suit, Claim or proceeding, then Indemnitee shall give
Indemnitor written notice a reasonable period in advance of such settlement.
(iii) Any liability of an Indemnitee under this Section 11 shall be
paid within thirty (30) days following the date on which such amount becomes
chargeable to Indemnitor pursuant to the provisions of this Section 11, by the
Indemnitor by wire transfer of immediately available funds to such account as
shall be designated in writing by Indemnitee.
(e) Exclusivity. The Parties agree that, except for the provisions of
Section 9, the provisions of this Section 11 set forth the exclusive contractual
remedies of the Parties for misrepresentations or breach of the
33
<PAGE>
warranties in this Agreement, provided that (i) the indemnities shall not be the
exclusive remedy for breaches of any covenants contained herein, including
without limitation covenants which survive the Closing, and (b) the indemnities
shall not be the exclusive remedy for willful breach of any warranty or for
claims based on applicable law for willful misrepresentation or fraud.
12. MISCELLANEOUS.
(a) Press Releases and Public Announcements. Sellers and Buyer
acknowledge that, upon the execution of the Agreement, Sellers and Buyer or
their respective Affiliates intend to issue press releases announcing that this
Agreement has been executed and of the material terms of this Agreement. Each
Party shall provide the other Party with a copy of such press release prior to
public dissemination thereof and will provide such other Party with an
opportunity to comment on the form and content of the press release. Except as
set forth in the immediately preceding sentence, no Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the other
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement, together with the
Confidentiality Agreement and the Transition Services Agreement, constitutes the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the transactions contemplated by this
Agreement.
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations without the prior written approval of the
other Party.
34
<PAGE>
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. Any notice given under this Agreement shall be deemed
received if in writing, and if sent by hand delivery, facsimile transmission,
receipt confirmed, overnight courier which provides confirmation of delivery, or
certified mail, return receipt requested, addressed to the applicable Party as
set forth on the signature page of this Agreement, or to such other address or
to the attention of such other person as either Party may designate in writing
pursuant to this Section 12(g). Mailed notices shall be deemed received three
(3) business days following mailing.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Illinois without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Except as set forth in Paragraph 8(a) and regardless of
whether the Closing occurs, each Party will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the related transactions. Without limiting the generality of the foregoing,
the Assumed Liabilities shall exclude any
35
<PAGE>
accounting fees, attorneys fees or other accounts payable incurred by the
Sellers in connection with or related to the negotiation and execution of this
Agreement and the due diligence efforts made in connection therewith.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated by reference and made a
part of this Agreement.
(n) Bulk Transfer Laws. The Buyer acknowledges that the Seller will
not comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
* * * * *
36
<PAGE>
Authorized representatives of the Parties have executed this Asset Purchase
Agreement on the date set forth in the preamble.
CAREMARK INC. TOTAL RENAL CARE, INC.
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Address: 2215 Sanders Road Address: 21250 Hawthorne Blvd
Northbrook, IL 60062 Torrance, CA 90503
Attn: General Counsel Attn: General Counsel
Fax No.: (847) 559-4879 Fax: (310) 792-0044
CAREMARK NEPHROLOGY SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
CAREMARK PHYSICIAN SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
DIALYSIS SUPPLIES, INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
37
<PAGE>
EXHIBIT A
---------
ASSIGNMENT AND BILL OF SALE
Caremark Inc., a California corporation ("Caremark"), Caremark
Nephrology Services Inc., a Delaware corporation ("CNSI"), Caremark Physician
Services Inc., a Delaware corporation ("CPSI") and Dialysis Supplies, Inc., an
Illinois corporation ("DSI") (Caremark, CPSI, CNSI and DSI together, the
"Sellers") for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by Total Renal Care, Inc., a California corporation
("Buyer"), and pursuant to that certain Asset Purchase Agreement (the
"Agreement") dated as of March 1, 1996 among the Sellers and the Buyer, the
Sellers do hereby sell, convey, transfer, assign and deliver to Buyer, free and
clear of all claims, liens, or encumbrances, its right, title and interest in
and to the Acquired Assets (as defined in the Agreement), wherever those assets
are situated, along with any and all applicable vendor warranties acquired under
the Agreement. The Acquired Assets transferred hereunder shall include all
rights, privileges, hereditaments and appurtenances belonging, incident or
pertaining to the Acquired Assets, to have and to hold the same unto Buyer, its
successors and assigns forever.
Sellers further agree, in addition to and without the powers granted
to Buyer hereby, that upon the reasonable request of Buyer, Seller will, without
cost or expense to, but for the benefit of Buyer, (a) sign, seal, execute and
deliver to Buyer all such further deeds, bills of sale, assignments, instruments
or transfer and agreements, supplemental, confirmatory or otherwise, which Buyer
reasonably deems necessary for the purpose of more effectively vesting Buyer's
right, title and interest in the Acquired Assets in Buyer, and (b) do any and
all such other acts and things in relation to any of the foregoing as Buyer
shall reasonably deem advisable for vesting Sellers' rights, title and interest
in the Acquired Assets in Buyer.
* * * * *
A-1
<PAGE>
IN WITNESS WHEREOF, authorized representations of the parties have executed
and delivered this Assignment and Bill of Sale as of the 1st day of March, 1996.
CAREMARK INC. TOTAL RENAL CARE, INC.
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Address: 2215 Sanders Road Address: 21250 Hawthorne Blvd
Northbrook, IL 60062 Torrance, CA 90503
Attn: General Counsel Attn: General Counsel
Fax No.: (847) 559-4879 Fax: (310) 792-0044
CAREMARK NEPHROLOGY SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
CAREMARK PHYSICIAN SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
DIALYSIS SUPPLIES, INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
A-2
<PAGE>
EXHIBIT B
---------
ASSUMPTION AGREEMENT
--------------------
THIS ASSUMPTION AGREEMENT (the "Assumption Agreement") is made and
entered into as of this 1st day of March, 1996, by and between Caremark Inc., a
California corporation ("Caremark"), Caremark Physician Services Inc., a
Delaware corporation ("CPSI"), Caremark Nephrology Services Inc., a Delaware
corporation ("CNSI") and Dialysis Supplies, Inc., an Illinois corporation
("DSI") (together with its successors and assigns, collectively, the "Sellers")
and Total Renal Care, Inc., a California corporation (together with its
successors and assigns, the "Buyer"). Capitalized terms used herein, unless
otherwise defined, shall have the meanings set forth in the Asset Purchase
Agreement, dated as of the date hereof, between the Sellers and the Buyer (the
"Asset Purchase Agreement").
WHEREAS, the Sellers have agreed to sell and the Buyer has agreed to
purchase the Acquired Assets upon the terms and subject to the conditions set
forth in the Asset Purchase Agreement; and
WHEREAS, under the terms of the Asset Agreement, the Buyer agreed to
assume the Assumed Liabilities from the Effective Date forward;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are hereby incorporated into this
Assumption Agreement as if fully written in this Assumption Agreement.
2. The Buyer does hereby assume and agree to pay, perform and
discharge when due and as due all of the Assumed Liabilities.
3. The assumption by Buyer of any Assumed Liabilities shall not
enlarge the rights of any third party under any contract or agreement with
respect to any Assumed Liabilities, nor shall it prevent Buyer, with respect to
any party other than the Sellers, from contesting or disputing any Assumed
Liability or the terms or provisions of any contract.
B-1
<PAGE>
4. This Assumption Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
5. After the Closing, the Sellers will from time to time, at Buyer's
request and without further cost to the Sellers, execute and deliver to Buyer
such other instruments and take such other action as Buyer may reasonably
request so as to enable Buyer to exercise and enforce its rights under and fully
enjoy the benefits and privileges with respect to this Assumption Agreement and
to carry out the provisions and purposes hereof.
6. This Assumption Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to agreements made
and to be performed in Illinois without giving effect to conflicts of law
principles.
7. This Assumption Agreement may be signed in any number of
counterparts and all such counterparts shall be read together and construed as
one and the same document.
* * * * *
B-2
<PAGE>
Authorized representatives of the Parties have executed this Assumption
Agreement on the date set forth in the preamble.
CAREMARK INC. TOTAL RENAL CARE, INC.
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Address: 2215 Sanders Road Address: 21250 Hawthorne Blvd
Northbrook, IL 60062 Torrance, CA 90503
Attn: General Counsel Attn: General Counsel
Fax No.: (847) 559-4879 Fax: (310) 792-0044
CAREMARK NEPHROLOGY SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
CAREMARK PHYSICIAN SERVICES INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
DIALYSIS SUPPLIES, INC.
By:
-----------------------------
Title:
--------------------------
Address: 2215 Sanders Road
Northbrook, IL 60062
Attn: General Counsel
Fax No.: (847) 559-4879
B-3
<PAGE>
EXHIBIT C
---------
DATABASE SUPPORT AND LICENSE AGREEMENT
C-1
<PAGE>
EXHIBIT D
---------
FINANCIAL STATEMENTS
D-1
<PAGE>
EXHIBIT E
---------
FORM OF OPINION OF COUNSEL TO THE SELLER
1. Each of the Sellers is a corporation duly incorporated, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Sellers has all requisite corporate power and authority to own,
operate and lease its property and carry on its business as now being conducted.
Each of the Sellers is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction listed on Annex A to this opinion.
Each Seller is in compliance with the material provisions of its certificate or
articles of incorporation and bylaws.
2. Each of the Agreement and the other instruments and agreements to which any
Seller is a party and to be delivered under the Agreement to the Buyer by such
Seller has been duly executed and delivered by such Seller, has been authorized
by all necessary corporate action of such Seller, and, except for the non-
competition provisions of Section 8(e) and the non-solicitation provisions of
Section 8(e) of the Agreement, about which I express no opinion, constitutes a
legally valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time which affect creditors' right generally, and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity) or (ii) applicable anti-trust
laws.
3. Assuming compliance with applicable requirements of the HSR Act, any other
state and federal anti-trust laws, the Securities Laws and any federal, state or
local laws and regulations governing the transfer of pharmacy licenses, Medicare
and Medicaid provider numbers and other licenses and permits, the execution,
delivery or performance of the Agreement and the other instruments and
agreements to be delivered under the Agreement to the Buyer will not (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government, governmental
agency, or court to which any Seller is subject or any provision of the charter
or bylaws of any Seller, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any Person
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, mortgage, indenture, instrument,
insurance policy or other arrangement known to me to which any Seller is a party
or by which it is bound, except for such leases, contracts and agreements the
consents to
E-1
<PAGE>
assignment of which the Sellers and the Buyer have agreed will be solicited
after the closing.
4. Paragraph 4(m) of the Seller Disclosure Schedule to the Agreement sets forth
each instance in which any Seller (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge related to the Nephrology Business or
(ii) is a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court, arbitrator or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction related to the Nephrology
Business. There is no other litigation or claim pending or, to my knowledge,
threatened against any Seller.
E-2
<PAGE>
EXHIBIT F
---------
FORM OF OPINION OF COUNSEL TO THE BUYER
1. The Buyer is a corporation duly incorporated, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. The Buyer has
all requisite corporate power and authority to own, operate and lease its
property and carry on its business as now being conducted. The Buyer is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction listed on Annex A to this opinion. The Buyer is in compliance
with the material provisions of its certificate of incorporation and bylaws.
