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EXHIBIT 10.2
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement") is entered into as of
August 1, 1997 by and among Capital Senior Living Corporation, a Delaware
corporation (the "Company"), Xxxxxxx X. Xxxx ("Xxxx"), Xxxxx X. Xxxxxx
("Xxxxxx"), Senior Living Trust, a Texas trust ("Trust") and Xxxxxxxx X. Xxxxx
("Xxxxx"; Xxxxx together with Xxxx, Xxxxxx and Trust are sometimes hereinafter
referred to as the "Shareholders").
RECITALS
A. The Shareholders are the owners of all of the issued and
outstanding shares of stock (collectively the "Subsidiaries Stock") of the
following corporations: Capital Senior Living, Inc., a Texas corporation,
Capital Senior Management 1, Inc., a Texas corporation, Capital Senior
Management 2, Inc., a Texas corporation, Capital Senior Development, Inc., a
Texas corporation and Quality Home Care, Inc., an Indiana corporation
(collectively, the "Subsidiaries").
B. The Company is investigating the feasibility and desirability of
conducting an underwritten initial public offering ("IPO") of its shares of
common stock. Pursuant to the IPO, which will constitute a qualified
underwriting transaction within the meaning of Treasury Regulations 1.351-
1(a)(3), members of the public (the "Public") will acquire common stock of the
Company from the underwriters in exchange for cash.
C. Simultaneously with the closing of the IPO, the Shareholders
desire to contribute the Subsidiaries Stock to the Company in exchange for the
promissory notes (collectively, the "Formation Note") and the common stock of
the Company set forth herein.
D. The contributions contemplated by this Agreement are intended to
qualify for tax-free treatment under Section 351(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), except that the Formation Note will be
"other property" or "boot" as described in Section 351(b) of the Code. For
purposes of Section 351, the transferors of property to the Company will
include the Shareholders and the Public (the "Transferors"). The Transferors
will own all the common stock of the Company immediately after the
contributions.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Agreement to Contribute Stock. Each of the Shareholders hereby
agrees to contribute to the Company simultaneously with the closing of the IPO
all of such Shareholders' right, title and interest in the shares of
Subsidiaries Stock in any of the Subsidiaries held by such Shareholder in
exchange for the shares of common stock of the Company and/or the Formation
Note set forth below.
2. Agreement of the Company to Issue Shares and Deliver Formation
Notes. The Company hereby agrees with the Shareholders, in consideration of
and simultaneous with the
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contribution of the Subsidiaries Stock described in Section 1 hereof, that the
Company will issue the following:
(a) To Xxxx, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number (as hereinafter
defined) and a Formation Note in the amount of $12,925,000.00, the principal
amount of which shall be subject to adjustment as described below.
(b) To Xxxxxx, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number and a Formation Note
in the amount of $268,725.00, the principal amount of which shall be subject to
adjustment as described below.
(c) To Trust, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number and a Formation Note
in the amount of $12,656,275.00, the principal amount of which shall be subject
to adjustment as described below.
(d) To Xxxxx, the Company will issue a Formation Note in the
amount of $1,250,000.00, the principal amount of which shall be subject to
adjustment as described below.
Each Formation Note shall not bear interest and shall be due and payable in
cash upon the closing of the IPO.
