<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): May 14 ,1997
COMMUNITY CARE SERVICES, INC.
(Exact name of Registrant as specified in its charter)
New York 333-1700 13-3677548
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation of organization) File Number) Identification No.)
18 SARGENT PLACE
MOUNT VERNON, NEW YORK 10550
(Address, including zip code, of principal executive offices)
Registrants telephone number, including area code: (914) 665-9050
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OF METROPOLITAN RESPIRATOR SERVICE, INC.
On May 10,1997, Community Care Services, Inc., (the Company) acquired 68%
of the outstanding shares of Metropolitan Respirator Services, Inc. (MRS). The
purchase price was approximately $6,016,000 consisting of approximately
$2,800,000 in cash, and approximately $2,967,000 of Promissory Notes accruing
interest at a rate of 6% per annum. The notes are payable in two payments. On
January 2, 1999, one half of the principal and accrued interest is payable and
the remaining one half of principal and accrued interest is payable January 2,
2000. In lieu of cash payment, the Promissory Note holder (Note Holder) may
elect to convert up to eighty percent (80%) of the outstanding principal balance
of the Promissory Note and the accrued interest thereon payable on the dates set
forth above into shares of common stock, par value $.01 per share. If the Note
Holder does not make such election, the Company may do so. With respect to the
remaining twenty percent (20%) of the payment due, the Note Holder may, but is
not obligated to, require that such amount be converted into shares or take such
payment in cash.
At any time subsequent to the first anniversary of the execution of the
above mentioned Promissory Note, if the Company conducts a secondary public
offering of Company's common stock, the Note Holder shall have the opportunity
to sell the shares in such offering to the same extent and in proportion to the
rights that the other executive officers of the Company have. In aggregate, the
Promissory Notes convert to 896,900 shares of common shares of the Company.
Also, on May 10, 1997, the Company purchased the remaining 32% of the
outstanding shares of MRS in a sepatate transaction. The purchase price was
approximately $2,600,000 consisting of $1,300,000 in cash, 300,000 shares of
common shares of the Company and a one year $100,000 Promissory Note
<PAGE>
accruing interest at a rate of 6% per annum, payable quarterly.
The purchase price for the acquisition was agreed upon in arms length
negotiation and will be accounted for as a purchase.
MRS was incorporated on April 15, 1974 and is engaged in the sale and
rental of medical supplies and durable medical equipment within the New York
Metropolitan area.
The Company intends to continue operating MRS's existing business and will
treat MRS as a wholly-owned subsidiary.
The Company used, primarily, cash from its October 1996 initial public
offering and to a lesser extent funding through an existing credit line to pay
for the acquisition at closing.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial Statements of Business Acquired.
The balance sheets of Metropolitan Respirator Service, Inc. as of March 31,
1996 and December 31, 1996 and the related Statements of Operations and Retained
Earnings and Cash Flows for the years ended March 31, 1995 and 1996 and for the
nine months ended December 31, 1996.
B. Pro Forma Financial Information.
Unaudited condensed consolidated balance sheet as of December 31, 1996 of
Community Care Services, Inc.
Unaudited condensed consolidated statement of income of Community Care
Services, Inc. for the year ended March 31, 1996 and the nine months ended
December 31, 1996.
C. Exhibits
Stock Purchase Agreement among Community Care Services, Inc. as Buyer,
and Donald Fargnoli, Louis Rocco and Saverio D. Burdi, as Sellers,
dated May 10, 1997.
Stock Purchase Agreement between Community Care Services, Inc., as
Buyer, and Jack Prince, as Seller, dated May 10, 1997.
Non-negotiable Promissory Note of Community Care Services, Inc. Issued
to Donald Fargnoli dated May 10, 1997.
Non-negotiable Promissory Note of Community Care Services, Inc.,
Issued to Louis Rocco dated May 10, 1997.
<PAGE>
Confidential treatment for portions of the Stock Purchase Agreement
among Community Care Services, Inc. as buyer and Donald Fargnoli;
Louis Rocco, and Saverio D. Burdi as seller, dated May 10, 1997 has
been requested. The confidential portions have been so omitted and
filed separately with the Securities and Exchange Commission. The
Company hereby agrees to furnish supplementary a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
Portions of the following schedules have herein been omitted.
4.4(d) Inventory
4.4(I) Accounts Receivable
4.8 Customers
4.11(g) Compensation and Benefits
4.20 Employee Benefit Plans
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, Community
Care Services, Inc., has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Community Care Services, Inc.
By: /s/ JOEL QUALL
-----------------------
Joel Quall
Chief Financial Officer
Dated: May 14,1997
<PAGE>
ITEM 7(a)
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
DBA METROPOLITAN HOMECARE SERVICE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
MARCH 31, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Metropolitan Respirator Service, Inc.