2. Each of the Agreement and the other instruments and agreements to which the
Buyer is a party and to be delivered under the Agreement to the Seller by the
Buyer has been duly executed and delivered by the Buyer, has been authorized by
all necessary corporate action of the Buyer, and constitutes a legally valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from time to
time which affect creditors' right generally, and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding at law or in equity) or (ii) applicable anti-trust laws.
3. Assuming compliance with applicable requirements of the HSR Act, any other
state and federal anti-trust laws, the Securities Laws and any federal, state or
local laws and regulations governing the transfer of pharmacy licenses, Medicare
and Medicaid provider numbers and other licenses and permits, the execution,
delivery or performance of the Agreement and the other instruments and
agreements to be delivered under the Agreement to the Seller will not (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
the charter or bylaws of the Buyer, or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
Person the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, mortgage, indenture,
instrument, insurance policy or other arrangement known to us to which the Buyer
is a party or by which it is bound.
F-1
<PAGE>
4. There are no actions, suits, proceedings or investigations pending, or to my
knowledge, threatened, which question the validity of this Agreement or of any
actions taken or to be taken in connection with the Agreement or the
consummation of the transactions contemplated thereby.
F-2
<PAGE>
SCHEDULE 2(A)
-------------
EXCLUDED ASSETS
1. Corporate minute books and related corporate records of each Seller.
2. Sellers' Permits, to the extent such Permits are not transferable.
3. CNSI's 50% general partnership interest in Golden State Nephrology
Management Services LP, a California limited partnership commonly referred
to as "MSO II".
4. Caremark's 50% general partnership interest in Chabot Management Services
LP, a California limited partnership commonly referred to as "MSO I".
5. Data Collection Services Agreement dated August 30, 1994 between Amgen Inc.
and RKDP (Caremark Inc.).
6. HCFA Database and related assets and any tax benefit resulting from the
contribution of such assets to MMRF. These assets are listed on the
attached 8 pages.
7. Any claims the Sellers may have against any previous owner of any of the
Excluded Assets.
8. Any fixed assets located at the Northbrook, Illinois headquarters.
9. Any prepaid management fee paid to Golden State Management Services LP, a
California limited partnership for any period following the Closing Date.
SDS-1
<PAGE>
SCHEDULE 2(B)
-------------
EXCLUDED LIABILITIES
1. Chabot Purchase Price Promissory Notes
a. Promissory Note dated May 31, 1994 and issued by Caremark to Chabot
Dialysis Clinic, Inc.
b. Promissory Note dated May 31, 1994 and issued by Caremark to San
Leandro Dialysis Clinic, Inc.
c. Promissory Note dated May 31, 1994 and issued by Caremark to East Bay
Peritoneal Dialysis, Inc.
2. Severance payments to Nephrology Business employees who do not become
Transferred Employees.
3. Any and all liabilities or obligations of the Sellers relating to,
resulting from or arising out of claims made in pending, threatened or
other suits, actions, investigations, or other legal, governmental or
administrative proceedings, including without limitation the litigation
described on Paragraph 4(m), whether known or unknown as of the Effective
Date, arising out of or relating to events which shall have occurred, or
services performed, or the operation of the Nephrology Business prior to
the Closing.
4. Except for trade liabilities incurred in the Ordinary Course of Business,
any inter-company payables between and among the Sellers and any of their
respective Affiliates.
5. Subject to Section 8(a), any and all liabilities for any Taxes payable by
any Seller as a result of consummation of this transaction or otherwise.
6. Any payments in connection with the settlement agreement described in
Paragraph 4(g)(1) and any and all expenses associated with any
investigation or inspection by any regulatory body with regard to the
period prior to the Effective Date.
7. Liabilities as the tenant with respect to the termination of the Dublin
lease and the rent and termination of the Union City lease described in
paragraph 4(j)(1).
SDS-2
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(A)
STATES OF QUALIFICATION AND FOREIGN GOOD STANDING
Caremark Inc.
Incorporation: California
Foreign Qualification and Good Standing: All 50 states
Caremark Physician Services Inc.
Incorporation: Delaware
Foreign Qualification and Good Standing: California
Florida
Georgia
Illinois
Oklahoma
Texas
Caremark Nephrology Services Inc.
Incorporation: Delaware
Foreign Qualification and Good Standing: California
Illinois
Minnesota
Texas
Dialysis Supplies, Inc.
Incorporation: Illinois
Foreign Qualification and Good Standing: California
SDS-3
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(G)
EVENTS SUBSEQUENT TO MOST RECENT FINANCIAL STATEMENT
1. Caremark entered into a Settlement Agreement with the U.S. Department of
Health and Human Services on January 31, 1996 which resolved certain civil
claims the government had relating to claims submitted by Caremark to the
Medicare program for dialysis treatments and related services provided on
certain Indian reservations.
2. Transactions related to the transactions described in this Agreement:
The Sellers have terminated their agreements with HFA and ANC and
taken other acts as contemplated in this Agreement. The terminated
agreements include:
a. Divisional Director and Management Services Agreement with HFA;
b. Medical Director Agreements with HFA, CNMG, ANC and individual doctors
in such practices;
c. Policy Group Agreement with HFA; and
d. Pharmacy, Laboratory and Research Agreement with MMRF.
3. Caremark (RKDP) and Hennepin County, Minnesota amended and restated their
agreement effective January 1, 1996. That restated agreement contemplates
the discontinuance of certain transplant-related services and activities
provided or performed by RKDP at the Hennepin County Medical Center, the
assumption of such RKDP's discontinued services and activities by Hennepin
Faculty Associates and the sale of the related assets from Caremark (RKDP)
to Hennepin Faculty Associates.
SDS-4
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(H)
LEGAL COMPLIANCE
See Paragraph 4(g)(1)
SDS-5
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(J)
REAL PROPERTY
1. The terms of the leases in Union City, California and Dublin, California
have expired, Caremark is holding over in each premises and the leases are
on a month-to-month basis.
2. See list of Leases attached.
SDS-6
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(K)
INTELLECTUAL PROPERTY
Intellectual Property used in the Nephrology Business owned by Sellers:
1. Service Marks:
a. "Dialyrn" and registrations relating thereto (PTO Registration
1,202,650). In connection with the acquisition of RKDP, Caremark
acquired the rights of Minneapolis Medical Research Foundation to
the "Dialyrn" mark (USPTO Reg. No. 1,202,650). The assignment of
this mark from MMRF to Caremark is being filed with the US PTO.
2. Copyrights:
a. Dialyrn markets various educational materials for patients and
others which are copyrighted.
3. Computer software:
a. Modular Renal Information System (MORIS)
Sellers Licenses:
1. Computer software at RKDP:
a. VAX 6520 (Billing/AR, Clinical...):
i. InterSystems M/SQL, 96 user license
ii. BMPD license (license has expired)
iii. FORTRAN compiler
iv. DECNET full function license
v. MNET, 96 user license
vi. RAID 0 license
vii. Open VMS, 96 use license
b. DEC Alpha 2100 (Lab System):
i. InterSystems M/SQL, 48 user license
ii. Open VMS, 64 user license
iii. NAS 200 license
iv. MNET, 64 user license
v. MultiData Lab System license
vi. Disk Shadowing license
SDS-7
<PAGE>
c. Novell Network Server (Finance):
i. Novell Netware, 25 user license
ii. CCH Health Library license
2. Computer Software at Chabot:
a. Renlstar user license
b. Dystar user license
3. Other: Sellers use various personal computer software and computer
based products throughout the Nephrology Business. These products will
be transferred to Buyer with the Business, and no consents will be
obtained.
4. Assumed Names:
CPSI filed the assumed names "DBC Services" and "Dialysis By Contract"
in Alameda County, California on 2/8/95 and the assumed name "Dialysis
By Contract" in Contra Costa County, California on 2/9/95.
Caremark filed the assumed names "RKDP" and "Regional Kidney Disease
Program" in the states of Minnesota, Wisconsin, North Dakota and South
Dakota in December 1993. Caremark also filed the following assumed
names in Alameda County, California on 9/26/94: "Chabot Dialysis
Clinic, Union City"; "Chabot Dialysis Clinic, San Leandro"; "Chabot
Dialysis Clinic"; Hayward; "Chabot Dialysis Clinic, Dublin"; and "East
Bay Peritoneal Dialysis".
5. Pending Applications: None.
SDS-8
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(L)
CONTRACTS
1. See Paragraph 4(j)
2. See list of contracts attached
3. See Paragraph 4(k) 3 (computer licenses)
SDS-9
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(M)
LITIGATION
1. William D. Waseem and Damen W. Cuff on behalf of Louise H. Jones, Deceased,
vs. Caremark International, Dr. Clyde E. Markon, Margaret P. Benda, et. al.
Civil Action No. 4-96CV52, United States District Court, District of
Minnesota.
2. See Paragraph 4(n)(i).
3. The U.S. Department of Labor is conducting a routine service provider audit
at Caremark's prescription service business (not part of the Nephrology
Business). As part of that audit, the U.S. Department of Labor requested
information relating to cost reports and their reflection of expenses
incurred by the Nephrology Business in connection with the separate ERISA
plans maintained for Chabot and RKDP employees.
SDS-10
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(N)(I)
LABOR AND ERISA MATTERS
1. Rhoda M. Jacobs v. Caremark Inc., Colorado EEOC, EROC Charge No. 320951109
(national origin discrimination). Position statements sent to EEOC on
November 9, 1995; investigation continues.
2. Irma Stone v. Caremark Inc., a/k/a Regional Kidney Disease Program and
Michael Sullivan, State of Minnesota, District Court, County of Ramsey, 2d
Judicial District, Case No. C-95-10587 (Reprisal and age discrimination)
Written discovery served and answered by both parties. Scheduling order
entered (see below). Depositions to be scheduled.
<TABLE>
<CAPTION>
<S> <C> <C>
a. 3/1/96 Deadline for joining additional parties, whether by
amendment or third party practice.
b. 7/1/96 Deadline for bringing non-dispositive motions.
c. 9/1/96 Deadline for bringing dispositive motions.
d. 8/1/96 Deadline for completing physical examination pursuant to
Minn. R. Civ. p. 35.
e. 10/30/96 Date for pretrial conference pursuant to Minn. R. Civ. p. 16.
f. Per court Date for submission of a Joint Statement of the
order- Case pursuant to Minn. Gen. R. Prac. 112.
g. 11/30/96 Trial Date.
h. 11/15/96 Deadline for filing (proposed instructions), (verdicts),
(findings of fact), (witness list), (exhibit list).
I. 7/1/96 Deadline for completion of discovery.
</TABLE>
SDS-11
<PAGE>
3. Debra Baron and Gail Stone v. Regional Kidney Disease Program (Caremark)/
Discrimination Complaint #719/95 filed with Minnesota Department of Labor
and Industry:
Baron and Stone filed this complaint with the Occupational Safety and
Health Division of Minnesota's Department of Labor and Industry on March 9,
1995. The complaint alleged that RKDP fired them because it believed that
they had notified Minnesota's Occupational Safety and Health Administration
about safety and health violations in the pharmacy. RKDP submitted its
position statement and supporting documentation on August 14, 1995. On
December 12, 1995, a determination of "insufficient evidence" was entered,
and the complaint was dismissed. Baron and Stone were given fifteen days to
appeal that dismissal. On March 5, 1995 Baron and Stone filed a lawsuit
captioned Debra Baron and Gail Stone vs. Caremark Inc., Caremark
International Inc. d/b/a Regional Kidney Disease Program and HFA
Foundation, Case No. EM96-003528 in the District Court, Fourth Judicial
District, County of Hennepin, relating to these matters.