The "Specified Number" of shares of common stock to be issued pursuant
to clauses (a) through (c) above shall be determined separately for Xxxx,
Xxxxxx and the Trust and such term shall mean that number of shares of common
stock of the Company derived by (i) multiplying the number of shares of common
stock of the Company to be outstanding immediately after the IPO, before giving
effect to the possible exercise of the underwriters' over-allotment option
granted in connection with the IPO, as shown in the prospectus for the IPO
contained in the Company's registration statement on Form S-1 at the time it is
declared effective by the Securities and Exchange Commission (the "Final
Prospectus") times the percentages set forth below opposite the names of Xxxx,
Xxxxxx and the Trust and (ii) subtracting from the product derived in clause
(i) 615,000 shares of common stock in the case of Xxxx, 560,000 shares in the
case of the Trust, and 55,000 shares in the case of Xxxxxx:
Name Percentage
---- ----------
Xxxx 24.27%
Xxxxxx 0.500%
Trust 23.77%
By way of illustration, and not in limitation of the foregoing, if the
Final Prospectus depicts 18,367,347 shares of common stock to be outstanding
after the Offering, before giving effect to the possible exercise of the
underwriters' over-allotment option, then Xxxx, Xxxxxx and the Trust shall be
issued 3,843,673 shares, 36,830 shares and 3,806,843 shares of common stock,
respectively, such that, after such issuance, Xxxx, Xxxxxx and the Trust shall
own (inclusive of the shares owned by them on the date hereof and the shares
issuable hereunder) a number of shares
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of common stock representing 24.27%, 0.500% and 23.77%, respectively, of the
shares of common stock to be outstanding immediately after completion of the
IPO (before giving effect to the possible exercise of the underwriters' over-
allotment option).
The aggregate of the principal amount of the Formation Notes has been
derived based upon (i) the anticipated receipt by the Company of total net
offering proceeds, after purchase of the Acquired Assets (as defined in the
Final Prospectus) for a price equal to the appraised value thereof and after
underwriting discounts and commissions and fees and expenses of the Offering,
of $54.2 million (the "Post-Acquisition Net Proceeds") times (ii) fifty percent
(50%). In the event that the Post-Acquisition Net Proceeds is less or greater
than $54.2 million, the aggregate of the principal amount of the Formation
Notes shall be reduced or increased, as the case may be, pursuant to this
formula, with the adjustment in the aggregate principal amount of the Formation
Notes to be allocated among the respective Formation Notes as follows: First,
in the event that the price of the common stock to the public in the IPO (as
shown on the cover of the Final Prospectus) (the "IPO Price") is more than or
less than $15.00 per share, the amount of the Formation Note to be issued to
Xxxxx under Section 2(d) shall be adjusted to a principal amount equal to the
product of 83,333 times the IPO Price; and second, the remaining adjustment in
the aggregate principal amount of the Formation Notes pursuant to this formula
shall be allocated proportionately among Xxxx, Xxxxxx and the Trust based on
the stated principal amount of each Formation Note set forth in Section 2(a)
through (c).
3. Shares Fully Paid. The Company represents and covenants to the
Shareholders that the issuance of the shares of common stock of the Company
pursuant to this Agreement has been duly authorized and, when issued in
accordance with the terms of this Agreement, such shares will be validly
issued, fully paid and non-assessable, and free of preemptive rights.
4. Representations and Warranties of the Shareholders. Each
Shareholder, as to himself and the Subsidiaries Stock held by such Shareholder,
hereby:
(a) represents and warrants that (i) he has good and
marketable title to such Subsidiaries Stock, free and clear of any liens or
other encumbrances; and (ii) such Subsidiaries Stock has been duly authorized
and validly issued and is fully paid and nonassessable, and free of preemptive
rights;
(b) acknowledges that such Shareholder or his
representative(s) has had access to the same kind of information concerning the
Company that is required in a Registration Statement on Form S-1 filed under
the Securities Act of 1933, as amended (the "Act"), to the extent that the
Company possesses such information;
(c) acknowledges that it has been advised that the offer and
issuance of the shares of the Company have not been registered under the Act;
(d) represents and warrants that the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by such Shareholder will not (i) result in a violation of
or be in conflict with or constitute, with or without the passage of time or
giving of notice, a default under any instrument, judgment, order, writ, decree
or
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contract to which such Shareholder is subject, (ii) result in the creation of
any lien, charge or encumbrance upon any assets of such Shareholder, or (iii)
violate any law, rule or regulation applicable to such Shareholder; and
(e) represents and warrants that such Shareholder has the
power and authority to execute this Agreement and to consummate the
transactions contemplated hereby.
The Shareholders jointly represent and warrant that the Subsidiaries
Stock shall be all of the issued and outstanding shares of capital stock of the
Subsidiaries.
