<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-22178
ARBOR HEALTH CARE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 34-1469604
(State of incorporation) (IRS Employer
Identification No.)
1100 Shawnee Road, P. O. Box 840, Lima, Ohio 45802-0840
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 227-3000
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
---- -----
Shares of Registrant's Common Stock, $.03 par value, outstanding as of the close
of business on August 12, 1996 -- 6,896,123.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets .................................................................. 3
Consolidated Statements of Income ............................................................. 4
Consolidated Statements of Cash Flows.......................................................... 5
Notes to Interim Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................. 7
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................9
Item 2. Changes in Securities...........................................................................9
Item 3. Defaults Upon Senior Securities................................................................10
Item 4. Submission of Matters to a Vote of Security Holders............................................10
Item 5. Other Information..............................................................................10
Item 6. Exhibits and Reports on Form 8-K...............................................................10
</TABLE>
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands except for share data)
<TABLE>
<CAPTION>
December 31 June 30
1995 1996
----------- -------
ASSETS (Note 1)
<S> <C> <C>
Current assets
Cash and cash equivalents ........................................ $ 6,394 $ 4,794
Accounts receivable, less allowances of $1,285 and
$1,345, respectively ......................................... 36,207 37,401
Other current assets ............................................. 5,765 6,715
Deferred income taxes ............................................ 1,320 1,571
-------- --------
Total current assets ................................................. 49,686 50,481
Property and equipment
Land and improvements ............................................ 19,966 21,418
Buildings and improvements ....................................... 73,845 80,222
Equipment and furnishings ........................................ 30,411 35,981
Leasehold improvements ........................................... 7,247 7,404
Construction in process .......................................... 12,985 12,358
-------- --------
144,454 157,383
Less allowances for depreciation and amortization ................ 27,470 30,816
-------- --------
Total property and equipment ......................................... 116,984 126,567
Other assets
Goodwill, less amortization of $281 and $583, respectively ....... 10,483 12,496
Deferred costs, less amortization of $3,242 and
$2,927, respectively ......................................... 1,438 2,013
Sundry ........................................................... 192 175
-------- --------
Total other assets ................................................... 12,113 14,684
-------- --------
$178,783 $191,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable .................................................... $ 4,496 $ 0
Accounts payable ................................................. 15,889 12,413
Accrued payroll and related items ................................ 11,043 11,763
Other liabilities ................................................ 8,094 12,097
Current maturities of long-term obligations ...................... 5,957 5,867
-------- --------
Total current liabilities ............................................ 45,479 42,140
Long-term obligations,
less current maturities ........................................... 74,741 86,151
Deferred income taxes ................................................ 2,935 3,493
Stockholders' equity
Preferred stock, $.01 par value
Authorized - 2,000,000 shares
None issued or outstanding.................................... -- --
Common stock, $.03 par value
Authorized -- 20,000,000 shares
Issued and outstanding -- 6,891,992 and 6,896,123 shares ..... 207 207
Additional paid-in capital ....................................... 30,135 30,189
Retained earnings ................................................ 25,286 29,552
-------- --------
Total stockholders' equity ........................................... 55,628 59,948
-------- --------
$178,783 $191,732
======== ========
</TABLE>
See accompanying notes
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ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------- ---------------------
1995 1996 1995 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues
Subacute care ............................ $ 25,681 $ 26,415 $ 49,090 $ 53,806
Basic care ............................... 18,157 21,216 35,414 41,612
Pharmacy and other ....................... 2,862 5,010 5,764 9,699
-------- -------- -------- ---------
Total net revenues ......................... 46,700 52,641 90,268 105,117
Expenses
Operating ................................ 37,201 41,752 72,104 83,433
General corporate ........................ 2,326 2,150 4,581 4,693
Operating lease rental ................... 1,040 1,127 2,051 2,253
Net Interest ............................. 1,380 1,657 2,601 3,277
Depreciation and amortization ............ 1,719 2,167 3,297 4,282
-------- -------- -------- ---------
Total expenses ............................. 43,666 48,853 84,634 97,938
Other expense (income)
Loss on disposal of property 123 128 142 183
Interest and sundry ...................... (83) (66) (160) (98)
-------- -------- -------- ---------
Total other expense (income) ............... 40 62 (18) 85
-------- -------- -------- ---------
Income before income taxes ................. 2,994 3,726 5,652 7,094
Income taxes ............................... 1,156 1,483 2,189 2,828
-------- -------- -------- ---------
Net income ................................. $ 1,838 $ 2,243 $ 3,463 $ 4,266
======== ======== ======== =========
Net income per share ....................... $ 0.27 $ 0.32 $ 0.51 $ 0.61
======== ======== ======== =========
Weighted average shares outstanding ........ 6,841 6,987 6,845 6,979
======== ======== ======== =========
</TABLE>
See accompanying notes
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ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30
---------------------
1995 1996
-------- --------
<S> <C> <C>
Operating activities
Net income ................................................. $ 3,463 $ 4,266
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for depreciation ............................. 2,944 3,585
Amortization ........................................... 496 828
Provision for deferred income taxes .................... (311) 307
Provision for losses on accounts receivable ............ 579 874
Loss on disposal of property ........................... 142 183
Changes in operating assets and liabilities
Accounts receivable .................................. 2,457 (1,669)
Other current assets ................................. (342) (543)
Deferred preopening costs ............................ (324) (351)
Accounts payable ..................................... 202 (3,659)
Accrued payroll and related items .................... 2,193 692
Other liabilities (income tax payments of $3,180,
and $2,987, respectively) .......................... (94) 3,932
-------- --------
Net cash provided by operating activities ..................... 11,405 8,445
Investing activities
Expenditures for property and equipment .................... (8,560) (14,880)
Purchase of Arbors at Fairlawn ............................. (6,648) --
Purchase of The Druggist , Inc. (net of cash received) ..... (4,963) --
Purchase of Poly-Stat Businesses (net of cash received) ... -- (981)
Sundry and other (principally proceeds on sales of
property and equipment) .................................. 5 38
-------- --------
Net cash used in investing activities ......................... (20,166) (15,823)
Financing activities
Net borrowings (repayments) under line of credit agreements
to finance development projects and acquisitions ......... 10,874 (14,613)
Net borrowings (repayments) of working capital
under line of credit agreements .......................... 287 (4,496)
Borrowings on long-term obligations ........................ 107 27,000
Repayments of long-term obligations ........................ (1,813) (1,416)
Deferred financing costs ................................... (60) (751)
Issuance of stock .......................................... 48 54
-------- --------
Net cash provided by financing activities ..................... 9,443 5,778
-------- --------
Net increase (decrease) in cash and cash equivalents .......... 682 (1,600)
Cash and cash equivalents at beginning of period .............. 5,555 6,394
-------- --------
Cash and cash equivalents at end of period .................... $ 6,237 $ 4,794
======== ========
</TABLE>
See accompanying notes
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ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For The Six Months Ended June 30, 1996
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheet of Arbor Health Care Company and subsidiaries
(the "Company") at December 31, 1995 has been derived from the audited
consolidated financial statements at that date. The consolidated balance sheet
of the Company as of June 30, 1996, and the consolidated statements of income
and cash flows for the periods ended June 30, 1996 and 1995, have been prepared
by the Company, without audit, in accordance with the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows at
June 30, 1996 and for all periods presented have been made. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. The results of operations and cash flows for the periods ended June
30, 1996 and 1995 are not necessarily indicative of the operating results or
cash flows for the full year.
2. ACQUISITIONS
The Company acquired all of the outstanding stock of Poly-Stat Supply
Corporation and Poly-Stat Computer Applications, Inc. effective June 30, 1996.
The Poly-Stat businesses provide enteral feeding, urological, ostomy,
tracheostomy, surgical dressing and oxygen supplies and Medicare billing
services to nursing homes.
The purchase price of approximately $1.2 million for the Poly-Stat businesses
included approximately $1.0 million in cash and approximately $0.2 million in
promissory notes. In addition, a $1.0 million contingent payment may be made if
certain earnings targets are attained over the next five years. The
acquisitions have been treated as purchases for accounting and financial
reporting purposes.
On May 31, 1995, the Company acquired substantially all of the assets of Arbors
at Fairlawn, a 150-bed nursing and assisted living facility, for approximately
$6.7 million in cash and assumed certain liabilities of $3.8 million for a total
purchase price of approximately $10.5 million. On June 30, 1995, the Company
acquired all of the outstanding stock of The Druggist, Inc. ("Druggist"), an
institutional pharmacy, for approximately $10.5 million in cash and notes, and
exchanged 49,937 shares of its Common Stock for all of the outstanding shares of
Alternacare Plus Enterprises, Inc. ("Alternacare"), a provider of medical and
enteral feeding supplies and Medicare billing services. Additional
consideration of up to $2.5 million may be required for the Druggist
acquisition if certain earnings targets are attained over the next five years.
Results of operations of companies purchased and the immaterial pooling of
Alternacare are included from the dates of acquisition.
3. LONG-TERM OBLIGATIONS
On February 15, 1996, the Company closed a $27.0 million financing package
($13.5 million at a fixed interest rate of 7.75% and $13.5 million at a variable
interest rate) for six Centers that was used to repay $24.2 million of debt. The
notes are collateralized by real estate, equipment and accounts receivable and
are payable in semi-annual installments and lump sums through February, 2003.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1985 and had an initial public offering of
its Common Stock in August 1993. As more fully described in the Annual Report on
Form 10-K for the year ended December 31, 1995, the Company provides subacute
and basic health care services to patients in centers ("Centers") located in
five states and operates three institutional pharmacies, one in Ohio and two in
Florida. The Company's growth strategy includes the development of new
facilities and selected acquisitions in its primary markets. During 1995, the
Company developed and opened two 120-bed Centers, one in April and one in
October, acquired a 150-bed Center on May 31, 1995 and on June 30, 1995 acquired
an institutional pharmacy and a provider of medical supplies and Medicare
billing services. The Company opened a 79-bed center in April, 1996 and
purchased two businesses that provide medical supplies and Medicare billing
services effective June 30, 1996. The Company operated 3,342 beds in its 28
Centers at June 30, 1996. The Company's institutional pharmacies service 128
non-affiliated facilities and 27 of the Company's Centers. Refer to Note 2 to
the Interim Consolidated Financial Statements. Ongoing efforts by third party
payors to contain health care costs by limiting reimbursement rates, increasing
case management review and negotiating reduced contract pricing affect the
Company's revenues and profitability. The Company has begun to implement a
strategy to lower costs and improve margins of its managed care business and is
positioning itself for proposed changes in Medicare reimbursement.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
For the three months ended June 30, 1996 total net revenues of $52.6
million increased $5.9 million, or 12.7%, from the three months ended June 30,
1995. Approximately 40.5% of the revenue increase was derived from internal
growth and the balance from acquisitions made during 1995. Same Store (Centers
and pharmacies in operation for 24 months or more in the period being reported
upon) revenue declined 4.4% from the comparable period in 1995 primarily due to
lower rates. Medicare rates, which are cost based, declined approximately 10% as
a result of the Company's cost reduction efforts. Additionally, average
insurance rates, which are a blend of commercial insurance and managed care
rates, are approximately 18% lower due to a higher proportion of managed care
patients in the insurance census. Revenue growth from Start-Ups (Centers and
pharmacies in operation for less than 24 months in the period being reported
upon) was approximately 75.0% of the 12.7% increase in revenue. Subacute care
revenues (which accounted for 50.2% of total revenues) increased $0.7 million
due to the addition of new beds during the year. Basic care revenues increased
$3.1 million ($1.2 million from higher rates and $1.9 million from new beds
added during the year); and pharmacy and other revenues increased $2.1 million
due to the June 30, 1995 institutional pharmacy acquisition. Same Store subacute
revenue declined $2.7 million from the comparable period in 1995 (primarily due
to lower rates as discussed above). Same Store growth provided $1.0 million of
the basic care revenue increase (primarily due to higher Medicaid rates). The
remaining subacute and basic care revenue growth came from four Start-Up Centers
and the acquisition of one Center in May, 1995.
Operating expenses for the three months ended June 30, 1996 of $41.8
million increased $4.5 million, or 12.2%, over the comparable period in 1995.
Operating costs increased at a slower pace than revenue. In fact, as a percent
of revenue, operating costs decreased to 79.3% from 79.7% for the comparable
period in 1995, due to lower operating costs at Same Store Centers and the
effect of the pharmacy acquisition made during 1995. The increased costs were
due to four Start-Up Centers, the acquisition of one Center acquired in May,
1995, and the June 30, 1995 institutional pharmacy acquisition. Center
personnel compensation expenses of $19.4 million (which are included in
operating expenses) increased by $1.5 million, or 8.4%, over the comparable
period in 1995. The four Start-Up Centers and the Center acquired in May, 1995
accounted for a $2.2 million increase in Center personnel compensation
expenses, which was partially offset by cost control efforts at mature centers.
The cost of providing additional pharmaceuticals, therapies, and medical
supplies increased operating expenses by $2.3 million, while the net effect of
other cost increases and decreases reflected an overall net increase of $0.7
million primarily resulting from four Start-Up Centers and the acquisition of
one Center in May, 1995.
General corporate expenses for the three months ended June 30, 1996 of
$2.2 million decreased $0.2 million, or 7.6%, from the comparable period in
1995. This change was primarily caused by a reduction in
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expenses related to professional services and recruiting and relocation costs.
As a percentage of revenue, general corporate expenses declined to 4.1% from
5.0% in the comparable period of the prior year.
Center ownership costs for the three months ended June 30, 1996 of $5.0
million increased $0.8 million, or 19.6%, over the three months ended June 30,
1995. The increase in ownership costs is due to four Start-Up Centers and the
acquisition of one Center and an institutional pharmacy.
Net income increased by $0.4 million, or 22.0%, from the comparable
period in 1995, primarily as a result of the foregoing factors, notwithstanding
an increase in the effective income tax rate from 38.6% to 39.8%. The increase
in the tax rate was due to the discontinuance of the targeted jobs tax credit.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
For the six months ended June 30, 1996 total net revenues of $105.1
million increased $14.8 million, or 16.4%, from the six months ended June 30,
1995. Approximately 51.4% of the revenue increase was derived from internal
growth and the balance from acquisitions made during 1995. Same Store revenue
declined approximately 1.2% from the comparable period in 1995 primarily due to
lower rates. Medicare rates, which are cost based, declined approximately 7% as
a result of the Company's cost reduction efforts. Additionally, average
insurance rates, which are a blend of commercial insurance and managed care
rates, are approximately 16% lower due to a higher proportion of managed care
patients in the insurance census. Revenue growth from Start-Ups provided
approximately 58.4% of the 16.4% increase in revenue. Subacute care revenues
(which accounted for 51.2% of total revenues) increased $4.7 million due to the
addition of new beds during the year. Basic care revenues increased $6.2 million
($2.4 million from higher rates and $3.8 million from new beds added during the
year); and pharmacy and other revenues increased $3.9 million due to the June
30, 1995 institutional pharmacy acquisition. Same Store subacute revenue
declined $2.0 million from the comparable period in 1995 (due to lower rates as
discussed above). Same Store growth provided $2.0 million of the basic care
revenue increase (primarily due to higher Medicaid rates). The remaining revenue
growth came from four Start-Up Centers and the acquisition of one Center in May,
1995.
Operating expenses for the six months ended June 30, 1996 of $83.4
million increased $11.3 million, or 15.7%, over the comparable period in 1995.
Operating costs increase at s slower pace than revenue. In fact, as a percent
of revenue, operating costs decreased to 79.4% from 79.9% for the comparable
period in 1995, due to lower routine operating costs at Same Store Centers and
the effect of the pharmacy acquisition made during 1995. The increased costs
were due to four Start-Up Centers, the acquisition of one Center in May, 1995,
and the June 30, 1995 institutional pharmacy acquisition. Center personnel
compensation expenses of $39.1 million (which are included in operating
expenses) increased by $4.0 million, or 11.5%, over the comparable period in
1995. The four Start-Up Centers and the Center acquired in May, 1995 accounted
for a $4.5 million increase in Center personnel compensation expenses, which
was partially offset by cost control efforts at mature centers. The cost of
providing additional pharmaceuticals, therapies and medical supplies increased
operating expenses by $5.7 million, while the net effect of other cost
increases and decreases reflected an overall net increase of $1.6 million
primarily resulting from four Start-Up Centers and the acquisition of one
Center in May, 1995.
General corporate expenses for the six months ended June 30, 1996 of
$4.7 million increased $0.1 million, or 2.4%, over the comparable period in
1995. As a percentage of revenue, general corporate expenses declined to 4.5%
from 5.1% in the comparable period of the prior year.
Center ownership costs for the six months ended June 30, 1996 of $9.8
million increased $1.9 million, or 23.4%, over the six months ended June 30,
1995. The increase in ownership costs is due primarily to four Start-Up Centers
and the acquisition of one Center and an institutional pharmacy in 1995.
Net income increased by $0.8 million, or 23.2%, from the comparable
period in 1995, primarily as a result of the foregoing factors, notwithstanding
an increase in the effective income tax rate from 38.7% to 39.9%. The increase
in the tax rate was due to the discontinuance of the targeted jobs tax credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth during the last two years has been financed with
cash from operating and financing activities. The Company's cash from operating
activities was $8.4 million for the six months ended June 30, 1996 compared to
$11.4 million for the comparable period last year. Cash provided by financing
activities was $5.8 million for the six months ended June 30, 1996. Expenditures
for investing activities totaled
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$15.8 million, including development of Centers, renovations to existing
Centers, the Poly-Stat acquisition and the purchase of a company airplane.
At June 30, 1996, the Company had working capital of $8.3 million
compared to $4.2 million at December 31, 1995. Accounts receivable net of
allowances were $37.4 million at June 30, 1996 compared to $36.2 million at
December 31, 1995. The number of days of net revenues for the quarter in net
receivables increased to 65 at June 30, 1996 from 64 at December 31, 1995.
The Company has revolving credit facilities ("Credit Facilities") with
four banks that are renewable on an annual basis. These Credit Facilities
provide amounts for working capital, letters of credit and acquisition/
development financing of $4.6 million, $4.4 million and $48.6 million,
respectively. At June 30, 1996, $2.6 million of letters of credit were
outstanding and $22.2 million had been committed for acquisition and development
purposes. The annual rates charged by the banks vary. Interest rates on the
working capital lines range from London Interbank Offered Rates ("LIBOR") plus
1.5% to prime and on the acquisition/development facilities from LIBOR plus
1.75% to prime. Annual fees of 1.0% are charged to the Company by the banks
issuing letters of credit under these Credit Facilities.
Long-term obligations, including current maturities, which provide
funds for long-term financing of Centers and acquisitions, totaled approximately
$92.0 million at June 30, 1996. These obligations are for varying amounts and
for terms that expire at varying times over the next 17 years. Interest rates on
outstanding obligations ranged from 3.58% to 10.78% at June 30, 1996. The
Company has been successful in finding permanent financing and refinancing
existing debt while using its Credit Facilities as interim sources of financing
when appropriate.
The Company has various ongoing needs for capital, including (i)
working capital for operations; (ii) capital expenditures for its Centers or
corporate office; and (iii) capital expenditures for the development of new
Centers and acquisitions. During the remainder of 1996, the Company expects to
utilize approximately $8.5 million for completion of a Center in Pensacola,
Florida and the development of two to three additional Centers; $2.6 million for
Center renovations; and $4.3 million for other capital expenditures. The Company
expects to complete the development of three Centers during 1996 and two to
three Centers in 1997, at a cost of $6.0 to $7.5 million for a typical 120-bed
Center. Management believes when all sources of capital are considered,
including cash to be generated by operating activities, credit facilities likely
to be available, and other financing activities to be undertaken, that
sufficient capital resources will be available to carry out anticipated
undertakings during the next 12 to 24 months.
Recent federal budget discussions have targeted the Medicare program
for savings in spending of approximately $10 billion. Approximately 36% of the
Company's revenue is derived from Medicare. While any legislation of the
magnitude of the current proposals could have a significant effect on the
Company, the Company will attempt to offset any cuts by making certain cost
reductions, changing patient mix and acuity, or increasing revenue from other
payor sources such as managed care. Until the ultimate form of any new
legislation is known, the Company will not be able to determine its financial
impact. In anticipation of such changes, the Company has begun to reduce costs
and to focus on increasing revenue from managed care payors. Additionally, the
House and Senate both have proposed changes to the welfare program, which
includes Medicaid, in the form of block grants with the objective of limiting
growth to a predetermined amount. Approximately 31% of the Company's revenue is
derived from Medicaid. The exact nature of the proposals and their effects are
not readily apparent. The individual state welfare programs will dictate the
nature of the changes and, as such, the effects will vary from state to state.
The Company can give no assurance that payments under such programs in the
future will remain at a level comparable to the present level or be sufficient
to cover the costs allocable to such patients.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None
Item 2. Changes in Securities.
---------------------
None
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Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on May 23,
1996. At the meeting, the following actions were taken by the
stockholders:
1. Pier C. Borra, Fredrick C. Powell and Bruce G. Thompson were
elected as Directors to serve until the Annual Meeting in 1999 and
until their successors are elected and qualified or until their
earlier resignation, removal from office or death. The votes cast for
and against each were as follows:
<TABLE>
<CAPTION>
FOR AGAINST
--- -------
<S> <C> <C>
Pier C. Borra 5,693,277 3,645
Fredrick C. Powell 5,693,277 3,645
Bruce G. Thompson 5,693,277 3,645
</TABLE>
2. The 1996 Stock Option Plan for Non-Employee Directors was
approved. The voting on the proposal was as follows:
<TABLE>
<CAPTION>
<S> <C>
FOR 5,567,580
AGAINST 83,850
ABSTAIN 5,633
</TABLE>
3. The appointment of Ernst & Young LLP as the Company's
independent auditors for the year 1996 was ratified and approved. The
voting on the proposal was as follows:
<TABLE>
<CAPTION>
<S> <C>
FOR 5,693,112
AGAINST 1,054
ABSTAIN 2,756
</TABLE>
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Part I Exhibits:
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
11.1 Statement Re Computation of Net Income Per Share.
27.1 Financial Data Schedule.
See Exhibit Index on Pg. 12 for Part II Exhibits
(b) Reports on Form 8-K
Report on Form 8-K dated June 21, 1996 announcing the promotion of Dennis R.
Smith to Senior Vice President - Finance and Chief Financial Officer, replacing
Stephen M. Mengert.
Report on Form 8-K dated June 30, 1996 announcing the
acquisitions of Poly-Stat Supply Corporation and
Poly-Stat Computer Applications, Inc.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARBOR HEALTH CARE COMPANY
(Registrant)
Date 8/13/96 By: /s/ DENNIS R. SMITH
----------- ----------------------------------------
Dennis R. Smith, Senior Vice President -
Finance and Chief Financial Officer
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PART II - OTHER INFORMATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item 6(a) Exhibits
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on Form S-3
(File No. 33-93470) filed June 14, 1995 under the Securities Act of 1933).
3.2* Restated bylaws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Registration Statement on Form S-3 (File No. 33-93470) filed
June 14, 1995 under the Securities Act of 1933).
4.1 Second Amended and Restated Revolving Credit and Term Loan Agreement
dated June 28, 1996 between the Company and KeyBank National
Association, fka Society National Bank.
4.2 Loan Agreement extension letter dated April 11, 1996 between the Company
and The Fifth Third Bank.
4.3* Promissory Note dated February 15, 1996 between the Company and Capital
One Funding Corporation (incorporated by reference to Exhibit 4.1 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.4* Reimbursement Agreement dated February 12, 1996 between the Company
and Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.2 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.5* Open-End Mortgage and Security Agreement dated February 12, 1996
between the Company and Bank One, Kentucky, N.A. (incorporated by
reference to Exhibit 4.3 of the Company's 10-Q for the quarter ended March
31, 1996).
4.6* Mortgage and Security Agreements (5) dated February 12, 1996 between the
Company and Bank One, Kentucky, N.A. (incorporated by reference to
Exhibit 4.4 of the Company's 10-Q for the quarter ended March 31, 1996).
4.7* Assignments of Leases and Rents (6) dated February 12, 1996 between the
Company and Bank One, Kentucky, N.A. (incorporated by reference to
Exhibit 4.5 of the Company's 10-Q for the quarter ended March 31, 1996).
4.8* Guaranty Agreement dated February 12, 1996 between the Company and
Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.6 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.9* Contingent Guaranty Agreement dated February 12, 1996 between the
Company and Bank One, Kentucky, N.A. (incorporated by reference to
Exhibit 4.7 of the Company's 10-Q for the quarter ended March 31, 1996).
4.10* Working Capital Line of Credit extension letter dated March 31, 1996 between
the Company and Society National Bank (incorporated by reference to Exhibit
4.8 of the Company's 10-Q for the quarter ended March 31, 1996).
4.11* Letter of Credit extension letter dated March 31, 1996 between the Company
and Society National Bank (incorporated by reference to Exhibit 4.9 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.12* Acquisition and Development Revolving Credit Facility extension letter dated
March 31, 1996 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.10 of the Company's 10-Q for the
quarter ended March 31, 1996).
</TABLE>
14
<PAGE> 13
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.13* Second Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement dated February 9, 1996 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.11 of the Company's
10-Q for the quarter ended March 31, 1996).
4.14* Amendment to Amended and Restated Loan Agreement dated February 1,
1996 between the Company and Bank One, Lima, N.A. (incorporated by
reference to Exhibit 4.12 of the Company's 10-Q for the quarter ended March
31, 1996).
4.15* Acquisition and Development Revolving Credit Facility extension letter dated
March 31, 1996 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.1 of the Company's 10-K for the year
ended December 31, 1995).
4.16* Working Capital Line of Credit extension letter dated December 21, 1995
between the Company and Society National Bank (incorporated by reference to
Exhibit 4.2 of the Company's 10-K for the year ended December 31, 1995).
4.17* Letter of Credit extension letter dated December 21, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.3
of the Company's 10-K for the year ended December 31, 1995).
4.18* Second Amended and Restated Demand Promissory Note dated December
28, 1995 between the Company and Society National Bank (incorporated by
reference to Exhibit 4.4 of the Company's 10-K for the year ended December
31, 1995).