4. Debra Baron v. Regional Kidney Disease Program / Case Number ER 19951208
filed with the Minnesota Department of Human Rights:
On August 17, 1995, Baron, a former RKDP pharmacy technician, filed this
charge alleging that RKDP failed to accommodate her chronic neck and back
problems and ultimately discharged her based on that disability. On
September 11, 1995, RKDP submitted a position statement and supporting
documents maintaining: (1) that it reasonably accommodated Baron's alleged
physical problems; (2) that medical experts had not found any physical
reason for Baron to experience pain while performing certain job duties;
and (3) that it discharged Baron because she persistently refused to
perform all of the functions of her job. To date, RKDP has not received any
further requests or information from the investigator assigned to this
charge. Therefore, it is presumably still being investigated.
5. Cynthia Glynn vs. Regional Kidney Disease Program. MDCR No. 96015-EM-7
filed with the Minneapolis Department of Civil Rights. RKDP was notified by
letter dated March 1, 1996 that Glynn filed a complaint based on alleged
sexual discrimination.
SDS-12
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(N)(II)
EMPLOYEE BENEFIT PLANS
Caremark International Inc. 401 CARE Retirement Savings Plan for the Employees
of RKDP
Chabot Dialysis 401 (k) Profit Sharing Plan
CHABOT
Accidental Death and Dismemberment Insurance
Short Term Disability Insurance
Long Term Disability Income Plan (UNUM)
Long Term Disability Insurance (Principal Mutual)
Life Insurance
Group Dental Insurance
Chabot Dialysis Clinic Pre-tax Premium Option Plan
Workers' Compensation (Republic Indemnity Company of America)
Group Insurance Plan (Health Insurance Plan of California)
Employee Handbook
RKDP
Delta Dental Plan of Minnesota
Blue Cross Blue Shield and Blue Plus of Minnesota
Pre-tax Premium Plan
Group Long Term Disability
Life Insurance
Accidental Death and Dismemberment
Dependent Life Insurance
Caremark International Inc. Qualified Employee Stock Purchase Plan (CareShares)
SDS-13
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(P)
LICENSES AND PERMITS
<TABLE>
<CAPTION>
LOCATION PERMIT NUMBERS
- -------- --------------
Twin Cities Dialysis Units
- --------------------------
<S> <C> <C>
1. Acute Dialysis Unit Provider No. 24-2503
Hennepin Cty. Medical Specialty Center CLIA No. 24D0651342
914 South Eighth St., B6
Minneapolis, MN 55404
2. Anoka-Good Samaritan Dialysis Unit Provider No. 24-2525
1050 Jefferson Street CLIA No.
Anoka, MN 55303
3. Arden Hills Dialysis Unit Provider No. 24-2518
3900 Northwood Hills Dr. CLIA No. 24D0691339
Arden Hills, MN 55112
4. Burnsville Dialysis Unit Provider No. 24-2515
303 E. Nicollet Blvd. CLIA No. 24D0691351
Burnsville, MN 55337
5. Coon Rapids Dialysis Unit Provider No. 24-2514
3960 Coon Rapids Blvd. CLIA No. 24D0691356
Coon Rapids, MN 55433
6. Edina Dialysis Unit Provider No. 24-2501
6550 York Avenue South CLIA No. 24D0691364
Suite 100
Edina, MN 55435
7. Maplewood Dialysis Unit Provider No. 24-2512
2785 Whitebear Avenue CLIA No.
Maplewood, MN 55109
8. Minneapolis Dialysis Unit Provider No. 24-2503
825 S. Eighth Street CLIA No. 24D0691406
Minneapolis, MN 55404
</TABLE>
SDS-14
<PAGE>
<TABLE>
<CAPTION>
Twin Cities Dialysis Units - Continued Permit Numbers
- -------------------------------------- --------------
<S> <C> <C>
9. Minnetonka Dialysis Unit Provider No. 24-2526
17809 Hutchins Dr. CLIA No.
Minnetonka, MN 55345
10. St. Paul Dialysis Unit Provider No. 24-2513
555 Park Street CLIA No. 24D0691417
St. Paul, MN 55103
11. Special Needs Dialysis Unit Provider No. 24-2503
914 S. Eighth Street, D4 CLIA No.
Minneapolis, MN 55404 Hennepin County
Hazardous Waste
Generator License No.
4363-05334106
US EPA Regulated Waste
Permit No.
MN0000994996
US Nuclear Regulatory
Commission
Registration No. 2067
12. West St. Paul Dialysis Unit Provider No. 24-2505
1555 Livingston Ave. CLIA No. 24D0691425
West St. Paul, MN 55118
Midwest Dialysis Units
- ----------------------
13. Alexandria Dialysis Unit Provider No. 24-2517
Douglas County Hospital CLIA No. 24D0399364
111 17th Ave. East
Alexandria, MN 56308
*14. Cass Lake Dialysis Unit Provider No. Pending
Indian Health Service Hospital CLIA No.
P.O Box 60
Cass Lake, MN 56633
</TABLE>
*-reservation locations
SDS-15
<PAGE>
<TABLE>
<CAPTION>
Midwest Dialysis Units - Continued Permit Numbers
- ---------------------------------- --------------
<S> <C> <C>
15. Fairmont Dialysis Unit Provider No. 24-2519
Fairmont Community Hospital CLIA No. 24D06983087
835 Johnson Street
Fairmont, MN 56031
16. Faribault Dialysis Unit Provider No. 24-2508
Rice County District One Hospital CLIA No.
631 S.E. First Street
Faribault, MN 55021
17. Home Dialysis/CAPD Unit Provider No. 24-2503
914 S. Eighth Street, D461 CLIA No.
Minneapolis, MN 55404
18. Marshall Dialysis Unit Provider No. 24-2502
Weiner Memorial Medical Center CLIA No. 24D0683098
300 S. Bruce Street
Marshall, MN 56258
19. Mitchell Dialysis Unit Provider No. 43-2505
Queen of Peace Hospital CLIA No.
5th and Foster
Mitchell, SD 57301
20. Montevideo Dialysis Unit Provider No. 24-2511
Chippewa County Montevideo Hospital CLIA No.
824 North 11th Street
Montevideo, MN 56265
21. Morris Dialysis Unit Provider No. 24-2504
Stevens County Hospital CLIA No. 24D0683090
400 East First Street
Morris, MN 56267
22. Pine City Dialysis Unit Provider No. 24-2516
Lakeside Medical Center CLIA No.
129 East 6th Street
Pine City, MN 55063
</TABLE>
*-reservation locations
SDS-16
<PAGE>
<TABLE>
<CAPTION>
Midwest Dialysis Units - Continued Permit Numbers
- ---------------------------------- --------------
<S> <C> <C>
*23. Pine Ridge Dialysis Unit Provider No. Pending
Pine Ridge Hospital CLIA No.
Pine Ridge, SD 57770
*24. Red Lake Dialysis Unit Provider No. Pending
PHS Hospital CLIA No.
Red Lake, MN 56671
25. Red Wing Dialysis Unit Provider No. 24-2520
St. John's Regional Health Center CLIA No. 24D0683091
1407 W. Fourth Street
Red Wing, MN 55066
26. Redwood Falls Dialysis Unit Provider No. 24-2522
Redwood Falls Community Hospital CLIA No.
Redwood Falls, MN 56283
*27. Rosebud Dialysis Unit Provider No. 43-2504
P.O Box 950 CLIA No.
Rosebud, SD 57570
28. St. Croix Falls Dialysis Unit Provider No. 52-2519
St. Croix Valley Memorial Hospital CLIA No. 24D0683092
P.O Box 668
St. Croix Falls, WI 54204
29. Sioux Falls Dialysis Unit Provider No. 43-2503
McKennon Hospital CLIA No.
800 East 21st Street
Sioux Falls, SD 57105
Satellite Dialysis Units
- ------------------------
1. Albert Lea Dialysis Unit Provider No.
Naeve Hospital CLIA No.
P.O. Box 1001
Albert Lea, MN 56007
</TABLE>
*-reservation locations
SDS-17
<PAGE>
<TABLE>
<CAPTION>
Satellite Units - Continued Permit Numbers
- --------------------------- --------------
<S> <C> <C>
2. Willmar Dialysis Unit Provider No.
Rice Memorial Hospital CLIA No.
301 Becker Avenue S.W.
Willmar, MN 56201
Chabot Facility Location
- ------------------------
1. Chabot Dialysis Clinic, Inc. Provider No. 05-2568
11883 Dublin Blvd. CLIA No. 05D0600414
Suite B100
Dublin, CA 94568
2. Chabot Dialysis Clinic, Inc. Provider No. 05-2571
#10 Union Square Blvd. CLIA No. 05D0663946
Union City, CA 94587
3. Chabot Dialysis Clinic, Inc. Provider No. 05-2685
22477 Maple Court CLIA No. 05D0598954
Hayward, CA
4. San Leandro Dialysis Clinic, Inc. Provider No. 05-2742
198 E. 14th Street CLIA No. 05D0881139
San Leandro, CA
5. East Bay Peritoneal Dialysis Clinic, Inc. Provider No. 05-2675
22551 Second Street Plaza CLIA No. 05D0862596
Suite 200
Hayward, CA
</TABLE>
LICENSES
<TABLE>
<CAPTION>
East Bay Clinic San Leandro Clinic
- --------------- ------------------
<S> <C>
State of California Facility License City of San Leandro License
City of Hayward License Business License
Medi-Cal Provider Medi-Cal Provider
HCFA HCFA
Workers Comp State of California Facility
CLIA License
UNUM (Disability) Workers Comp
CLIA
UNUM (Disability)
County of Alameda Hazardous
Waste Generator Permit
</TABLE>
SDS-18
<PAGE>
Chabot Licenses
- ---------------
State of California Facility License Exp. 10/15/94
Alameda County License
City of Hayward License
Medi-Cal Provider
HFCA
Workers Comp
CLIA
UNUM (Disability)
County of Alameda Hazardous Waste Generator Permit
Dialysis Supplies, Inc. Method II Supplier No. 0809210001
SDS-19
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(R)
INSURANCE CLAIMS
See copy of claims history attached.
SDS-20
<PAGE>
SELLER DISCLOSURE SCHEDULE
--------------------------
PARAGRAPH 4(U)
CERTAIN CHANGES
1. UCC financing statements filed in connection with Caremark International
Inc. bank facility which are being amended in connection with the
transaction described in the Agreement to exclude any Acquired Assets from
their collateral descriptions.
2. Severance payments to be paid by Sellers in connection with this
transaction.