5. Additional Representations and Warranties. The Shareholders,
jointly and severally, further represent and warrant to the Company that the
following matters are true as of the date hereof and at Closing:
(a) Organization. Based on their review of the organizational
documents of the Subsidiaries and certificates of good standing and foreign
qualification from the relevant jurisdictions, (i) each of the Subsidiaries is
duly organized and validly existing and in good standing under the laws of the
state of its incorporation and has all requisite power and authority to own,
lease and operate its properties and assets as they are now owned, leased and
operated and carry on its business as now conducted and presently proposed to
be conducted; and (ii) each of the Subsidiaries is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions in which
the ownership, use, or leasing of its assets and properties, or the conduct or
nature of its business makes such qualification, licensing or admission
necessary, except for failures to be so qualified, licensed or admitted and in
good standing individually or in the aggregate would not have a material
adverse effect on the assets, business, operations, income, condition
(financial or otherwise) or prospects of such Subsidiary (a "Material Adverse
Effect").
(b) Consents; Authority. No consent of any person, judicial
or administrative body, governmental or regulatory authority, or other party to
the execution, delivery and performance by the Shareholders of this Agreement
and their obligations hereunder is required.
(c) Subsidiaries. The Subsidiaries do not own more than 50%
of the voting power of any other entity.
(d) No Material Adverse Change. To the best of each
Shareholder's knowledge, since December 31, 1996, there has been no material
adverse change in the assets, properties, business, operations, income or
condition (financial or otherwise) of any Subsidiary, nor is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect, whether or not covered by insurance.
(e) Contracts and Other Agreements. Each material contract
and other material agreements to which each of the Subsidiaries is a party and
which are utilized in the conduct of its business is valid, subsisting, in full
force and effect and binding upon each of the Subsidiaries, and, the
Shareholders have no knowledge that such material agreements are not binding
upon the other parties thereto in accordance with their terms and each of the
Subsidiaries has satisfied in
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full or provided for all of its liabilities and obligations thereunder
requiring performance prior to the date hereof in all material respects, is not
in default under any of them, nor does any condition exist that with notice or
lapse of time or both would constitute such a default.
(f) Financial Statements. The unaudited balance sheet of each
of the Subsidiaries as of June 30, 1997 and the related statements of income
for the period then ended, true and complete copies of which have heretofore
been delivered to the Company, present fairly, in all material respects, the
financial position of each of the Subsidiaries as of such date and the results
of operations of each of the Subsidiaries for the period then ended.
(g) Undisclosed Liabilities. Except as disclosed on Schedule
5(k), no Subsidiary has any liabilities whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement, other than (i) liabilities incurred since December 31, 1996 in the
ordinary course of business (none of which is a liability for breach of
contract, breach of warranty, tort, infringement, claim or lawsuit), or (ii)
liabilities disclosed and reflected as liabilities on the audited financial
statements of the Subsidiaries for the fiscal year ended December 31, 1996.
(h) Legal Proceedings. There are no outstanding orders by
which the Shareholders or the Subsidiaries or any of their securities, assets,
properties or businesses, as applicable are bound. There is no action or
proceeding pending or, to the knowledge of the Shareholders, threatened
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) against or affecting the Subsidiaries or any of their
assets, properties or businesses, nor are there any facts which are likely to
give rise to any such action or proceeding which if adversely decided, would
have a Material Adverse Effect.
(i) Assets. The assets of the Subsidiaries will, as of the
Closing Date, enable the Subsidiaries to conduct their business in
substantially the same manner as it is being conducted on the date hereof.
(j) Employee Relations. No Subsidiary is a party to, and
there does not otherwise exist, any agreement with any labor organization, or
any collective bargaining or similar agreement with respect to employees of the
Subsidiaries. There are no complaints, grievances or arbitrations, employment-
related litigation, administrative proceedings or controversies either pending
or, to the best knowledge of the Shareholders, threatened, involving any
employee, applicant for employment, or former employee of any Subsidiary
against any Subsidiary.
(k) Licenses and Permits. The Subsidiaries possess all
material government permits, licenses, registrations and other governmental
consents and authorizations (federal, state, local and foreign) which are
necessary for the conduct of their business. All such permits are in full
force and effect and in good standing. No Subsidiary has received any notice
of any claim of revocation or any such permits nor has knowledge of any event
which might give rise to such a claim.