4.19* Amended and Restated Revolving Credit and Term Loan Agreement dated
June 1, 1995 between the Company and Society National Bank (incorporated
by reference to Exhibit 4.5 of the Company's 10-K for the year ended
December 31, 1995).
4.20* Amendment to Loan Agreement dated September 14, 1995 between the
Company and The Provident Bank (incorporated by reference to Exhibit 4.1
of the Company's 10-Q for the quarter ended September 30, 1995).
4.21* Acquisition and Development Revolving Credit Facility extension letter dated
August 31, 1995 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended September 30, 1995).
4.22* Working Capital Line of Credit extension letter dated August 31, 1995
between the Company and Society National Bank (incorporated by reference
to Exhibit 4.3 of the Company's 10-Q for the quarter ended September 30,
1995).
4.23* Letter of Credit extension letter dated August 31, 1995 between the Company
and Society National Bank (incorporated by reference to Exhibit 4.4 of the
Company's 10-Q for the quarter ended September 30, 1995).
4.24* Loan Agreement dated August 1, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.5 of the Company's
10-Q for the quarter ended September 30, 1995).
4.25* Amended and Restated Loan Agreement dated August 1, 1995 between the
Company and Bank One, Lima, NA (incorporated by reference to Exhibit 4.6
of the Company's 10-Q for the quarter ended September 30, 1995).
</TABLE>
15
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.26* Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated June 30, 1995 between the Company and Society National
Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q for the
quarter ended June 30, 1995).
4.27* Amendment to Loan Agreement dated June 30, 1995 between the Company
and The Provident Bank (incorporated by reference to Exhibit 4.2 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.28* Amendment to Loan Agreement dated June 29, 1995 between the Company
and Bank One (incorporated by reference to Exhibit 4.3 of the Company's 10-
Q for the quarter ended June 30, 1995).
4.29* Amendment to Loan Agreement dated June 30, 1995 between the Company
and The Fifth Third Bank (incorporated by reference to Exhibit 4.4 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.30* Acquisition and Development Revolving Credit Facility extension letter dated
June 1, 1995 between the Company and Society National Bank (incorporated
by reference to Exhibit 4.5 of the Company's 10-Q for the quarter ended June
30, 1995).
4.31* Working Capital Line of Credit extension letter dated June 1, 1995 between
the Company and Society National Bank (incorporated by reference to Exhibit
4.6 of the Company's 10-Q for the quarter ended June 30, 1995).
4.32* Letter of Credit extension letter dated June 1, 1995 between the Company
and Society National Bank (incorporated by reference to Exhibit 4.7 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.33* Loan Agreement amendment dated May 31, 1995 between the Company and
Bank One (incorporated by reference to Exhibit 4.8 of the Company's 10-Q
for the quarter ended June 30, 1995).
4.34* Loan Agreement extension letter dated May 29, 1995 between the Company
and The Provident Bank (incorporated by reference to Exhibit 4.9 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.35* Loan Agreement extension letter dated March 22, 1995 between the
Company and The Provident Bank (incorporated by reference to Exhibit 4.1
of the Company's 10-Q for the quarter ended March 31, 1995).
4.36* Line of Credit for Letters of Credit Agreement dated November 10, 1994
between the Company and Society National Bank (incorporated by reference
to Exhibit 4.1 of the Company's 10-K for the year ended December 31, 1994).
4.37* Loan Agreement extension letter dated September 16, 1994 between the
Company and The Provident Bank (incorporated by reference to Exhibit 4.1
of the Company's 10-Q for the quarter ended September 30, 1994).
4.38* Acquisition and Development Revolving Credit Facility extension letter dated
August 31, 1994 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended September 30, 1994).
4.39* Working Capital Line of Credit extension letter dated August 31, 1994
between the Company and Society National Bank (incorporated by reference
to Exhibit 4.3 of the Company's 10-Q for the quarter ended September 30,
1994).
4.40* Letter of Credit extension letter dated August 31, 1994 between the Company
and Society National Bank (incorporated by reference to Exhibit 4.4 of the
Company's 10-Q for the quarter ended September 30, 1994).
4.41* Loan Agreement amendment dated September 15, 1994 between the
Company and Bank One (incorporated by reference to Exhibit 4.5 of the
Company's 10-Q for the quarter ended September 30, 1994).
</TABLE>
16
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.42* Revolving Credit and Term Loan Agreement dated April 11, 1994 between the
Company and The Fifth Third Bank (incorporated by reference to Exhibit 4.1
of the Company's 10-Q for the quarter ended June 30, 1994).
4.43* Loan Agreement extension letter dated May 25, 1994 between the Company
and The Provident Bank (incorporated by reference to Exhibit 4.2 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.44* Acquisition and Development Revolving Credit Facility extension letter dated
May 18, 1994 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.3 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.45* Acquisition and Development Revolving Credit Facility extension letter dated
July 31, 1994 between the Company and Society National Bank
(incorporated by reference to Exhibit 4.4 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.46* Working Capital Line of Credit extension letter dated May 16, 1994 between
the Company and Society National Bank (incorporated by reference to Exhibit
4.5 of the Company's 10-Q for the quarter ended June 30, 1994).
4.47* Working Capital Line of Credit extension letter dated July 31, 1994 between
the Company and Society National Bank (incorporated by reference to Exhibit
4.6 of the Company's 10-Q for the quarter ended June 30, 1994).
4.48* Letter of Credit extension dated May 18, 1994 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.7 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.49* Letter of Credit extension letter dated July 31, 1994 between the Company
and Society National Bank (incorporated by reference to Exhibit 4.8 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.50* Loan Agreement dated December 21, 1993 between the Company and Bank
One, Lima, NA (incorporated by reference to Exhibit 4.1 of the Company's 10-
K for the year ended December 31, 1993).
4.51* Revolving Credit and Term Loan Agreement dated August 11, 1993 between
the Company and The Provident Bank (incorporated by reference to Exhibit
4.1 of the Company's 10-Q for the quarter ended September 30, 1993).
4.52* Revolving Credit and Term Loan Agreement dated September 30, 1993
between the Company and Society Bank & Trust (incorporated by reference
to Exhibit 4.2 of the Company's 10-Q for the quarter ended September 30,
1993).
4.53* Stockholders Agreement dated April 9, 1985 among Arbor Holdings, Inc. and
Stockholders and the First Amendment thereto (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-1 (File No.
33-65080) filed June 25, 1993 under the Securities Act of 1933).
4.54* Series B Preferred Stock Purchase Agreement dated November 3, 1986
(incorporated by reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
4.55* Revolving Credit and Term Loan Agreement dated June 30, 1992 between the
Company and Society Bank & Trust (incorporated by reference to Exhibit 4.3
of the Company's Registration Statement on Form S-1 (File No. 33-65080)
filed June 25, 1993 under the Securities Act of 1933).
4.56* Line of Credit Agreement dated June 22, 1993 between the Company and
Society Bank & Trust (incorporated by reference to Exhibit 4.4 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed
June 25, 1993 under the Securities Act of 1933).
</TABLE>
17
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.57* Loan Agreement between the Company and The Provident Bank dated
September 9, 1992 (incorporated by reference to Exhibit 4.5 of the Com-
pany's Registration Statement on Form S-1 (File No. 33-65080) filed June 25,
1993 under the Securities Act of 1933).
4.58* Loan Agreement between the Company and Bank One, Lima, NA dated
December 7, 1992 (incorporated by reference to Exhibit 4.6 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1933
under the Securities Act of 1933).
4.59* Commitment Letter dated May 28, 1993 from Bank One, Lima, NA, accepted
by the Company June 7, 1993 (incorporated by reference to Exhibit 4.7 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed
June 25, 1993 under the Securities Act of 1933).
4.60* Mortgage and Security Agreement between the Company and Southtrust
Bank of Alabama, National Association, dated September 29, 1992
(incorporated by reference to Exhibit 4.8 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
4.61* Commitment Letter dated as of May 30, 1993, from Society Bank & Trust for
revolving credit facility, accepted by the Company June 22, 1993
(incorporated by reference to Exhibit 4.9 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed July 9, 1993 under the
Securities Act of 1933).
4.62* Commitment Letter dated as of July 1, 1993, from The Provident Bank,
informing the Company of reaffirmation of line of credit (incorporated by
reference to Exhibit 4.10 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed July 9, 1993 under the Securities Act of 1933).
(The Company is not filing any instrument with respect to long-term debt that
does not exceed 10 percent of the total assets of the Company, and the
Company agrees to furnish a copy of any such instrument to the Commission
upon request).
10.1 Share Purchase Agreement dated June 30, 1996 between the Company and
Robert Q. Baker, sole shareholder of Poly-Stat Supply Corporation.
10.2 Share Purchase Agreement dated June 30, 1996 between the Company and
Robert Q. Baker and Richard E. Moon, shareholders of Poly-Stat Computer
Applications, Inc.
10.3* Second Amendment to Lease Agreement dated March 18, 1996 between the
Company and V & V Properties (incorporated by reference to Exhibit 10.1 of
the Company's 10-Q for the quarter ended March 31, 1996).
10.4*+ Arbor Health Care Company 1996 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the Company's Proxy Statement dated April 8, 1996).
10.5*+ Description of 1995 Bonus Plans for Named Executive Officers (incorporated
by reference to Exhibit 10.1 of the Company's 10-k for the year ended
December 31, 1995).
10.6* Asset Purchase Agreement dated April 28, 1995 between the Company and
Fairlawn Associates Limited Partnership (incorporated by reference to Exhibit
10.1 of the Company's 10-Q for the quarter ended June 30, 1995).
10.7* Amendment to Asset Purchase Agreement dated June 1, 1995 between the
Company and Fairlawn Associates Limited Partnership (incorporated by
reference to Exhibit 10.2 of the Company's 10-Q for the quarter ended June
30, 1995).
10.8* Agreement of Merger dated June 30, 1995 between the Company, Green
Tree Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc. (incorporated by
reference to Exhibit 10.3 of the Company's 10-Q for the quarter ended June
30, 1995).
</TABLE>
18
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.9* Addendum to Agreement of Merger dated June 30, 1995 between the
Company, Green Tree Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc.
(incorporated by reference to Exhibit 10.4 of the Company's 10-Q for the
quarter ended June 30, 1995).
10.10* Share Purchase Agreement dated June 30, 1995 between the Company and
Allan K. Vrable, sole shareholder of Alternacare Plus Enterprises, Inc.
(incorporated by reference to Exhibit 10.5 of the Company's 10-Q for the
quarter ended June 30, 1995).
10.11* Employment Agreement dated June 30, 1995 between the Company and
Allan K. Vrable (incorporated by reference to Exhibit 10.6 of the Company's
10-Q for the quarter ended June 30, 1995).
10.12*+ Arbor Health Care Company 1995 Stock Option Plan (incorporated by
reference to the Company's Proxy Statement dated April 24, 1995).
10.13* Share Purchase Agreement dated June 30, 1994 between the Company and
the Stockholders of Bay Geriatric Pharmacy, Inc. and Home Care Pharmacy,
Inc. of Florida (incorporated by reference to Exhibit 10.1 of the Company's
10-K for the year ended December 31, 1994).
10.14* Lease Agreement between Highland Oaks Associates, LTD., and Bay
Geriatric Pharmacy, dated May 23, 1991 (incorporated by reference to Exhibit
10.2 of the Company's 10-K for the year ended December 31, 1994).
10.15* Lease Agreement between FGHP Properties, Limited Partnership and Home
Care Pharmacy, Inc. of Florida, dated March 24, 1993 (incorporated by
reference to Exhibit 10.3 of the Company's 10-K for the year ended December
31, 1994).
10.16* First Amendment to lease between the Company and Semi Cane
Investments, Inc., as Successor in Interest to Great Western Bank dated June
17, 1994 (incorporated by reference to Exhibit 10.4 of the Company's 10-K
for the year ended December 31, 1994).
10.17* First Amendment to Lease Agreement dated March 11, 1994 between the
Company and V & V Properties (incorporated by reference to Exhibit 10.5 of
the Company's 10-K for the year ended December 31, 1994).
10.18* Management Agreement between the Company and Fairlawn Nursing Home
and Assisted Living, Inc. dated June 9, 1986, and amendments thereto dated
June 13, 1986, October 1, 1990, and January 1, 1993 (incorporated by
reference to Exhibit 10.1 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of 1933).
10.19* Lease Agreement between the Company and V & V Properties, dated June
2, 1988 (incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
10.20* Operating Lease between the Company and Health Care Property Investors,
Inc., dated January 31, 1986, as amended September 11, 1991 (incorporated
by reference to Exhibit 10.3 of the Company's Registration Statement on
Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.21* Business Property Lease between the Company and Office World, Inc. dated
July 1, 1992 (incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
10.22* Lease Agreement between the Company and Great Western Bank, dated
July 1, 1992 (incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
</TABLE>
19
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.23* Operating Lease between the Company and Health Care Property Investors,
Inc., dated January 31, 1986, as amended September 11, 1991 (incorporated
by reference to Exhibit 10.6 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of 1933).
10.24* Office Lease between the Company and NFI MetroCenter II Associates dated
November 15, 1992 (incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed
June 25, 1993 under the Securities Act of 1933).
10.25* Lease Agreement between the Company and Marie Antoinette Partners,
dated April 2, 1986 (incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed
June 25, 1993 under the Securities Act of 1933).
10.26* Facility Lease by and between the Company and Cumberland Healthcare,
L.P., I-C, dated February 1, 1989, as amended November 15, 1991
(incorporated by reference to Exhibit 10.9 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.27* Lease and Security Agreement between BIP SUB I, INC. and Arbors East, Inc.
dated April 1, 1991 (incorporated by reference to
Exhibit 10.10 of the Company's Registration Statement
on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
10.28* Operating Lease between the Company and Health Care Properties Investors,
Inc. dated December 30, 1986 and Addendum dated March 23, 1987
(incorporated by reference to Exhibit 10.11 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.29*+ First Amended and Restated Incentive Stock Option Plan dated November
26, 1991 (incorporated by reference to Exhibit 10.12 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
10.30* Management Agreement dated September 28, 1989 between the Company
and The Druggist, Inc., as amended June 30, 1991 (incorporated by
reference to Exhibit 10.14 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of 1933).
10.31* Assignment and Assumption of Management Agreement dated January 4,
1989 among the Company, Fairlawn Nursing Home and Assisted Living, Inc.,
and Fairlawn Associates Limited Partnership, relating to Management
Agreement previously filed as Exhibit 10.1 of the Company's Registration
Statement on Form S-1 filed on June 25, 1993 (File No. 33-65080) and
incorporated by reference herein (incorporated by reference to Exhibit 10.16
of the Company's Registration Statement on Form S-1 (File No. 33-65080)
filed July 9, 1993 under the Securities Act of 1933).
10.32*+ Certificate of Amendment dated July 7, 1993, to First Amended and Restated
Incentive Stock Option Plan previously filed as Exhibit 10.12 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) and
incorporated by reference herein (incorporated by reference to Exhibit 10.17
of the Company's Registration Statement on Form S-1 (File No. 33-65080)
filed July 9, 1993 under the Securities Act of 1933).
10.33* Land Lease Agreement between the Company and the Chesapeake and
Potomac Telephone Company of West Virginia dated June 24, 1993
(incorporated by reference to Exhibit 10.18 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed July 29, 1993 under the
Securities Act of 1933).
</TABLE>
20
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.34*+ Form of Indemnification Agreement between the Company and its Directors
and Executive Officers (incorporated by reference to Exhibit 10.19 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed July
29, 1993 under the Securities Act of 1933).
11.1 Statement Re Computation of Net Income Per Share.
27.1 Financial Data Schedule
<FN>
*Previously filed.
+Executive management contract or compensatory plan or arrangement.
</TABLE>
21
<PAGE> 1
EXHIBIT 4.1
SECOND AMENDED AND RESTATED
---------------------------
REVOLVING CREDIT AND TERM LOAN AGREEMENT
----------------------------------------
THIS AGREEMENT is made by and between the Company (as herein defined)
and the Bank (as herein defined), as an amendment and restatement of the Amended
and Restated Revolving Credit and Term Loan Agreement dated June 1, 1995, as
amended on June 30, 1995 and on February 9, 1996, between the Company and the
Bank.
In consideration of the covenants and agreements contained herein, the
Company and the Bank hereby mutually agree as follows:
ARTICLE I. DEFINITIONS
----------------------
Section 1.1. GENERAL. Any accounting term used but not specifically defined
herein shall be construed in accordance with GAAP. The definition of each
agreement, document, and instrument set forth in Section 1.2 hereof shall be
deemed to mean and include such agreement, document, or instrument as amended,
restated, or modified from time to time.
Section 1.2 DEFINED TERMS. As used in the Agreement:
"AFFILIATE BANK" shall mean any one or more bank subsidiaries (other than
the Bank) of KeyCorp and its successors.
"BANK" shall mean KeyBank National Association, fka Society National Bank,
with its office at 34 North Main Street, Dayton, Ohio 45402 and its successors
and assigns.
"COMPANY" shall mean Arbor Health Care Company, a Delaware corporation with
its principal office located at 1100 Shawnee Road, Lima, Ohio 45805, and its
successors.
"CONSOLIDATED" shall mean the resultant consolidation of the financial
statements of the Company and its subsidiaries in accordance with GAAP,
including principles of consolidation consistent with those applied in
preparation of the Consolidated financial statements referred to in Section 3.5
herein;
"DEBT SERVICE COVERAGE FOR THE BORROWER" means a ratio in which the
numerator is the sum of net income of the Borrower calculated for the twelve
(12) month period preceding the date of calculation of such coverage PLUS the
sum of noncash expenses or allowances for such period, including, without
limitation, amortization or write down of intangible assets, depreciation,
depletion, and deferred taxes and expenses, LESS any dividends paid by the
Borrower, and LESS an assumed capital expenditure of $300.00 per bed for all
nursing home beds owned/leased by Borrower for the applicable period, and the
denominator is the sum of the current portion of the Long Term Debt of the
Borrower at the end of such period. In calculating "net income," federal and
state taxes on the Borrower's income shall be deducted, and any extraordinary
income shall be deducted.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EVENT OF DEFAULT" shall mean any one or more of the occurrences described
in ARTICLE VII hereof.
"FACILITY LOAN" shall mean each portion of the loan representing advances
applied for the acquisition or development of a center pursuant to Section 2.1
below.
1
<PAGE> 2
"GAAP" shall mean generally accepted accounting principles as then in
effect, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"GUARANTOR" shall mean each Person that now or hereafter guarantees any
portion of the Company's Indebtedness payable to the Bank, and such Person's
successors.
"INDEBTEDNESS" shall mean for any Person (i) all obligations to repay
borrowed money, direct or indirect, incurred, assumed, or guaranteed, (ii) all
obligations for the deferred purchase price of capital assets excluding trade
payables, (iii) all obligations under conditional sales or other title retention
agreements, and (iv) all lease obligations which have been or should be
capitalized on the books of such Person.
"INTEREST PERIOD" shall mean a period of thirty (30), sixty (60), ninety
(90), or one hundred twenty (120) days commencing on the applicable borrowing
date of each Term Loan bearing interest at a rate based on the LIBOR rate and on
each interest adjustment date with respect thereto; provided, however, that if
any such period would be affected by prepayment or maturity of Term Loans as
provided in ARTICLE II hereof, such period shall be shortened to end on such
date.
"LIBOR RATE" shall mean the average (rounded upward to the nearest 1/16 of
1%) of the per annum rates at which deposits in immediately available funds in
U.S. Dollars for the relevant Interest Period and in the amount of the Term Loan
to be disbursed or to remain outstanding during such Interest Period, as the
case may be, are offered to the Reference Bank by prime banks in any Eurodollar
market reasonably selected by the Reference Bank, determined as of 11:00 a.m.
London time (or as soon thereafter as practicable), two (2) London Banking Days
prior to the beginning of the relevant Interest Period pertaining to a Term Loan
hereunder.
"LIEN" shall mean any mortgage, security interest, lien, charge,
encumbrance on, pledge or deposit of, or conditional sale or other title
retention agreement with respect to any property or asset.
"LOAN" OR "LOANS" shall mean the credit to the Company extended by the Bank
in accordance with Section 2.1 hereof.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Security
Instruments, if any, and any other documents relating thereto.
"LONDON BANKING DAY" shall mean a day on which most banks are open for
business in London, England, and quoting deposit rates for Dollar deposits.
"LONG TERM DEBT" means all obligations (including capital lease
obligations) which are due more than one (1) year from the date as of which the
computation thereof is made, provided that for purposes of determining the Debt
Service Coverage for the Borrower as set forth in Section 5.7 hereof, any
principal "balloon" or "bullet" payments due at maturity of indebtedness will
not be included in such computation.
"MARGIN STOCK" shall have the meaning given to it under Regulation U of the
Board of Governors of the Federal Reserve System, as amended from time to time.
"MULTIEMPLOYER PLAN" shall mean a Plan described in ERISA which covers
employees of the company and employees of any other Person, which together would
be treated as a single employer for purposes of ERISA.
"NET WORTH" shall mean the total assets of a Person less such Person's
total liabilities.
2
<PAGE> 3
"NOTE" shall mean the promissory note(s), in the form of Exhibit A attached
hereto (or as currently existing), signed and delivered by the Company to
evidence its indebtedness to the Bank in accordance with Section 2.1 hereof.
"PERSON" shall mean any natural person, corporation (which shall be deemed
to include business trust), association, partnership, joint venture, political
entity, or political subdivision thereof.
"PLAN" shall mean any plan (other than a Multiemployer Plan) defined in
ERISA in which the Company or any Subsidiary is, or has been at any time during
the preceding two (2) years, an "employer" or a "substantial employer" as such
terms are defined in ERISA.
"POTENTIAL DEFAULT" shall mean any condition, action, or failure to act
which, with the passage of time, service of notice, or both, will constitute an
Event of Default under this Agreement.
"PRIME RATE" shall mean that interest rate established from time to time by
the Bank as the Bank's Prime Rate, whether or not such rate is publicly
announced; the Prime Rate may not be the lowest interest rate charged by Bank
for commercial or other extensions of credit.
"REASONABLE INSURANCE COVERAGE" shall mean total liability insurance
coverage shall at no time be less than an aggregate amount of Five Million
Dollars ($5,000,000.00) with replacement value coverage in place on all
leaseholds and real estate.
"REFERENCE BANK" shall mean the Cayman Island branch office of Bank.
"SECURITY INSTRUMENT(S)" shall mean the written document(s) signed and
delivered from time to time to the Bank in connection with Indebtedness owed by
Company to the Bank.
"SUBORDINATED DEBT" shall mean Indebtedness of a Person which is
subordinated, in a manner satisfactory to the Bank, to all indebtedness owning
to the Bank.
"SUBSIDIARY" shall mean any Person of which more than fifty percent (50%)
of (i) the voting stock entitling the holders thereof to elect a majority of the
Board of Directors, managers, or trustees thereof, or (ii) the interest in the
capital or profits of such Person, which at the time is owned or controlled,
directly or indirectly, by the Company or one or more other Subsidiaries.
"TERM LOANS" shall mean those loans described in ARTICLE II hereof on which
the Borrower shall pay interest at a rate based on LIBOR.
"TERMINATION DATE" shall mean May 31, 1998, or such earlier date on which
the commitment of the Bank to make Loan pursuant to Section 2.1(a) hereof shall
have been terminated pursuant to ARTICLE VIII of this Agreement.
ARTICLE II. CREDIT FACILITY
Section 2.1. REVOLVING CREDIT CONVERTING TO A TERM LOAN. The Bank hereby
agrees, subject to the terms and conditions of this Agreement, to extend one or
more Loans to the Company:
(a) For the period through May 31, 1998, the Bank agrees to make available
to the Company a Loan not to exceed Fifteen Million and 00/100 Dollars
($15,000,000.00) less the aggregate of all other indebtedness under this
Revolving Credit of the Company to the Bank outstanding from time to time, or so
much thereof as the Company may draw upon and borrow from time to time, and the
amount, terms,
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and conditions of which may be adjusted from time to time under mutual consent.
Each portion of the Loan representing advances applied for the acquisition or
development of a center pursuant to this Section 2.1 is sometimes referred to
herein as the "Facility Loan." Each Facility Loan shall be evidenced by a
Promissory Note (individually and collectively referred to as the "Note") of the
Company in the form annexed hereto as "Exhibit A", maturing and bearing interest
at the rate defined in Section 2.3. The terms and conditions of the Note may be
adjusted by mutual consent of Bank and Company, or, except for the rate of
interest, term, principal amount and amortization specified in this Section, may
be adjusted by Bank to reflect changes in laws and regulations subsequent to
this Agreement. The Company may at any time, or from time to time, prepay the
Note, in whole or in part without penalty.
(b) There is currently one note outstanding, in the original principal
amount of Four Million Two Hundred Thousand Dollars ($4,200,000), which
represents a "Facility Loan", a copy of which is attached hereto as Exhibit B.
Section 2.2. PURPOSE. The purpose of a Loan shall be for (a) the
acquisition and/or development by the Company of health care and retirement
centers or related businesses, or (b) the refinancing of any debt of Company
currently outstanding or that may be outstanding in the future.
The Company further understands that, with respect to Loans for the purpose
of acquiring and/or developing health care and retirement centers or related
businesses, the Bank will lend no more than ninety percent (90%) of the purchase
price, development cost, or leasehold interest of any such center. With respect
to Loans for the refinancing of any debt of Company, the Bank will lend no more
than ninety percent (90%) of the appraised value of the center securing the
debt. The Bank reserves the right to approve all terms and conditions of any
Loan in its reasonable discretion, including, without limitation, the Bank
reserves the right to require that a mortgage or mortgages be given as security
for any Loan.
Section 2.3. INTEREST RATE.
(a) Each advance on the Loan shall bear interest at a rate per annum equal
to the LIBOR rate plus 200 basis points or at the Prime Rate. When interest is
at the Prime Rate, in the event of any change in the Prime Rate, the rate of
interest upon such Loan shall be adjusted to immediately correspond with such
change, except such interest rate shall not exceed the highest rate permitted by
law.