SDS-21
<PAGE>
BUYER DISCLOSURE SCHEDULE
-------------------------
PARAGRAPH 5(A)
STATES OF QUALIFICATIONS AND FOREIGN GOOD STANDING
BDS-1
<PAGE>
FINAL EXECUTION COPY
AMENDMENT NO. 1
AND CONSENT
DATED AS OF MARCH 18, 1996
TO
SHORT TERM CREDIT AGREEMENT
LONG TERM CREDIT AGREEMENT
AND
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
EACH DATED AS OF SEPTEMBER 29, 1995
THIS AMENDMENT NO. 1 AND CONSENT TO SHORT TERM CREDIT AGREEMENT, LONG
TERM CREDIT AGREEMENT AND LETTER OF CREDIT REIMBURSEMENT AGREEMENT EACH DATED AS
OF SEPTEMBER 29, 1995 ("AMENDMENT") is made as of this 18th day of March, 1996
("STATED DATE") by and among CAREMARK INTERNATIONAL INC., a Delaware corporation
(the "BORROWER"), the financial institutions listed on the signature pages
hereof (the "Lenders") and THE FIRST NATIONAL BANK OF CHICAGO, in its individual
capacity as a Lender and in its capacity as contractual representative for the
Lenders ("Agent") under (i) that certain Short Term Credit Agreement dated as of
September 29, 1995 by and among the Borrower, the Lenders and the Agent, as
modified by that certain Collateral Trust Agreement dated as of December 8, 1995
(as supplemented by the Addendum dated as of February 23, 1996, as modified by
Consent No. 1 thereto dated as of March 12, 1996 and as further amended or
modified from time to time, the "COLLATERAL TRUST AGREEMENT") among the
Borrower, the Subsidiaries of the Borrower which are grantors thereunder, and
The First National Bank of Chicago, as collateral trustee, acknowledged and
agreed to by each of the Lenders, and as modified by that certain letter
agreement dated as of February 20, 1996 (the "LETTER AGREEMENT") issued by the
Agent and the Borrower and agreed to by the Required Lenders (as so modified,
the "SHORT TERM CREDIT AGREEMENT"); (ii) that certain Long Term Credit Agreement
dated as of September 29, 1995 by and among the Borrower, the Lenders and the
Agent, as modified by the Collateral Trust Agreement and the Letter Agreement
(as so modified, the "LONG TERM CREDIT AGREEMENT"), and (iii) that certain
Letter of Credit Reimbursement Agreement dated as of September 29, l995 by and
between the Borrower and The First National Bank of Chicago, as modified by the
Collateral Trust Agreement and the Letter Agreement (as so modified, the "LETTER
OF CREDIT AGREEMENT"; together with the Short Term Credit Agreement and the Long
Term Credit Agreement, the "CREDIT AGREEMENTS"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings attributed to them in
the Credit Agreements.
<PAGE>
WITNESSETH
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Short Term Credit Agreement and the Long Term Credit Agreement;
WHEREAS, the Borrower and The First National Bank of Chicago are
parties to the Letter of Credit Agreement;
WHEREAS, the Borrower has advised the Agent and the Lenders that the
Borrower and/or Caremark intends to enter into a joint settlement agreement (as
such agreement is in effect as of the Effective Date without taking into account
any amendments or modifications thereto, "JOINT SETTLEMENT AGREEMENT"), the
terms of which are as more particularly described in the disclosure letter dated
of even date herewith delivered by the Borrower to the Agent and the Lenders
("DISCLOSURE LETTER"), with a group of claimants consisting of certain insurance
companies as more particularly identified as the "Insurance Company Claimants"
in the Disclosure Letter (collectively, the "INSURANCE COMPANY CLAIMANTS") in
connection with certain disputes between the Insurance Company Claimants and the
Borrower and its Subsidiaries;
WHEREAS, the Borrower has advised the Agent and the Lenders that the
Borrower and/or Caremark intends to enter into an additional settlement
agreement (as such agreement is in effect as of the Effective Date without
taking into account any amendments or modifications thereto, "SPECIFIED
SETTLEMENT AGREEMENT"; together with the Joint Settlement Agreement and all
other documents, instruments and agreements executed in connection therewith,
the "INSURER SETTLEMENT AGREEMENTS"), the terms of which shall be as more
particularly described in the Disclosure Letter below, with the claimant
identified as the "Specified Claimant" in the Disclosure Letter (the "SPECIFIED
CLAIMANT") in connection with certain disputes between the Specified Claimant
and the Borrower and its Subsidiaries;
WHEREAS, the implementation of the Insurer Settlement Agreements
results in the violation by the Borrower and/or its Subsidiaries of certain
provisions of the Credit Agreements as a result of which the Borrower would be
in Default under those Credit Agreements;
WHEREAS, the Borrower has requested that the Agent and the Lenders
agree to certain modifications of the Credit Agreements necessary as a result of
such settlements and anticipated settlements in order to avoid such Defaults;
and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to amend
the Credit Agreements in connection with the Insurer Settlement Agreements on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above,
the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower, the Lenders and the Agent have agreed as set forth below.
-2-
<PAGE>
1. AMENDMENTS TO CREDIT AGREEMENTS DURING THE AMENDMENT PERIOD.
Effective as of the Effective Date and, except as provided below, through
September 15, 1996 (at which time each of the provisions of the Credit
Agreements which are modified in this Section 1 for the Amendment Period shall
be reinstated as though this Amendment was never put into effect (other than the
amendments contained in clause k below which amend Section 6.26 of the Long Term
and Short Term Agreements, which amendments shall remain in full force and
effect thereafter)) and subject to the satisfaction of the conditions precedent
set forth in Section 4 below, the Credit Agreements are hereby amended as
follows:
a. TO DELETE THE DEFINITIONS FOR THE DEFINED TERMS BELOW FROM THE CREDIT
AGREEMENTS IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
"Collateral" has the meaning given to that term in the
Collateral Trust Agreement.
"EBIT" means, for any period of calculation, the sum of (i) net
income plus (ii) the aggregate amounts deducted in determining net
income in respect of Interest Expense and provision for income taxes,
in each case calculated for such period for the Borrower and its
Subsidiaries on a consolidated basis; provided, (1) there shall be
excluded from the calculation of EBIT the after-tax amount of any OIG
Settlement Costs paid on or after June 13, 1995 (not to exceed the
amount set forth in the definition of OIG Settlement Costs); (2) there
shall be excluded from the calculation of EBIT the after-tax amount of
any Insurer Settlement Costs paid or incurred on or after March 18,
1996 (not to exceed the amount set forth in the definition of Insurer
Settlement Costs); (3) there shall be excluded from the calculation of
EBIT the effect of any gains or losses with respect to either or both
of (a) the S25,000,000 Coram Healthcare Corporation 12% Non-
Convertible Subordinated Note due October 1, 2005 issued on April 1,
1995 to the Borrower or (b) the $75,000,000 Coram Healthcare
Corporation 7% Convertible Subordinated Note due October 1, 2005
issued on April 1, 1995 to the Borrower; and (4) for any period after
the four fiscal quarters ending September 30, 1995, there shall be
excluded from the calculation of EBIT, interest income.
"Funded Debt" of any Person means, at any date of determination
thereof, such Person's (i) obligations for borrowed money, (ii)
obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from property now or hereafter
owned or acquired by such Person, (iii) obligations which are
evidenced by notes, acceptances, or other instruments and (iv))
Capitalized Lease Obligations; provided, however, for the period from
September 30, 1995 through December 30, 1995 there shall be excluded
from such calculation obligations under that certain $40,000,000
Promissory Note issued by Caremark on June 15, 1995 to the Treasurer
of the United States. Without in any way limiting the foregoing, the
aggregate amount of all unpaid obligations of the Borrower and its
Subsidiaries under the Insurer Settlement Agreements minus amounts on
deposit in the restricted account or escrow account established
pursuant to Section 6.28 shall be included in the calculation of
Funded Debt.
"Indebtedness" of a Person means, without duplication, such
Person's (i) obligations for borrowed money, (ii) obligations
representing the deferred purchase price
-3-
<PAGE>
of Property or services (other than accounts payable arising in the
ordinary course of such Person's business payable on terms customary
in the trade), (iii) obligations, whether or not assumed, secured by
Liens or payable out of the proceeds or production from property now
or hereafter owned or acquired by such Person, (iv) obligations which
are evidenced by notes, acceptances, or other instruments, (v)
Capitalized Lease Obligations, (vi) Off Balance Sheet Liabilities,
and (vii) Contingent Obligations. Indebtedness of any Person includes
obligations of such Person, whether direct or contingent, with respect
to any of the foregoing for which such Person is liable as a result of
such Person being a general partner in a partnership which has
incurred any Indebtedness. Without in any way limiting the foregoing,
the aggregate amount of all unpaid obligations of the Borrower and
its Subsidiaries under the Insurer Settlement Agreements minus amounts
on deposit in the restricted account or escrow account established
pursuant to Section 6.28 shall be included in the calculation of
Indebtedness.
b. TO ADD THE FOLLOWING DEFINITIONS THERETO:
"Additional Settlement Agreements" means any settlement
agreements in addition to the Insurer Settlement Agreements that
result from any claims of other claimants with respect to matters of a
nature similar to those raised by the Insurance Company Claimants or
the Specified Claimant in connection with the Insurer Settlement
Agreements.
"Amendment No. 1" means Amendment No. 1 to Short Term Credit
Agreement, Long Term Agreement and Letter of Credit Reimbursement
Agreement each dated as of September 29, 1995 entered into as of March
18, 1996.
"Amendment Period" means the period from the Effective Date of
Amendment No. 1 through September 15, 1996.
"Asset Sale" means the sale, lease, conveyance or other
disposition by the Borrower or any of its Subsidiaries of assets or
property, whether now owned or hereafter acquired, in a single
transaction or in a series of related transactions, that are outside
of the ordinary course of business of the Borrower or such Subsidiary.
Notwithstanding anything herein to the contrary, Asset Sale shall not
include:
(i) the sale of the Borrower's and its Subsidiaries' nephrology
businesses as permitted pursuant to Consent No. 1 to the Collateral
Trust Agreement;
(ii) the sale or lease of equipment, inventory, or other assets
(not including accounts receivable) in the ordinary course of
business; or
(iii) a transfer of assets permitted by Section 6.22.
-4-
<PAGE>
"Collateral Trust Agreement" has the meaning given that term in
the preamble to Amendment No. 1.
"Equity Collateral" has the meaning given that term in Section
6.26.
"Equity Offering" means the sale by and on behalf of the Borrower
in a public or private offering of any class of its equity securities,
in a single transaction or in a series of related transactions.
"Indenture" has the meaning given to that term in Section 6.25.
"Insurance Company Claimants" has the meaning given that term in
the preamble to Amendment No. 1.
"Insurer Settlement Agreements" has the meaning given that term
in the preamble to Amendment No. 1.
"Insurer Settlement Costs" means the sum of (i) all amounts
agreed to be paid by the Borrower or any of its Subsidiaries pursuant
to the Insurer Settlement Agreements and (ii) all fees, costs and
expenses paid or payable by the Borrower or any of its Subsidiaries to
any Person in connection with the Insurer Settlement Agreements or the
claims or disputes from which such Insurer Settlement Agreements
arose; provided, however, that for the purposes of this Agreement the
aggregate after-tax amount of all such amounts, fees, costs and
expenses under clauses (i) and (ii) shall not exceed the "Original
After Tax Cost Amount" as set forth in the Disclosure Letter;
provided, if all of such amounts have not been paid in cash on or
before September 30, 1996, then such Original After Tax Cost Amount
may be increased by an additional amount not to exceed the "Additional
After Tax Cost Amount" as set forth in the Disclosure Letter.
"Joint Settlement Agreement" has the meaning given that term in
the preamble to Amendment No. 1.
"Net Cash Proceeds" means, with respect to any Asset Sale or
Equity Offering of any Person, cash or cash equivalents received by
such Person or any Subsidiary of such Person from such Asset Sale or
Equity Offering after (i) provision for all income or other taxes
required to be paid in cash as a result of such Asset Sale or Equity
Offering (after giving effect to the full utilization of any tax
credits or loss carryforwards or similar amounts which are available
to offset such taxes) and (ii) payment of all reasonable brokerage
commissions, underwriting fees and other reasonable fees and expenses
related to such Asset Sale or Equity Offering.