We have audited the accompanying balance sheets of Metropolitan Respirator
Service, Inc. (the "Company") as of March 31, 1996 and December 31, 1996, and
the related statements of operations and retained earnings and cash flows for
the years ended March 31, 1995 and 1996, and for the nine months ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metropolitan Respirator
Service, Inc. as of March 31, 1996 and December 31, 1996, and the results of its
operations and its cash flows for the years ended March 31, 1995 and 1996, and
for the nine months ended December 31, 1996 in conformity with generally
accepted accounting principles.
<PAGE>
-2-
As described in Note 2 to the accompanying financial statements, the Company has
restated the March 31, 1995 and 1996 financial statements and retained earnings
at April 1, 1994 to change its accounting for unbilled receivables and allowance
for uncollectible accounts to conform with generally accepted accounting
principles. Also, the Company changed its method of accounting for pension
expense by electing to implement Statement of Financial Accounting Standards No.
87. This implementation did not have a material effect on retained earnings at
April 1, 1994. As a result of the Company's accounting changes, our present
opinion on the March 31, 1995 and 1996 financial statements, is different from
that expressed in the previously issued review reports of other accountants.
/s/ M.R. WEISER & CO. LLP
New York, NY
February 21, 1997
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
BALANCE SHEETS
A S S E T S
(Note 6)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 41,086 $ 28,253
Accounts receivable, net of allowance of
$594,000 and $600,000 2,452,334 2,867,827
Inventory 177,614 318,647
Due from affiliate 36,147
Advances to shareholder 53,101
Prepaid income taxes 332,896 308,987
Deferred income taxes 315,000 284,000
Prepaid expenses 53,104 78,465
---------- ----------
Total current assets 3,461,282 3,886,179
Rental equipment, net of accumulated depreciation
of $1,145,000 and $1,308,000 302,984 425,746
Property and equipment, net of accumulated depreciation
of $303,880 and $337,997 242,949 331,187
Deposits 25,605 35,841
---------- ----------
Total assets $4,032,820 $4,678,953
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 238,004 $ 671,867
Current maturities of long term debt 447,418 714,400
Accounts payable and accrued expenses 1,131,176 1,048,054
---------- ----------
Total current liabilities 1,816,598 2,434,321
---------- ----------
Long-term debt, less current maturities 115,020 125,950
---------- ----------
Shareholders' equity:
Common stock, $10 par value, 2,000 shares authorized;
77.5 shares issued and outstanding 775 775
Retained earnings 2,100,427 2,117,907
---------- ----------
Total shareholders' equity 2,101,202 2,118,682
---------- ----------
Total liabilities and shareholders' equity $4,032,820 $4,678,953
========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
March 31, December 31,
------------------------------ ------------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Rental revenue, net $ 5,393,862 $ 5,671,454 $ 4,313,846 $ 5,163,715
Sale revenue, net 3,595,908 2,921,658 2,222,285 2,660,096
----------- ----------- ----------- -----------
Net revenues 8,989,770 8,593,112 6,536,131 7,823,811
----------- ----------- ----------- -----------
Cost of net revenues:
Product and supply costs 3,283,534 3,351,069 2,481,359 2,743,365
Rental equipment depreciation 338,891 296,020 188,804 160,565
----------- ----------- ----------- -----------
3,622,425 3,647,089 2,670,163 2,903,930
----------- ----------- ----------- -----------
Gross profit 5,367,345 4,946,023 3,865,968 4,919,881
Operating expenses 4,053,096 4,539,303 3,323,434 4,254,845
Bad debts 509,000 486,000 370,000 443,000
----------- ----------- ----------- -----------
Income (loss) from operations 805,249 (79,280) 172,534 222,036
----------- ----------- ----------- -----------
Nonoperating (income) expense:
Interest expense 101,824 152,245 121,325 112,212
Dividend income (1,849) (1,746) (1,203) (1,425)
Other 62,769
----------- ----------- ----------- -----------
Nonoperating expense, net 99,975 150,499 120,122 173,556
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 705,274 (229,779) 52,412 48,480
----------- ----------- ----------- -----------
Provision (credit) for income taxes:
Current 294,000 57,000
Deferred 37,000 (79,000) (19,000) 31,000
----------- ----------- ----------- -----------
331,000 (79,000) 38,000 31,000
----------- ----------- ----------- -----------
Net income (loss), as restated for March 31,
1995 and 1996 374,274 (150,779) 14,412 17,480
----------- ----------- ----------- -----------
Retained earnings at beginning of period, as
reported 2,175,859
Prior period adjustment (298,927)
-----------
Retained earnings at beginning of period, as
as restated 1,876,932 2,251,206 2,251,206 2,100,427
----------- ----------- ----------- -----------
Retained earnings at end of period $ 2,251,206 $ 2,100,427 $ 2,265,618 $ 2,117,907
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
March 31, December 31,
1995 1996 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 374,274 $ (150,779) $ 14,412 $ 17,480
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation 383,391 339,488 218,514 209,390
Bad debts 509,000 486,000 370,000 443,000
Deferred tax expense (credit) 37,000 (79,000) (19,000) 31,000
Changes in operating assets and liabilities:
Increase in accounts receivable (1,474,166) (158,299) (538,841) (858,493)
(Increase) decrease in inventory (126,891) 219,464 186,728 (141,033)