(b) Whenever any Event of Default occurs and continues and/or the unpaid
principal amount of the Loan(s), and accrued interest thereon, or any fees or
any other sum payable hereunder, shall become due and payable and remain unpaid
(whether by acceleration or otherwise), the amount thereof shall thereafter
until paid in full bear interest at a rate per annum equal to the greater of:
two percent (2%) in excess of the rate of interest in effect prior to the Event
of Default or two percent (2%) in excess of the Prime Rate in effect from time
to time, which rate shall be adjusted in the manner described in Section 2.3 (a)
above.
Section 2.4. INTEREST PAYMENTS. The Company shall pay to the Bank interest
on the unpaid principal balance of all Loan(s) at the rates and in the amount
calculated in accordance with Section 2.3 above, and continuing quarterly
thereafter and at maturity as provided in Exhibit A and any amendments thereto.
Section 2.5. FEES. The Company shall pay to the Bank a commitment fee
computed at a rate of one-fourth of one percent (1/4 of 1%) per annum
(calculated on the basis of a year of 360 days for the actual number of days
elapsed) on the average daily unused amount of the commitment of the Bank to
make the Loans in accordance with Section 2.1(a) hereof during the period from
the date of this
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Agreement to the Termination Date, payable starting September 30, 1996 and
continuing quarterly thereafter, and on the Termination Date, with respect to
the portion of such preceding period as to which such fee has accrued and
remains unpaid.
Section 2.6. COMPUTATION OF INTEREST AND FEES. Interest on Loans and unpaid
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed.
Section 2.7. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE. In respect of any Term Loans, in the event that Bank shall have
determined that Eurodollar deposits of the relevant amount for the relevant
Interest Period for such Term Loans are not available to the Reference Bank in
the applicable Eurodollar Market or that, by reason of circumstances affecting
such market, adequate and reasonable means do not exist for ascertaining the
LIBOR rate applicable to such Interest Period, as the case may be, Bank shall
promptly give notice of such determination to the Borrower and the Borrower
shall be obligated to prepay any outstanding Term Loans on the last day of the
then current Interest Period or Periods with respect thereto, or select an
interest rate based on the Prime Rate for such Term Loan.
Section 2.8. CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL. If at any time
any new law, treaty, or regulation, or any change in any existing law, treaty,
or regulation, or any interpretation thereof by any governmental or other
regulatory authority charged with the administration thereof, shall make it
unlawful for Bank to fund any Term Loans which it is committed to make hereunder
with moneys obtained in the Eurodollar market, the commitment of Bank to fund
Term Loans shall, upon the happening of such event forthwith be suspended for
the duration of such illegality, and Bank shall by written notice to the
Borrower declare that its Commitment with respect to such Term Loans has been so
suspended and, if and when such illegality ceases to exist, such suspension
shall cease and Bank shall similarly notify the Borrower. If any such change
shall make it unlawful for Bank to continue in effect the funding in the
applicable Eurodollar market of any Term Loan previously made by it hereunder,
Bank shall, upon the happening of such event, notify the Borrower thereof in
writing stating the reasons therefor, and the Borrower shall, on the earlier of
(i) the last day of the then current Interest Period or (ii) if required by such
law, regulation or interpretation, on such date as shall be specified in such
notice prepay all Term Loans to Bank in full, or select an interest rate based
on the Prime Rate for such Term Loan.
ARTICLE III. WARRANTIES
-----------------------
The Company represents and warrants to the Bank (which representations and
warranties will survive the delivery of the Note and all extensions of credit
under this Agreement) that:
Section 3.1. ORGANIZATION; CORPORATE POWER.
-----------------------------
(a) The Company and each of its Subsidiaries are corporations duly
organized, validly existing, and in good standing under the laws of the
respective jurisdictions in which they are incorporated.
(b) The Company and each of its Subsidiaries have the corporate power and
authority to own their respective properties and assets and to carry on its
business as now being conducted.
(c) The Company and each of its Subsidiaries are qualified to do business
in every jurisdiction in which the ownership or leasing of its or their
respective property or the doing of business requires such qualification; unless
the failure to qualify in any particular jurisdiction would not have a material
impact on the financial condition of the Company and its Subsidiaries taken as a
whole.
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(d) The Company has the corporate power to execute, deliver, and perform
its Loan Documents and to borrow hereunder.
Section 3.2. AUTHORIZATION OF BORROWING. The execution, delivery, and
performance of the Loan Documents and the Loans by the Company have been duly
authorized by all requisite corporate action.
Section 3.3. NO CONFLICT. The execution, delivery, and performance of the
Loan Documents will not (a) violate any provision of law, the Articles of
Incorporation, the Code of Regulations, or By-Laws of the Company, (b) violate
any order of any court or other agency of any federal or state government or any
provision of any indenture, agreement, or other instrument to which the Company
is a party or by which it or any of its properties or assets are bound, (c)
conflict with, result in a breach of, or constitute (with passage of time or
delivery of notice, or both), a default under any such indenture, agreement, or
other instrument, or (d) result in the creation or imposition of any Lien or
other encumbrance of any nature whatsoever upon any of the properties or assets
of the Company except in favor of the Bank.
Section 3.4. EXECUTION OF LOAN DOCUMENTS. The Loan Documents have been duly
executed and are valid and binding obligations of the Company fully enforceable
in accordance with their respective terms.
Section 3.5. FINANCIAL CONDITION. The Company has furnished to the Bank
financial statements prepared on a Consolidated basis, audited by a certified
public accountant, as of the end of the Company's fiscal year which ended
December 31, 1995, which audited Consolidated financial statements present
fairly the Company's Consolidated financial condition at such date, and there
has been no material adverse change in the Company's financial condition since
that date.
Section 3.6. LIABILITIES; LIENS. The Company has made no material
investment in, advance to, or guarantee of, the obligations of any Person nor
are the Company's assets and properties subject to any claims, liabilities,
Liens, or other encumbrances, except as disclosed in the financial statements
and related notes thereto referred to in Section 3.5 hereof, and except for
those made in the ordinary course of business (including, without limitation,
inter-company loans and advances to officers).
Section 3.7. LITIGATION. There is no action, suit, examination, review, or
proceeding by or before any governmental instrumentality or agency now pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries or against any property or rights of the Company or any of its
Subsidiaries, which, if adversely determined, would materially impair the right
of the Company to carry on business as now being conducted or which would
materially adversely affect the financial condition of the Company and its
Subsidiaries taken as a whole, except for the litigation, if any, described in
the notes to the Consolidated financial statements referred to in Section 3.5
hereof.
Section 3.8. PAYMENT OF TAXES. The Company and each of its Subsidiaries
have filed, or caused to be filed, all Federal, state, local, and foreign tax
returns required to be filed, and have paid, or caused to be paid, all taxes as
are shown on such returns, or on any assessment received by the Company, or such
Subsidiary, to the extent that such taxes become due, except as otherwise
contested in good faith and except where the failure to do so would not have a
material impact on the financial condition of the Company and its Subsidiaries
taken as a whole.
Section 3.9. AGREEMENTS. Neither the Company nor any Subsidiary is in
default in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or instrument
to which it is a party, which default materially adversely affects the business,
properties, assets, or financial condition of the Company and its Subsidiaries
taken as a whole.
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Section 3.10. REGULATORY STATUS. Neither the making nor the performance of
this Agreement, nor any extension of credit hereunder, requires the consent or
approval of any governmental instrumentality or political subdivision thereof,
any other regulatory or administrative agency, or any court of competent
jurisdiction.
Section 3.11. FEDERAL RESERVE REGULATIONS; USE OF LOAN PROCEEDS. Neither
the Company nor any Subsidiary is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock. No part of the proceeds of the Loans
will be used, directly or indirectly, for a purpose which violates any law, rule
or regulation of any governmental body, including without limitation the
provisions of Regulations G, U, or X of the Board of Governors of the Federal
Reserve System, as amended. No part of the proceeds of the Loans will be used,
directly or indirectly, to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
Following application of the proceeds of each Loan, not more than 25 percent of
the value of the assets of the Company and its Subsidiaries on a Consolidated
basis will be Margin Stock.
Section 3.12. SUBSIDIARIES. The corporate names and jurisdictions of
incorporation of the Company's Subsidiaries and the percentage of each class of
their stock owned by the Company are set forth in Exhibit C attached hereto.
Section 3.13. LICENSES. The Company and each of its Subsidiaries have all
licenses, franchises, consents, approvals, or authorizations required in
connection with the conduct of the business of the Company and such
Subsidiaries, the absence of which would have a material adverse affect on the
conduct of the business of the Company and its Subsidiaries taken as a whole,
and all such licenses, franchises, consents, approvals, and authorizations are
in full force and effect.
Section 3.14. ERISA. Neither the Company nor any of its Subsidiaries
maintains, sponsors, or participates in any Plan or Multi-Employer Plan insured,
or required to be insured, by the Pension Benefit Guaranty Corporation.
ARTICLE IV. CONDITIONS OF LENDING
---------------------------------
Section 4.1. EACH LOAN. The obligation of the Bank to make any Loan shall
be subject to all other terms of this Agreement and also subject to satisfaction
of the following conditions that at the date of making such Loan, and after
giving effect thereto: (a) no Event of Default or Potential Default shall have
occurred and be then continuing and (b) each representation and warranty set
forth in ARTICLE III above is true and correct as if then made.
ARTICLE V. AFFIRMATIVE COVENANTS
--------------------------------
As long as credit is available hereunder or until all principal of and
interest on the Note have been paid in full:
Section 5.1. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Company will maintain and will cause each of its Subsidiaries to maintain, a
standard system of accounting, established and administered in accordance with
GAAP consistently followed throughout the periods involved. The Company will
deliver to the Bank:
(a) As soon as practicable after the end of each fiscal quarter in each
year, except the last, and in any event within forty-five (45) days thereafter,
a Consolidated balance sheet of the Company and its Subsidiaries as of the end
of such quarter, and Consolidated statements of cash flows, and shareholders'
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equity of the Company and its Subsidiaries for such quarter, certified as
complete and correct in all material respects by the principal financial officer
of the Company, subject to changes resulting from year-end adjustments;
(b) As soon as practicable after the end of each fiscal year, and in any
event within ninety (90) days thereafter, a Consolidated balance sheet of the
Company and its Subsidiaries as of the end of such year, and Consolidated
statements of income, cash flows, and shareholders' equity of the Company and
its Subsidiaries for such year, setting forth in each case in comparative form
the figures for the previous fiscal year, all in reasonable detail and
accompanied by a report and an opinion of independent certified public
accountants of recognized standing, selected by the Company and satisfactory to
the Bank, which report and opinion shall be prepared in accordance with
generally accepted auditing standards, together with, if requested by Bank, a
certificate by such accountants briefly setting forth the scope of their
examination (which shall include a review of the relevant provisions of this
Agreement) and stating that in their judgment such examination is sufficient to
enable them to give the certificate.
(c) With reasonable promptness, such other data and information as from
time to time may be reasonably requested by the Bank.
Section 5.2. INSURANCE; MAINTENANCE OF PROPERTIES. The Company will
maintain, and will cause each Subsidiary to maintain, with financially sound and
reputable insurers, insurance with coverage and limits as may be required by law
or as is Reasonable Insurance Coverage in the business in which the Company is
engaged. The Company will, upon request from time to time, furnish to the Bank a
schedule of all insurance carried by it and its Subsidiaries, setting forth in
detail the amount and type of such insurance. The Company will maintain, and
will cause each Subsidiary to maintain, in good repair, working order, and
condition, all properties used or useful in the business of the Company and its
Subsidiaries.
Section 5.3. PAYMENT OF TAXES. The Company will pay, and will cause each
Subsidiary to pay, all taxes, assessments, and other governmental charges levied
upon any of its properties or assets or in respect of its franchises, business
income, or profits before the same become delinquent, except that no such taxes,
assessments, or other charges need be paid if contested by the Company or such
Subsidiary in good faith and by appropriate proceedings promptly initiated and
diligently conducted and if the Company or such Subsidiary has set aside proper
amounts, determined in accordance with GAAP, for the payment of all such taxes,
changes, and assessments, except where the failure to do so would not have a
material impact on the financial condition of the Company and its Subsidiaries
taken as a whole.
Section 5.4. LITIGATION; ADVERSE CHANGES. The Company will promptly notify,
and will cause each Subsidiary to notify, the Bank in writing of (a) any future
event which, if it had existed on the date of this Agreement, would have
required qualification of the representations and warranties set forth in
ARTICLE III hereof and (b) any material adverse change in the condition or
business, financial or otherwise, of the Company and its Subsidiaries taken as a
whole.
Section 5.5. NOTICE OF DEFAULT. The Company will promptly notify, and will
cause each Subsidiary to notify, the Bank of any Event of Default or Potential
Default hereunder and any demands made upon the Company or such Subsidiary by
any Person for the acceleration and immediate payment of any Indebtedness owed
to such Person.
Section 5.6. INSPECTION. The Company will make available, and will cause
each Subsidiary to make available, for inspection by duly authorized
representatives of the Bank, or its designated agent, the books, records, and
properties of the Company and each Subsidiary on a reasonable basis when
reasonably requested to do so, and will furnish the Bank such information
regarding its business affairs and financial condition within a reasonable time
after written request therefor.
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Section 5.7. DEBT SERVICE COVERAGE TO LONG TERM DEBT. Maintain Debt Service
Coverage greater than or equal to 1.15 : 1.0 on an annual basis.
Section 5.8. ENCUMBRANCES. At Bank's option, the Company will grant Bank a
security interest in those health care and leasehold interests (if allowed by
lease agreements) which were acquired or developed with the proceeds of advances
against the Note, as referred to in Section 2.1. The Company will not encumber
property without written consent of Bank if Bank does not exercise option to
secure its indebtedness. This security interest will be a first and best
position in reference to any other liens against these assets.
ARTICLE VI. NEGATIVE COVENANTS
------------------------------
As long as credit is available hereunder or until all principal of and
interest on the Note have been paid in full:
Section 6.1. SALE OR PURCHASE OF ASSETS. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, (a) purchase, lease, or
otherwise acquire any assets except in the ordinary course of the Company's
business or as otherwise permitted by any provision of this Agreement, except
that any Subsidiary may purchase assets from any Subsidiary or (b) sell, lease,
transfer, or otherwise dispose of any plant or any manufacturing facility or
other assets except for (i) assets sold for full and adequate consideration
which the Board of Directors or senior management of the Company or such
Subsidiary has determined to be worn out, obsolete, or no longer needed or
useful in it business and (ii) assets sold in the ordinary course of business
provided that the Company or such Subsidiary receives full and adequate
consideration in exchange for such assets sold.
Section 6.2. LIENS. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume, or permit to exist
any Lien with respect to any property or asset of the Company or any Subsidiary
now owned or hereafter acquired except in the ordinary course of business
(including, without limitation, notes to refinance or finance properties not
subject to Facility Loans) provided, however, that no liens are obtained
regarding any property subject to any Facility Loans.
Section 6.3. INDEBTEDNESS. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, or assume Indebtedness, or
otherwise become liable with respect to, any Indebtedness other than:
(a) Indebtedness in respect of the Note;
(b) Indebtedness under credit commitments including any and all short term
credit provided by banks in the ordinary course of business;
(c) Indebtedness incurred in the ordinary course of business;
(d) Indebtedness for liens, taxes, assessments, governmental charges, or
claims to the extent that payment thereof shall not be required to be made by
the provisions hereof.
Section 6.4. GUARANTIES. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, guarantee or otherwise become surety in
respect of any obligation or Indebtedness of any other Person, except for the
following: (a) guaranties by endorsement of negotiable instruments for deposit,
collection, or similar transactions in the ordinary course of business, (b)
guaranties of loans required under management contracts in an amount not to
exceed $750,000.00 on each management contract; (c)
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<PAGE> 10
the guaranty of the due performance by Fairlawn Associates Limited Partnership
on certain $4,600,000.00 County of Summit, Ohio Industrial Development Bonds
dated as of June 1, 1986, issued on or about June 26, 1986; (d) guaranties by
the Company of the debts of its Subsidiaries; (e) guaranties by Subsidiaries of
the debts of the Company or other Subsidiaries; (f) the Guaranty given by The
Druggist, Inc. of a $1,200,000.00 loan from National City Bank to Allan K.
Vrable, which loan and guaranty was made and given July 26, 1993; and (g) the
indemnification by the Company of individual guarantors of the debt of the
Subsidiaries.
Section 6.5. CURRENT ASSETS TO CURRENT LIABILITIES. Maintain current assets
in an amount not less than current liabilities. Current assets and current
liabilities shall be determined in accordance with generally accepted accounting
principles.
Section 6.6. NET WORTH. The Company will not permit its Consolidated Net
Worth to be at any time less than Thirty-Four Million Dollars ($34,000,000),
plus fifty percent (50%) of annual net income in each year beginning with 1996.
Section 6.7. SUBORDINATED DEBT. The Company will not, and will not permit
any Subsidiary to, make any payment upon its outstanding Subordinated Debt,
except in such manner and amounts as may be expressly authorized in any
subordination agreement presently or hereafter held by the Bank.
Section 6.8. RATIO OF TOTAL LIABILITIES TO NET WORTH. The Company will not
permit the ratio of its Consolidated total liabilities less Consolidated
Subordinated Debt to the sum of its Consolidated Net Worth plus Consolidated
total Subordinated Debt, calculated at the same point in time, to be any time
more than 4.5 to 1.0.
ARTICLE VII. EVENTS OF DEFAULT
------------------------------
If any one or more of the following events, excepting therefrom the
provisions of Section 7.1, herein called "Events of Default," shall occur and be
continuing, for thirty (30) days after written notice to the Company, the entire
principal amount of the Note and accrued unpaid interest thereon shall become
due and payable upon demand by the Bank:
Section 7.1. PAYMENTS DUE. If the Company fails to pay any installment of
principal of or interest on the Note or any other sums of money due hereunder or
under the Note when due and payable and such failure continues for ten (10) days
thereafter, the entire principal balance of the Note and accrued unpaid interest
thereon shall become due and payable upon demand by the Bank; or
Section 7.2. MISREPRESENTATION. If any representation or warranty made
herein by the Company or in any written statement, certificate, report, or
financial statement at any time furnished by, or on behalf of, the Company or
any Subsidiary in connection herewith, is incorrect or misleading in any
material respect when made, and such misrepresentation is not corrected by
Company after Bank shall have given thirty (30) days written notice to the
Company thereof; or
Section 7.3. FAILURE OF PERFORMANCE OF THIS AGREEMENT. If the Company or
any Subsidiary fails to perform or observe any covenant or agreement contained
in this Agreement, other than any sums of money payable hereunder, and such
failure remains unremedied for thirty (30) calendar days after the Bank shall
have given written notice thereof to the Company; or
Section 7.4. CROSS-DEFAULT. If the Company or any Subsidiary (or any
Guarantor) (a) fails to pay any Indebtedness (other than as evidenced by the
Notes) owing by the Company or any Subsidiary (or such Guarantor) when due,
whether at maturity, by acceleration, or otherwise or (b) fails to perform any
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<PAGE> 11
term, covenant, or agreement on its part to be performed under any agreement or
instrument (other than the Loan Documents) evidencing, securing, or relating to
such Indebtedness when required to be performed, or is otherwise in default
thereunder, if the effect of such failure is to accelerate, or to permit the
holder(s) of such Indebtedness or the trustee(s) under any such agreement or
instrument to accelerate, the maturity of such Indebtedness, whether or not such
failure shall be waived by such holder(s) or trustee(s); or
Section 7.5. EVENT OF DEFAULT UNDER ANY SECURITY INSTRUMENT. If an event of
default occurs (with passage of time or service of notice, or both) and is
continuing under the terms of any Security Instrument; or
Section 7.6. ERISA. If the Company or any Subsidiary at anytime hereafter
sponsors or establishes any Plan, and the Company or any Subsidiary (a) fails to
notify the Bank in writing of such occurrence within ten (10) days after such
Plan is authorized by the Board of Directors or otherwise by the Company or any
Subsidiary or (b) fails to agree within a reasonable time to such amendments to
this Agreement regarding provisions with respect to ERISA as the Bank
customarily uses at that time in loan agreements with other borrowers; or
Section 7.7. INSOLVENCY. If the Company or any Subsidiary (or any
Guarantor) (a) is adjudicated a bankrupt or insolvent under any law of any
existing jurisdiction, domestic or foreign, or ceases, is unable, or admits in
writing its inability, to pay its debts generally as they mature, or makes a
general assignment for the benefit of creditors, (b) applies for, or consents
to, the appointment of any receiver, trustee, or similar officer for it or for
any substantial part of its property, or any such receiver, trustee, or similar
officer is appointed without the application or consent of the Company or such
Subsidiary (or such Guarantor), and such appointment continues thereafter
undischarged for a period of thirty (30) days, (c) institutes, or consents to
the institution of any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation, or similar proceeding relating
to it under the laws of any jurisdiction, (d) any such proceeding is instituted
against the Company or such Subsidiary (or such Guarantor) and remains
thereafter undismissed for a period of thirty (30) days, or (e) any judgment,
writ, warrant of attachment or execution, or similar process is issued or levied
against a substantial part of the property of the company or such Subsidiary (or
Guarantor) and such judgment, writ, or similar process is not effectively stayed
within thirty (30) days after its issue or levy.
ARTICLE VIII. REMEDIES UPON DEFAULT
-----------------------------------
Section 8.1. OPTIONAL ACCELERATION. In the event that one or more of the
Events of Default set forth in Sections 7.1 through 7.6 above occurs and
continues and is not waived by the Bank, then, in any such event, and at any
time thereafter, the Bank may, at its option, terminate its commitment to make
any Loan and declare the unpaid principal of, and all accrued interest on, in
respect of, the Note, and any other liabilities hereunder, and all other
Indebtedness of the Company to the Bank forthwith due and payable, whereupon the
same will forthwith become due and payable without presentment, demand, protest,
or other notice of any kind, all of which the Company hereby expressly waives,
anything contained herein or in the Note to the contrary notwithstanding.
Section 8.2. AUTOMATIC ACCELERATION. Upon the happening of an Event of
Default referred to in Section 7.7 above, the unpaid principal of, and all
accrued interest on, in respect of, the Note, and all other Indebtedness of the
Company to the Bank then existing will thereupon become immediately due and
payable in full and the commitment, if any, of the Bank to make any Loan, if not
previously terminated, will thereupon immediately terminate without presentment,
demand, protest, or notice of any kind, all of which are hereby expressly waived
by the Company, anything contained herein or in the Note to the contrary
notwithstanding.
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<PAGE> 12
Section 8.3. RIGHT OF SET OFF; SECURITY. Upon the occurrence and
continuation of an Event of Default, the Bank has the right, in addition to all
other rights and remedies available to it, to set off the unpaid balance of the
Note and any other Indebtedness payable to the Bank held by it against any debt
owing to the Company by the Bank or by any Affiliate Bank, including, without
limitation, any obligation under a repurchase agreement or any funds held at
anytime by the Bank or any Affiliate Bank, whether collected or in the process
of collection, or in any time or demand deposit account maintained by the
Company at, or evidenced by any certificate of deposit issued by, the Bank or
any Affiliate Bank. The Company agrees, to the fullest extent it may effectively
do so under applicable law, that any holder of a participation in the Note may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Company pursuant to this Agreement in the amount of such
participation.
Section 8.4. NO WAIVER. The remedies in this ARTICLE VIII are in addition
to, not in limitation of, any other right, power, privilege, or remedy, either
in law, in equity, or otherwise, to which the Bank may be entitled. No failure
or delay on the part of the Bank in exercising any right, power, or remedy will
operate as a waiver thereof, nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right hereunder.
ARTICLE IX. MISCELLANEOUS
-------------------------
Section 9.1. AMENDMENTS. No waiver of any provision of this Agreement or
the Note, or consent to departure therefrom, is effective unless in writing and
signed by the Bank. No such consent or waiver extends beyond the particular case
and purpose involved. No amendment to this Agreement is effective unless in
writing and signed by the Company and the Bank.
Section 9.2. EXPENSES; DOCUMENTARY TAXES. The Company shall pay (a) all
out-of-pocket expenses of the Bank, including reasonable fees and disbursements
of special counsel for the Bank, if any, in connection with the preparation of
this Agreement, any waiver or consent hereunder or any amendment hereof or any
Event of Default hereunder and (b) if an Event of Default or Potential Default
occurs, all out-of-pocket expenses incurred by the Bank, including reasonable
fees and disbursements of counsel, in connection with such event of Default or
Potential Default and collection and other enforcement proceedings resulting
therefrom. The Company shall reimburse the Bank for its payment of all transfer
taxes, documentary taxes, assessments, or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the Note.
Section 9.3. INDEMNIFICATION. The Company shall indemnify and hold the Bank
harmless against any and all liabilities, losses, damages, costs, and expenses
of any kind (including, without limitation, the reasonable fees and
disbursements of counsel in connection with any investigative, administrative or
judicial proceeding, whether or not the Bank shall be designated a party
thereto) which may be incurred by the Bank relating to or arising out of this
Agreement or any actual or proposed use of proceeds of any loan hereunder;
provided, that the Bank shall have no right to be indemnified hereunder for its
own bad faith or willful misconduct as determined by a court of competent
jurisdiction.
Section 9.4. CONSTRUCTION. This Agreement and the Note will be governed by
and construed in accordance with the laws of the State of Ohio.
Section 9.5. EXTENSION OF TIME. Whenever any payment hereunder or under the
Note becomes due on a date which the Bank is not open for the transaction of
business, such payment will be due on the next succeeding business day and such
extension of time will be included in computing interest in connection with such
payment.
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<PAGE> 13
Section 9.6. NOTICES. All written notices, requests, or other
communications herein provided for must be addressed
to the Company as follows:
Arbor Health Care Company
1100 Shawnee Road
Lima, Ohio 45805
Attn: William Wondolowski
to the Bank as follows:
KeyBank National Association
34 North Main Street
Dayton, Ohio 45402
Attn: Troy Miller
or at such other address as either party may designate to the other in writing.
Such communication will be effective (i) if by telex or facsimile, when such
telex or facsimile is transmitted and the appropriate answer back is received,
(ii) if given by mail, 72 hours after such communication is deposited in the
U.S. mail certified mail return receipt requested, or (iii) if given by other
means, when delivered at the address specified in this Section 9.6.