(l) Compliance with Laws. To the best of the Shareholders
knowledge, each of the Subsidiaries is in compliance in all material respect
with, and not in violation of any, and
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has not received any claim or notice that it is not in compliance in any
material respect with, or that it is in violation in any material respect of,
any law or order to which the Subsidiaries or any of their businesses,
operations, assets or properties (including the use and occupancy thereof) are
subject.
(m) United States Person. Each of the Shareholders is a
"United States Person" within the meaning of Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended, and shall execute and deliver an "Entity
Transferor" certification at Closing.
(n) Insurance. Each of the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which it
is engaged.
6. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall be held at the offices of Jenkens &
Xxxxxxxxx, 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, simultaneously
with the consummation of the IPO, at which time the transactions contemplated
hereby shall be deemed to be effective. At the Closing:
(a) The Shareholders shall deliver to the Company:
(i) certificates, duly endorsed for transfer,
representing the Subsidiaries Stock; and
(ii) such other documents as the Company shall
reasonably request.
(b) The Company shall issue and deliver to each of the
respective Shareholders:
(i) the Formation Notes set forth in Section 2 hereof,
and
(ii) as applicable, a certificate or certificates
representing the shares of common stock of the Company set forth in
Section 2 hereof.
7. Survival of Representations and Warranties; Obligation of
Shareholders to Indemnify.
(a) The representations and warranties of the Shareholders set
forth in Section 4 of this Agreement shall survive Closing. The
representations and warranties of the Shareholders set forth in Section 5 of
this Agreement shall survive Closing for a period of two years after the
Closing.
(b) Subject to Section 7(a), the Shareholders agree to
indemnify and hold harmless the Company, its directors, officers and agents (in
their capacity as such) from and against any costs and expenses (including,
without limitation, the reasonable fees, disbursements and other charges of
counsel) based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representations, warranty, covenant or agreement of the
Shareholders contained in this Agreement or the enforcement of this Agreement.
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(c) Notwithstanding anything contained herein to the contrary,
the representations and warranties set forth in Section 5 hereof made by Xxxxx
shall relate solely to Quality Home Care, Inc., and not to any of the other
Subsidiaries, and shall be several and not joint.
8. Repayment of Formation Notes. Immediately following the
consummation of the IPO, the Company shall repay the Formation Notes in full
from the net proceeds of the IPO.
9. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied or
sent by recognized overnight courier. Any such notice shall be deemed given
when so delivered personally or telecopied or, if delivered by recognized
overnight courier, one day after the date of delivery to such courier, to the
attention of each of the parties at 00000 Xxxxxx Xxxxxxx, Xxxxx 000, Xxxxxx,
Xxxxx 00000. Any party may change such party's address for notice hereunder by
notice to the other parties in accordance with this Section 9.
10. Termination. This Agreement may be terminated at the election of
any party upon written notice to the other parties if the IPO shall not have
been consummated on or before December 31, 1997, or such later date as the
parties may hereafter agree and, if so terminated, no party shall have any
further liability or obligation hereunder.
11. Waivers and Amendments. This Agreement may be amended, modified,
superseded or canceled, and the terms and conditions hereof may be waived, only
by a written instrument signed by the parties or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right or remedy hereunder shall operate as a wavier thereof, nor shall any
waiver on the part or any party of any such right or remedy, nor any single or
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
13. Assignment. This Agreement, and any rights or obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other parties.
14. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
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IN WITNESS WHEREOF, each party hereto has executed or caused the
execution of this Agreement as of the date first above written.
CAPITAL SENIOR LIVING CORPORATION
By: /s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: Chief Executive Officer
/s/ Xxxxxxx X. Xxxx
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XXXXXXX X. XXXX
/s/ Xxxxx X. Xxxxxx
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XXXXX X. XXXXXX
SENIOR LIVING TRUST
By: /s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
/s/ Xxxxxxxx X. Xxxxx
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XXXXXXXX X. XXXXX
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