(Increase) decrease in prepaid expenses (38,466) 10,128 754 (25,361)
(Increase) decrease in prepaid
income taxes (404,847) (4,329) 100,513 23,909
Increase in deposits (1,332) (12,693) (2,780) (10,236)
Increase (decrease) in accounts
payable and accrued expenses (290,631) 203,791 (10,658) (83,122)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (1,032,668) 853,771 319,642 (393,466)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (106,967) (73,179) (24,160) (122,355)
Acquisition of rental equipment (27,712) (21,402)
Net (borrowings) repayments of loans
from affiliate 84,737 (4,865) (1,436) 36,147
Decrease in advances to shareholder 107,045 53,101
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 57,103 (99,446) (25,596) (33,107)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line
of credit 934,954 (696,950) (148,893) 433,863
Repayments of long-term debt (143,289) (621,747) (494,219) (445,872)
Borrowings of long-term debt 56,092 556,841 440,071 425,749
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 847,757 (761,856) (203,041) 413,740
----------- ----------- ----------- -----------
Net increase (decrease) in cash (127,808) (7,531) 91,005 (12,833)
Cash at beginning of period 176,425 48,617 48,617 41,086
----------- ----------- ----------- -----------
Cash at end of period $ 48,617 $ 41,086 $ 139,622 $ 28,253
=========== =========== =========== ===========
</TABLE>
(Continued)
See accompanying notes to financial statements
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
STATEMENTS OF CASH FLOWS
(Concluded)
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
March 31, December 31,
------------------------- ------------------------
1995 1996 1995 1996
-------- -------------- ------------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $101,824 $ 152,245 $ 121,325 $112,212
======== ============== ============= ========
Income taxes paid $681,267 $ 5,439 $ -- $ 2,506
======== ============== ============= ========
Supplemental disclosure of non-cash investing and financing activities:
Notes payable to suppliers for rental
equipment purchases $229,484 $ -- $ -- $298,035
======== ============== ============= ========
</TABLE>
See accompanying notes to financial statements
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
1. THE COMPANY:
Metropolitan Respirator Service, Inc. (DBA Metropolitan Homecare Service)
(the "Company") was incorporated on April 15, 1974 under the laws of the
State of New York. The Company is engaged in the sale and rental of medical
supplies and durable medical equipment within the New York Metropolitan
Area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Prior Period Adjustment and Restatement:
Retained earnings at April 1, 1994 have been restated for $298,927 to
change the Company's accounting for unbilled receivables and allowance for
uncollectible accounts to conform with generally accepted accounting
principles. In addition, the accompanying financial statements for the
years ended March 31, 1995 and 1996 have been restated for this change. The
effect of the restatement was to increase net income for the year ended
March 31, 1995 by $182,877 and decrease the net loss for the year ended
March 31, 1996 by $221,795, net of income tax benefit of $39,000 and
$186,900, respectively.
Interim Financial Information (Unaudited):
The financial statements and accompanying financial information for the
nine months ended December 31, 1995 are unaudited but include all
adjustments (consisting only of normal and recurring adjustments) which the
Company considers necessary for a fair presentation of the operating
results and cash flows for the nine month period ended December 31, 1995.
Results for interim periods are not necessarily indicative of results for
the entire year.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
Revenue Recognition:
The Company recognizes revenue upon the delivery of products and related
services to patients. Revenue is reported at the estimated net realizable
amounts from third party payers under reimbursement arrangements, patients
and others.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out basis) or
market and consists primarily of durable and disposable medical equipment
and supplies.
Rental Equipment:
Rental equipment consists of durable medical equipment rented to patients
for use in their home and is stated at cost. Depreciation is provided using
the straight-line method over the useful life of the equipment which is
estimated at five years.
Property and Equipment:
Property and equipment is stated at cost and is depreciated over the
estimated useful lives using the straight-line method. The costs of
repairs, maintenance, and replacements which do not significantly improve
or extend the life of the respective assets are charged to expense as
incurred.
Automobile and delivery equipment 5 years
Computer and office equipment 5-7 years
Income Taxes:
The Company uses the asset and liability method to calculate deferred tax
assets and liabilities. Deferred income taxes are recognized based on
differences between financial reporting and income tax bases of assets and
liabilities using enacted income tax rates. Deferred income taxes arise
primarily from the allowance for uncollectible accounts which is accounted
for differently for financial reporting and tax purposes. The Company has
not recorded a valuation allowance because the "more likely than not"
criteria of SFAS No. 109, "Accounting for Income Taxes" was met at March
31, 1996 and December 31, 1996.
-2-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less when
purchased to be cash equivalents.