Section 9.7. SURVIVAL OF AGREEMENTS. All agreements, representations, and
warranties made in this Agreement will survive the making of the extension of
credit hereunder, and will bind and inure to the benefit of the Company and the
Bank, and their respective successors and assigns.
Section 9.8. SEVERABILITY. If any provision of this Agreement or the Note,
or any action taken hereunder, or any application thereof, is for any reason
held to be illegal or invalid, such illegality or invalidity shall not affect
any other provision of this Agreement or the Note, each of which shall be
construed and enforced without reference to the such illegal or invalid portion
and shall be deemed to be effective or taken in the manner and to the full
extent permitted by law.
IN WITNESS WHEREOF, the Company and the Bank have each caused this
Agreement to be executed by their duly authorized officers this 28th day of
June, 1996.
COMPANY: ARBOR HEALTH CARE COMPANY,
------- A DELAWARE CORPORATION
By: /s/ William W. Wondolowski
---------------------------------------
Name: William W. Wondolowski
--------------------------------------
Title: Vice President & Treasurer
------------------------------------
BANK: KEYBANK NATIONAL ASSOCIATION, FKA SOCIETY
---- NATIONAL BANK
By: /s/ Dirk VanHryst
---------------------------------------
Dirk VanHryst
Senior Vice President
13
<PAGE> 1
Exhibit 4.2
April 11, 1996
Mr. William Wondolowski
Treasurer
Arbor Health Care Company
1100 Shawnee Road
Lima, Ohio 45805
RE: Loan Agreement dated April 11, 1994, between Arbor Health Care Company
and The Fifth Third Bank.
Dear Bill:
This letter is to acknowledge The Fifth Third Bank's agreement to amend the Loan
Agreement dated April 11, 1994. The maturity date of that Agreement was April
11, 1996. The Fifth Third Bank agrees to extend all terms and conditions of
that Agreement to November 7, 1996.
If acceptable, please acknowledge your agreement by signing below and returning
one copy of this letter to me.
Yours very truly,
D. Ward Allen
Vice President
AGREED AND ACCEPTED
BY: /s/ W. Wondolowski
------------------
TITLE: Vice President and Treasurer
----------------------------
<PAGE> 1
Exhibit 10.1
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (hereinafter referred to as the
"Agreement") is made and entered into as of the 30th day of June, 1996, by and
among Arbor Health Care Company, a Delaware corporation (hereinafter referred to
as the "Purchaser"), and Robert Q. Baker, an individual residing at 1309 Durness
Court, Worthington, OH 43235-4582 (the "Shareholder").
R E C I T A L S
WHEREAS, the Shareholder presently owns all of the issued and
outstanding capital stock of Poly-Stat Supply Corporation, an Ohio corporation
(the "Company") (the shares owned by the Shareholder are hereinafter referred to
as the "Shares");
WHEREAS, the Company is presently engaged in the business of selling
enteral nutrients and other medical supplies to nursing homes and/or their
patients in Ohio (said businesses are hereinafter collectively referred to as
the "Company's Business");
WHEREAS, the Shareholder desires to sell to the Purchaser the Shares
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Purchaser desires to purchase from the Shareholder the
Shares upon the terms and subject to the conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, of the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. SALE AND PURCHASE OF EACH SHAREHOLDER'S SHARES.
----------------------------------------------
At the Closing (as that term is hereinafter defined in Section 6 of
this Agreement), the Shareholder shall sell and deliver to the Purchaser and the
Purchaser shall purchase and take from the Shareholder the Shares, all upon the
terms and subject to the conditions set forth in this Agreement. The sale and
delivery by the Shareholder of the Shares to the Purchaser pursuant to this
Section shall be effected by the delivery to the Purchaser by the Shareholder at
the Closing of a certificate or certificates representing the Shares duly
endorsed in blank by the owner of record or accompanied by a duly executed stock
power in blank by the owner of record with such signature guarantees or other
certifications or affidavits as the Purchaser shall reasonably request.
1
<PAGE> 2
2. CONSIDERATION FOR THE SHARES.
-----------------------------
In consideration of the sale and transfer to the Purchaser by the
Shareholder of the Shares as provided in Section 1 of this Agreement, at the
Closing the Purchaser shall deliver to the Shareholder the following:
(a) $686,300.00 in immediately available funds (the "Cash"); and
(b) A promissory note (the "Note") in the principal amount of
$117,702.14, in the form attached hereto as Exhibit A.
3. CONTINGENT PAYMENT.
-------------------
The Purchaser shall pay the Shareholder up to two (2) contingent
payments, the first in the amount of $415,440.00 and the second in the amount of
$276,960.00 (individually, a "Contingent Payment" and collectively, the
"Contingent Payments"), which relate to the financial performance of the Company
and Poly-Stat Computer Applications, Inc., an Ohio corporation affiliated with
the Company ("PSCA") (the Company and PSCA are hereinafter collectively referred
to as the "Group"), over the next five years after acquisition of the Group by
the Purchaser. The Contingent Payments shall only be payable as hereinafter set
forth:
3.1 GROSS MARGIN TARGETS. The Shareholder shall be entitled to receive
the Contingent Payment(s) only as follows:
(a) If the aggregate gross margin of the Group, for the period
beginning January 1, 1996 through December 31, 1998 equals
or exceeds $2,370,000.00 (the "First Gross Margin Target"),
then the Shareholder shall be entitled to the first
Contingent Payment in the amount of $415,440.00.
(b) If the aggregate gross margin of the Group, for the period
beginning January 1, 1999 through December 31, 2000 equals
or exceeds $2,456,000.00 (the "Second Gross Margin Target"),
then the Shareholder shall be entitled to the second
Contingent Payment in the amount of $276,960.00.
(c) If the first Contingent Payment as described in Section
3.1(a) is not made because the First Gross Margin Target was
not achieved, the Purchaser shall nonetheless pay the
Shareholder the amount of both Contingent Payments if the
aggregate gross margin of the Group equals or exceeds
$4,826,000.00 (the "Final Gross Margin Target") for the
period beginning January 1, 1996 through December 31, 2000.
In such event, no further Contingent Payment shall be
payable, it being the intention of the parties that the
maximum amount of the Contingent Payments payable to the
Shareholder shall be $692,400.00.
2
<PAGE> 3
3.2. CALCULATIONS. As used herein "gross margin" shall mean the income of
the Group before deductions for interest, depreciation, office lease expense,
amortization of goodwill, allocation of the Purchaser's or its affiliates'
(other than the Group) corporate overhead and income taxes. When determining the
amount of gross margin generated by the Group, revenues shall include: (i) sales
of PSCA of billing services; (ii) sales of the Company of urological and ostomy
supplies, surgical dressings, nutritional supplies (enteral nutrients - tube fed
and supplemental nutrients), oxygen supplies (including concentrators and
E-tanks but excluding respiratory supplies associated with concentrators and
excluding liquid oxygen), and tracheostomy supplies (including tracheostomy
clean and care kits but excluding suction catheters and trachs); and (iii) sales
of durable medical equipment.
In determining whether the Contingent Payment(s) have been achieved,
the Shareholder may elect to include a portion of the Gross Margin From Druggist
Sales (as hereinafter defined and described). The Gross Margin From Druggist
Sales shall be equal to twenty percent (20%) of the revenues less contractual
allowances derived annually from new sales of pharmacy and respiratory services
provided by The Druggist, Inc., an Ohio corporation which is an affiliate of the
Purchaser or any other affiliates of the Purchaser (collectively, the
"Druggist"), generated by the Shareholder and as further described in Sections
3.1(b) and (c) of the Employment Agreement (as that term is hereinafter defined
in Section 6.4 of this Agreement). Notwithstanding anything to the contrary
stated herein, the amount of the Gross Margin From Druggist Sales which the
Shareholder may elect to utilize for determining whether the gross margin
targets have been met shall be limited as follows:
(a) An amount not to exceed $704,500.00 of the Gross Margin From
Druggist Sales generated for the period beginning July 1, 1996 through December
31, 1998 may be utilized in determining whether the First Gross Margin Target
has been achieved; and
(b) An amount not to exceed $735,500.00 of the Gross Margin From
Druggist Sales generated for the period beginning January 1, 1999 through
December 31, 2000 may be utilized in determining whether the Second Gross Margin
Target has been achieved.
(c) If the First Gross Margin Target was not attained, an amount not to
exceed $1,440,000.00 of the Gross Margin From Druggist Sales generated for the
period beginning July 1, 1996 through December 31, 2000 may be utilized in
determining whether the Final Gross Margin Target has been achieved.
An election by Shareholder to include any portion of the Gross Margin
From Druggist Sales must be made within thirty (30) days after the Purchaser has
delivered to the Shareholder its written report detailing the computation of the
Gross Margin From Druggist Sales at the end of the applicable period set forth
in (a) through (c) above. In the event there is a dispute regarding such
computation, the Shareholder may defer such election until the dispute is
settled.
3
<PAGE> 4
3.3. PAYMENT(S) OF THE CONTINGENT PAYMENT(S). The Contingent Payment(s)
shall be paid to the Shareholder, if due, as follows: 72.5% of the amount due
shall be paid in cash, and 27.5% shall be paid by delivery from the Purchaser of
a corresponding number of shares of its Common Stock, par value $.03 per share
(the "Purchaser's Shares"), the exact number of shares to be determined by
dividing 27.5% of the amount of the Contingent Payment due by $27.50, such price
being the approximate fair market value of the Purchaser's Shares over the last
30 days. Therefore, such price shall be adjusted accordingly for any stock
splits or stock dividends between the date hereof and the date such shares are
delivered to the Shareholder hereunder. Payment(s) of the Contingent Payment(s)
shall be made within 20 days after completion of the audit of the Purchaser's
financial statements for the relevant period.
3.4. RESTRICTED SECURITIES. The Shareholder acknowledges and agrees
that the Purchaser's Shares deliverable in accordance with the terms hereof will
be restricted securities. At the time of such delivery, the Shareholder shall
provide the Purchaser with a Shareholder's Agreement in the form attached hereto
as Exhibit B as a precondition of receiving same.
3.5. ACCOUNTING. The Purchaser will cause appropriate accountants to
prepare a computation of gross margin of the Group and the Druggist to be
prepared each year. In conjunction with the audit of the Purchaser's financial
statements the Purchaser's independent auditors will be instructed to review
such computation for conformity with the terms of this Agreement. In addition,
the Shareholder or his agent shall have the right to examine all relevant books
and records of the Group and the Druggist or other relevant affiliates of the
Purchaser at all reasonable times and places. In the event the Company or PSCA
is no longer a separate entity, or if other companies, divisions or lines of
business of the Purchaser or its affiliates are added within the Group, separate
books and records shall be maintained for purposes of calculating the gross
margins of the Group as if such combination or addition had not taken place.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
-------------------------------------------------
SHAREHOLDER.
------------
The Shareholder hereby represents, warrants and agrees (and
acknowledges that each such representation, warranty and agreement shall be
deemed material and independently relied upon by the Purchaser), in consummating
the transactions herein contemplated as follows:
4.1. BINDING EFFECT. This Agreement constitutes his legally binding and
valid obligation, enforceable in accordance with its terms.
4.2. OWNERSHIP OF THE SHARES. He is the record owner of and has good
and valid title to the Shares, he has full right, power and authority to sell
and deliver the Shares to the Purchaser pursuant to the terms of this Agreement
and, upon the sale and transfer by him of his certificate or certificates
therefor to the Purchaser pursuant to this Agreement, he will deliver to the
Purchaser good and valid title to the Shares, free and clear of any and all
claims, liens, charges, encumbrances, restrictions, agreements and defects of
any kind or nature whatsoever.
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<PAGE> 5
4.3. OWNERSHIP OF THE SHARES. The Shares are owned beneficially and of
record by the Shareholder, and he has no right to acquire or receive any
additional shares of the Company's capital stock.
4.4. VOLUNTARY ACT. He is executing this Agreement freely, knowingly
and voluntarily, he is fully aware of the contents and legal effects hereof, and
such execution is not the result of any duress, mistake or undue influence
whatsoever.
4.5. CLAIMS AGAINST THE PURCHASER OR THE COMPANY. He has no presently
existing claim, demand, action or cause of action, whether at law or in equity,
whether accrued, contingent, fixed or otherwise, which he might hereafter
attempt to assert against the Purchaser, the Company or any of their respective
attorneys, accountants, parents, subsidiaries, affiliates, predecessors,
officers, directors, employees or stockholders, of any kind, character or
description whatsoever, arising out of, related to or in any manner connected
with, either directly or indirectly, his participation as an employee, director,
officer or stockholder of the Company, including but not limited to (i) any
rights to purchase or receive shares of the Company's capital stock, or (ii)
presently existing claim or basis for a claim for indemnification from the
Company pursuant to the Company's Articles of Incorporation or Code of
Regulations, or any agreement or law other than for (a) unpaid dividends
declared by the board of directors of the Company, (b) indebtedness described on
Schedule 4.24, and (c) salaries and/or employee expense reimbursements not
exceeding $5,000 in the aggregate with respect to him.
4.6. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is legally
entitled and licensed to own and lease its properties and to carry on the
Company's Business as and in the places where such properties are now owned,
leased or operated. There are no jurisdictions in which the nature of the assets
or the business of the Company would require it to qualify as a foreign
corporation.
4.7. CAPITALIZATION. The authorized capital stock of the Company
consists of 750 shares of Common Stock, without par value (hereinafter referred
to as the "Common Stock"), 70 of which are validly issued, fully paid,
non-assessable and outstanding. No governmental agency or purchaser of shares of
the Common Stock has asserted a claim or demand to the Company that any of such
shares were issued in violation of any federal or state securities laws.
4.8. OPTIONS. There are no existing options, warrants, commitments or
agreements of any kind or nature whatsoever relating to the issuance of the
Common Stock or securities of the Company and no existing agreements, trusts or
understandings relating to the voting or transfer of the Common Stock.
4.9. SUBSIDIARIES. The Company has no subsidiaries or investments in
any subsidiaries or other businesses.
5
<PAGE> 6
4.10. CORPORATE INSTRUMENTS. The Articles of Incorporation and Code of
Regulations of the Company, as amended to date, are true, correct and complete
in all respects. The stock record books of the Company are true, correct and
complete in all respects and accurately reflect all issuances and transfers of
the authorized capital stock of the Company. Copies of all such corporate
instruments of the Company shall be furnished to the Purchaser prior to Closing.
4.11 CONFLICTS. Except as set forth on Schedule 4.11, neither the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated nor compliance by the Shareholder with any
provisions hereof will; (a) conflict with, cause an acceleration of or result in
a material breach of or default under any of the terms, conditions, or
provisions of any (i) article of the Articles of Incorporation or any of the
Code of Regulations of the Company; or (ii) note, bond, mortgage, indenture,
license, agreement or other instrument to which the Company is a party or by
which it or any of its property is bound; or (b) violate any order, writ,
injunction, decree, statute, rule or regulation, the violation of which would
have a material adverse consequence upon the Company, its properties, and its
assets, taken as a whole.
4.12. CONSENT. Except as set forth on Schedule 4.12, no consent or
approval by any governmental agency or authority or any non-governmental person
or entity is required in connection with the execution, performance and delivery
by the Shareholder of this Agreement or the consummation of the transactions
herein contemplated (including, but not limited to, consents from federal,
state, municipal or other governmental agencies or authorities having
jurisdiction over the Company's Business).
4.13. FINANCIAL STATEMENTS. The Company has previously furnished the
Purchaser with a true, correct and complete copy of the internal balance sheet
and income statement dated May 31, 1996 and the compiled balance sheet and
income statement for the fiscal years ended June 30, 1995, June 30, 1994, June
30, 1993, June 30, 1992 and June 30, 1991 (hereinafter referred to individually
and/or collectively as the "Financial Statements"). The Financial Statements
fairly present the financial position of the Company as of their respective
dates and the results of its operations for the respective periods then ended.
The shareholders' equity of the Company, as stated on the Financial Statements,
is at least $315,846.00 at May 31, 1996.
4.14. INVENTORIES. Schedule 4.14 sets forth as of June 25, 1996, (the
"Inventory Date") a true, correct and complete description by classification of
all raw materials and manufacturing supplies, work-in-process and finished
inventories of the Company (said items and any items acquired since the
Inventory Date, other than items of inventory disposed of in the ordinary course
of business, are hereinafter collectively referred to as the "Inventories").
Since the Inventory Date, there has been no change in the levels of the
Inventories in any category except in the ordinary course of business. Except as
otherwise provided on Schedule 4.14, the Inventories consist solely of
quantities and qualities useable and saleable in the ordinary course of the
Company's Business. No material amounts of the Inventories have been consigned
except
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<PAGE> 7
as provided on Schedule 4.14. All of the Inventories (other than the consigned
inventory) are located on property owned or leased by the Company.
4.15. MACHINERY AND EQUIPMENT. Schedule 4.15 sets forth as of May 31,
1996 a complete list, description and location of each item of the Company's
machinery, equipment and other tangible assets used in the Company's' Business
having an initial cost of greater than $1,000 (hereinafter referred to as the
"Machinery and Equipment"). Each such item of the Machinery and Equipment is in
good operating condition and repair, normal wear and tear excepted, and is free
of any material defects. Since May 31, 1996 and except as otherwise provided in
Schedule 4.15, there has been no sale or other disposition of any of the
Machinery and Equipment.
4.16. LEASED PROPERTY. Schedule 4.16 sets forth as of the date of this
Agreement each parcel of real property (including all improvements thereto)
leased by the Company (hereinafter referred to as the "Leased Property"). The
Company shall deliver to the Purchaser copies of such leases. The Company is not
in material default under any such leases and such leases are in full force and
effect. The Company does not own any real property.
4.17. ACCOUNTS RECEIVABLE. Except as disclosed on Schedule 4.17, all
accounts receivable of the Company (hereinafter referred to as the "Accounts
Receivable") as of May 31, 1996 and all notes and accounts receivable acquired
by it subsequent to May 31, 1996, have arisen in the ordinary course of business
and have been collected or are in the process of collection and will be
collected in the ordinary course of business in the aggregate recorded amounts
thereof, less the applicable allowances of $50,000.00 set up on the books of the
Company as of the date hereof. Schedule 4.17 also sets forth a description of
the Company's policies and current status with respect to sales discounts,
returns and allowances, and also sets forth a description of any material
changes in credit terms since May 31, 1996.
4.18. PATENTS AND TRADEMARKS. Schedule 4.18 sets forth a true, correct
and complete listing of all patents, trademarks, trade names, brand names and
registered copyrights and any pending applications therefor, owned by or
licensed to the Company (hereinafter collectively referred to as the "Patents"),
together with a brief statement as to the filing, registration or issuance
thereof, as to any licenses, sublicenses, covenants or agreements entered into
or granted by or to the Company with respect thereto and as to any pending or
threatened disputes or adverse claims with respect thereto. Except as set forth
on Schedule 4.19, the Company solely owns or has the exclusive right to use,
free and clear of any payment or encumbrance, all patents, trademarks, trade
names and brand names (whether registered or unregistered) and copyrights used
in the conduct of the Company's Business. Except as set forth on Schedule 4.18,
there is no claim or demand of any person pertaining to, or any proceedings
which are pending or, to the best knowledge of the Company, overtly threatened,
which challenge: (a) the exclusive rights of the Patents; or (b) the rights of
the Company in respect of any material confidential information or material
trade secrets used in the conduct of the Company's Business. None of the Patents
are subject to any outstanding order, ruling, decree, judgment or stipulation by
or with any court, arbitrator or administrative agency or, to the best
7
<PAGE> 8
knowledge of the Company, infringes or is being infringed by others or is used
by others (whether or not such use constitutes infringement), except for orders,
rulings, decrees, judgments, stipulations or alleged infringements set forth on
Schedule 4.18, none of which individually or collectively will materially and
adversely affect the Company's Business.
4.19. ASSETS USED IN BUSINESS. Since May 31, 1996, the Company has not
utilized any material assets in the conduct of the Company's Business other
than: (a) assets reflected on the balance sheets included in the Financial
Statements; (b) assets set forth in the Schedules (including Schedule 4.19); and
(c) supplies and inventories acquired, consumed or disposed of by the Company
since May 31, 1996 in the ordinary course of the Company's Business.
4.20. TITLE TO ASSETS. The Company has good, valid and indefeasible
leasehold title to the Leased Property, to all of the assets listed on the
Schedules delivered to the Purchaser by the Company and to all of the assets,
both real and personal, reflected on the balance sheets included in the
Financial Statements (except for such assets sold, consumed or otherwise
disposed of in the ordinary course of the Company Business since the dates of
such balance sheets), free and clear of all mortgages, liens, pledges, charges,
restrictions, agreements, encroachments or encumbrances of any kind or nature
whatsoever, except: (a) for those associated with the indebtedness listed on
Schedule 4.24; and (b) liens for current taxes not yet due and payable.
4.21. NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.21,
the Company has no material liabilities or obligations of any kind or nature
whatsoever, whether absolute, accrued, contingent or otherwise and whether due
or to become due, other than: (a) those reflected on or referred to in the
Financial Statements and not since paid or discharged; or (b) those incurred
since May 31, 1996 in the ordinary course of the Company's Business or disclosed
in one or more Schedules delivered to the Purchaser by the Company. Except as
set forth on Schedule 4.21, the Company does not have, directly or indirectly,
any contractual arrangement with or commitment to or from any of its officers,
directors or employees. Without limiting the generality of the foregoing and
except as so disclosed, no officer, director, shareholder or employee of the
Company was or is, directly or indirectly, a joint investor or co-venturer with,
or owner, lessor, lessee, licensor, licensee or supplier of any real or personal
property, tangible or intangible, owned or used by or a lender to or debtor of
the Company and the Company has no commitments or obligations as a result of any
such transaction prior to the date of this Agreement.
4.22. ACCOUNTS PAYABLE. Schedule 4.22 sets forth as of May 31, 1996 all
of the accounts payable of the Company as of such date. No accounts payable have
arisen since May 31, 1996 except in the ordinary course of the Company's
Business.
4.23. TAXES. Copies of all federal, state and local, as the case may
be, income tax returns of the Company for each of the four (4) consecutive
taxable years ended June 30, 1995 have heretofore been delivered to the
Purchaser. The Company has filed or made all federal, state
8
<PAGE> 9
and local income and other tax returns and tax filings which it has been
required to file or make (and there are no requests pending for extensions of
time to file or make any such returns or filings) and have paid all taxes and
governmental charges due and payable as shown on such returns and filings. The
Company has never been audited by any federal, state or local taxing authority.
4.24. INDEBTEDNESS. Schedule 4.24 sets forth as of the date of this
Agreement a complete description of any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company.
4.25. CAPITAL EXPENDITURES. Schedule 4.25 sets forth as of the date of
this Agreement each outstanding commitment of the Company to make a capital
expenditure, capital addition or capital improvement in the amount of $5,000.00
or more individually or $25,000.00 in the aggregate.
4.26. GOVERNMENTAL AUTHORIZATIONS. The Company now has and, in a manner
consistent with good business practice, will maintain in effect through the
Closing all licenses, permits, certificates, agreements, consents and other
authorizations from all federal, state and local agencies or authorities as are
necessary for the lawful and proper conduct of the Company's Business. Schedule
4.26 sets forth as of the date of this Agreement a complete list of all such
governmental authorizations material to the conduct of the Company's Business.
4.27. EMPLOYEES. Schedule 4.27 sets forth as of the date of this
Agreement a complete list of all officers, directors and employees of the
Company, whether full time or part time, indicating the name of each such
person, the method and the amount of annual compensation of each such person and
the title or job description of each such person.
4.28. CONSULTANTS. Schedule 4.28 sets forth as of the date of this
Agreement a complete list of all consultants of the Company, whether full time
or part time, indicating the name of each consultant and any compensation
arrangement with each consultant.
4.29. FRINGE BENEFITS. Schedule 4.29 sets forth as of the date of this
Agreement a complete list and description of all fringe benefits, including
hospitalization insurance, accident and health insurance, disability insurance,
death insurance, vacation policies, meals and lodging policies and parking
policies along with true, correct and complete copies of all contracts,
policies, procedures, actuarial reports and manuals of employee disclosures
related thereto.
4.30. EMPLOYEE BENEFIT PLANS. Schedule 4.30 sets forth as of the date
of this Agreement a complete list and description of all employment contracts,
bonus, collective bargaining, deferred compensation, stock option,
profit-sharing, pension, retirement, termination, incentive or other similar
arrangement, plan or commitment (other than those described on Schedule 4.29 or
Schedule 4.31) to which the Company is a party or by which the Company or
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<PAGE> 10
its assets or properties are bound along with complete copies of such documents,
arrangements or plans.
4.31. ERISA PLANS. The only "employee benefit plans" (hereinafter
referred to as the "Plans"), as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to which any liability under ERISA or otherwise presently exists or may
be incurred by the Company are those listed on Schedule 4.31. No Plan is a
"multi employer plan" as that term is defined in Section 3(37) of ERISA. Each
Plan is and has been in all material respects operated and administered in
accordance with its provisions and applicable law, and each Plan is qualified
within the meaning of Section 401(a) of the Internal Revenue Code of 1954, as
amended (the "Code") and each related trust is exempt from taxation under
Section 501(a) of the Code. No material liability under ERISA or otherwise has
been incurred by the Company with respect to any Plan, individually or in the
aggregate, and the Shareholder is not aware of any facts which indicate that
such liability is reasonably likely to be incurred in the future. No "prohibited
transaction," as such term is defined in Section 406 of ERISA or in Section 4975
of the Code, nor any "reportable event," as that term is defined in Section 4043
of ERISA has occurred with respect to any Plan, no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA or in Section 412
of the Code (whether or not waived) exists with respect to any Plan and no
suits, claims or other actions have been commenced or threatened with respect to
any Plan. No Plan is a "defined benefit plan" as that term is defined in Section
3(35) of ERISA.