"Settlement Subordinated Notes" means the Subordinated Promissory
Notes in the aggregate original principal amount as set forth in the
Disclosure Letter in the form provided under the Joint Settlement
Agreement and which under certain circumstances may
-5-
<PAGE>
be required to be issued by the Borrower on September 30, 1996 under
the terms of the Joint Settlement Agreement.
"Settlement Subordinated Indebtedness" means all obligations
consisting of principal, interest or otherwise in respect of the
Settlement Subordinated Notes.
"Specified Claimant" has the meaning given that term in the
preamble to Amendment No 1.
"Specified Settlement Agreement" has the meaning given that term
in the preamble to Amendment No 1.
"Supplemental Collateral Trust Agreement" has the meaning given
that term in Section 6.26.
c. to delete Section 2.6.1 from each of the Short Term Agreement and the
Long Term Agreement in their entirety and to substitute the following
therefor:
2.6.1. Optional and Mandatory Principal Payments.
2.6.1.1. Optional Principal Payments. The Borrower may from
time to time pay all outstanding Committed Advances, or, in a
minimum aggregate amount of $5,000,000 (and in integral multiples
of $1,000,000 if in excess thereof), any portion of the
outstanding Committed Advances upon one Business Day's prior
notice to the Agent. Any prepayment of a Eurodollar Committed
Advance prior to the end of its applicable Interest Period shall
be subject to the indemnity provisions of Section 3.4. A
Competitive Bid Advance may not be prepaid prior to the last day
of its applicable Interest Period without the prior written
consent of each Lender or Designated Lender that made such
Advance, which consent may be given or withheld at each such
Lender's or Designated Lender's sole and absolute discretion.
d. to add the following as a new 2.6.1.2 to the Short Term Agreement:
2.6.1.2. Mandatory Principal Payments.
(a) Upon the consummation of any Asset Sale by the Borrower
or any Subsidiary the Net Cash Proceeds of which when aggregated
with the Net Cash Proceeds of any other Asset Sale consummated by
the Borrower and its Subsidiaries after March 18, 1996 are
greater than $25,000,000, the Borrower shall make a mandatory
prepayment of the Committed Advances under this Agreement in an
amount equal to 100% of the Net Cash Proceeds in excess of such
$25,000,000 threshold, such prepayment to be made promptly upon
receipt thereof. Nothing in this Section 2.6.1.2 shall be
construed as a consent by the Agent or any Lender to any Asset
Sale not permitted under the terms of this Agreement.
-6-
<PAGE>
(b) Upon the consummation of any Equity Offering by the
Borrower or any Subsidiary the Borrower shall make a mandatory
prepayment of the Committed Advances under this Agreement in an
amount equal to 100% of the Net Cash Proceeds of such Equity
Offering minus the aggregate amount required to be placed by the
Borrower in a restricted account or escrow account (on terms and
conditions reasonably acceptable to the Agent) under Section
6.27 [5.27 for the Letter of Credit Agreement] the proceeds of
which account will be available solely to pay obligations under
the Insurer Settlement Agreements promptly upon receipt thereof.
e. to add the following as a new 2.6.1.2 to the Long Term Agreement:
2.6.1.2. Mandatory Principal Payments.
(a) Upon the consummation of any Asset Sale by the Borrower
or any Subsidiary the Net Cash Proceeds of which when aggregated
with the Net Cash Proceeds of any other Asset Sale consummated by
the Borrower and its Subsidiaries after March 18, 1996 are
greater than $25,000,000 the Borrower shall make a mandatory
prepayment of the Committed Advances under this Agreement in an
amount equal to 100% of the Net Cash Proceeds in excess of such
$25,000,000 threshold minus amounts required to be paid pursuant
to Section 2.6.1.2 of the Short Term Agreement, such prepayment
to be made promptly upon receipt thereof. Nothing in this Section
2.6.1.2 shall be construed as a consent by the Agent or any
Lender to any Asset Sale not permitted under the terms of this
Agreement.
(b) Upon the consummation of any Equity Offering by the
Borrower or any Subsidiary the Borrower shall make a mandatory
prepayment of the Committed Advances under this Agreement in an
amount equal to 100% of the Net Cash Proceeds of such Equity
Offering minus the sum of (i) the aggregate amount required to be
placed by the Borrower in a restricted account or escrow account
(on terms and conditions reasonably acceptable to the Agent)
under Section 6.27 [5.27 for the Letter of Credit Agreement]
the proceeds of which account will be available solely to pay
obligations under the Insurer Settlement Agreements and (ii)
amounts required to be paid pursuant to Section 2.6.1.2 of the
Short Term Agreement, such prepayment to be made promptly upon
receipt thereof.
f. to add the following at the end of Section 2.6.2 of the Short Term
Agreement and Long Term Agreement:
(c) Mandatory Reduction of Commitments. Upon the receipt of
any mandatory prepayment required under Section 2.6.1.2(a) from
any Asset Sale, the Aggregate Commitments shall be permanently
reduced by the amount of such required prepayment ratably among
the Lenders.
-7-
<PAGE>
g. to delete the terms of the following provisions of Article V of the
Short Term Agreement and Long Term Agreement and the corresponding
provisions of Article IV of the Letter of Credit Agreement in their
entirety and to substitute the following therefor (with such
substitution including a corresponding change to the Section numbering
for the Letter of Credit Agreement):
5.3. No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents, the OIG Settlement
Agreements or the Insurer Settlement Agreements, nor the consummation
of the transactions therein contemplated, nor compliance with the
provisions thereof will violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award, including, without
limitation, the OIG Settlement Agreements binding on the Borrower or
any of its Subsidiaries or the Borrower's or any Subsidiary's
certificate of incorporation or by-laws or the material provisions of
any indenture, instrument or agreement to which the Borrower or any of
its Subsidiaries is a party or is subject, or by which it, or its
Property, is bound, or conflict with or constitute a default
thereunder, or result in the creation or imposition of any Lien in, of
or on the Property of the Borrower or a Subsidiary pursuant to the
terms of any such indenture, instrument or agreement. No order,
consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof,
is required to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity,
binding effect or enforceability of, any of the Loan Documents. No
Compliance Report is required to be filed under the Corporate
Integrity Agreement as a result of the Insurer Settlement Agreements
or the allegations which form the basis of the Insurer Settlement
Agreements.
5.5. Material Adverse Effect. Since December 31, 1994, other than
in connection with the OIG Settlement Agreements, there has been no
change in the business, property, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries taken as
a whole or any other event, including, without limitation (a) the
pending litigation between Coram Healthcare Corporation, the Borrower
and Caremark or any developments in connection therewith or (b) the
transactions evidenced by the Insurer Settlement Agreements or any
developments in connection therewith, which could reasonably be
expected to have a Material Adverse Effect.
5.12. Material Agreements. Neither the Borrower nor any
Subsidiary is subject to any charter or other corporate restriction
which could reasonably be expected to have a Material Adverse Effect.
Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in (i) any agreement to which it is
a party, which default could reasonably be expected to have a Material
Adverse Effect, (ii) any agreement or instrument evidencing or
governing Indebtedness, (iii) any of the OIG Settlement Agreements or
(iv) any of the Insurer Settlement Agreements. Simultaneously with the
delivery of any report delivered pursuant to Section 20 of the
Corporate Integrity Agreement described on Schedule 1 hereto, a copy
of such report shall be delivered to independent counsel of the Agent
and the Agent.
-8-
<PAGE>
h. to add the following provisions at the end of Article V of the Long
Term Agreement and the Short Term Agreement and Article IV of the
Letter of Credit Agreement (with a corresponding change to the Section
numbering):
5.20. Insurer Settlement Agreements
(a) All disputes, claims or threatened claims, proceedings or
threatened proceedings and all potential litigation with the
Insurance Company Claimants relating to lines of business at
issue in the Joint Settlement Agreement (as set forth in
Section 31 thereof) have been fully and finally settled
through the Joint Settlement Agreement, subject to
reinstatement or revival only on the limited terms set forth
therein. All disputes, claims or threatened claims,
proceedings or threatened proceedings and all potential
litigation with the Specified Claimant which have been or
could be brought based upon the type of allegations which
form the basis of the Specified Settlement Agreement have
been fully and finally settled through the Specified
Settlement Agreement, subject to reinstatement or revival
only on the limited terms set forth therein. No Authorized
Officer has any knowledge of any actual or threatened
actions by any Insurance Company Claimant or the Specified
Claimant based upon the type of allegations (without regard
to applicable lines of business) which form the basis of the
Insurer Settlement Agreements which are not within the scope
of the Insurer Settlement Agreements. The Insurer Settlement
Agreements as executed do not differ in any material respect
from the drafts dated March 13, 1996 of such agreements
delivered to the Agent and the Lenders on March 14, 1996.
(b) No Authorized Officer of the Borrower is aware of any events
or facts which have occurred with respect to the Borrower or
any of its Subsidiaries which could give rise to disputes,
claims or threatened claims, proceedings or threatened
proceedings or litigation or threatened litigation
(including by any of the parties to any of the Insurer
Settlement Agreements or by any other Person) of a nature
similar to that which formed the basis of any of the Insurer
Settlement Agreements and the outcome of which could
reasonably be likely to subject the Borrower and/or its
Subsidiaries to liabilities, individually or in the
aggregate, in excess of $25,000,000 (which amount shall
include all amounts payable in connection with any
Additional Settlement Agreement or for the payment of any
legal expenses in connection with any Additional Settlement
Agreements or for the payment of any legal expenses in
connection with the Insurer Settlement Agreements other than
as specifically recited in the Joint Settlement Agreement).
-9-
<PAGE>
i. to delete the terms of the following provisions of Article VI of the
Short Term Agreement and Long Term Agreement and the corresponding
provisions of Article V of the Letter of Credit Agreement in their
entirety and to substitute the following therefor (with such
substitution including a corresponding change to the Section numbering
for the Letter of Credit Agreement):
6.2. Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Advances to finance Permitted
Acquisitions, for payment of the OIG Settlement Costs and for general
corporate purposes, including the lending of a portion of the proceeds
by the Borrower to its Subsidiaries organized and existing under the
laws of any states of the United States, including Caremark or the
Caremark Subsidiaries, as applicable, and by Caremark or the Caremark
Subsidiaries, as applicable, to its or their respective Subsidiaries
organized and existing under the laws of any state of the United
States, provided any such loans are made in accordance with Section
6.21 hereof. Notwithstanding anything herein to the contrary, the
proceeds of the Advances hereunder may not be used for (i) the
establishment or funding of the accounts required under Section 6.27
or 6.28; (ii) the payment, directly or indirectly, of any Insurer
Settlement Costs or (iii) the payment, directly or indirectly, of any
legal or other expenses in connection with any of the Insurer
Settlement Agreements or Additional Settlement Agreements. The
Borrower will not, nor will it permit any Subsidiary to, use any of
the proceeds of the Advances to purchase or carry any "margin stock"
(as defined in Regulation U).