Stock Based Compensation:
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation". SFAS No. 123
defines a fair value method of accounting for the issuance of stock options
and other equity instruments. The adoption of this new standard does not
have an effect on the Company's financial statements.
Accounting for the Impairment of Long-Lived Assets to be Disposed of:
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS No. 121 establishes new
accounting standards for measuring the impairment of long-lived assets. The
adoption of this new standard does not have an effect on the Company's
financial statements.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
March 31, December 31,
1996 1996
---------- ----------
Billed $2,662,334 $3,071,827
Unbilled 384,000 396,000
---------- ----------
3,046,334 3,467,827
Less allowance for uncollectible accounts (594,000) (600,000)
---------- ----------
$2,452,334 $2,867,827
========== ==========
-3-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
Unbilled receivables represent amounts due for products delivered or
services rendered which were not billed at the end of each period. Amounts
are billed when the Company obtains the appropriate written documentation,
mainly the physician's prescription.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
March 31, December 31,
1996 1996
--------- ---------
Automobile and delivery equipment $ 260,941 $ 303,130
Computer and office equipment 285,888 366,054
--------- ---------
546,829 669,184
Less accumulated depreciation (303,880) (337,997)
--------- ---------
$ 242,949 $ 331,187
========= =========
5. LINE OF CREDIT:
The Company has a line of credit with a maximum balance limited to the
lesser of $1,000,000 or 80% of accounts receivable less than 90 days
outstanding. The line of credit is collateralized by substantially all of
the assets of the Company and is personally guaranteed by the shareholders.
The line bears interest at the prime rate plus .75% (9% at December 31,
1996). The line is renewable on an annual basis.
-4-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
6. LONG TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
--------- ---------
<S> <C> <C>
$500,000 term loan collateralized by substantially all of the assets of
the Company and the personal guarantees of the shareholders. The loan
bears interest at the prime rate (8 1/4% at December 31, 1996) plus
.75%, is payable in 36 monthly installments of $13,889 plus accrued
interest, and matures in August 1997. $ 222,222 $ 111,110
Notes payable to suppliers are payable monthly through October 1998
with interest up to 16% collateralized by the equipment
purchased. 307,249 682,700
Various auto loans payable monthly with interest rates of 4.8% to 12%
maturing between August 1997 and September 1999
Collateralized by the vehicles. 32,967 46,540
--------- ---------
562,438 840,350
Less current maturities of long-term debt (447,418) (714,400)
--------- ---------
Long-term debt $ 115,020 $ 125,950
========= =========
</TABLE>
Long-term debt matures as follows:
Year Ended
December 31, Amount
------------ ------
1997 $714,400
1998 117,547
1999 8,403
--------
$840,350
========
-5-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
7. CONCENTRATION OF CREDIT RISK:
Revenues from principal sources are as follows:
March 31, December 31,
1996 1996
---- ----
Medicare 43.1% 45.6%
Medicaid 27.2 29.5
Private insurance and other 29.7 24.9
----- -----
Total 100.0% 100.0%
===== =====
The Company derives the majority of its revenues from third-party payors.
The Company, like other Medicaid and Medicare providers, is subject to
governmental audits of its Medicaid and Medicare reimbursement claims. As a
provider of services, under the Medicaid and Medicare programs, the Company
is also subject to the Medicaid and Medicare fraud and abuse laws. A
reduction in coverage or reimbursement rates by third-party payors could
have a material adverse effect on the Company's operations.
8. RELATED PARTY TRANSACTIONS:
Due from affiliate includes advances to a company affiliated through common
ownership. The advances were non-interest bearing and had no repayment
terms.
Advances to a shareholder were non-interest bearing and had no repayment
terms.
-6-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
9. INCOME TAXES:
The difference between the tax provision and the amount that would be
computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:
<TABLE>
<CAPTION>
March 31, December 31,
--------------------- ---------------------
1995 1996 1995 1996
-------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Provision at the expected statutory rates $240,000 $18,000 $16,000
Net operating loss carryforward $(78,000)
State and city income tax - net of
federal tax benefit 74,000 (18,000) 7,000 4,000
Officers life insurance, penalties and
other nondeductible expenses 17,000 17,000 13,000 11,000
-------- -------- ------- -------
Provision (credit) at the effective rate $331,000 $(79,000) $38,000 $31,000
======== ======== ======= =======
</TABLE>
10. PENSION PLANS:
Defined Benefit Plan:
The Company sponsors a noncontributory defined benefit pension plan
covering substantially all non-union employees. The plan calls for benefits
to be paid to eligible employees at retirement based primarily upon years
of service with the Company and compensation rates near retirement.
Contributions to the plan reflect benefits attributed to employees'
services to date, as well as services expected to be earned in the future.
Plan assets consist primarily of government securities.