4.32. AGREEMENTS AND COMMITMENTS. Schedule 4.32 sets forth as of the
date of this Agreement a complete list of all written agreements (copies of
which shall have been delivered to the Purchaser), and describes all oral
agreements and commitments to which the Company is a party, concerning the
following:
4.32.1. PURCHASE AND SALE COMMITMENTS. Each outstanding purchase and
sale commitment of the Company in the amount of $5,000.00 or more. No
material outstanding purchase commitments by the Company is in excess
of the normal, ordinary and usual requirements of the Company's
Business. No commitment the term of which extends beyond ninety (90)
days after the date hereof purports to obligate the Company to sell any
product at a price which, in view of currently prevailing and projected
costs of raw materials, would result, when all such sales commitments
are taken in the aggregate, in a loss to the Company. The Company has
not rendered billings for or collected progress or other advance
payments under any sales commitment providing for such payments in
excess of amounts which could reasonably be billed or collected on the
basis of work actually completed thereunder.
4.32.2. DISTRIBUTORSHIP AND SALES MANAGEMENT. Each distributorship,
sales, agency, franchise or similar agreement of the Company.
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4.32.3. OTHER AGREEMENTS. Each material contract, agreement and
commitment to which the Company is a party or by which the Company or
any of its assets are bound other than those disclosed on the other
Schedules delivered to the Purchaser by the Company.
4.32.4. CUSTOMERS. Each customer of the Company's Business by name and
location.
4.33. ADVERSE CHANGE. Schedule 4.33 sets forth as of the date of this
Agreement a complete description of any material adverse change in the financial
condition, business or properties of the Company occurring after May 31, 1996,
whether or not such change is reflected in the Financial Statements or in the
ordinary course of the Company's Business including, but not limited to, any
material change in the value of the assets or properties of the Company.
4.34. INSURANCE POLICIES. Schedule 4.34 sets forth as of the date of
this Agreement a complete description of all policies of insurance with respect
to the Company covering its properties, buildings, machinery, equipment,
furniture, fixtures, operations and employees including, but not limited to,
policies covering errors and omissions and public liability, along with true,
correct and complete copies of all such policies. All of such policies are in
full force and effect. The Company is not in default with respect to any
provisions of any such policy and has not failed to give any notice or present
any material claim thereunder in due and timely fashion. There are no claims
pending under such policies related to the Company's Business.
4.35. SUPPLIERS. Schedule 4.35 sets forth as of the date of this
Agreement a complete list of all suppliers to the Company which were paid more
than $10,000.00 by the Company during the last twelve (12) months prior to the
date of this Agreement. There has been no material changes in suppliers during
the last three (3) years except as set forth on Schedule 4.35.
4.36. STATUS OF AGREEMENTS. Each of the contracts, agreements,
commitments, licenses and leases listed on Schedules delivered by the Company
pursuant to this Agreement that are in full force and affect are a valid and
legally binding obligation as to the Company, and there is no material default
under the terms of any thereof (and no condition exists which, with the passage
of time, the giving of notice, or both, would result in such a material default
under the terms of any thereof).
4.37. BANK ACCOUNTS. The name of every bank in which the Company has an
account or safe deposit box, the identifying numbers of all such accounts and
safe deposit boxes, and the names of all persons having power to borrow,
discount debt obligations, cash or draw checks or otherwise act on behalf of the
Company in any dealings with such banks are set forth on Schedule 4.37.
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4.38. INTERIM OPERATIONS. Except as disclosed on Schedule 4.38, on the
other Schedules delivered by the Company to the Purchaser or in the Financial
Statements, since May 31, 1996, the Company's Business has been conducted only
in the ordinary course and there has not been: (a) any material change in the
condition (financial or otherwise), assets, liabilities or business of the
Company other than changes in the ordinary course, none of which, singly or in
the aggregate, has been materially adverse; (b) any damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting the
business or assets of the Company taken as a whole; (c) any declaration, setting
aside a payment of any dividend, or other distribution, in respect of the Common
Stock or any direct or indirect redemption, purchase or other acquisition of any
capital stock of the Company (d) any option to purchase the Common Stock granted
to any person, or any employment or deferred compensation agreement entered into
between the Company and any of their officers, directors, employees or
consultants; (e) any issuance or sale by the Company of any stock, bonds, or
other corporate securities; (f) any labor disputes materially and adversely
affecting the business or assets of the Company; (g) any statute enacted or any
rule or regulation adopted which may materially and adversely affect the
Company's Business; (h) any mortgage, pledge, lien or other encumbrance or
security interest (other than liens for current taxes not yet due and such
encumbrances, if any, except such as are not substantial in character, amount or
extent and do not materially detract from the value or interfere with the
present or proposed use of the property subject thereto or affected thereby, or
otherwise materially impair business operations) created on any material asset,
tangible or intangible, of the Company or assumed, either by the Company or by
others with respect to any such asset; (i) any indebtedness or other liability
or obligation (whether absolute, accrued, contingent or otherwise) incurred, or
other transactions (except as reflected in this Agreement) engaged in, by the
Company, except in the ordinary course of business, which is material in light
of the Company's Business; (j) any material obligation or liability discharged
or satisfied by the Company other than current liabilities shown in the
Financial Statements and current liabilities incurred since that date in the
ordinary course of business; (k) any amendment, termination or waiver of any
material right of substantial value belonging to the Company; or (l) any
increase in the compensation payable or to become payable by the Company to any
of its officers, employees, directors, consultants or agents, other than normal
merit and cost-of-living increases in accordance with the Company's general
prevailing practices.
4.39. LITIGATION AND PROCEEDINGS. Except as set forth in Schedule 4.39,
there is no litigation or any proceedings or governmental investigations pending
or to the best of the knowledge of the Shareholder threatened against or
relating to the Company or its properties or business including, but not limited
to, litigation, proceedings or governmental investigations under federal or
state anti-trust laws, Medicaid or Medicare laws, labor laws, environmental
protection laws, safety and occupation laws or tax laws before any court,
arbitrator or administration agency which may materially and adversely affect
the Company or its business and properties taken as a whole. Such Schedule sets
forth a statement as to reserves and other provisions that have been made by the
Company concerning possible liabilities that may arise out of pending or
threatened litigation or proceedings.
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<PAGE> 13
4.40. COMPLIANCE WITH LAWS. To the best of the Shareholder's knowledge
and except as set forth in Schedule 4.40: (a) the Company is not in material
violation of any applicable building, zoning, occupational safety and health,
pension, reimbursement (including, but not limited to, Medicare and Medicaid),
environmental control or similar law, ordinance or regulation in relation to its
structures, equipment, or the operation thereof or of the Company's Business, or
any applicable fair employment, equal opportunity or similar law, ordinance or
regulation; (b) the Company has not received any written notice or complaint
from any governmental agency or authority and, to the best of the knowledge of
the Shareholder none is threatened, alleging that the Company have violated any
such requirement, law, ordinance or regulation; (c) the Company has not received
any written notice from any governmental agency or authority of any pending
proceeding to take all or any part of the properties of the Company (whether
leased or owned) by condemnation or right of eminent domain and, to the best of
the knowledge of the Shareholder, no such proceeding is threatened; and (d) the
Company is not a party to any agreement or instrument, or subject to any
judgment, order, writ, injunction, rule, regulation, code or ordinance which
materially and adversely affects or may affect the business, operations,
prospects, properties, assets or condition, financial or otherwise, of the
Company.
4.41. WORKER'S COMPENSATION; UNEMPLOYMENT COMPENSATION. Schedule 4.41
is a description of the basis upon which, under the various applicable laws,
worker's compensation and unemployment compensation matters have been handled
for the Company for the last three fiscal years. Except as otherwise described
in such Schedule, worker's compensation and unemployment compensation matters
have been conducted and are being conducted so as to be in substantial
compliance with all laws and regulations applicable thereto.
4.42. POWERS OF ATTORNEY. The Company has no powers of attorney or
similar authorizations outstanding, other than those issued in the ordinary
course of business, with respect to insurance, tax and federal and state
securities laws.
4.43. ENERGY SOURCES. The Company has not received any written
notification of any proposed cut in or allocation of natural gas, electrical
energy, or other similar sources of heat, light and power by any public utility
or other body in connection with the operation of the Company's Business.
4.44. RELATIONSHIP WITH CUSTOMERS. To the best knowledge of the
Shareholder and except as set forth in Schedule 4.44, no customer of the Company
which has accounted for more than five percent (5%) of the Company's annual
sales during the last two (2) years or customers of the Company which,
collectively, accounted for more than ten percent (10%) of the Company's annual
sales during the last two (2) years, have refused to honor any of its
commitments to purchase products produced by the Company or provided the Company
with information indicating material dissatisfaction with the quality,
production or price of the Company's products, and there has been no material
adverse change with respect to the relationship of the Company with any such
customer.
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4.45. ENVIRONMENTAL MATTERS. The term "Environmental Laws" shall refer
to any and all applicable federal, state, county or local statutes, laws,
regulations, rules, ordinances, codes, licenses and permits relating in any way
to the protection of the environment, including, without limitation, the Clean
Air Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), and the Toxic
Substances Control Act and any amendments or extensions of the foregoing and the
regulations promulgated thereunder. The Company has not received any written
notice of any work, repairs, construction or capital expenditures required to be
made by it pursuant to applicable Environmental Laws with respect to the
Company's Business. None of the Leased Property is contaminated by or contains
any toxic substance, as that term is defined in RCRA, such that the
contamination violates Environmental Laws. No claim, action, suit or proceeding
is pending or threatened against the Company before any court or other
governmental authority or arbitration tribunal, relating to hazardous
substances, pollution or the environment, and there is no outstanding judgment,
order, writ, injunction, decree or award against or affecting the Company or its
respective assets with respect to the same. The Company has not received any
written notice from any government agency or private or public entity advising
it that it is responsible for response costs with respect to a release, a
threatened release or clean up of chemicals produced by, or resulting from, any
business, commercial, or industrial activities, operations, or processes,
including, but not limited to, hazardous substances, as defined under CERCLA,
and has not received any information requests under CERCLA from any government
agency. As used herein, "hazardous substances" include any pollutants, dangerous
substances, toxic substances, hazardous wastes, hazardous materials, or
hazardous substances as defined in or pursuant to RCRA and CERCLA, or any other
federal, state or local environmental law, ordinance, rule or regulation, except
that, for purposes of this Agreement, "petroleum" (including crude oil or any
faction thereof) shall be deemed a "hazardous substance." "Release" shall have
the same meaning as defined in CERCLA.
4.46. CERTAIN CONDITIONS FOR ACCOUNTING TREATMENT. The Company has not
been a subsidiary or division of another corporation; the Company has not
changed the equity interest of the shares of the Common Stock in contemplation
of effecting the transactions contemplated by this Agreement during the period
beginning on the date of its organization and ending on the date of this
Agreement.
4.47. CERTIFICATES AND SCHEDULES. All certificates and Schedules (as
well as those items referred to therein) delivered to the Purchaser by the
Company pursuant to the provisions of this Agreement are true, correct and
complete in all material respects.
4.48. BROKER'S FEE. The Shareholder has not engaged or consulted with
any broker with respect to the transaction contemplated by this Agreement so as
to give rise to any valid claim against the Shareholder or the Purchaser for a
brokerage commission, finder's fee or like payment.
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4.49. ACCURACY OF INFORMATION. No statement contained in the Schedules
and in any other written documents executed and/or delivered by Shareholder
pursuant to the terms of this Agreement nor any representation or warranty
contained herein or made hereunder, contains any misstatement of a material
fact, or omits or will omit to state a material fact required to be stated
herein or therein in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading. The
Schedules and such other documents shall be deemed to constitute representations
and warranties of the Company and the Shareholder under this Agreement to the
same extent as if set forth in this Agreement.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PURCHASER.
------------------------------------------------------------
The Purchaser hereby represents, warrants and agrees (and
acknowledges that each such representation, warranty and agreement shall be
deemed material and independently relied upon by the Shareholder), in
consummating the transactions herein contemplated:
5.1. ORGANIZATION OF THE PURCHASER. The Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware and is
legally entitled to own and lease its properties and to carry on its business as
and in the places where such properties are now owned, leased or operated or
where its business in now conducted.
5.2. AUTHORITY. Except as otherwise provided in this Agreement, the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated have been duly and validly authorized by all
necessary action on the part of the Purchaser and this Agreement constitutes a
valid and legally binding obligation of the Purchaser enforceable in accordance
with its terms.
5.3. BROKER'S FEE. The Purchaser has not engaged or consulted with any
broker with respect to the transactions contemplated by this Agreement so as to
give rise to any valid claim against the Purchaser for a brokerage commission,
finder's fee or like payment.
5.4 CONFLICTS. Neither the execution and delivery of this Agreement and
the consummation of the transactions herein contemplated nor compliance by the
Purchaser with any provisions hereof will: (a) conflict with, cause an
acceleration of or result in a material breach of or default under any of the
terms, conditions, or provisions of any (i) charter instrument or (ii) note,
bond, mortgage, indenture, license, agreement or other instrument to which the
Purchaser is a party or by which it or any of its property is bound; or (b)
violate any order, writ, injunction, decree, statute, rule or regulation, the
violation of which would have a material adverse consequence upon the Purchaser,
its properties, and its assets, taken as a whole.
5.5. ACCURACY OF INFORMATION. No statements in any other written
documents executed and/or delivered by or on behalf of the Purchaser pursuant to
the terms of this Agreement nor any representation or warranty contained herein
or made hereunder, contains any misstatement of a material fact, or omits or
will omit to state a material fact required to be stated
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herein or therein in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading. Such
other documents shall be deemed to constitute representations and warranties of
the Purchaser under this Agreement to the same extent as if set forth in this
Agreement.
6. THE CLOSING.
------------
The Closing under this Agreement (herein referred to as the "Closing")
shall be held simultaneously with the execution hereof but to be effective as of
June 30, 1996. At the Closing, the parties hereto shall proceed in the manner
and in the order as hereinafter set forth:
6.1. CERTIFICATE OF GOOD STANDING OF THE COMPANY AND THE PURCHASER. The
Companies and the Purchaser shall deliver to each other certified copies of
their respective Certificates of Good Standing executed by the Secretary of the
State in which they are incorporated and dated no more than twenty (20) days
prior to the date of Closing.
6.2. CERTIFIED RESOLUTIONS OF THE PURCHASER. The Purchaser shall
deliver to the Shareholder a copy of resolutions adopted by the Board of
Directors of the Purchaser, certified true and correct by an officer of the
Purchaser as of the date of Closing, authorizing it to enter into this Agreement
and the transactions herein contemplated.
6.3. DELIVERY OF SHARE CERTIFICATES. The Shareholder shall deliver to
the Purchaser the certificate or certificates representing the Shares as
required by Section 1 of this Agreement.
6.4. EMPLOYMENT AGREEMENT. The parties shall execute and deliver and
cause to be executed and delivered an employment agreement in substantially the
form attached hereto as Exhibit C (the "Employment Agreement").
6.5. DELIVERY OF CONSIDERATION. The Purchaser shall deliver to the
Shareholder the Note and the Cash described in Section 2 hereof.
6.6. RESIGNATIONS. The Shareholder shall deliver to the Purchaser
resignations of all officers and directors of the Company.
6.7. OTHER DOCUMENTS. The parties shall execute and deliver to each
other all other certificates, agreements and other documents required to be
delivered pursuant to this Agreement or necessary or useful to complete the
transaction contemplated hereby.
7. INDEMNIFICATION; SET OFF.
-------------------------
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7.1. THE SHAREHOLDER'S INDEMNIFICATION. From and after the Closing, the
Shareholder shall indemnify, defend and hold harmless the Purchaser from,
against and with respect to any actual monetary loss incurred by the Purchaser
from any claim, liability, obligation, loss, damage, assessment, judgment, cost
and expense (including, without limitation, reasonable attorneys' and
accountants' fees and costs and expenses reasonably incurred in investigating,
preparing, defending against or prosecuting any litigation or claim, action,
suit, proceeding or demand), of any kind or character arising out of or in any
manner incident, relating or attributable to (i) the inaccuracy in any
representation or breach of warranty of the Shareholder contained in this
Agreement, in the Schedules, or in any certificate, instrument or other document
or agreement executed by the Shareholder in connection with this Agreement,
except to the extent the Purchaser was aware of such inaccuracy or breach at the
Closing, (ii) any failure by the Shareholder or the Company to perform or
observe any covenant, agreement or condition to be performed or observed by
either of them under this Agreement or under any certificates or other documents
or agreements executed by either of them in connection with this Agreement -
PROVIDED, HOWEVER, the provisions of this Section 7.1 shall not apply to any
breach or default by the Shareholder pursuant to the Employment Agreement; (iii)
claims relating to the enforcement of the Purchaser's rights under this
Agreement; and (iv) claims from federal, state and/or local tax authorities for
increased taxes, interest or penalties related to or resulting from audit
findings that the Company paid unreasonable or excessive compensation to
employees for periods prior to the Closing; PROVIDED, HOWEVER, the total amount
for which the Shareholder shall be liable pursuant hereto shall not exceed
$1,496,402.14, being the sum of the Cash, the Note and the Contingent Payments.
In addition, notwithstanding any other provision of the Agreement to the
contrary, the Shareholder shall not be required to make any cash payments
pursuant to this Section 7 in excess of the aggregate amount of cash received
from the Purchaser pursuant to the terms of this Agreement. PROVIDED FURTHER,
HOWEVER, and notwithstanding anything to the contrary stated herein, the limit
on the Shareholder's liability shall not apply in situations where the
Shareholder's actions amount to fraud against the Purchaser.
If any claim covered by the foregoing indemnity is asserted against the
Purchaser, the Purchaser shall notify the Shareholder promptly and give him an
opportunity to defend the same, and the Purchaser shall extend reasonable
cooperation to the Shareholder in connection with such defense. In the event
that the Shareholder fails to defend the same within a reasonable time, the
Purchaser shall be entitled to assume the defense thereof and the Shareholder
shall be liable to repay the Purchaser for all of its expenses reasonably
incurred in connection with such defense (including reasonable attorneys' fees
and settlements payments) within the limits set forth herein. In the event that
the Shareholder has paid to the Purchaser the maximum amount of indemnification
for which he is liable hereunder and a claim that would otherwise be covered by
the foregoing indemnity is still outstanding, the Purchaser shall have the right
to assume the defense thereof since it (or the Company) will be paying all costs
and damages associated therewith.
7.2. THE PURCHASER'S INDEMNIFICATION. From and after the Closing, the
Purchaser shall indemnify, defend and hold harmless the Shareholder from,
against and of with respect to any
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claim, liability, obligation, loss, damage, assessment, judgment, cost and
expense (including, without limitation, reasonable attorneys' and accountants'
fees and costs and expenses reasonably incurred in investigating, preparing,
defending against or prosecuting any litigation or claim, action, suit,
proceeding or demand), of any kind or character arising out of or in any manner
incident, relating or attributable to (i) the inaccuracy in any representation
or breach of warranty of the Purchaser contained in this Agreement, in the
Schedules, or in any certificate, instrument or other document or agreement
executed by the Purchaser in connection with this Agreement or otherwise made or
given in writing in connection with this Agreement by the Purchaser, except to
the extent the Shareholder was aware of such inaccuracy or breach at the
Closing, (ii) any failure by the Purchaser to perform or observe any covenant,
agreement or condition to be performed or observed by it under this Agreement or
under any certificates or other documents or agreements executed it in
connection with this Agreement, and (iii) claims relating to the enforcement of
the Shareholder's rights under this Agreement; PROVIDED, HOWEVER, the total
amount for which the Purchaser shall be liable pursuant hereto shall not exceed
$1,496,402.14. If any claim covered by the foregone indemnity is asserted
against the Shareholder, the Shareholder shall notify the Purchaser promptly and
give it an opportunity in connection with such defense. In the event that the
Purchaser fails to defend the same within a reasonable time, the Shareholder
shall be entitled to assume the defense thereof and the Purchaser shall be
liable to repay the Shareholder for all of its expenses reasonably incurred in
connection with such defense (including reasonable attorneys' fees and
settlement payments).
7.3. RIGHTS OF SET OFF. If the Purchaser, in its sole discretion,
determines that it is or is reasonably expected to be entitled to
indemnification for any amounts (collectively, the "Amounts Subject to
Indemnification") pursuant to Section 7.1 of this Agreement, then the Purchaser
may, in lieu of or in addition to pursuing its rights of indemnification from
the Shareholder, give notice to the Shareholder that: (i) it is reducing any
amounts due the Shareholder under the Note by an amount equal to the Amounts
Subject to Indemnification, such reduction to be treated as first credited
against interest accrued but not yet paid and then a pre-payment of principal
without penalty; and/or (ii) reduce any Contingent Payment (including the amount
of any of the Purchaser's Shares) due the Shareholder by an amount equal to the
Amounts Subject to Indemnification.
8. MUTUAL FURTHER ASSURANCE AND AGREEMENTS.
----------------------------------------
Each of the Purchaser and the Shareholder covenants with the other as
follows:
8.1. CONFIDENTIALITY. All information furnished by one party to the
other party in connection with this Agreement or the transactions contemplated
hereby shall be kept confidential by such other party (and shall be used by them
only in connection with this Agreement and the transactions contemplated hereby)
except to the extent that such information (i) already is known to such other
party when received, (ii) thereafter becomes lawfully obtainable from other
sources, (iii) is required to be disclosed in any document filed with the SEC or
any other agency of any government, or (iv) as otherwise required to be
disclosed pursuant to any
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federal or state law, rule or regulation or by any applicable judgment, order or
decree of any court or by any governmental body or agency having jurisdiction in
the premises after such other party has given reasonable prior written notice to
the other parties to this Agreement of the pending disclosure of any such
information.
8.2. CURRENT INFORMATION. During the period from the date of this
Agreement to the Closing, or until this Agreement is terminated as provided
herein and except as publicly disclosed by the Purchaser, each party shall
promptly notify the other parties of (i) any material change in the normal
course of its business or in the operation of its properties, (ii) any
governmental complaints, investigations or hearing (or communications indicating
that the same may be contemplated), or receipt of any memorandum of
understanding or cease and desist order from a regulatory authority, or (iii)
the institution of the threat of material litigation involving such party, and
will keep the other party fully informed of such events.
8.3. MISCELLANEOUS AGREEMENTS. Subject to the terms and conditions
herein provided, each party shall use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary,
appropriate or desirable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
8.4. PUBLICITY. Subject to the other provisions of this Agreement,
press releases and other publicity materials relating to the transactions
contemplated by this Agreement shall be released by the parties hereto only
after review and with the consent of both parties; PROVIDED, HOWEVER, that the
Purchaser shall have the right, after consulting with the Shareholder, to make a
public announcement of the execution of this Agreement, and its subsequent
closing, and a disclosure of the basic terms and conditions of this Agreement if
advised to do so by its legal counsel in connection with the reporting and
disclosure obligations of the Purchaser under the federal securities laws and/or
the NASDAQ National Market.
9. WAIVERS.
---------
The Shareholder or the Purchaser may, by an instrument in writing
extend the time for or waive the performance of any of the obligations of the
other or waive compliance by the other with any of the covenants or conditions
contained in this Agreement.
10. NOTICES.
--------
All notices and other communications which are required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or when mailed, by registered or certified mail, postage
prepaid, or when delivered by nationally recognized overnight courier service,
or when telecopied, as follows:
If to the Shareholder to: The Shareholder at the address listed under the
first paragraph of this Agreement.
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with a copy to: Daniel R. Hackett, Esq.
Arter and Hadden
21st Floor, One Columbus
10 West Broad Street
Columbus, Ohio 43215-3422
If to the Purchaser to: Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45805
Attention: Pier C. Borra, President
Telecopier: (419) 227-3499
with a copy to: Brad C. Roush, General Counsel
Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45805
Telecopier: (419) 221-3366
11. ENTIRE AGREEMENT.
-----------------
This Agreement (including the Recitals, Exhibits and Schedules hereto)
supersedes any and all oral or written agreements (including, but not limited
to, the Letter of Intent by and between the Purchaser, the Shareholder and
Richard E. Moon, Jr., and dated June 6, 1996) heretofore made relating to the
subject matter hereof and constitutes the entire agreement of the parties hereto
relating to the subject matter hereof.
12. PERSONAL GUARANTY.
------------------
The parties acknowledge that the Shareholder has personally guaranteed
certain indebtedness of the Company as disclosed on Schedule 4.24 hereof (the
"Personally Guaranteed Loans"). The Purchaser covenants and agrees that it shall
use its best efforts to obtain the release of such Personally Guaranteed Loans
within thirty (30) days after the Closing. In the event that such release cannot
be obtained, the Purchaser hereby agrees to indemnify and hold harmless the
Shareholder from and against any and all liability arising out of or resulting
from the Personally Guaranteed Loans.
13. NO IMPLIED RIGHTS OR REMEDIES.
------------------------------
Except as otherwise expressly provided herein, nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation, other than the Shareholders or Purchaser any rights
or remedies under or by reason of this Agreement.
20
<PAGE> 21
14. HEADINGS.
--------
Headings in this Agreement are inserted for convenience of reference
only and shall not be a part of or control or affect the meaning of this
Agreement.
15. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
16. BENEFIT AND ASSIGNMENT.
----------------------
This Agreement binds and inures to the benefit of each party hereto and
their respective heirs, successors and assigns. The Shareholder's right to
receive the Contingent Payment(s), if at all, shall not be affected by his
death.
17. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
18. CROSS-REFERENCE.
---------------
To the extent that any Schedule hereto would be required to contain
information covered by another Schedule hereto, a brief cross-reference
identifying the information and the Schedule where it is best described will be
sufficient.
19. PRONOUNS.
--------
Whenever required by the context herein, the singular includes the
plural and the masculine includes the feminine or the neuter. Words such as
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular Section or subsection of
this Agreement.