6.3. Notice of Default, etc. The Borrower will, and will cause
each Subsidiary to, give prompt notice (and in no event more than 5
Business Days after an Authorized Officer becomes aware of such
occurrence) in writing to the Agent and the Lenders of the occurrence
of any of the following:
(a) any Default or Unmatured Default (including the
occurrence of any Exclusion Event);
(b) the occurrence of any event which constitutes a
violation of any of the terms or provisions of any of the OIG
Settlement Agreements;
(c) the occurrence of any event which constitutes a default,
event of default, unmatured payment default or other violation of
any of the terms or provisions of any of the Insurer Settlement
Agreements, any of the parties to the Settlement Agreements
asserts that such an event has occurred or any of the parties to
the Settlement Agreement has submitted to arbitration any dispute
under any of the Insurer Settlement Agreements;
(d) the occurrence of any event (other than general market
conditions) which could reasonably be expected to impair the
ability of the Borrower to successfully consummate an Equity
Offering on or before September 15, 1996 the Net Cash Proceeds
from which would equal at least $125,000,000;
-10-
<PAGE>
(e) receipt of notice from any Person or group of Persons
which have threatened actions or the making of claims based upon
the type of allegations which form the basis of the Insurer
Settlement Agreements if the aggregate amount of such actions or
claims could reasonably be expected to exceed $25,000,000;
(f) any other development financial or otherwise, which
could reasonably be expected to have a Material Adverse Effect.
6.10. Financial Covenants.
6.10.1. Indebtedness to EBITDA. The Borrower will not permit its
Indebtedness to EBITDA Ratio, calculated at the last day of each
fiscal quarter for the four fiscal quarters ending on or more recently
ended prior to such date of determination for the Borrower and its
Subsidiaries on a consolidated basis in accordance with Agreement
Accounting Principles consistently applied, to exceed the ratios set
forth below for the periods set forth below:
Fiscal Quarters
Ending During Maximum
The Following Indebtedness to
Periods: EBITDA Ratio
--------------- ------------
9/30/95 through 6/29/96 3.50 to 1.00
provided if the Borrower has
consummated any Equity Offering
prior to June 29, 1996, such
level shall be 3.00 to 1.00
6/30/96 through 9/15/96 3.25 to 1.00
provided if the Borrower has
consummated any Equity Offering
prior to September 15, 1996,
such level shall be 3.00 to 1.00
-11-
<PAGE>
6.10.3. Funded Debt to Capitalization Ratio. The Borrower will
not permit its Funded Debt to Capitalization Ratio at any time to
exceed the ratios set forth below for the periods set forth below:
Period Maximum Ratio
------ -------------
September 30, 1995
through
December 30, 1995 58%
December 31, 1995
to
the Effective Date of
Amendment No. 1 55%
Effective Date of
Amendment No. 1
through September 15, 1996 64%
provided if the Borrower has
consummated any Equity
Offering prior to September
15, 1996, such level shall be
55%
6.16. Acquisitions. The Borrower will not, nor will it permit any
Subsidiary to, make any Acquisition of any Person, except Permitted
Acquisitions; provided, however, notwithstanding anything herein or in
any other provision of this Agreement to the contrary, the aggregate
acquisition price (computed with any non-cash portion of the
acquisition price being valued at the fair value thereof as of the
date of computation, where fair value means the value of the relevant
asset determined in an arm's length transaction conducted in good
faith between an informed and willing buyer and an informed and
willing seller, neither under compulsion to buy or sell) exclusive of
any capital stock of the Borrower issued in payment thereof shall not
exceed $25,000,000 in the aggregate for all Acquisitions entered into,
committed to or consummated after March 18, 1996 minus the aggregate
amount of all Investments made under Section 6.24(h) made after March
18, 1996 plus the aggregate amount of the Net Cash Proceeds received
from any sale of any Investments made after March 18, 1996. The
Borrower will not, nor will it permit any Subsidiary to enter into any
contract, agreement or undertaking in connection with any Acquisition
or proposed Acquisition where the purchase price therefor (exclusive
of any capital stock of the Borrower issued or to be issued in the
payment thereof) which when aggregated with the purchase price for all
other Acquisitions entered into, committed to or consummated after
March 18, 1996 and all Investments made under Section 6.24(h) made
after March 18, 1996 would exceed $25,000,000.
-12-
<PAGE>
6.19. Amendments to Agreements. The Borrower will not, and will
not permit any Subsidiary to (a) amend, modify or terminate any
Settlement Agreement or any Tax Agreement in any manner which would be
reasonably likely to have a Material Adverse Effect, (b) amend, modify
or terminate any of the OIG Settlement Agreements or (c) amend, modify
or terminate any of the Insurer Settlement Agreements in any way
adverse to the Borrower or any of its Subsidiaries or adverse to the
Lenders.
6.20. Subordinated Indebtedness; Obligations with Respect to
Insurer Settlement Agreements. The Borrower will not, and will not
permit any Subsidiary to, make any amendment or modification to the
indenture, note or other agreement evidencing or governing any
Subordinated Indebtedness. The Borrower will not, and will not permit
any Subsidiary to, directly or indirectly, (a) make any payment with
respect to Insurer Settlement Costs before the date on which such
amounts are due and payable in accordance with the terms of the
Insurer Settlement Agreements or (b) issue the Settlement Subordinated
Notes prior to the date on which such Settlement Subordinated Notes
are required to be issued under the terms of the Joint Settlement
Agreement. The Borrower will not, and will not permit any Subsidiary
to, directly or indirectly, (including, without limitation, by the
purchase of any such Subordinated Indebtedness), (a) make any payment
of any Settlement Subordinated Indebtedness if at the time of the
making of such payment or after taking into account such payment a
Default or Unmatured Default shall have occurred and be continuing or
(b) prepay, defease or in substance defease, purchase, redeem, retire
or otherwise acquire any of the Settlement Subordinated Indebtedness.
The Borrower will not, and will not permit any Subsidiary to, directly
or indirectly voluntarily prepay, defease or in substance defease,
purchase, redeem, retire or otherwise acquire, any other Subordinated
Indebtedness with an outstanding principal amount in excess of
$10,000,000. Nothing contained in this Section 6.20 shall be deemed to
be a consent to the issuance of the Settlement Subordinated Notes if
either before or after the issuance thereof a Default or Unmatured
Default shall have occurred or would result therefrom, including as a
result of any violation of the terms of Section 6.10 or 6.11.
6.24. Investments. The Borrower mill not, nor will it permit any
of its Subsidiaries to, make or suffer to exist any investments
(including without limitation, loans and advances to, and other
Investments in Subsidiaries), or commitments therefor, or to create
any Subsidiaries, or to become a partner in any partnership or joint
venture, or to make any acquisitions of any other Person, except:
(a) Investments in existence as of the date of this Agreement
and described in Schedule 6.24 hereto;
(b) the $25,000,000 Coram Healthcare Corporation 12%
Non-Convertible Subordinated Note due October 1, 2005 issued
on April 1, 1995 to the Borrower and the $75,000,000 Coram
Healthcare Corporation 7%
-13-
<PAGE>
Convertible Subordinated Note due October 1, 2005 issued on
April 1, 1995 to the Borrower;
(c) Investments permitted pursuant to the terms of Section 6.21;
(d) Investments in short-term obligations of, or fully-
guaranteed by, the United States of America;
(e) Investments in commercial paper rated A-1 or better by
Standard and Poor's Corporation or P-1 or better by Moody's
Investor Services, Inc.;
(f) Investments consisting of demand deposit accounts maintained
in the ordinary course of business;
(g) Investments in certificates of deposit issued by and time
deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000;
(h) Investments in any Person made after March 18, 1996 so long
as immediately after giving effect to the making of such
Investment, the aggregate amount of (i) Investments made
under this clause (h) minus the aggregate amount of the Net
Cash Proceeds received from any sale of any Investments made
after March 18, 1996, (ii) the purchase price paid for
Acquisitions consummated (other than from the issuance of
capital stock of the Borrower) and (iii) the purchase price
committed to be paid for Acquisition (other than from
issuance of capital stock of the Borrower) during the period
from such date to and including the date of such Investment
would not exceed $25,000,000 (calculated exclusive of any
capital stock of the Borrower issued in payment for such
Investment);
(i) Investments or other transactions in connection with
Corporate Reorganization to the extent permitted under
Section 6.22; and
(j) Investments in Core Businesses incorporated or located
outside the United States to the extent permitted under
Section 6.11(iii).
For the purpose of any computation required to be made pursuant
to this Agreement, Investments shall be valued at the lower of cost or
the fair value thereof as of the date of computation, where fair value
means the value of the relevant asset determined in an arm's length
transaction conducted in good faith between an informed and willing
buyer and an informed and willing seller, neither under compulsion to
buy or sell.
j. to delete clauses (i) and (ix) from Section 6.17 of the Credit
Agreements in their entirety and to substitute the following therefor
(each reference therein to the Short Term
-14-
<PAGE>
Agreement, Long Term Agreement and Letter of Credit Agreement being
appropriately modified for the applicable agreement into which such
provision is being inserted) or:
(i) Pari passu Liens (1) on the Collateral in favor of the
Collateral Trustee under the Collateral Trustee for the
benefit of itself and Agent and the Lenders under each of
the Short Term Agreement, the Long Term Agreement and the
Letter of Credit Agreement and (2) on the Equity Collateral
in favor of the Collateral Trustee under the Supplemental
Collateral Trustee for the benefit of itself and Agent and
the Lenders under each of the Short Term Agreement, the Long
Term Agreement and the Letter of Credit Agreement and in
favor of the holders of the Borrower's indebtedness under
the Indenture;
(ix) Liens (including judgment Liens but excluding any Liens
related to proceedings included in Section 7.15 and Section
7.17) arising in connection with legal proceedings so long
as such proceedings are being contested in good faith and,
in the case of any judgment Lien, such Lien does not attach
to any assets or properties of the Borrower or any of its
Subsidiaries, including without limitation the Collateral or
the Equity Collateral (as defined in Section 6.26 bellow),
or to the stock of any Subsidiary of the Borrower and
execution thereon is stayed.