-7-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
A summary of the plan's funded status and the amounts recognized in the
accompanying balance sheets follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 630,073 $ 727,304
Nonvested benefits 68,692 69,564
----------- -----------
Accumulated benefit obligation 698,765 796,868
----------- -----------
Projected benefit obligation for services rendered to date (911,480) (1,097,771)
Plan assets at fair value 679,614 845,141
----------- -----------
Unfunded excess of projected benefit obligation over plan
assets (231,866) (252,630)
Unrecorded net loss from past experience different from
that assumed and effects of changes in assumptions 22,871 29,193
Deferred transition loss 79,928 76,193
----------- -----------
Pension liability $ (129,067) $ (147,244)
=========== ===========
Pension expense includes the following components:
Service cost-benefits earned during the period $ 132,708 $ 169,295
Interest cost on projected benefit obligation 50,948 46,836
Actual return on plan assets (29,490) (24,185)
Amortization of unrecognized net asset (7,497) (11,470)
----------- -----------
Net periodic pension expense $ 146,669 $ 180,476
=========== ===========
</TABLE>
-8-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
The actuarial assumptions used in accounting for the plan were as follows:
Weighed average discount rate 7% per annum
Weighted average rate of compensation increase 3% per annum
Weighted expected long-term rate of refund on plan assets 7% per annum
The amounts charged to operations for the years ended March 31, 1995 and
1996, and for the nine months ended December 31, 1995 and 1996 were
approximately $119,000, $147,000, $103,000, and $180,000, respectively.
Defined Contribution Plan:
The Company also maintains a 401(k) profit-sharing plan covering all
employees who have attained minimum service requirements. The Company's
contributions to the plan are based upon management's discretion. Such
contributions amounted to $29,500, $29,000, $25,000 and $33,500 for the
years ended March 31, 1995 and 1996, and for the nine months ended December
31, 1995 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company rents office and warehouse facilities in the Bronx, New York
under a noncancelable operating lease. The Corporation exercised its
renewal option for an additional three years which expired on February 28,
1997. Currently, the facilities are being rented on a month-to-month basis.
The Company also leases office and retail facilities in Glen Cove, New
York. The facility is operating under a noncancelable lease expiring
October 31, 1998 and contains a provision for renewal, increasing rental
due to increased expenses, taxes and cost of living.
The Company also leases vehicles under operating leases expiring at various
times through 1997.
-9-
<PAGE>
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures for the
Nine Months Ended December 31, 1995 are Unaudited)
Future minimum lease payments due under operating leases are as follows:
1997 $ 92,421
1998 45,931
--------
Total minimum future payments $138,352
========
Rental expense charged to operations for the years ended March 31, 1995 and
1996, and for the nine months ended December 31, 1995 and 1996 was
approximately $179,000, $186,000, $142,000, and $149,000, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The amounts included in the balance sheet at March 31, 1996 and December
31, 1996 for accounts receivable, due from affiliate, advances to
shareholders, line of credit, accounts payable and accrued expenses and
current maturities of long-term debt approximate fair value because of the
short-tern nature of these instruments. The carrying value of long-term
debt approximates the estimated fair value because the long-term debt is at
interest rates comparable to notes currently available to the Company for
debt with similar terms and remaining maturities.
13. SUBSEQUENT EVENT:
The shareholders are negotiating to sell all of their shares of common
stock of the Company to a New York based corporation. In connection with
the potential sale of the Company, two of the three shareholders
transferred a total of 5.5 shares of their common stock to an employee of
the Company, pursuant to a Restricted Stock Agreement. The shares
transferred are subject to return in the event that the employee's
employment with the Company is terminated for any reason within two years
of this agreement. In the event the Company sells all of its issued and
outstanding shares, the restriction period will lapse and it is anticipated
that the Company will record additional compensation expense of
approximately $700,000 during the three months ended March 31, 1997. The
remaining shareholder has objected to the validity of the transfer and,
accordingly, there is no final determination of the accounting treatment
for this transaction.
-10-
<PAGE>
ITEM 7(b)
PRO FORMA FINANCIAL INFORMATION
<PAGE>
COMMUNITY CARE SERVICES, INC., and
METROPOLITAN RESPIRATOR SERVICE, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma condensed consolidated balance sheet gives effect as of
the acquisition of Metropolitan Respirator Service, Inc,. ("MRS") was acquired
as of December 31, 1996, the most recent balance sheet date. The proforma
condensed consolidated statements of income for the year ended March 31, 1996
and the nine months ended December, 1996 present the results of operations as if
the acquisition of MRS had occurred at April 1, 1995 and April 1, 1996,
respectively.
The results of operations of Community Care Services, Inc. have been extracted
from the financial statements for the year ended March 31, 1996 and the nine
months ended December 31, 1996. The results of operations of MRS are audited for
the year ended March 31, 1996 and for the nine months ended December 31, 1996.
The pro forma adjustments give effect to the purchase method of accounting as
described in the accompanying notes to the pro forma financial statements.
These pro forma condensed consolidated financial statements may not be
indicative of the results that actually would have occurred if the acquisitions
had been in effect on April 1, 1995 or 1996, or which may be obtained in the
future. The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited financial statements and notes of
the companies contained elsewhere herein.