20. SURVIVAL OF REPRESENTATION AND WARRANTIES.
-----------------------------------------
All of the representations and warranties made in this Agreement by
either the Shareholders or the Purchaser including without limitation agreements
to indemnify under Section 7 hereunder, shall survive the Closing for a period
of three (3) years thereafter; PROVIDED, HOWEVER, that such three (3) year
limitation period shall not apply to matters involving: (i) taxes; (ii)
statutes, rules and regulations pertaining to Medicare, Medicaid or other
reimbursement programs; (iii) inaccuracy of the representations and warranties
contained in Sections 4.2, 4.3,
21
<PAGE> 22
4.7 and 4.8 hereof; and (iv) any other matter amounting to fraud against the
Purchaser, which shall only be limited by any applicable statute of limitations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PURCHASER SHAREHOLDER
ARBOR HEALTH CARE COMPANY
By /s/ Pier C. Borra /s/ Robert Q. Baker
------------------------- ------------------------
Pier C. Borra, President Robert Q. Baker
22
<PAGE> 23
EXHIBIT A
PROMISSORY NOTE
---------------
$117,702.14 Lima, Ohio
June 30, 1996
For value received, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, ARBOR HEALTH CARE COMPANY, a Delaware
corporation ("Payor"), hereby promises to pay to the order of ROBERT Q. BAKER
("Payee") or his heirs, personal representatives and assigns, at 1309 Durness
Court, Worthington, OH 43235-4582, or at such other place as the holder hereof
may, from time to time, designate in writing, the outstanding principal balance
of One Hundred Seventeen Thousand Seven Hundred Two and 14/100 Dollars
($117,702.14), with simple interest on the unpaid principal sum thereof at a
rate of seven and one-half percent (7 1/2%) per year, payable at the times and
on the terms as hereinafter provided in this promissory note (the "Note"):
1. Interest hereon and the principal sum shall be paid in
lawful money of the United States of America.
2. Payor shall pay the interest accrued hereon semi-annually in
arrears, beginning December 31, 1996 and continuing on June
30, 1997 and December 31, 1997. Payor shall pay the
principal hereof, together with all interest accrued to
date, on the date that is eighteen (18) months from the date
of this Note, whereupon this Note shall be cancelled.
<PAGE> 24
3. Prepayment of all or any part of the principal sum of the
Note, together with accrued interest thereon, shall be
allowed at any time. Any partial prepayment shall be applied
first against accrued interest and then as a reduction of
principal, except as otherwise provided in the Agreement (as
that term is defined in paragraph 4 hereof). Any such
prepayment shall not postpone the due date of any subsequent
installment.
4. The principal amount of this Note and/or accrued interest
thereon may be reduced in the manner specified in Section 7:
"Indemnification; Set Off" of that certain Share Purchase
Agreement entered into by and among Payor and Payee, and
dated as of June 30, 1996 (the "Agreement").
5. The happening of the following event shall be deemed a
default under this Note: default by Payor in the payment of
any installment of principal or interest when due under this
Note and the same shall remain unpaid for a period of ten
(10) days after written notice thereof has been delivered to
Payor.
6. In the event of a default under this Note, the holder hereof
may by an instrument or instruments in writing signed by him
and addressed and delivered to the undersigned (a) declare
that the entire principal balance then owing shall bear
interest at a rate of ten percent (10%) per year, or (b)
declare the outstanding principal balance of this Note due
and payable and, upon such declaration being made, the
entire unpaid
-2-
<PAGE> 25
principal and all accrued interest shall be due and payable.
No delay on the part of the holder of this Note shall
constitute a waiver of his rights under this paragraph.
7. This Note shall be construed by the laws of the State of
Ohio.
8. This Note has been executed and delivered at Lima, Allen
County, Ohio on the date first above written.
ARBOR HEALTH CARE COMPANY
-------------------------------
Pier C. Borra, President
<PAGE> 26
EXHIBIT B
---------
SHAREHOLDER'S AGREEMENT
-----------------------
[Date]
Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45802
Gentlemen:
This letter (the "Shareholder's Agreement") is being furnished to you
pursuant to Section 3.4 of the Share Purchase Agreement (the "Agreement") dated
as of June __, 1996, by and among Arbor Health Care Company, a Delaware
corporation (the "Purchaser"), and Robert Q. Baker (the "Shareholder"). Unless
the context requires a different use or meaning, the capitalized words and terms
used herein shall have the meanings given to them in the Agreement.
The undersigned Shareholder hereby represents to and agrees with the
Purchaser as follows:
1. The undersigned understands that the Purchaser has not filed a
registration statement under the 1933 Act covering the resale of the Purchaser's
Shares and that the Purchaser is not obligated to file such a registration
statement.
2. The undersigned will not offer, sell, transfer, pledge, hypothecate
or otherwise dispose of any of the Purchaser's Shares except (i) in accordance
with Rule 144 under the 1933 Act, (ii) in a transaction which, in the opinion of
counsel to the Purchaser, is exempt from registration under the 1933 Act, or
(iii) pursuant to an effective registration statement filed in compliance with
the 1933 Act and any applicable state securities laws. The undersigned will
furnish to the Purchaser such information and documents as the Purchaser may
reasonably request in connection with any disposition of the Purchaser's Shares.
3. The undersigned further agrees that he will not offer, sell,
transfer, pledge, hypothecate, or otherwise dispose of any of the Purchaser's
Shares until such time as financial results covering at least 30 days of
combined operations of the Purchaser and the Company shall have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies.
4. The certificates evidencing the Purchaser's Shares will bear a
restrictive legend in substantially the following form:
<PAGE> 27
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"). Reference is made
to the Shareholder's Agreement between the issuer and the registered holder
hereof, a copy of which is on file with the issuer, to the effect that the
shares may only be offered, sold, transferred, pledged, hypothecated or
otherwise disposed of (i) in accordance with Rule 144 under the 1933 Act, (ii)
in a transaction which, in the opinion of counsel to the issuer, is exempt from
registration under the 1933 Act, or (iii) pursuant to an effective registration
statement filed in compliance with the 1933 Act and any applicable state
securities laws; and other restrictions on resales as provided in the
Shareholder's Agreement.
5. The undersigned understands that the Purchaser will issue stop
transfer instructions to its transfer agent with respect to the foregoing
restrictions on the disposition of the Purchaser's Shares.
6. The information provided on (i) the attached Purchaser
Questionnaire, and (ii) if the undersigned is not an "accredited investor"
within the meaning of Regulation D, as adopted by the SEC, the attached
Purchaser Representative Questionnaire, is true, complete and accurate in all
respects.
7. The undersigned is acquiring his portion of the Purchaser's Shares
for his own account for investment within the meaning of the 1933 Act.
8. The undersigned understands that no aspect of the contemplated share
purchase transaction has been or will be registered with or reviewed by the SEC
under the 1933 Act, or with or by any state securities law administrator, and no
federal or state securities law administrator has approved any disclosure or
other material concerning the Purchaser or the Purchaser's Shares, or made any
recommendation with respect thereto. The undersigned, personally or with the
assistance of his purchaser representative, has sufficient knowledge and
experience in business and financial matters that he is capable of evaluating
the merits and risks of the proposed share purchase transaction, and he has
investigated the merits and risks of the transaction. The undersigned has been
provided with the Annual Report to Shareholders and Annual Report on Form 10-K
of the Purchaser for the year ended December 31, 199_, and the subsequent
reports filed by the Purchaser with the SEC pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and has had the opportunity to ask
questions of, and receive answers from, members of the management of the
Purchaser.
Witnesses:
- ------------------------------- --------------------------------
Robert Q. Baker
- -------------------------------
<PAGE> 28
EXHIBIT C
---------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
30th day of June, 1996, between Poly-Stat Supply Corporation, an Ohio
corporation ("PSSC"), Poly-Stat Computer Applications, Inc. an Ohio corporation
("PSCA"), The Druggist, Inc., an Ohio corporation ("Druggist"), and Robert Q.
Baker ("Executive").
RECITALS
A. Executive is the President of PSSC and PSCA.
B. PSSC and PSCA wish to assure both themselves and Executive of
continuity of management.
C. Druggist desires Executive to increase its sales in certain
areas.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, it is hereby agreed by and between the parties as
follows:
Section 1. DEFINITIONS.
-----------
The following words and terms shall have the following meanings unless
the context otherwise indicates:
"Cause" means any act or omission that is materially injurious to the
Employer or their parent, Arbor Health Care Company and/or its subsidiaries
(collectively, "Arbor") and that constitutes on the part of Executive (i) common
law fraud, (ii) a felony, (iii) continuing intentional gross neglect by the
Executive in connection with the performance of his duties hereunder, (iv) gross
negligence, (v) failure to meet mutually agreed upon budget projections and/or
goals, or (vi) any other material breach of this Agreement; provided that there
shall be no "cause" pursuant to item (vi) hereunder until (a) the Employer shall
have given written notice to Executive setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for asserting the existence
of "cause" and (b) Executive shall not have remedied the situation giving rise
to such facts and circumstances within twenty days after receipt of the
foregoing notice or taken all reasonable steps to that end during such
twenty-day period and thereafter.
"Effective Date" means July 1, 1996.
"Employer" has the meaning assigned thereto in Section 2.1(a) below.
- 1 -
<PAGE> 29
"Term" means the period commencing on the Effective Date and expiring
on the earliest to occur of (i) the fifth anniversary of the Effective Date,
(ii) the Executive's death, or (iii) termination of Executive's employment for
Cause pursuant to Section 4.2 below.
Section 2. EMPLOYMENT.
----------
2.1 POSITION AND DUTIES. Throughout the Term of this Agreement,
Executive shall be employed as the President of PSSC and PSCA or their
respective successors, and:
(a) Executive shall devote his full business time and efforts
during normal business hours to the business and affairs of PSSC and
PSCA or the respective successor to either by which Executive is then
employed pursuant to this Agreement (PSSC and PSCA and/or such
respective successor, as the case may be, being herein sometimes
referred to collectively as the "Employer"), except for reasonable
vacations and for illness or as otherwise provided herein;
(b) Executive shall have duties, responsibilities and
authority consistent with those which normally attend the position of
president of an enterprise comparable to the Employer, which will
include overall general responsibility for all sales, delivery and
billing operations for the Employer;
(c) Executive's duties may also include other duties
pertaining to other subsidiary corporations of Arbor Health Care
Company ("Arbor"), a Delaware corporation and the parent company of
PSSC, PSCA and Druggist, as directed by Arbor from time to time; and
(d) Executive agrees to be bound by the Corporate Compliance
Program of Arbor, which has previously been delivered to Executive (and
as modified from time to time by Arbor).
Section 3. COMPENSATION.
------------
3.1 COMPENSATION DURING TERM. Executive shall be entitled to the
following compensation arrangements throughout the Term:
(a) a base compensation of at least $100,000 per year
commencing the Effective Date and payable in equal monthly installments
(the "Base Compensation");
(b) except as provided in Section 6.2 hereof, a sales
commission on new pharmacy services contracts delivered by Executive
for Druggist, and/or its affiliates, in an amount equal to $60.00 per
bed for each health care facility contract generated, payable: (i)
$20.00 within 30 days after the Druggist or other applicable affiliate
has executed such new contract; (ii) $20.00 after such contract has
been in full force and effect for 12 months; and (iii) $20.00 after
such contract has been in full force and effect for 24 months;
- 2 -
<PAGE> 30
(c) except as provided in Section 6.2 hereof, a sales commission
of 6% on new collected net revenues of respiratory services provided
by Druggist or other applicable affiliate to new customers generated
by Executive, payable quarterly in arrears (i.e., March 31, June 30,
September 30, and December 31) during the term of such new respiratory
services agreement(s) but not to exceed two years for any such new
service agreement;
(d) participation in all other employee benefit plans and
practices of Arbor available to a person employed as an officer or in
a similar position (including, without limitation, life, long-term
disability and accident insurance, employee savings and investment
plans, retirement plans and supplemental arrangements, and medical,
dental, hospitalization, health and welfare plans), as the same may be
modified, supplemented or replaced without material reduction in total
value of the benefits to Executive, as well as to reimbursement, upon
proper accounting, for reasonable expenses and disbursements incurred
by him in the course of his duties;
(e) entitled to three (3) weeks paid vacation and all such
perquisites available to all officers of Arbor;
(f) use for business purposes of the 1995 Suburban motor vehicle
which is owned by PSSC and which Executive is currently operating; and
(g) receive a gasoline credit card for business use, and receive
reimbursement for automotive repairs related to the business use of
the PSSC motor vehicle described above.
Nothing contained in the foregoing shall preclude improvement of compensation,
reward opportunities or benefits available to Executive.
3.2 INDEMNIFICATION AND INSURANCE. Executive shall be entitled to all
applicable indemnification and directors' and officers' liability insurance
provided by the Employer to its directors and officers, if any, which shall not
be less than the indemnification and insurance available to Executive on the
date hereof.
Section 4. TERMINATION.
-----------
4.1 UPON DEATH. Except for the obligations of the Corporation set forth
in this Section 4.1 and for commissions payable pursuant to Sections 3.1(b) and
(c) hereof (which shall be paid to Executive's estate), this Agreement shall
terminate automatically upon Executive's death. In the event of such
termination, the Employer shall promptly pay to Executive's estate all benefits
and compensation accrued hereunder through the end of the month in which
occurred Executive's death.
4.2 FOR CAUSE. The Employer may not terminate Executive's employment
hereunder except for Cause. If Executive's employment is terminated for Cause,
the Employer shall promptly pay Executive his full accrued Base Compensation,
and all other vested benefits, through the date of
- 3 -
<PAGE> 31
such termination at the rate in effect at the time of such termination, and the
Employer shall have no further obligations to Executive under this Agreement
except for commissions payable pursuant to Sections 3.1(b) and (c) hereof.
Notwithstanding the foregoing, termination for Cause under this Section 4.2
shall not relieve Executive of his obligations under Section 5 below.
Section 5. NON-COMPETE: CONFIDENTIALITY.
----------------------------
5.1 NON-COMPETE COVENANT. Executive agrees that, during the period
that Executive is employed pursuant to this Agreement and for one (1) year
thereafter, he will not, directly or indirectly, whether as owner, partner,
officer, employee, agent or consultant, engage in or be employed in any way by
any business engaged in the business of selling enteral nutrients and other
medical supplies, institutional pharmacy sales, respiratory therapy, Medicare
Part B billing or other related ancillary business or nursing home operations
within the states that the Employer currently operates in or will operate in;
provided, however, that in no event shall this Section 5.1 preclude Executive
from owning less than 5% of the outstanding voting stock of any publicly-traded
corporation.
5.2 CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Corporation all secret or confidential
information, knowledge or date relating to the Employer or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
Executive during his employment by the Employer and which shall not have been
public knowledge. During and after the end of the Term, Executive shall not,
without the prior written consent of the Employer, communicate or divulge any
such information, knowledge or data to anyone other than the Employer and those
designated by it; except the foregoing prohibition shall not apply to the extent
such information, knowledge or date (a) was publicly known at the time of
disclosure to Executive, (b) becomes publicly known or available thereafter
other than by any means in violation of this Agreement, or (c) is required to be
disclosed by Executive as a matter of law or pursuant to any court or regulatory
order.
5.3 REMEDIES. Executive hereby acknowledges and agrees that his
obligations under this Section 5 are of a special, unique and extraordinary
character and that a failure to perform any such obligation or a violation
thereof may cause irreparable injury to the Employer, the amount of which will
be impossible to estimate or determine and which cannot be adequately
compensated. Therefore, Executive agrees that, the Employer shall be entitled,
as a matter of course, to an injunction, restraining order, writ of mandamus or
other equitable belief from any court of competent jurisdiction, including
relief in the form of specific performance, restraining any violation or
threatened violation of any term of this Section 5, or requiring compliance with
or performance of any obligation under this Section 5 by Executive and such
other persons as the court shall order. The rights and remedies provided the
Employer hereunder are cumulative and shall be in addition to the rights and
remedies otherwise available to the Employer under any other agreement or
applicable law, including the right to terminate Executive's employment for
Cause pursuant to Section 4.2 above in the event any violation of Section 5
shall constitute Cause.
- 4 -
<PAGE> 32
Section 6. COMMISSION(S) PAYMENT; SET OFF.
------------------------------
6.1 OBLIGATION TO PAY COMMISSION. The Employer's obligation to pay
commissions to Executive or his heirs, successors or assigns in accordance to
Sections 3.1(b) and (c) hereunder shall not be affected by the termination of
this Agreement.
6.2 SET OFF. Notwithstanding anything to the contrary stated herein, if
Executive elects to utilize the new sales he generates for Druggist or other
applicable affiliate for gross margin calculations as described in Section 3.2
of that certain Share Purchase Agreement of even date herewith (the "Purchase
Agreement") entered into by Executive and Arbor, then he shall not be entitled
to any commission(s) that he would otherwise be entitled in accordance with
Sections 3.1(b) and (c) hereunder for that portion of sales Executive elects to
include in such calculations. Furthermore, in the event that any such
commissions shall have been paid by Druggist to Executive prior to his election
pursuant to the Purchase Agreement, then Executive shall be liable for repayment
of the gross amount of all such commissions paid and utilized in such gross
margin calculation. In addition, the Employer shall be entitled to set off the
amount of such commissions improperly paid against any other payments due or to
become due Executive hereunder or pursuant to the Purchase Agreement.
6.3 PAYMENT OF COMMISSIONS. Druggist shall not pay any commissions to
which Executive may otherwise be entitled unless and until Executive has so
instructed Druggist in writing.
Section 7. MISCELLANEOUS PROVISION.
-----------------------
7.1 WITHHOLDING. Notwithstanding anything to the contrary contained in
this Agreement, all payments required to be made by the Employer hereunder to
Executive or his estate or beneficiaries shall be subject to the withholding of
such amounts, if any, relating to tax and other payroll deductions as the
Employer may reasonably determine it is required to withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, the Employer
may accept other provisions to the end that it has sufficient funds to pay all
taxes required by law to be withheld in respect of any and all of such payments.
7.2 ACCESS TO RECORDS. Executive shall have the right to examine all
relevant books and records of Druggist or other applicable affiliate, at all
reasonable times and places, for the purpose of verifying the computation of
sales commissions that may be due to him. Druggist or other applicable affiliate
shall provide Executive a copy of all Medicaid remittance advises submitted by
Druggist or other applicable affiliate in connection with contracts or sales for
which Executive may be due a commission in accordance with Sections 3.1(b) or
(c) hereof.
7.3 ENTIRE AGREEMENT; CAPTIONS. This Agreement contains that entire
understanding of the parties hereto with respect to the subject matter hereof.
The captions and section headings of this Agreement are solely for convenience
of reference and shall not affect the interpretation of any provision hereof.
- 5 -
<PAGE> 33
7.4 NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to Executive at the last address he has filed in
writing with the Employer or, in the case of the Employer, at its principal
executive offices.
7.5 NON-ALIENATION. Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien or security interest upon
any amounts provided under this Agreement; and no benefits payable hereunder
shall be assignable in anticipation of payment either by voluntary or
involuntary acts, or by operation of law, except by will or the laws of descent
and distribution.
7.6 GOVERNING LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Ohio.
7.7 AMENDMENT. This Agreement may be amended or cancelled only by
mutual agreement of the parties, or their respective successors, in writing.
7.8 SUCCESSORS. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of PSSC, PSCA and Druggist and
any respective successor thereof.
7.9 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect in such jurisdiction, and any such invalid or
unenforceable provision shall not be considered invalid or unenforceable in any
other jurisdiction.
7.10 DIVESTURE. Within thirty (30) days from the date hereof, Executive
shall divest himself of all ownership interest in R and B Medical, Inc., an Ohio
corporation.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
POLY-STAT COMPUTER POLY-STAT SUPPLY CORPORATION
APPLICATIONS, INC. an Ohio corporation
an Ohio corporation
By _________________________________ By ____________________________
Title:______________________________ Title:_________________________
THE DRUGGIST, INC.,
an Ohio corporation
-------------------------------
By ________________________________ Robert Q. Baker
Title:_____________________________
- 6 -
<PAGE> 1
Exhibit 10.2
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (hereinafter referred to as the
"Agreement") is made and entered into as of the 30th day of June, 1996, by and
among Arbor Health Care Company, a Delaware corporation (hereinafter referred to
as the "Purchaser"), Robert Q. Baker, an individual residing at 1309 Durness
Court, Worthington, OH 43235-4582 ("Baker") and Richard E. Moon, an individual
residing at 4205 Stonebridge Dr., Springfield, OH 45504 ("Moon") (Baker and Moon
are hereinafter referred to individually as a "Shareholder" and collectively as
the "Shareholders").
R E C I T A L S
WHEREAS, each Shareholder presently owns capital stock of Poly-Stat
Computer Applications, Inc., an Ohio corporation (the "Company") as set forth
opposite his name under column 2 of Exhibit A attached hereto and incorporated
herein (the shares owned by each Shareholder are hereinafter referred to as the
"Shareholder's Shares" and by all of the Shareholders as the "Total
Shareholders' Shares");
WHEREAS, the Company is presently engaged in the business of selling
Medicare billing and collection services to nursing homes and other medical
supply companies in Ohio (said business is hereinafter collectively referred to
as the "Company's Business");
WHEREAS, the Shareholders desires to sell to the Purchaser the Total
Shareholders' Shares upon the terms and subject to the conditions set forth in
this Agreement; and
WHEREAS, the Purchaser desires to purchase from the Shareholders the
Total Shareholders' Shares upon the terms and subject to the conditions
hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, of the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. SALE AND PURCHASE OF EACH SHAREHOLDER'S SHARES.
----------------------------------------------
At the Closing (as that term is hereinafter defined in Section 6 of
this Agreement), the Shareholders shall sell and deliver to the Purchaser and
the Purchaser shall purchase and take from the Shareholders the Total
Shareholders' Shares, all upon the terms and subject to the conditions set forth
in this Agreement. The sale and delivery by the Shareholders of the Total
Shareholders' Shares to the Purchaser pursuant to this Section shall be effected
by the delivery to the Purchaser by the Shareholders at the Closing of a
certificate or certificates representing the Shareholders'
1
<PAGE> 2
Shares duly endorsed in blank by the owner of record or accompanied by
a duly executed stock power in blank by the owner of record with such
signature guarantees or other certifications or affidavits as the
Purchaser shall reasonably request.
2. CONSIDERATION FOR THE TOTAL SHAREHOLDERS' SHARES.
------------------------------------------------
In consideration of the sale and transfer to the Purchaser by the
Shareholders of the Total Shareholders' Shares as provided in Section 1 of this
Agreement, at the Closing the Purchaser shall deliver to the Shareholders the
following:
(a) $153,800.00 in immediately available funds (the "Cash") to each
Shareholder; and
(b) A promissory note (the "Note") in the principal amount of
$37,400.00, in the form attached hereto as Exhibit B, to each
Shareholder.
3. CONTINGENT PAYMENT.
------------------
The Purchaser shall pay each Shareholder up to two (2) contingent
payments, the first in the amount of $92,280.00 and the second in the amount of
$61,520.00 (individually, a "Contingent Payment" and collectively, the
"Contingent Payments"), which relate to the financial performance of the Company
and Poly-Stat Supply Corporation, an Ohio corporation affiliated with the
Company ("PSSC") (the Company and PSSC are hereinafter collectively referred to
as the "Group"), over the next five years after acquisition of the Group by the
Purchaser. The Contingent Payments shall only be payable as hereinafter set
forth:
3.1 GROSS MARGIN TARGETS. The Shareholders shall be entitled to receive
the Contingent Payment(s) only as follows:
(a) If the aggregate gross margin of the Group, for the
period beginning January 1, 1996 through December 31,
1998 equals or exceeds $2,370,000.00 (the "First
Gross Margin Target"), then the Shareholders shall
each be entitled to the first Contingent Payment in
the amount of $92,280.00.
(b) If the aggregate gross margin of the Group, for the
period beginning January 1, 1999 through December 31,
2000 equals or exceeds $2,456,000.00 (the "Second
Gross Margin Target"), then the Shareholders shall
each be entitled to the second Contingent Payment in
the amount of $61,520.00.
(c) If the first Contingent Payment as described in
Section 3.1(a) is not made because the First Gross
Margin Target was not achieved, the Purchaser shall
nonetheless pay each Shareholder the amount of both
Contingent Payments if the aggregate gross margin of
the Group equals or exceeds $4,826,000.00 (the "Final
Gross Margin Target") for the period beginning
January 1, 1996 through December 31, 2000. In such
event, no further
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Contingent Payment shall be payable, it being the
intention of the parties that the maximum amount of
the Contingent Payments payable to each Shareholder
shall be $153,800.00 (or $307,600.00 in the
aggregate).
3.2. CALCULATIONS. As used herein "gross margin" shall mean the income
of the Group before deductions for interest, depreciation, office lease expense,
amortization of goodwill, allocation of the Purchaser's or its affiliates'
(other than the Group) corporate overhead and income taxes. When determining the
amount of gross margin generated by the Group, revenues shall include: (i) sales
of the Company; (ii) sales of the PSSC of urological and ostomy supplies,
surgical dressings, nutritional supplies (enteral nutrients - tube fed and
supplemental nutrients), oxygen supplies (including concentrators and E-tanks
but excluding respiratory supplies associated with concentrators and excluding
liquid oxygen), and tracheostomy supplies (including tracheostomy clean and care
kits but excluding suction catheters and trachs); and (iii) sales of durable
medical equipment.
In determining whether the Contingent Payment(s) have been achieved,
Baker may elect to include a portion of the Gross Margin From Druggist Sales (as
hereinafter defined and described). The Gross Margin From Druggist Sales shall
be equal to twenty percent (20%) of the revenues less contractual allowances
derived annually from new sales of pharmacy and respiratory services provided by
The Druggist, Inc., an Ohio corporation which is an affiliate of the Purchaser
or any other affiliates of the Purchaser (collectively, the "Druggist"),
generated by Baker and as further described in Sections 3.1(b) and (c) of the
Employment Agreement being entered into by Baker simultaneously herewith.
Notwithstanding anything to the contrary stated herein, the amount of the Gross
Margin From Druggist Sales which Baker may elect to utilize for determining
whether the gross margin targets have been met shall be limited as follows:
(a) An amount not to exceed $704,500.00 of the Gross Margin From
Druggist Sales generated for the period beginning July 1, 1996 through December
31, 1998 may be utilized in determining whether the First Gross Margin Target
has been achieved; and
(b) An amount not to exceed $735,500.00 of the Gross Margin From
Druggist Sales generated for the period beginning January 1, 1999 through
December 31, 2000 may be utilized in determining whether the Second Gross Margin
Target has been achieved.
(c) If the First Gross Margin Target was not attained, an amount not to
exceed $1,440,000.00 of the Gross Margin From Druggist Sales generated for the
period beginning July 1, 1996 through December 31, 2000 may be utilized in
determining whether the Final Gross Margin Target has been achieved.