k. to delete Section 6.26 of the Short Term Agreement and Long Term
Agreement in their entirety and to substitute the following therefor:
6.26 Collateral. In addition to the Collateral Trust Agreement,
as soon as reasonably practicable but in any event not later than the
date that is 30 days following the effective date of Amendment No. 1,
the Borrower will and will cause each of its Subsidiaries organized
and existing under the laws of any states of the United States,
including Caremark, to execute a supplemental collateral trust
agreement (the "Supplemental Collateral Trust Agreement") and pledge
agreements (collectively, the "Pledge Agreements") and to execute and
file UCC financing statements in each case, in form and substance
reasonably acceptable to the Agent and the Required Lenders and to
take all other actions required under applicable law, or reasonably
requested by the Agent, to grant to the Agent, for the benefit of the
Lenders, a valid and perfected first-priority pledge and security
interest (such Liens to be shared pari passu with the lenders under
the Short-Term Agreement, the Long Term Agreement, the Letter of
Credit Agreement and the holders of the Borrower's indebtedness under
the Indenture) in all of the capital stock, membership interests,
partnership interests or other equity interests held by the Borrower
and its Subsidiaries in each of the Borrower's direct or indirect
Subsidiaries organized and existing under the laws of any states of
the United States (such interests being herein the "Equity
Collateral"), subject to no other adverse claims or Liens. Such Pledge
Agreements and the Supplemental Collateral Trust Agreement shall
provide that under the provisions of Section
-15-
<PAGE>
9-203(2) of the applicable Uniform Commercial Codes, attachment of the Lien
granted thereunder shall be deferred until the occurrence of a Triggering Event
If at any time the Agent receives a written request from any Lender (which
request shall be deemed to be received upon telephonic confirmation of receipt
by an officer of the Agent) that it desires that the Lien on the Collateral and
Equity Collateral to attach (a "LIEN REQUEST"), then not later than 3 Business
Days following such receipt, the Agent shall submit such request to all of the
Lenders for their consideration; provided, no Lender may submit a Lien Request
unless either:
(1) there has occurred any negative or adverse development of any sort
or nature in the litigation among Coram Healthcare Corporation, the
Borrower and Caremark;
(2) the Lender receives information in conjunction with the litigation
among Coram Healthcare Corporation, the Borrower and Caremark, including,
without limitation, advice received from independent counsel to the
Lenders, which such Lender, in its analysis, determines is likely to have a
Material Adverse Effect;
(3) any of the following shall occur: (i) any violation, default,
event of default or unmatured payment default by the Borrower or any of its
Subsidiaries occurs under any of the Insurer Settlement Agreements; (ii)
based upon a reasonable analysis of the facts and circumstances, any of the
parties to any of the Insurer Settlement Agreements notifies the other
party in writing that a violation, default, event of default or unmatured
payment default by the Borrower or any of its Subsidiaries has occurred;
(iii) any of the parties to any of the Insurer Settlement Agreements shall
terminate or revoke its obligations under any such Insurer Settlement
Agreement; (iv) any of the parties to any of the Insurer Settlement
Agreements shall invoke or seek to invoke rights it may have under any of
the Insurer Settlement Agreements to terminate or revoke its obligations
under any such Insurer Settlement Agreement; or (v) any of the parties to
the Settlement Agreement shall reinstate, revive, initiate or prosecute any
of the claims settled under the Insurer Settlement Agreements;
(4) the Borrower has failed: (a) on or before July 15, 1996 to file
its registration statement for the offering by the Borrower of equity
securities to effect an offering pursuant to which the Net Cash Proceeds
realized by the Borrower would not be less than $125,000,000; (b) to
use its best efforts to cause such registration statement to be effective
on or before such date as would result in a closing of such offering on or
before September 15, 1996; or (c) to receive Net Cash Proceeds of at least
$125,000,000 from such an equity offering on or prior to September 15,
1996;
(5) Any Lender is aware of any events or facts which have occurred
with respect to the Borrower or any of its Subsidiaries which could give
rise to additional disputes, claims or threatened claims, proceedings or
threatened proceedings or
-16-
<PAGE>
litigation or threatened litigation deemed by such Lender to be
reasonably likely to result in liabilities in excess of $25,000,000 in
the aggregate which are of a nature similar to that which formed the
basis of the Insurer Settlement Agreements.
Simultaneously with the execution and delivery of the Supplemental
Collateral Trust Agreement and the Pledge Agreements, the Borrower shall and
shall cause each of its Subsidiaries organized and existing under the laws of
any states of the United States, including Caremark, to:
(1) Deliver legal opinions from the Borrower's and such Subsidiaries'
counsel in form and substance satisfactory to the Agent addressing
such matters as the Agent and the Required Lenders shall reasonably
designate and such other opinions as are customary for transactions of
a similar nature, including, without limitation, an opinion that the
terms of the Supplemental Collateral Trust Agreement do not violate
the terms of the Indenture;
(2) Deliver the stock certificates and duly executed stock powers in blank
with respect to the Equity Collateral consisting of stock;
(3) Take such actions, deliver such transactions statements or notices,
cause to be marked the applicable books and records and take such
other action as may be reasonably required by the Agent to perfect the
Lien under the Pledge Agreements with respect to Equity Collateral
other than capital stock;
(4) Cause such Subsidiaries under the Collateral Trust Agreements to
execute and deliver a Contribution Agreement, in form and substance
reasonably satisfactory to the Agent and the Required Lenders duly
executed by each of the Subsidiaries which have granted Collateral or
Equity Collateral pursuant to Collateral Trust Agreement or
Supplemental Collateral Trust Agreement; and
(5) Execute such other collateral documents instruments and agreements as
shall be reasonably requested by the Agent, in each case, in form and
substance satisfactory to the Agent in order to effectuate the intent
of the provisions of this Section 6.26.
1. to add the following as Section 6.27 to each of The Long Term Agreement and
Short Term Agreement and as Section 5.27 to the Letter of Credit Agreement:
6.27 [5.27] Escrow of the Public Offering Proceeds. Upon the
consummation by the Borrower of any Equity Offering, the Borrower shall
deposit in a restricted account or escrow account (on terms and conditions
reasonably accepted to the Agent) an amount equal to the aggregate amount
of all obligations (whether in the nature of principal, interest,
settlement amounts, costs and expenses) required to be paid by the Borrower
or any of its Subsidiaries under the Insurer Settlement Agreements and the
Additional Settlement Agreements, if any. The amounts in such account may
not be used by the Borrower or any
-17-
<PAGE>
of its Subsidiaries other than for payment of such amounts required to
be paid in connection with such Insurer Settlement Agreements or
Additional Settlement Agreements, if any.
m. to add the following as Section 6.28 to each of The Long Term
Agreement and Short Term Agreement and as Section 5.28 to the Letter
of Credit Agreement:
6.28 [5.28] Escrow of the Initial Settlement Payment. The
Borrower has established and shall hereafter maintain with the Agent a
restricted account or escrow account (on terms and conditions
reasonably acceptable to the Agent) into which the Borrower has
deposited an amount not less than the cash amount payable on September
30, 1996 under Paragraph 1.B of the Joint Settlement Agreement. The
amounts in such account may be withdrawn and the account closed only
(i) to make the payment of the amount required to be paid on September
30, 1996 under Paragraph 1.B of the Joint Settlement Agreement or
(ii) upon the establishment of the restricted account or escrow
account required under the immediately preceding Section.
n. to add the following at the end of Section 7.1:
7.1.8. Insurer Settlement Agreements. Any of the following shall
occur: (i) any violation, default, event of default or unmatured
payment default by the Borrower or any of its Subsidiaries occurs
under any of the Insurer Settlement Agreements; (ii) any of the
parties to any of the Insurer Settlement Agreements shall terminate or
revoke its obligations under any such Insurer Settlement Agreement; or
(iii) any of the parties to the Settlement Agreement shall reinstate,
revive, initiate or prosecute any of the claims settled under the
Insurer Settlement Agreements.
7.1.9. Additional Settlements. The sum of all amounts (including,
without limitation damages, restitution payments, costs, expenses or
other amounts) agreed to be paid by the Borrower and its Subsidiaries
in settlement or payable as a result of an executable judgment, award
or similar order in connection with any litigation or other
proceedings or other claims with respect to matters of a nature
similar to those raised by the Insurance Company claimants and the
Specified Claimant in connection with the Insurer Settlement
Agreements shall be equal to or greater than Twenty-Five Million and
No/100 Dollars ($25,000,000).
o. to delete Section 7.2 of the Short Term Agreement and The Long Term
Agreement in its entirety (and the parallel provision of the Letter of
Credit Agreement) and to substitute the following therefor:
7.2. Failure to Make Payment. Nonpayment of principal of any
Note when due, or nonpayment of interest upon any Note or of any
facility fee or other obligations under any of the Loan Documents
within five Business Days after the same becomes due, whether by
acceleration or otherwise.
-18-
<PAGE>
2. Amendments To Pricing Provisions. Notwithstanding anything in the
Credit Agreements to the contrary, effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 4
below, the Credit Agreements are hereby amended to delete the relevant terms
thereof with respect to determination of the level of the Applicable Margins,
Utilization Fees, Applicable Facility Fees, and Applicable Fees with respect to
letters of credit and to substitute the following therefor:
2.1 The Applicable Margin with respect to each Committed Advance
under the Short Term Agreement and the Long Term Agreement shall
be (a) 0.75% for Eurodollar Committed Loans and (b) 0.00% for
Floating Rate Loans; provided, however, (i) each of such
percentages shall be increased by 0.25% if at any time a
Triggering Event under Section 6.26 occurs, such change to be
effective from the date of such Triggering Event and (ii) each of
such percentages shall be increased by 0.25% (the increases under
clauses (i) and (ii) being independent of each other and both of
which may be implemented under the applicable circumstances) if
either Moody's or S&P announces a Credit Rating with respect to
Borrower's senior unsecured non-credit-enhanced long-term
Indebtedness which is below BBB- or Baa3 or ceases to publish a
Credit Rating with respect to the Borrower's senior unsecured
non-credit-enhanced long-term Indebtedness.
2.2 The Applicable Facility Fees under the Long Term Agreement and
the Short Term Agreement shall be 0.25% per annum.
2.3 The Applicable Fees under the Long Term Agreement and the Letter
of Credit Agreement with respect to letters of credit shall be
0.75% per annum; provided, however, (i) such percentage shall be
increased by 0.25% if at any time a Triggering Event occurs, such
change to be effective from the date of such Triggering Event and
(ii) such percentage shall be increased by 0.25% (the increase
under clauses (i) and (ii) being independent of each other and
both of which may be implemented under the applicable
circumstances) if either Moody's or S&P announces a Credit Rating
with respect to Borrower's senior unsecured non-credit-enhanced
long-term Indebtedness which is below BBB- or Baa3 or ceases to
publish a Credit Rating with respect to the Borrower's senior
unsecured non-credit-enhanced long-term Indebtedness.
Nothing in the amendments set forth above in this Section 2 shall impair the
rights of the Lenders to be paid or affect the obligation of the Borrower to pay
or increased rates after Default provided in the Credit Agreements.
3. Consent To Laboratory Sale. The Borrower has advised the Collateral
Trustee under the Collateral Trust Agreement and the "Holders" (as defined in
the Collateral Trust Agreement) that Kelsey-Seybold Medical Group, P.A. and KS-
PSI of Texas, L.P. (the "KS Sellers") intend to consummate the sale of certain
tangible and intangible assets relating to the laboratory department of the
medical clinics operated by the KS Sellers throughout Harris County, Texas for
an aggregate purchase price of approximately $3,000,000 (the "Laboratory Sale").
Certain assets which are the subject of the Laboratory Sale consist of inventory
covered by the Lien created under
-19-
<PAGE>
the Collateral Trust Agreement and the security agreements executed in
connection therewith. The Borrower has informed the Collateral Trustee and the
Holders that the Collateral being sold does not and will not at the time of the
consummation of the Laboratory Sale exceed $25,000. The Borrower has requested
that the Collateral Trustee and the Holders Consent to the consummation of the
Laboratory Sale free and clear (to the extent the assets sold constitute
Collateral) of the Lien created under the Collateral Trust Agreement and the
various other documents, instruments and agreements executed in connection
therewith (including the various security agreements) and agree to permit the
Collateral Trustee, simultaneously with the closing of such Laboratory Sale to
execute such UCC amendments or releases to evidence the release of the Lien
against the assets which are the subject of the Laboratory Sale. Upon the
effectiveness of this Amendment in accordance with the provisions of Section 4,
the undersigned hereby consent to the sale by Caremark International Inc. and
certain of its Subsidiaries of its Laboratory Businesses (as defined below) and
agree that upon the consummation of such sale (but not before), the Collateral
Trustee may release any existing Liens which are Collateral in favor of the
Collateral Trustee for the benefit of the Holders on the Collateral sold as Part
of the Laboratory Sale.
4. Conditions of Effectiveness; Term of Effectiveness. This Amendment
shall become effective when and only when each of the following has been
satisfied (the date of satisfaction of such conditions being herein the
"Effective Date"):
(a) The Agent has received an original or facsimile execution
counterpart of this Amendment executed by each of the Borrower, the
Required Lenders and the Agent.