<PAGE>
COMMUNITY CARE SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1996
-----------------
CCS, INC. MRS, INC. Pro Forma Pro Forma
(Historical) (Historical) Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,334,000 $ 28,000 ($4,100,000) (1) $ 262,000
Accounts Receivable, Net 3,138,000 2,868,000 6,006,000
Inventories 618,000 318,000 936,000
Prepaid Income Taxes 0 309,000 309,000
Deferred Income Taxes 0 284,000 284,000
Prepaid Expenses and other current assets 73,000 78,000 151,000
----------- ----------- ----------- -----------
Total Current Assets 8,163,000 3,885,000 (4,100,000) 7,948,000
Rental Equipment, Net 1,382,000 426,000 1,808,000
Property and Equipment, Net 274,000 331,000 605,000
Covenants not to Compete, Net 19,000 0 360,000 (1) 379,000
Accounts and customer lists, Net 125,000 0 225,000 (1) 350,000
Security Deposits 36,000 36,000 72,000
Goodwill, net 6,290,000 (1) 6,290,000
Investment in MRS, Inc. 2,119,000 (1) 0
(2,119,000)
----------- ----------- ----------- ------------
TOTAL $ 9,999,000 $ 4,678,000 $ 2,775,000 $ 17,452,000
=========== =========== =========== ============
LIABILITIES
Current Liabilities:
Line of Credit $ 0 $ 672,000 $ 672,000
Accounts Payable & Accrued Expenses 1,895,000 1,047,000 $ 315,000 (1) 3,257,000
Current portion of long term debt 90,000 714,000 804,000
Due to Adam Health Care Equipment Corp. 1,171,000 0 1,171,000
Income Taxes Payable 316,000 0 316,000
----------- ----------- ----------- ------------
Total Current Liabilities 3,472,000 2,433,000 315,000 6,220,000
Notes payable 3,067,000 (1) 3,067,000
Long term debt, less current maturities 0 126,000 126,000
Deferred Income Taxes 9,000 0 63,000 (1) 72,000
----------- ----------- ----------- ------------
Total Liabilities 3,481,000 2,559,000 3,445,000 9,485,000
----------- ----------- ----------- ------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 62,000 1,000 (1,000) 74,000
12,000 (1)
Additional paid in capital 6,407,000 0 1,437,000 (1) 7,844,000
Retained earnings 49,000 2,118,000 (2,118,000) 49,000
----------- ----------- ----------- ------------
Total Stockholders' Equity 6,518,000 2,119,000 (670,000) 7,967,000
----------- ----------- ----------- ------------
TOTAL $ 9,999,000 $ 4,678,000 $ 2,775,000 $ 17,452,000
=========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
COMMUNITY CARE SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended
March 31, 1996
--------------
CCS, INC. MRS, INC. Pro Forma Pro Forma
(Historical) (Historical) Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Revenues 6,182,000 8,593,000 14,775,000
Cost and Expenses:
Cost of net revenues
Product and supply costs 2,084,000 3,351,000 5,435,000
Rental equipment depreciation 251,000 296,000 547,000
----------- ----------- ----------- ----------
2,335,000 3,647,000 5,982,000
Selling, general & administrative
expenses 2,661,000 4,539,000 (690,000) (3) 6,275,000
(147,000) (4)
(88,000) (5)
Provision for doubtful accounts 299,000 486,000 785,000
Amortization of intangible assets 108,000 0 345,000 (2) 453,000
----------- ----------- ----------- ----------
Toal Costs and Expenses 5,403,000 8,672,000 (580,000) 13,495,000
----------- ----------- ----------- ----------
Operating Income 779,000 (79,000) 580,000 1,280,000
Interest Expense 155,000 151,000 184,000 (6) 490,000
----------- ----------- ----------- ----------
Income before provision for income taxes 624,000 (230,000) 396,000 790,000
Provision (benefit) for Income Taxes 196,000 (79,000) 166,000 (7) 283,000
----------- ----------- ----------- ----------
NET INCOME $428,000 ($151,000) $230,000 $507,000
=========== =========== =========== ==========
Per share data
Net income per common share $0.07 $0.09
=========== ==========
Weighted average number of common shares
outstanding 5,926,900 (8) 5,926,900
=========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
COMMUNITY CARE SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Nine months ended
December 31, 1996
-----------------
CCS, INC. MRS, INC. Pro Forma Pro Forma
(Historical) (Historical) Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Revenues 7,437,000 7,824,000 15,261,000
Cost and Expenses:
Cost of net revenues
Product and supply costs 2,968,000 2,743,000 5,711,000
Rental equipment depreciation 253,000 161,000 414,000
----------- ----------- ----------- -----------
3,221,000 2,904,000 6,125,000
Selling, general & administrative
expenses 3,079,000 4,255,000 (517,000) (3) 6,571,000
(180,000) (4)
(66,000) (5)
Provision for doubtful accounts 238,000 443,000 681,000
Amortization of intangible assets 115,000 258,000 (2) 373,000
----------- ----------- ----------- -----------
Total Costs and Expenses 6,653,000 7,602,000 (505,000) 13,750,000
----------- ----------- ----------- -----------
Operating Income 784,000 222,000 505,000 1,511,000
Interest Expense 151,000 112,000 138,000 (6) 401,000
Other 62,000 62,000
----------- ----------- ----------- -----------
Income before provision for income taxes and
extraordinary item 633,000 48,000 367,000 1,048,000
Provision (benefit) for income taxes 278,000 31,000 154,000 (7) 463,000
----------- ----------- ----------- -----------
Income before extraordinary item $ 355,000 $ 17,000 $ 213,000 $ 585,000
=========== =========== =========== ===========
Per share data
Income before extraordinary item $ 0.06 $ 0.09
=========== ===========
Weighted average number of common shares
outstanding 6,334,627 (8) 6,334,627
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
COMMUNITY CARE SERVICES, INC.