An election by Baker to include any portion of the Gross Margin From
Druggist Sales must be made within thirty (30) days after the Purchaser has
delivered to Baker its written report detailing the computation of the Gross
Margin From Druggist Sales at the end of the applicable
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period set forth in (a) through (c) above. In the event there is a dispute
regarding such computation, Baker may defer such election until the dispute is
settled.
3.3. PAYMENT(S) OF THE CONTINGENT PAYMENT(S). The Contingent Payment(s)
shall be paid to the Shareholders, if due, as follows: 72.5% of the amount due
shall be paid in cash, and 27.5% shall be paid by delivery from the Purchaser of
a corresponding number of shares of its Common Stock, par value $.03 per share
(the "Purchaser's Shares"), the exact number of shares to be determined by
dividing 27.5% of the amount of the Contingent Payment due by $27.50, such price
being the approximate fair market value of the Purchaser's Shares over the last
30 days. Therefore, such price shall be adjusted accordingly for any stock
splits or stock dividends between the date hereof and the date such shares are
delivered to the Shareholders hereunder. Payment(s) of the Contingent Payment(s)
shall be made within 20 days after completion of the audit of the Purchaser's
financial statements for the relevant period.
3.4. RESTRICTED SECURITIES. The Shareholders acknowledge and agrees
that the Purchaser's Shares deliverable in accordance with the terms hereof will
be restricted securities. At the time of such delivery, the Shareholders shall
provide the Purchaser with a Shareholder's Agreement in the form attached hereto
as Exhibit C as a precondition of receiving same.
3.5. ACCOUNTING. The Purchaser will cause appropriate accountants to
prepare a computation of gross margin of the Group and the Druggist to be
prepared each year. In conjunction with the audit of the Purchaser's financial
statements the Purchaser's independent auditors will be instructed to review
such computation for conformity with the terms of this Agreement. In addition,
the Shareholders or their agents shall have the right to examine all relevant
books and records of the Group and the Druggist or other relevant affiliates of
the Purchaser at all reasonable times and places. In the event the Company or
PSSC is no longer a separate entity, or if other companies, divisions or lines
of business of the Purchaser or its affiliates are added within the Group,
separate books and records shall be maintained for purposes of calculating the
gross margins of the Group as if such combination or addition had not taken
place.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF EACH
--------------------------------------------------
SHAREHOLDER.
-----------
The Shareholders hereby jointly and severally represent, warrant and
agree (and acknowledges that each such representation, warranty and agreement
shall be deemed material and independently relied upon by the Purchaser), in
consummating the transactions herein contemplated as follows:
4.1. BINDING EFFECT. This Agreement constitutes his legally binding and
valid obligation, enforceable in accordance with its terms.
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<PAGE> 5
4.2. OWNERSHIP OF THE SHAREHOLDER'S SHARES. He is the record owner of
and has good and valid title to the Shareholder's Shares, he has full right,
power and authority to sell and deliver the Shareholder's Shares to the
Purchaser pursuant to the terms of this Agreement and, upon the sale and
transfer by him of his certificate or certificates therefor to the Purchaser
pursuant to this Agreement, he will deliver to the Purchaser good and valid
title to the Shareholders's Shares, free and clear of any and all claims, liens,
charges, encumbrances, restrictions, agreements and defects of any kind or
nature whatsoever.
4.3. OWNERSHIP OF THE SHAREHOLDER'S SHARES. The Shares are owned
beneficially and of record by each Shareholder, and he has no right to acquire
or receive any additional shares of the Company's capital stock.
4.4. VOLUNTARY ACT. He is executing this Agreement freely, knowingly
and voluntarily, he is fully aware of the contents and legal effects hereof, and
such execution is not the result of any duress, mistake or undue influence
whatsoever.
4.5. CLAIMS AGAINST THE PURCHASER OR THE COMPANY. He has no presently
existing claim, demand, action or cause of action, whether at law or in equity,
whether accrued, contingent, fixed or otherwise, which he might hereafter
attempt to assert against the Purchaser, the Company or any of their respective
attorneys, accountants, parents, subsidiaries, affiliates, predecessors,
officers, directors, employees or stockholders, of any kind, character or
description whatsoever, arising out of, related to or in any manner connected
with, either directly or indirectly, his participation as an employee, director,
officer or stockholder of the Company, including but not limited to (i) any
rights to purchase or receive shares of the Company's capital stock, or (ii)
presently existing claim or basis for a claim for indemnification from the
Company pursuant to the Company's Articles of Incorporation or Code of
Regulations, or any agreement or law other than for (a) unpaid dividends
declared by the board of directors of the Company, (b) indebtedness described on
Schedule 4.24, and (c) salaries and/or employee expense reimbursements not
exceeding $5,000 in the aggregate with respect to him.
4.6. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is legally
entitled and licensed to own and lease its properties and to carry on the
Company's Business as and in the places where such properties are now owned,
leased or operated. There are no jurisdictions in which the nature of the assets
or the business of the Company would require it to qualify as a foreign
corporation.
4.7. CAPITALIZATION. The authorized capital stock of the Company
consists of 500 shares of Common Stock, without par value (hereinafter referred
to as the "Common Stock"), all of which are validly issued, fully paid,
non-assessable and outstanding. No governmental agency or purchaser of shares of
the Common Stock has asserted a claim or demand to the Company that any of such
shares were issued in violation of any federal or state securities laws.
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<PAGE> 6
4.8. OPTIONS. There are no existing options, warrants, commitments or
agreements of any kind or nature whatsoever relating to the issuance of the
Common Stock or securities of the Company and no existing agreements, trusts or
understandings relating to the voting or transfer of the Common Stock, except
that certain Buy-Sell Agreement entered into between the Shareholders as of
March 1, 1992, which the Shareholders agree to terminate at the Closing.
4.9. SUBSIDIARIES. The Company has no subsidiaries or investments in
any subsidiaries or other businesses.
4.10. CORPORATE INSTRUMENTS. The Articles of Incorporation and Code of
Regulations of the Company, as amended to date, are true, correct and complete
in all respects. The stock record books of the Company are true, correct and
complete in all respects and accurately reflect all issuances and transfers of
the authorized capital stock of the Company. Copies of all such corporate
instruments of the Company shall be furnished to the Purchaser prior to Closing.
4.11 CONFLICTS. Except as set forth on Schedule 4.11, neither the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated nor compliance by the Shareholders with any
provisions hereof will; (a) conflict with, cause an acceleration of or result in
a material breach of or default under any of the terms, conditions, or
provisions of any (i) article of the Articles of Incorporation or any of the
Code of Regulations of the Company; or (ii) note, bond, mortgage, indenture,
license, agreement or other instrument to which the Company is a party or by
which it or any of its property is bound; or (b) violate any order, writ,
injunction, decree, statute, rule or regulation, the violation of which would
have a material adverse consequence upon the Company, its properties, and its
assets, taken as a whole.
4.12. CONSENT. Except as set forth on Schedule 4.12, no consent or
approval by any governmental agency or authority or any non-governmental person
or entity is required in connection with the execution, performance and delivery
by the Shareholder of this Agreement or the consummation of the transactions
herein contemplated (including, but not limited to, consents from federal,
state, municipal or other governmental agencies or authorities having
jurisdiction over the Company's Business).
4.13. FINANCIAL STATEMENTS. The Company has previously furnished the
Purchaser with a true, correct and complete copy of the internal balance sheet
and income statement dated May 31, 1996 and the compiled balance sheet and
income statement for the fiscal years ended December 31, 1995, December 31,
1994, December 31, 1993 and December 31, 1992 (hereinafter referred to
individually and/or collectively as the "Financial Statements"). The Financial
Statements fairly present the financial position of the Company as of their
respective dates and the results of its operations for the respective periods
then ended. The shareholders' equity of the Company, as stated on the Financial
Statements, is at least $22,234.00 at May 31, 1996.
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4.14. INVENTORIES. Schedule 4.14 sets forth as of June 25, 1996, (the
"Inventory Date") a true, correct and complete description by classification of
all raw materials and manufacturing supplies, work-in-process and finished
inventories of the Company (said items and any items acquired since the
Inventory Date, other than items of inventory disposed of in the ordinary course
of business, are hereinafter collectively referred to as the "Inventories").
Since the Inventory Date, there has been no change in the levels of the
Inventories in any category except in the ordinary course of business. Except as
otherwise provided on Schedule 4.14, the Inventories consist solely of
quantities and qualities useable and saleable in the ordinary course of the
Company's Business. No material amounts of the Inventories have been consigned
except as provided on Schedule 4.14. All of the Inventories (other than the
consigned inventory) are located on property owned or leased by the Company.
4.15. MACHINERY AND EQUIPMENT. Schedule 4.15 sets forth as of May 31,
1996 a complete list, description and location of each item of the Company's
machinery, equipment and other tangible assets used in the Company's' Business
having an initial cost of greater than $1,000 (hereinafter referred to as the
"Machinery and Equipment"). Each such item of the Machinery and Equipment is in
good operating condition and repair, normal wear and tear excepted, and is free
of any material defects. Since May 31, 1996 and except as otherwise provided in
Schedule 4.15, there has been no sale or other disposition of any of the
Machinery and Equipment.
4.16. LEASED PROPERTY. Schedule 4.16 sets forth as of the date of this
Agreement a description of each parcel of real property (including all
improvements thereto) leased by the Company (hereinafter referred to as the
"Leased Property"). The Company shall deliver to the Purchaser copies of such
leases. The Company is not in material default under any such leases and such
leases are in full force and effect. The Company does not own any real property.
4.17. ACCOUNTS RECEIVABLE. Except as disclosed on Schedule 4.17, all
accounts receivable of the Company (hereinafter referred to as the "Accounts
Receivable") as of May 31, 1996 and all notes and accounts receivable acquired
by it subsequent to May 31, 1996, have arisen in the ordinary course of business
and have been collected or are in the process of collection and will be
collected in the ordinary course of business in the aggregate recorded amounts
thereof. Schedule 4.17 also sets forth a description of the Company's policies
and current status with respect to sales discounts, returns and allowances, and
also sets forth a description of any material changes in credit terms since May
31, 1996.
4.18. PATENTS AND TRADEMARKS. Schedule 4.18 sets forth a true, correct
and complete listing of all patents, trademarks, trade names, brand names and
registered copyrights and any pending applications therefor, owned by or
licensed to the Company (hereinafter collectively referred to as the "Patents"),
together with a brief statement as to the filing, registration or issuance
thereof, as to any licenses, sublicenses, covenants or agreements entered into
or granted by or to the Company with respect thereto and as to any pending or
threatened disputes or adverse claims with respect thereto. Except as set forth
on Schedule 4.19, the Company solely owns or has the exclusive right to use,
free and clear of any payment or
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<PAGE> 8
encumbrance, all patents, trademarks, trade names and brand names (whether
registered or unregistered) and copyrights used in the conduct of the Company's
Business. Except as set forth on Schedule 4.18, there is no claim or demand of
any person pertaining to, or any proceedings which are pending or, to the best
knowledge of the Company, overtly threatened, which challenge: (a) the exclusive
rights of the Patents; or (b) the rights of the Company in respect of any
material confidential information or material trade secrets used in the conduct
of the Company's Business. None of the Patents are subject to any outstanding
order, ruling, decree, judgment or stipulation by or with any court, arbitrator
or administrative agency or, to the best knowledge of the Company, infringes or
is being infringed by others or is used by others (whether or not such use
constitutes infringement), except for orders, rulings, decrees, judgments,
stipulations or alleged infringements set forth on Schedule 4.18, none of which
individually or collectively will materially and adversely affect the Company's
Business.
4.19. ASSETS USED IN BUSINESS. Since May 31, 1996, the Company has not
utilized any material assets in the conduct of the Company's Business other
than: (a) assets reflected on the balance sheets included in the Financial
Statements; (b) assets set forth in the Schedules (including Schedule 4.19); and
(c) supplies and inventories acquired, consumed or disposed of by the Company
since May 31, 1996 in the ordinary course of the Company's Business.
4.20. TITLE TO ASSETS. The Company has good, valid and indefeasible
leasehold title to the Leased Property, to all of the assets listed on the
Schedules delivered to the Purchaser by the Company and to all of the assets,
both real and personal, reflected on the balance sheets included in the
Financial Statements (except for such assets sold, consumed or otherwise
disposed of in the ordinary course of the Company Business since the dates of
such balance sheets), free and clear of all mortgages, liens, pledges, charges,
restrictions, agreements, encroachments or encumbrances of any kind or nature
whatsoever, except; (a) for those associated with the indebtedness listed on
Schedule 4.24; and (b) liens for current taxes not yet due and payable.
4.21. NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.21,
the Company has no material liabilities or obligations of any kind or nature
whatsoever, whether absolute, accrued, contingent or otherwise and whether due
or to become due, other than: (a) those reflected on or referred to in the
Financial Statements and not since paid or discharged; or (b) those incurred
since May 31, 1996 in the ordinary course of the Company's Business or disclosed
in one or more Schedules delivered to the Purchaser by the Company. Except as
set forth on Schedule 4.21, the Company does not have, directly or indirectly,
any contractual arrangement with or commitment to or from any of its officers,
directors or employees. Without limiting the generality of the foregoing and
except as so disclosed, no officer, director, shareholder or employee of the
Company was or is, directly or indirectly, a joint investor or co-venturer with,
or owner, lessor, lessee, licensor, licensee or supplier of any real or personal
property, tangible or intangible, owned or used by or a lender to or debtor of
the Company and the Company has no commitments or obligations as a result of any
such transaction prior to the date of this Agreement.
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4.22. ACCOUNTS PAYABLE. Schedule 4.22 sets forth as of May 31, 1996 all
of the accounts payable of the Company as of such date. No accounts payable have
arisen since May 31, 1996 except in the ordinary course of the Company's
Business.
4.23. TAXES. Copies of all federal, state and local, as the case may
be, income tax returns of the Company for each of the four (4) consecutive
taxable years ended December 31, 1995 have heretofore been delivered to the
Purchaser. The Company has filed or made all federal, state and local income and
other tax returns and tax filings which it has been required to file or make
(and there are no requests pending for extensions of time to file or make any
such returns or filings) and have paid all taxes and governmental charges due
and payable as shown on such returns and filings. The Company has never been
audited by any federal, state or local taxing authority.
4.24. INDEBTEDNESS. Schedule 4.24 sets forth as of the date of this
Agreement a complete description of any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company.
4.25. CAPITAL EXPENDITURES. Schedule 4.25 sets forth as of the date of
this Agreement each outstanding commitment of the Company to make a capital
expenditure, capital addition or capital improvement in the amount of $5,000.00
or more individually or $25,000.00 in the aggregate.
4.26. GOVERNMENTAL AUTHORIZATIONS. The Company now has and, in a manner
consistent with good business practice, will maintain in effect through the
Closing all licenses, permits, certificates, agreements, consents and other
authorizations from all federal, state and local agencies or authorities as are
necessary for the lawful and proper conduct of the Company's Business. Schedule
4.26 sets forth as of the date of this Agreement a complete list of all such
governmental authorizations material to the conduct of the Company's Business.
4.27. EMPLOYEES. Schedule 4.27 sets forth as of the date of this
Agreement a complete list of all officers, directors and employees of the
Company, whether full time or part time, indicating the name of each such
person, the method and the amount of annual compensation of each such person and
the title or job description of each such person.
4.28. CONSULTANTS. Schedule 4.28 sets forth as of the date of this
Agreement a complete list of all consultants of the Company, whether full time
or part time, indicating the name of each consultant and any compensation
arrangement with each consultant.
4.29. FRINGE BENEFITS. Schedule 4.29 sets forth as of the date of this
Agreement a complete list and description of all fringe benefits, including
hospitalization insurance, accident and health insurance, disability insurance,
death insurance, vacation policies, meals and lodging policies and parking
policies along with true, correct and complete copies of all contracts,
policies, procedures, actuarial reports and manuals of employee disclosures
related thereto.
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4.30. EMPLOYEE BENEFIT PLANS. Schedule 4.30 sets forth as of the date
of this Agreement a complete list and description of all employment contracts,
bonus, collective bargaining, deferred compensation, stock option,
profit-sharing, pension, retirement, termination, incentive or other similar
arrangement, plan or commitment (other than those described on Schedule 4.29 or
Schedule 4.31) to which the Company is a party or by which the Company or its
assets or properties are bound along with complete copies of such documents,
arrangements or plans.
4.31. ERISA PLANS. The only "employee benefit plans" (hereinafter
referred to as the "Plans"), as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to which any liability under ERISA or otherwise presently exists or may
be incurred by the Company are those listed on Schedule 4.31. No Plan is a
"multi employer plan" as that term is defined in Section 3(37) of ERISA. Each
Plan is and has been in all material respects operated and administered in
accordance with its provisions and applicable law, and each Plan is qualified
within the meaning of Section 401(a) of the Internal Revenue Code of 1954, as
amended (the "Code") and each related trust is exempt from taxation under
Section 501(a) of the Code. No material liability under ERISA or otherwise has
been incurred by the Company with respect to any Plan, individually or in the
aggregate, and the Shareholder is not aware of any facts which indicate that
such liability is reasonably likely to be incurred in the future. No "prohibited
transaction," as such term is defined in Section 406 of ERISA or in Section 4975
of the Code, nor any "reportable event," as that term is defined in Section 4043
of ERISA has occurred with respect to any Plan, no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA or in Section 412
of the Code (whether or not waived) exists with respect to any Plan and no
suits, claims or other actions have been commenced or threatened with respect to
any Plan. No Plan is a "defined benefit plan" as that term is defined in Section
3(35) of ERISA.
4.32. AGREEMENTS AND COMMITMENTS. Schedule 4.32 sets forth as of the
date of this Agreement a complete list of all written agreements (copies of
which shall have been delivered to the Purchaser), and describes all oral
agreements and commitments to which the Company is a party, concerning the
following:
4.32.1. PURCHASE AND SALE COMMITMENTS. Each outstanding purchase and
sale commitment of the Company in the amount of $5,000.00 or more. No
material outstanding purchase commitments by the Company is in excess
of the normal, ordinary and usual requirements of the Company's
Business. No commitment the term of which extends beyond ninety (90)
days after the date hereof purports to obligate the Company to sell any
product at a price which, in view of currently prevailing and projected
costs of raw materials, would result, when all such sales commitments
are taken in the aggregate, in a loss to the Company. The Company has
not rendered billings for or collected progress or other advance
payments under any sales commitment providing for such payments in
excess of amounts which could reasonably be billed or collected on the
basis of work actually completed thereunder.
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4.32.2. DISTRIBUTORSHIP AND SALES MANAGEMENT. Each distributorship,
sales, agency, franchise or similar agreement of the Company.
4.32.3. OTHER AGREEMENTS. Each material contract, agreement and
commitment to which the Company is a party or by which the Company or
any of its assets are bound other than those disclosed on the other
Schedules delivered to the Purchaser by the Company.
4.32.4. CUSTOMERS. Each customer of the Company's Business by name and
location.
4.33. ADVERSE CHANGE. Schedule 4.33 sets forth as of the date of this
Agreement a complete description of any material adverse change in the financial
condition, business or properties of the Company occurring after May 31, 1996,
whether or not such change is reflected in the Financial Statements or in the
ordinary course of the Company's Business including, but not limited to, any
material change in the value of the assets or properties of the Company.
4.34. INSURANCE POLICIES. Schedule 4.34 sets forth as of the date of
this Agreement a complete description of all policies of insurance with respect
to the Company covering its properties, buildings, machinery, equipment,
furniture, fixtures, operations and employees including, but not limited to,
policies covering errors and omissions and public liability, along with true,
correct and complete copies of all such policies. All of such policies are in
full force and effect. The Company is not in default with respect to any
provisions of any such policy and has not failed to give any notice or present
any material claim thereunder in due and timely fashion. There are no claims
pending under such policies related to the Company's Business.
4.35. SUPPLIERS. Schedule 4.35 sets forth as of the date of this
Agreement a complete list of all suppliers to the Company which were paid more
than $10,000.00 by the Company during the last twelve (12) months prior to the
date of this Agreement. There has been no material changes in suppliers during
the last three (3) years except as set forth on Schedule 4.35.
4.36. STATUS OF AGREEMENTS. Each of the contracts, agreements,
commitments, licenses and leases listed on Schedules delivered by the Company
pursuant to this Agreement that are in full force and affect are a valid and
legally binding obligation as to the Company, and there is no material default
under the terms of any thereof (and no condition exists which, with the passage
of time, the giving of notice, or both, would result in such a material default
under the terms of any thereof).
4.37. BANK ACCOUNTS. The name of every bank in which the Company has an
account or safe deposit box, the identifying numbers of all such accounts and
safe deposit boxes, and the names of all persons having power to borrow,
discount debt obligations, cash or draw
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checks or otherwise act on behalf of the Company in any dealings with such banks
are set forth on Schedule 4.37.
4.38. INTERIM OPERATIONS. Except as disclosed on Schedule 4.38, on the
other Schedules delivered by the Company to the Purchaser or in the Financial
Statements, since May 31, 1996, the Company's Business has been conducted only
in the ordinary course and there has not been: (a) any material change in the
condition (financial or otherwise), assets, liabilities or business of the
Company other than changes in the ordinary course, none of which, singly or in
the aggregate, has been materially adverse; (b) any damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting the
business or assets of the Company taken as a whole; (c) any declaration, setting
aside a payment of any dividend, or other distribution, in respect of the Common
Stock or any direct or indirect redemption, purchase or other acquisition of any
capital stock of the Company (d) any option to purchase the Common Stock granted
to any person, or any employment or deferred compensation agreement entered into
between the Company and any of their officers, directors, employees or
consultants; (e) any issuance or sale by the Company of any stock, bonds, or
other corporate securities; (f) any labor disputes materially and adversely
affecting the business or assets of the Company; (g) any statute enacted or any
rule or regulation adopted which may materially and adversely affect the
Company's Business; (h) any mortgage, pledge, lien or other encumbrance or
security interest (other than liens for current taxes not yet due and such
encumbrances, if any, except such as are not substantial in character, amount or
extent and do not materially detract from the value or interfere with the
present or proposed use of the property subject thereto or affected thereby, or
otherwise materially impair business operations) created on any material asset,
tangible or intangible, of the Company or assumed, either by the Company or by
others with respect to any such asset; (i) any indebtedness or other liability
or obligation (whether absolute, accrued, contingent or otherwise) incurred, or
other transactions (except as reflected in this Agreement) engaged in, by the
Company, except in the ordinary course of business, which is material in light
of the Company's Business; (j) any material obligation or liability discharged
or satisfied by the Company other than current liabilities shown in the
Financial Statements and current liabilities incurred since that date in the
ordinary course of business; (k) any amendment, termination or waiver of any
material right of substantial value belonging to the Company; or (l) any
increase in the compensation payable or to become payable by the Company to any
of its officers, employees, directors, consultants or agents, other than normal
merit and cost-of-living increases in accordance with the Company's general
prevailing practices.
4.39. LITIGATION AND PROCEEDINGS. Except as set forth in Schedule 4.39,
there is no litigation or any proceedings or governmental investigations pending
or to the best of the knowledge of the Shareholders threatened against or
relating to the Company or its properties or business including, but not limited
to, litigation, proceedings or governmental investigations under federal or
state anti-trust laws, Medicaid or Medicare laws, labor laws, environmental
protection laws, safety and occupation laws or tax laws before any court,
arbitrator or administration agency which may materially and adversely affect
the Company or its business and properties taken as a whole. Such Schedule sets
forth a statement as to reserves and other provisions that have been
12
<PAGE> 13
made by the Company concerning possible liabilities that may arise out of
pending or threatened litigation or proceedings.
4.40. COMPLIANCE WITH LAWS. To the best of the Shareholders' knowledge
and except as set forth in Schedule 4.40: (a) the Company is not in material
violation of any applicable building, zoning, occupational safety and health,
pension, reimbursement (including, but not limited to, Medicare and Medicaid),
environmental control or similar law, ordinance or regulation in relation to its
structures, equipment, or the operation thereof or of the Company's Business, or
any applicable fair employment, equal opportunity or similar law, ordinance or
regulation; (b) the Company has not received any written notice or complaint
from any governmental agency or authority and, to the best of the knowledge of
the Shareholders none is threatened, alleging that the Company have violated any
such requirement, law, ordinance or regulation; (c) the Company has not received
any written notice from any governmental agency or authority of any pending
proceeding to take all or any part of the properties of the Company (whether
leased or owned) by condemnation or right of eminent domain and, to the best of
the knowledge of the Shareholder, no such proceeding is threatened; and (d) the
Company is not a party to any agreement or instrument, or subject to any
judgment, order, writ, injunction, rule, regulation, code or ordinance which
materially and adversely affects or may affect the business, operations,
prospects, properties, assets or condition, financial or otherwise, of the
Company.
4.41. WORKER'S COMPENSATION; UNEMPLOYMENT COMPENSATION. Schedule 4.41
is a description of the basis upon which, under the various applicable laws,
worker's compensation and unemployment compensation matters have been handled
for the Company for the last three fiscal years. Except as otherwise described
in such Schedule, worker's compensation and unemployment compensation matters
have been conducted and are being conducted so as to be in substantial
compliance with all laws and regulations applicable thereto.
4.42. POWERS OF ATTORNEY. The Company has no powers of attorney or
similar authorizations outstanding, other than those issued in the ordinary
course of business, with respect to insurance, tax and federal and state
securities laws.
4.43. ENERGY SOURCES. The Company has not received any written
notification of any proposed cut in or allocation of natural gas, electrical
energy, or other similar sources of heat, light and power by any public utility
or other body in connection with the operation of the Company's Business.
4.44. RELATIONSHIP WITH CUSTOMERS. To the best knowledge of the
Shareholders and except as set forth in Schedule 4.44, no customer of the
Company which has accounted for more than five percent (5%) of the Company's
annual sales during the last two (2) years or customers of the Company which,
collectively, accounted for more than ten percent (10%) of the Company's annual
sales during the last two (2) years, have refused to honor any of its
commitments to purchase products produced by the Company or provided the Company
with information indicating material dissatisfaction with the quality,
production or price of the
13
<PAGE> 14
Company's products, and there has been no material adverse change with respect
to the relationship of the Company with any such customer.