(b) The Agent and the Lenders shall have received and reviewed
the terms of the Insurer Settlement Agreements and the Agent and the
Required Lenders shall be satisfied that the terms thereof do not
differ in any respect adverse to the interests of the Borrower, any of
its Subsidiaries or the Lenders from the March 13, 1996 draft Insurer
Settlement Agreements provided to the Agent and the Lenders on March
14, 1996.
(c) The Agent and the Lenders shall have received evidence that
all of the applicable parties to the Insurer Settlement Agreements
have executed and delivered those agreements.
(d) The Agent and the Lenders shall have received an opinion or
opinions addressed to the Agent and the Lenders from counsel for the
Borrower (allocated between the Borrower's general counsel and special
counsel on a basis reasonably satisfactory to the Agent and the
Required Lenders), in form and substance and covering such matters as
shall be acceptable to the Agent, with respect to the Insurer
Settlement Agreements, which matters may include matters similar to
the opinions delivered by the opinions delivered in connection with
the OIG Settlement Agreements.
(e) on or prior to the date of satisfaction of all of the other
conditions precedent set forth in this Section 4, the Borrower shall
have paid an amendment fee equal to twelve and one-half basis points
(12.5 b.p.) on the sum of the Aggregate Commitment under the Short
Term Agreement, the Aggregate Commitment under the Long Term Agreement
and amount of the L/C Obligations under the Letter of Credit
Agreement, such payment to be made to the
-20-
<PAGE>
Agent for the ratable account of the Lenders under the Short Term
Agreement and Long Term Agreement and for the account of The First
National Bank of Chicago with respect to the amount payable in respect
of the Letter of Credit Agreement.
(f) on or prior to the date of satisfaction of all of the other
conditions precedent set forth in this Section 4, the Borrower shall
have paid an amendment approval fee equal to twelve and one-half basis
points (12.5 b.p.) on the sum of the Commitment under the Short Term
Agreement, the Commitment under the Long Term Agreement and the
amount of L/C Obligations under the Letter of Credit Agreement of each
of the Lenders which has executed and delivered this Amendment to the
Agent on or before 12:00 noon (Chicago time) on March 18, 1995, such
payment to be made to the Agent for the ratable account of such
Lenders.
(g) the Agent shall have received a no default certificate in
form and substance acceptable to the Agent from the chief financial
officer or treasurer of the Borrower dated as of the Stated Date and
as of the Effective Date, which officer's certificate shall also
certify as to the accuracy as of the Effective Date of the
representations and warranties contained in Section 5.20;
(h) the Agent shall have received evidence in form and substance
acceptable to the Agent of the approval by the Board of Directors of
the Borrower and Caremark of the Insurer Settlement Agreements, this
Amendment and the other transactions contemplated thereby and hereby,
including, without limitation, the Supplemental Collateral Trust
Agreement);
(i) the Agent and the Lenders shall have received such other
documents, instruments, opinions, agreements and certificates as shall
be reasonably requested in connection herewith;
(j) all of the representations and warranties set forth in
Section 5 below are true and correct as if made on the Stated Date and
on the Effective Date; and
(k) The Agent and the Lenders shall have received a certificate
from the chief financial officer or treasurer of the Borrower that
since December 31, 1994, other than (i) in connection with the OIG
Settlement Agreement, there has been no change in the business,
Property, condition (financial or otherwise) or results of operations
of the Borrower and its Subsidiaries taken as a whole or any other
event, including, without limitation, (1) the pending litigation
between Coram Healthcare Corporation, the Borrower and Caremark or any
developments in connection therewith or (2) the transactions evidenced
by the Insurer Settlement Agreements or any developments in connection
therewith, which could reasonably be expected to have a Material
Adverse Effect; and (iii) other than (x) in connection with the
execution of the Insurer Settlement Agreements, (y) the sale of the
home infusion business to Coram Healthcare, Inc. and the Nephrology
Sale and (z) the acquisitions of Friendly Hills Healthcare Network,
The Diagnostic Clinic, certain assets of CIGNA HealthCare of
California, Inc. comprising the CIGNA Medical Group and the assets of
the Glen Ellyn Clinic, no material increase in liabilities, liquidated
or contingent has occurred, and no material
-21-
<PAGE>
decrease in the assets has occurred, in each case with respect to the
Borrower and its Subsidiaries taken as a whole.
5. Representations and Warranties of the Borrower. The Borrower hereby
represents and warrants as follows:
(a) This Amendment and the Credit Agreements as previously executed
and as amended hereby, constitute legal, valid and binding obligations of the
Borrower and are enforceable against the Borrower in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms that the representations and warranties contained in Article V of the
Credit Agreements are true and correct.
(c) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms all covenants made in the Credit Agreements and the other Loan
Documents to the extent the same are not amended hereby and agrees that all such
covenants shall be deemed to have been remade as of the effective date of this
Amendment.
(d) (i) Immediately prior to the effectiveness of this Amendment, all
claims and disputes against the Borrower or any of its Subsidiaries of any
nature which the Specified Claimant may have which have been or could be brought
based upon the type of allegations which form the basis of the Specified
Settlement Agreement or which the Insurance Company Claimants may have or which
any parties (other than individual policy holders or patients) for which any
such Insurance Company Claimants act as agent, fiduciary, administrator,
assignee or representative ("Third Party Claimants") may have for the period of
1988 through the date of execution of the Joint Settlement Agreement relating to
lines of business at issue in the Joint Settlement Agreement (as set forth in
Section 31 thereof) have been fully and finally settled, subject to
reinstatement or revival only on the limited terms set forth in the Insurer
Settlement Agreements, through the Insurer Settlement Agreements or
indemnifications received therefor from the Insurance Company Claimants (on the
terms and conditions set forth in the March 13, 1996 draft of the Insurer
Settlement Agreements); (ii) the execution, delivery and performance of this
Amendment and each of the Insurer Settlement Agreements to which the Borrower or
any of its Subsidiaries is a party do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by any
court or other governmental authority or consent of any third party; (iii) the
Borrower is aware of no events or facts which have occurred with respect to the
Borrower or any of its Subsidiaries which could give rise to disputes with or
claims by any other person or persons of a nature similar to that involved with
the Insurer Settlement Agreements the outcome of which could reasonably be
likely to subject the Borrower and/or its Subsidiaries to liabilities,
individually or in the aggregate, in excess of $25,000,000, (iv) the Borrower
has consulted with investment banking firms in connection with this matter and
has no reason to believe that after the announcement of the Insurer Settlement
Agreements and this Amendment, the Borrower cannot successfully conclude a
public offering of its equity securities on or before September 15, 1996 the Net
Cash Proceeds from which would exceed $125,000,000; (v) the Borrower does not
have to conduct any meeting of its shareholders to amend its certificate of
incorporation in order to consummate the public offering previously referenced
and has sufficient shares of common stock authorized and unissued to consummate
such an offering; and
-22-
<PAGE>
(vi) the Borrower and its Subsidiaries have no reason to believe that they
cannot or will not be able to fully and timely comply with each and every
provision of the Insurer Settlement Agreements and the Credit Agreements, as
amended hereby.
6. Reference to the Effect on the Credit Agreements.
(a) Upon the effectiveness of Sections 1 and 2 hereof, on and after
the date hereof, each reference in the Credit Agreements to "this Credit
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Credit Agreements as amended hereby.
(b) Except as specifically amended above, the Credit Agreements and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Agent or the Lenders, nor constitute a waiver of any
provision of the Credit Agreements or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
9. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Amendment and the Credit
Agreements. In the event an ambiguity or question of intent or interpretation
arises, this Amendment and the Credit Agreements as hereby amended shall be
construed as if drafted jointly by the parties thereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Amendment or the Credit Agreements.
11. Severability. Wherever possible, each provision of this Amendment
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
-23-
<PAGE>
12. Benefit of Agreement. The terms and provisions of this Amendment
shall be binding upon and inure to the benefit of the Borrower, the Agent, the
Lenders and their respective successors and assigns, except that (a) the
Borrower shall not have the right to assign its rights or obligations under this
Amendment, the Credit Agreements or the other Loan Documents or any interest
herein or therein, without the prior written consent of each of the Lenders and
(b) any assignment by any Lender must be made in compliance with the terms of
the Credit Agreements.
13. Non-Reliance by Lenders. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the information supplied by and prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Amendment. Neither the Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with this Amendment or any other Loan Document
or any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower or any other obligor under any Loan
Document; (iii) the satisfaction of any condition specified in Article IV,
except receipt of items, if any, required to be delivered solely to the Agent;
(iv) the existence or possible existence of any Default or Unmatured Default or
(v) the validity, effectiveness or genuineness of any settlement agreement, this
Amendment or any other instrument or writing furnished in connection therewith.
The Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or in any of the other Loan Documents, or
for the execution, effectiveness, genuineness, validity, legality,
enforceability, collectibility, or sufficiency of this Amendment, the Agreement
as amended, any settlement agreement or any of the other Loan Documents or the
transactions contemplated hereby or thereby, or for the financial condition of
any guarantor of any or all of the Obligations, the Borrower or any of its
Subsidiaries.
14. Full Agreement. Each of the parties hereto agrees that this
Amendment supersedes any and all discussions, negotiations, understandings or
agreements, written or oral, express or implied, among the parties hereto,
including, without limitation, any draft amendments or waivers previously
delivered. THIS AMENDMENT AND THE CREDIT AGREEMENTS AS AMENDED HEREBY MAY NOT
BE CONTRADICTED BY EVIDENCE OF ANY ACTUAL OR ALLEGED PRIOR CONTEMPORANEOUS OR
SUBSEQUENT UNDERSTANDINGS OR AGREEMENTS OF THE PARTIES, WRITTEN OR ORAL, EXPRESS
OR IMPLIED, OTHER THAN A WRITING WHICH EXPRESSLY AMENDS OR SUPERSEDES THE
CREDIT AGREEMENTS IN ACCORDANCE WITH THE TERMS THEREOF. ALL OTHER WRITINGS,
ISSUED BY THE AGENT OR ANY LENDERS TO THE BORROWER PRIOR TO THE DATE HEREOF, ARE
NULL AND VOID AND OF NO EFFECT. THERE ARE NO UNWRITTEN ORAL UNDERSTANDINGS OR
AGREEMENTS AMONG THE PARTIES HERETO.
* * * * * *
Remainder of this Page Intentionally Blank
* * * * * *
-24-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
CAREMARK INTERNATIONAL INC.
By:
__________________________________________
Its:
__________________________________________
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:
___________________________________________
Its:
___________________________________________
BANK OF AMERICA ILLINOIS
By:
___________________________________________
Its:
___________________________________________
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By:
__________________________________________
Its:
__________________________________________
CREDIT LYONNAISE CHICAGO BRANCH
By:
__________________________________________
Its:
__________________________________________
CREDIT LYONNAISE CAYMAN ISLAND BRANCH
By:
__________________________________________
Its:
__________________________________________
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
__________________________________________
Its:
__________________________________________
NATIONSBANK OF TEXAS, N.A.
By:
__________________________________________
Its:
__________________________________________
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By:
_________________________________________
Its:
_________________________________________
WACHOVIA BANK OF GEORGIA, N.A.
By:
_________________________________________
Its:
_________________________________________
THE FUJI BANK LIMITED
By:
_________________________________________
Its:
_________________________________________