METROPOLITAN RESPIRATOR SERVICE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[1] To record the acquisition of the common stock of Metropolitan Respirator
Service, Inc. for approximately $8,994,000 and the fair value resulting from
allocation of the excess of the fair market value over cost amounting to
approximately $6,290,000.
The company used available cash amounting to $4,100,000 to pay for the
acquisition. The company also incurred direct transaction costs amounting to
approximately $378,000.
[2] To record amortization of intangibles; customer list, non-compete and
goodwill for the year ended March 31, 1996 of $345,000 and the nine months ended
December 31, 1998 of $258,000.
Customer lists, non-compete and goodwill are being amortized over estimated
useful lines of ten, four and thirty years, respectively.
[3] To record revised officers' salaries and payroll taxes based upon revised
officers' employment contracts for the year ended March 31, 1996 of $690,000 and
for the nine months ended December 31, 1996 of $517,000.
[4] To add back pension costs of $147,000 for the year ended March 31, 1997 and
$180,000 for the nine months ended December 31, 1997 to reflect terminated
pension plan.
<PAGE>
[5] To add back rent and salaries on facilities that will be closed upon
acquisition aggregating $88,000 for the year ended March 31, 1996 and $66,000
for the nine months ended December 31, 1996.
[6] To record interest expense for debt incurred in connection with the
acquisition.
[7] Pro forma income taxes have been estimated at forty-two percent.
[8] Earnings per share reflect the conversion of 100% of outstanding principal
and accrued interest to common shares.
<PAGE>
COMMUNITY CARE SERVICES, INC.
CURRENT REPORT ON FORM 8K FOR THE
REPORTING DATE MAY 14, 1997
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Name Number Page
- ------ ------------ -----------
2.1 Stock Purchase Agreement among
Community Care Services, Inc., as Buyer
and Donald Fargnoli, Louis Rocco and
Saverio D. Burdi, as Sellers, dated May 10,
1997.
2.2 Stock Purchase Agreement among Community
Care Services, Inc., as Buyer and Jack L.
Prince, as Seller, dated May 10, 1997.
2.3 Non-negotiable Promissory Note of Community
Care Services, Inc., issued to Donald Fargnoli dated
May 10, 1997.
2.4 Non-negotiable Promissory Note of Community Care
Services, Inc., issued to Louis Rocco dated May 10,
1997.
EXHIBIT 2.1
<PAGE>
STOCK PURCHASE AGREEMENT
AMONG
COMMUNITY CARE SERVICES, INC.,
AS BUYER
AND
DONALD FARGNOLI, LOUIS ROCCO
AND SAVERIO D. BURDI,
AS SELLERS
MAY 10, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
AMONG
COMMUNITY CARE SERVICES, INC.,
AS BUYER
AND
DONALD FARGNOLI, LOUIS ROCCO AND SAVERIO D. BURDI,
AS SELLERS
TABLE OF CONTENTS
Page
- ----
Preliminary Statement ..................................................... 1
ARTICLE 1 CERTAIN DEFINITIONS ............................................. 1
ARTICLE 2 SALE AND PURCHASE OF SHARES ..................................... 5
2.1 Shares to be Acquired ................................................. 5
2.2 Purchase Price ........................................................ 5
ARTICLE 3 CERTAIN SPECIFIC MATTERS RELATING TO EMPLOYMENT,
NON-COMPETITION, APPOINTMENTS OF SELLERS AND PURCHASE
SHARES .................................................................... 6
3.1 Employment Agreements ................................................. 6
3.2 Employment Agreements with Sellers .................................... 6
3.3 Appointments of Sellers ............................................... 6
3.4 Tag Along Rights ...................................................... 6
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER ........................ 7
4.1 Representations Regarding the Company and the Shares .................. 7
4.2 Compliance with Law ................................................... 8
4.3 Authority and Compliance .............................................. 8
4.4 Inventory, Machinery, Equipment and Other Property .................... 9
4.5 Contracts ............................................................. 11
4.6 Facilities ............................................................ 12
4.7 Legal Proceedings, Etc ................................................ 12
4.8 Substantial Clients ................................................... 13
4.9 Substantial Suppliers ................................................. 14
4.10 No Finder ............................................................ 14
4.11 Absence of Certain Events ............................................ 14
4.12 Dating of Schedules .................................................. 15
4.13 Delivery of Documents ................................................ 15
4.14 Taxes ................................................................ 15
4.15 Officers and Directors ............................................... 15
<PAGE>
TABLE OF CONTENTS (cont'd)
4.16 Bank Accounts ........................................................ 16
4.17 Business Operations .................................................. 16
4.18 Contracts and Agreement with Sellers ................................. 17
4.19 Financial Statements ................................................. 17
4.20 Compliance with ERISA ................................................ 18