4.45. ENVIRONMENTAL MATTERS. The term "Environmental Laws" shall refer
to any and all applicable federal, state, county or local statutes, laws,
regulations, rules, ordinances, codes, licenses and permits relating in any way
to the protection of the environment, including, without limitation, the Clean
Air Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), and the Toxic
Substances Control Act and any amendments or extensions of the foregoing and the
regulations promulgated thereunder. The Company has not received any written
notice of any work, repairs, construction or capital expenditures required to be
made by it pursuant to applicable Environmental Laws with respect to the
Company's Business. None of the Leased Property is contaminated by or contains
any toxic substance, as that term is defined in RCRA, such that the
contamination violates Environmental Laws. No claim, action, suit or proceeding
is pending or threatened against the Company before any court or other
governmental authority or arbitration tribunal, relating to hazardous
substances, pollution or the environment, and there is no outstanding judgment,
order, writ, injunction, decree or award against or affecting the Company or its
respective assets with respect to the same. The Company has not received any
written notice from any government agency or private or public entity advising
it that it is responsible for response costs with respect to a release, a
threatened release or clean up of chemicals produced by, or resulting from, any
business, commercial, or industrial activities, operations, or processes,
including, but not limited to, hazardous substances, as defined under CERCLA,
and has not received any information requests under CERCLA from any government
agency. As used herein, "Hazardous substances" include any pollutants, dangerous
substances, toxic substances, hazardous wastes, hazardous materials, or
hazardous substances as defined in or pursuant to RCRA and CERCLA, or any other
federal, state or local environmental law, ordinance, rule or regulation, except
that, for purposes of this Agreement, "petroleum" (including crude oil or any
faction thereof) shall be deemed a "hazardous substance." "Release" shall have
the same meaning as defined in CERCLA.
4.46. CERTAIN CONDITIONS FOR ACCOUNTING TREATMENT. The Company has not
been a subsidiary or division of another corporation; the Company has not
changed the equity interest of the shares of the Common Stock in contemplation
of effecting the transactions contemplated by this Agreement during the period
beginning on the date of its organization and ending on the date of this
Agreement.
4.47. CERTIFICATES AND SCHEDULES. All certificates and Schedules (as
well as those items referred to therein) delivered to the Purchaser by the
Company pursuant to the provisions of this Agreement are true, correct and
complete in all material respects.
4.48. BROKER'S FEE. The Shareholders have not engaged or consulted with
any broker with respect to the transaction contemplated by this Agreement so as
to give rise to any
14
<PAGE> 15
valid claim against the Shareholders or the Purchaser for a brokerage
commission, finder's fee or like payment.
4.49. ACCURACY OF INFORMATION. No statement contained in the Schedules
and in any other written documents executed and/or delivered by the Shareholders
pursuant to the terms of this Agreement nor any representation or warranty
contained herein or made hereunder, contains any misstatement of a material
fact, or omits or will omit to state a material fact required to be stated
herein or therein in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading. The
Schedules and such other documents shall be deemed to constitute representations
and warranties of the Company and the Shareholder under this Agreement to the
same extent as if set forth in this Agreement.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PURCHASER.
-----------------------------------------------------------
The Purchaser hereby represents, warrants and agrees (and
acknowledges that each such representation, warranty and agreement shall be
deemed material and independently relied upon by the Shareholders), in
consummating the transactions herein contemplated:
5.1. ORGANIZATION OF THE PURCHASER. The Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware and is
legally entitled to own and lease its properties and to carry on its business as
and in the places where such properties are now owned, leased or operated or
where its business in now conducted.
5.2. AUTHORITY. Except as otherwise provided in this Agreement, the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated have been duly and validly authorized by all
necessary action on the part of the Purchaser and this Agreement constitutes a
valid and legally binding obligation of the Purchaser enforceable in accordance
with its terms.
5.3. BROKER'S FEE. The Purchaser has not engaged or consulted with any
broker with respect to the transactions contemplated by this Agreement so as to
give rise to any valid claim against the Purchaser for a brokerage commission,
finder's fee or like payment.
5.4 CONFLICTS. Neither the execution and delivery of this Agreement and
the consummation of the transactions herein contemplated nor compliance by the
Purchaser with any provisions hereof will: (a) conflict with, cause an
acceleration of or result in a material breach of or default under any of the
terms, conditions, or provisions of any (i) charter instrument or (ii) note,
bond, mortgage, indenture, license, agreement or other instrument to which the
Purchaser is a party or by which it or any of its property is bound; or (b)
violate any order, writ, injunction, decree, statute, rule or regulation, the
violation of which would have a material adverse consequence upon the Purchaser,
its properties, and its assets, taken as a whole.
15
<PAGE> 16
5.5. ACCURACY OF INFORMATION. No statements in any other written
documents executed and/or delivered by or on behalf of the Purchaser pursuant to
the terms of this Agreement nor any representation or warranty contained herein
or made hereunder, contains any misstatement of a material fact, or omits or
will omit to state a material fact required to be stated herein or therein in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Such other documents
shall be deemed to constitute representations and warranties of the Purchaser
under this Agreement to the same extent as if set forth in this Agreement.
6. THE CLOSING.
-----------
The Closing under this Agreement (herein referred to as the "Closing")
shall be held simultaneously with the execution hereof but to be effective as of
June 30, 1996. At the Closing, the parties hereto shall proceed in the manner
and in the order as hereinafter set forth:
6.1. CERTIFICATE OF GOOD STANDING OF THE COMPANY AND THE PURCHASER. The
Companies and the Purchaser shall deliver to each other certified copies of
their respective Certificates of Good Standing executed by the Secretary of the
State in which they are incorporated and dated no more than twenty (20) days
prior to the date of Closing.
6.2. CERTIFIED RESOLUTIONS OF THE PURCHASER. The Purchaser shall
deliver to the Shareholder a copy of resolutions adopted by the Board of
Directors of the Purchaser, certified true and correct by an officer of the
Purchaser as of the date of Closing, authorizing it to enter into this Agreement
and the transactions herein contemplated.
6.3. DELIVERY OF THE SHAREHOLDER'S SHARES CERTIFICATES. The Shareholder
shall deliver to the Purchaser the certificate or certificates representing the
Shares as required by Section 1 of this Agreement.
6.4. DELIVERY OF CONSIDERATION. The Purchaser shall deliver to each
Shareholder the Note and the Cash described in Section 2 hereof.
6.5. RESIGNATIONS. The Shareholder shall deliver to the Purchaser
resignations of all officers and directors of the Company.
6.6. OTHER DOCUMENTS. The parties shall execute and deliver to each
other all other certificates, agreements and other documents required to be
delivered pursuant to this Agreement or necessary or useful to complete the
transaction contemplated hereby.
16
<PAGE> 17
7. INDEMNIFICATION; SET OFF.
------------------------
7.1. THE SHAREHOLDERS' INDEMNIFICATION. From and after the Closing, the
Shareholders, jointly and severally shall indemnify, defend and hold harmless
the Purchaser from, against and with respect to any actual monetary loss
incurred by the Purchaser from any claim, liability, obligation, loss, damage,
assessment, judgment, cost and expense (including, without limitation,
reasonable attorneys' and accountants' fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand), of any kind or
character arising out of or in any manner incident, relating or attributable to
(i) the inaccuracy in any representation or breach of warranty of the
Shareholders contained in this Agreement, in the Schedules, or in any
certificate, instrument or other document or agreement executed by the
Shareholders in connection with this Agreement, except to the extent the
Purchaser was aware of such inaccuracy or breach at the Closing, (ii) any
failure by the Shareholders or the Company to perform or observe any covenant,
agreement or condition to be performed or observed by either of them under this
Agreement or under any certificates or other documents or agreements executed by
either of them in connection with this Agreement - PROVIDED, HOWEVER, the
provisions of this Section 7.1 shall not apply to any breach or default by Baker
pursuant to that certain Employment Agreement being entered into by Baker and
the Purchaser of even date herewith; (iii) claims relating to the enforcement of
the Purchaser's rights under this Agreement; and (iv) claims from federal, state
and/or local taxing authorities for increased taxes, interest or penalties
related to or resulting from audit findings that the Company paid unreasonable
or excessive compensation for periods prior to the Closing; PROVIDED, HOWEVER,
the total amount for which the Shareholders shall be liable pursuant hereto
shall not exceed $690,000,000, being the sum of the Cash, the Notes and the
Contingent Payments. In addition, notwithstanding any other provision of the
Agreement to the contrary, the Shareholders shall not be required to make any
cash payments pursuant to this Section 7 in excess of the aggregate amount of
cash received from the Purchaser pursuant to the terms of this Agreement.
PROVIDED FURTHER, HOWEVER, and notwithstanding anything to the contrary stated
herein, the limit on the Shareholders' liability shall not apply in situations
where the Shareholders' actions amount to fraud against the Purchaser.
If any claim covered by the foregoing indemnity is asserted against the
Purchaser, the Purchaser shall notify the Shareholders promptly and give them an
opportunity to defend the same, and the Purchaser shall extend reasonable
cooperation to the Shareholders in connection with such defense. In the event
that the Shareholders fail to defend the same within a reasonable time, the
Purchaser shall be entitled to assume the defense thereof and the Shareholders
shall be liable to repay the Purchaser for all of its expenses reasonably
incurred in connection with such defense (including reasonable attorneys' fees
and settlements payments) within the limits set forth herein. In the event that
the Shareholders have paid to the Purchaser the maximum amount of
indemnification for which they are liable hereunder and a claim that would
otherwise be covered by the foregoing indemnity is still outstanding, the
Purchaser shall have the right to assume the defense thereof since it (or the
Company) will be paying all costs and damages associated therewith.
17
<PAGE> 18
7.2. THE PURCHASER'S INDEMNIFICATION. From and after the Closing, the
Purchaser shall indemnify, defend and hold harmless the Shareholders from,
against an with respect to any claim, liability, obligation, loss, damage,
assessment, judgment, cost and expense (including, without limitation,
reasonable attorneys' and accountants' fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim, action, suit, proceeding or demand), of any kind or
character arising out of or in any manner incident, relating or attributable to
(i) the inaccuracy in any representation or breach of warranty of the Purchaser
contained in this Agreement, in the Schedules, or in any certificate, instrument
or other document or agreement executed by the Purchaser in connection with this
Agreement or otherwise made or given in writing in connection with this
Agreement by the Purchaser, except to the extent the Shareholders were aware of
such inaccuracy or breach at the Closing, (ii) any failure by the Purchaser to
perform or observe any covenant, agreement or condition to be performed or
observed by it under this Agreement or under any certificates or other documents
or agreements executed it in connection with this Agreement, and (iii) claims
relating to the enforcement of the Shareholders' rights under this Agreement;
PROVIDED, HOWEVER, the total amount for which the Purchaser shall be liable
pursuant hereto shall not exceed $690,000.00. If any claim covered by the
foregone indemnity is asserted against the Shareholder, the Shareholder shall
notify the Purchaser promptly and give it an opportunity in connection with such
defense. In the event that the Purchaser fails to defend the same within a
reasonable time, the Shareholder shall be entitled to assume the defense thereof
and the Purchaser shall be liable to repay the Shareholder for all of its
expenses reasonably incurred in connection with such defense (including
reasonable attorneys' fees and settlement payments).
7.3. RIGHTS OF SET OFF. If the Purchaser, in its sole discretion,
determines that it is or is reasonably expected to be entitled to
indemnification for any amounts (collectively, the "Amounts Subject to
Indemnification") pursuant to Section 7.1 of this Agreement, then the Purchaser
may, in lieu of or in addition to pursuing its rights of indemnification from
the Shareholder, give notice to the Shareholders that: (i) it is reducing any
amounts due the Shareholder under the Note by an amount equal to the Amounts
Subject to Indemnification, such reduction to be treated as first credited
against interest accrued but not yet paid and then a pre-payment of principal
without penalty; and/or (ii) reduce any Contingent Payment (including the amount
of any of the Purchaser's Shares) due the Shareholders by an amount equal to the
Amounts Subject to Indemnification.
8. MUTUAL FURTHER ASSURANCE AND AGREEMENTS.
---------------------------------------
Each of the Purchaser and the Shareholders covenants with the other as
follows:
8.1. CONFIDENTIALITY. All information furnished by one party to the
other party in connection with this Agreement or the transactions contemplated
hereby shall be kept confidential by such other party (and shall be used by them
only in connection with this Agreement and the transactions contemplated hereby)
except to the extent that such information (i) already is known to such other
party when received, (ii) thereafter becomes lawfully obtainable
18
<PAGE> 19
from other sources, (iii) is required to be disclosed in any document filed with
the SEC or any other agency of any government, or (iv) as otherwise required to
be disclosed pursuant to any federal or state law, rule or regulation or by any
applicable judgment, order or decree of any court or by any governmental body or
agency having jurisdiction in the premises after such other party has given
reasonable prior written notice to the other parties to this Agreement of the
pending disclosure of any such information.
8.2. CURRENT INFORMATION. During the period from the date of this
Agreement to the Closing, or until this Agreement is terminated as provided
herein and except as publicly disclosed by the Purchaser, each party shall
promptly notify the other parties of (i) any material change in the normal
course of its business or in the operation of its properties, (ii) any
governmental complaints, investigations or hearing (or communications indicating
that the same may be contemplated), or receipt of any memorandum of
understanding or cease and desist order from a regulatory authority, or (iii)
the institution of the threat of material litigation involving such party, and
will keep the other party fully informed of such events.
8.3. MISCELLANEOUS AGREEMENTS. Subject to the terms and conditions
herein provided, each party shall use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary,
appropriate or desirable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
8.4. PUBLICITY. Subject to the other provisions of this Agreement,
press releases and other publicity materials relating to the transactions
contemplated by this Agreement shall be released by the parties hereto only
after review and with the consent of both parties; PROVIDED, HOWEVER, that the
Purchaser shall have the right, after consulting with the Shareholder, to make a
public announcement of the execution of this Agreement, and its subsequent
closing, and a disclosure of the basic terms and conditions of this Agreement if
advised to do so by its legal counsel in connection with the reporting and
disclosure obligations of the Purchaser under the federal securities laws and/or
the NASDAQ National Market.
9. WAIVERS.
-------
The Shareholder or the Purchaser may, by an instrument in writing
extend the time for or waive the performance of any of the obligations of the
other or waive compliance by the other with any of the covenants or conditions
contained in this Agreement.
10. NOTICES.
-------
All notices and other communications which are required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or when mailed, by registered or certified mail, postage
prepaid, or when delivered by nationally recognized overnight courier service,
or when telecopied, as follows:
19
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Shareholders to: The Shareholders at the respective address
listed under the first paragraph of this Agreement.
with a copy to: Daniel R. Hackett, Esq.
Arter and Hadden
21st Floor, One Columbus
10 West Broad Street
Columbus, Ohio 43215-3422
If to the Purchaser to: Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45805
Attention: Pier C. Borra, President
Telecopier: (419) 227-3499
with a copy to: Brad C. Roush, General Counsel
Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45805
Telecopier: (419) 221-3366
</TABLE>
11. ENTIRE AGREEMENT.
----------------
This Agreement (including the Recitals, Exhibits and Schedules hereto)
supersedes any and all oral or written agreements (including, but not limited
to, the Letter of Intent by and between the Purchaser, the Shareholder and
Richard E. Moon, Jr., and dated June 6, 1996) heretofore made relating to the
subject matter hereof and constitutes the entire agreement of the parties hereto
relating to the subject matter hereof.
12. PERSONAL GUARANTY.
-----------------
The parties acknowledge that Baker has personally guaranteed certain
indebtedness of the Company as disclosed on Schedule 4.24 hereof (the
"Personally Guaranteed Loans"). The Purchaser covenants and agrees that it shall
use its best efforts to obtain the release of such Personally Guaranteed Loans
within thirty (30) days after the Closing. In the event that such release cannot
be obtained, the Purchaser hereby agrees to indemnify and hold harmless Baker
from and against any and all liability arising out of or resulting from the
Personally Guaranteed Loans.
13. NO IMPLIED RIGHTS OR REMEDIES.
-----------------------------
20
<PAGE> 21
Except as otherwise expressly provided herein, nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation, other than the Shareholders or Purchaser any rights
or remedies under or by reason of this Agreement.
14. HEADINGS.
--------
Headings in this Agreement are inserted for convenience of reference
only and shall not be a part of or control or affect the meaning of this
Agreement.
15. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
16. BENEFIT AND ASSIGNMENT.
----------------------
This Agreement binds and inures to the benefit of each party hereto and
their respective heirs, successors and assigns. The Shareholders' right to
receive the Contingent Payment(s), if at all, shall not be affected by their
death.
17. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
18. CROSS-REFERENCE.
---------------
To the extent that any Schedule hereto would be required to contain
information covered by another Schedule hereto, a brief cross-reference
identifying the information and the Schedule where it is best described will be
sufficient.
19. PRONOUNS.
--------
Whenever required by the context herein, the singular includes the
plural and the masculine includes the feminine or the neuter. Words such as
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular Section or subsection of
this Agreement.
20. SURVIVAL OF REPRESENTATION AND WARRANTIES.
-----------------------------------------
All of the representations and warranties made in this Agreement by
either the Shareholders or the Purchaser including without limitation agreements
to indemnify under Section 7 hereunder, shall survive the Closing for a period
of three (3) years thereafter; PROVIDED,
21
<PAGE> 22
HOWEVER, that such three (3) year limitation period shall not apply to matters
involving: (i) taxes; (ii) statutes, rules and regulations pertaining to
Medicare, Medicaid or other reimbursement programs; (iii) inaccuracy of the
representations and warranties contained in Sections 4.2, 4.3, 4.7 and 4.8
hereof; and (iv) any other matter amounting to fraud against the Purchaser,
which shall only be limited by any applicable statute of limitations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PURCHASER SHAREHOLDERS
ARBOR HEALTH CARE COMPANY
By /s/ Pier C. Borra /s/ Robert Q. Baker
------------------------- -------------------------------
Pier C. Borra, President Robert Q. Baker
/s/ Richard E. Moon
------------------------------
Richard E. Moon
22
<PAGE> 23
EXHIBIT A
---------
<TABLE>
<CAPTION>
SHAREHOLDER SHAREHOLDER'S SALES
- ----------- -------------------
<S> <C>
Robert Q. Baker 250 Common Shares,
without par value
Richard E. Moon 250 Common Shares,
without par value
</TABLE>
<PAGE> 24
EXHIBIT B
PROMISSORY NOTE
---------------
$37,400.00 Lima, Ohio
June 30, 1996
For value received, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, ARBOR HEALTH CARE COMPANY, a Delaware
corporation ("Payor"), hereby promises to pay to the order of _________________
("Payee") or his heirs, personal representatives and assigns, at
_________________________________, or at such other place as the holder hereof
may, from time to time, designate in writing, the outstanding principal balance
of Thirty Seven Thousand Four Hundred and No/100 Dollars ($37,400.00), with
simple interest on the unpaid principal sum thereof at a rate of seven and
one-half percent (7 1/2%) per year, payable at the times and on the terms as
hereinafter provided in this promissory note (the "Note"):
1. Interest hereon and the principal sum shall be paid in lawful
money of the United States of America.
2. Payor shall pay the interest accrued hereon semi-annually in
arrears, beginning December 31, 1996 and continuing on June 30,
1997 and December 31, 1997. Payor shall pay the principal hereof,
together with all interest accrued to date, on the date that is
eighteen (18) months from the date of this Note, whereupon this
Note shall be cancelled.
-1-
<PAGE> 25
3. Prepayment of all or any part of the principal sum of the Note,
together with accrued interest thereon, shall be allowed at any
time. Any partial prepayment shall be applied first against
accrued interest and then as a reduction of principal, except as
otherwise provided in the Agreement (as that term is defined in
paragraph 4 hereof). Any such prepayment shall not postpone the
due date of any subsequent installment.
4. The principal amount of this Note and/or accrued interest thereon
may be reduced in the manner specified in Section 7:
"Indemnification; Set Off" of that certain Share Purchase
Agreement entered into by and among Payor, Payee and ___________
and dated as of June 30, 1996 (the "Agreement").
5. The happening of the following event shall be deemed a default
under this Note: default by Payor in the payment of any
installment of principal or interest when due under this Note and
the same shall remain unpaid for a period of ten (10) days after
written notice thereof has been delivered to Payor.
6. In the event of a default under this Note, the holder hereof may
by an instrument or instruments in writing signed by him and
addressed and delivered to the undersigned (a) declare that the
entire principal balance then owing shall bear interest at a rate
of ten percent (10%) per year, or (b) declare the outstanding
principal balance of this Note due and payable and, upon such
declaration being made, the entire unpaid
-2-
<PAGE> 26
principal and all accrued interest shall be due and payable.
No delay on the part of the holder of this Note shall
constitute a waiver of his rights under this paragraph.
7. This Note shall be construed by the laws of the State of
Ohio.
8. This Note has been executed and delivered at Lima, Allen
County, Ohio on the date first above written.
ARBOR HEALTH CARE COMPANY
-------------------------------
Pier C. Borra, President
<PAGE> 27
EXHIBIT C
---------
SHAREHOLDER'S AGREEMENT
-----------------------
[Date]
Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45802
Gentlemen:
This letter (the "Shareholder's Agreement") is being furnished to you
pursuant to Section 3.4 of the Share Purchase Agreement (the "Agreement") dated
as of June 30, 1996, by and among Arbor Health Care Company, a Delaware
corporation (the "Purchaser"), Robert Q. Baker and Richard E. Moon. Unless the
context requires a different use or meaning, the capitalized words and terms
used herein shall have the meanings given to them in the Agreement.
The undersigned Shareholder hereby represents to and agrees with the
Purchaser as follows:
1. The undersigned understands that the Purchaser has not filed a
registration statement under the 1933 Act covering the resale of the Purchaser's
Shares and that the Purchaser is not obligated to file such a registration
statement.
2. The undersigned will not offer, sell, transfer, pledge, hypothecate
or otherwise dispose of any of the Purchaser's Shares except (i) in accordance
with Rule 144 under the 1933 Act, (ii) in a transaction which, in the opinion of
counsel to the Purchaser, is exempt from registration under the 1933 Act, or
(iii) pursuant to an effective registration statement filed in compliance with
the 1933 Act and any applicable state securities laws. The undersigned will
furnish to the Purchaser such information and documents as the Purchaser may
reasonably request in connection with any disposition of the Purchaser's Shares.
3. The undersigned further agrees that he will not offer, sell,
transfer, pledge, hypothecate, or otherwise dispose of any of the Purchaser's
Shares until such time as financial results covering at least 30 days of
combined operations of the Purchaser and the Company shall have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies.
4. The certificates evidencing the Purchaser's Shares will bear a
restrictive legend in substantially the following form:
<PAGE> 28
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"). Reference is made
to the Shareholder's Agreement between the issuer and the registered holder
hereof, a copy of which is on file with the issuer, to the effect that the
shares may only be offered, sold, transferred, pledged, hypothecated or
otherwise disposed of (i) in accordance with Rule 144 under the 1933 Act, (ii)
in a transaction which, in the opinion of counsel to the issuer, is exempt from
registration under the 1933 Act, or (iii) pursuant to an effective registration
statement filed in compliance with the 1933 Act and any applicable state
securities laws; and other restrictions on resales as provided in the
Shareholder's Agreement.
5. The undersigned understands that the Purchaser will issue stop
transfer instructions to its transfer agent with respect to the foregoing
restrictions on the disposition of the Purchaser's Shares.
6. The information provided on (i) the attached Purchaser
Questionnaire, and (ii) if the undersigned is not an "accredited investor"
within the meaning of Regulation D, as adopted by the SEC, the attached
Purchaser Representative Questionnaire, is true, complete and accurate in all
respects.
7. The undersigned is acquiring his portion of the Purchaser's Shares
for his own account for investment within the meaning of the 1933 Act.
8. The undersigned understands that no aspect of the contemplated share
purchase transaction has been or will be registered with or reviewed by the SEC
under the 1933 Act, or with or by any state securities law administrator, and no
federal or state securities law administrator has approved any disclosure or
other material concerning the Purchaser or the Purchaser's Shares, or made any
recommendation with respect thereto. The undersigned, personally or with the
assistance of his purchaser representative, has sufficient knowledge and
experience in business and financial matters that he is capable of evaluating
the merits and risks of the proposed share purchase transaction, and he has
investigated the merits and risks of the transaction. The undersigned has been
provided with the Annual Report to Shareholders and Annual Report on Form 10-K
of the Purchaser for the year ended December 31, 199_, and the subsequent
reports filed by the Purchaser with the SEC pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and has had the opportunity to ask
questions of, and receive answers from, members of the management of the
Purchaser.
Witnesses:
- ------------------------------- --------------------------------
- -------------------------------
<PAGE> 1
Exhibit 11.1
ARBOR HEALTH CARE COMPANY AND SUBISIDIARIES
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
--------------- ---------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (1) ........................................ $1,838 $2,243 $3,463 $4,266
====== ====== ====== ======
Weighted average shares ouststanding
Common Stock ................................... 6,811 6,895 6,808 6,894
Common Stock equivalents based upon the treasury
stock method .............................. 30 92 37 85
------ ------ ------ ------
Total (2) ............................................. 6,841 6,987 6,845 6,979
====== ====== ====== ======
Net income per share (1) - (2) ........................ $ 0.27 $ 0.32 $ 0.51 $ 0.61
====== ====== ====== ======
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARBOR HEALTH
CARE COMPANY AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,794
<SECURITIES> 0
<RECEIVABLES> 38,746
<ALLOWANCES> 1,345
<INVENTORY> 0
<CURRENT-ASSETS> 50,481
<PP&E> 157,383
<DEPRECIATION> 30,816
<TOTAL-ASSETS> 191,732
<CURRENT-LIABILITIES> 42,140
<BONDS> 86,151
<COMMON> 207
0
0
<OTHER-SE> 59,741
<TOTAL-LIABILITY-AND-EQUITY> 191,732
<SALES> 0
<TOTAL-REVENUES> 105,117
<CGS> 0
<TOTAL-COSTS> 82,559
<OTHER-EXPENSES> 11,313
<LOSS-PROVISION> 874
<INTEREST-EXPENSE> 3,277
<INCOME-PRETAX> 7,094
<INCOME-TAX> 2,828
<INCOME-CONTINUING> 4,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,266
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