4.21 Authority ............................................................ 19
4.22 Relationships ........................................................ 19
4.23 No Omissions or Untrue Statements .................................... 20
4.24 Medicare, Medicaid and Other Third Party Payors ...................... 20
4.25 Company Employees .................................................... 21
4.26 Labor Relations ...................................................... 22
4.27 WARN Act ............................................................. 22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER ......................... 22
5.1 Organization and Good Standing........................................ 22
5.2 Compliance with Law................................................... 23
5.3 Authority and Compliance.............................................. 23
5.4 No Finder............................................................. 24
5.5 Legal Proceedings, Etc................................................ 24
5.6 No Omissions or Untrue Statements..................................... 24
5.7 Absence of Certain Events............................................. 25
5.8 Taxes ................................................................ 26
5.9 Business Operations................................................... 26
5.10 Medicare, Medicaid and Other Third-Party Payors....................... 27
5.11 Labor Relations....................................................... 28
ARTICLE 6 CLOSING PROCEDURES............................................... 29
6.1 Closing .............................................................. 29
6.2 Closing Deliveries of Sellers......................................... 29
6.3 Closing Deliveries of Buyer........................................... 30
ARTICLE 7 ENVIRONMENTAL MATTERS............................................ 31
7.1 Definitions........................................................... 31
7.2 Environmental Representations and Warranties.......................... 32
7.3 Application of Article 9.............................................. 33
ARTICLE 8 CERTAIN COVENANTS OF THE PARTIES
8.1 Third Party Consents.................................................. 33
8.2 Medicare and Medicaid Reporting....................................... 33
8.3 Cooperation........................................................... 34
8.4 Confidentiality....................................................... 34
8.5 Insurance............................................................. 34
8.6 Automobile............................................................ 34
-ii-
<PAGE>
TABLE OF CONTENTS (cont'd)
ARTICLE 9 INDEMNIFICATION.................................................. 35
9.1 Indemnification of Buyer.............................................. 35
9.2 Indemnification of Sellers............................................ 35
9.3 Indemnification Procedures Involving
Only Sellers and Buyer.............................................. 36
9.4 Certain Procedures Regarding
Indemnification of Third Party Claims, Etc.......................... 37
9.5 Limitations on Indemnification........................................ 37
9.6 Application of Notes.................................................. 40
ARTICLE 10 MISCELLANEOUS MATTERS........................................... 40
10.1 Survival of Representations and Warranties........................... 40
10.2 Further Assurances; Access to Records................................ 40
10.3 Mail................................................................. 40
10.4 Changes, Waivers..................................................... 40
10.5 Expenses, Etc........................................................ 41
10.6 Counterparts......................................................... 41
10.7 Contents of Agreement; Parties in Interest;
Assignment, Etc..................................................... 41
10.8 Conflict with Related Agreements..................................... 42
10.9 Dispute Resolution................................................... 42
10.10 Receipt of Monies or Other Assets ................................ 43
10.11 Section Headings and Gender.......................................... 43
10.12 Schedules............................................................ 43
10.13 Notices.............................................................. 43
10.14 Governing Law........................................................ 44
SCHEDULES
EXHIBITS
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated May 10, 1997, among COMMUNITY CARE SERVICES,
INC., a New York corporation ("Buyer") and DONALD FARGNOLI ("Fargnoli"), LOUIS
ROCCO ("Rocco") and SAVERIO D. BURDI ("Burdi") (Fargnoli, Rocco and Burdi are
collectively referred to herein as "Sellers").
Preliminary Statement
WHEREAS, Sellers own Fifty Two and one-half (52.5) shares of the issued and
outstanding capital stock, par value $10.00 per share (the "Shares"), of
METROPOLITAN RESPIRATOR SERVICE, INC. D/B/A METROPOLITAN HOME CARE SERVICE, a
New York corporation (the "Company");
WHEREAS, Sellers wish to sell and Buyer wishes to buy the Shares; and
WHEREAS, Sellers and Buyer desire to provide for an orderly transition of
the Company from Sellers to Buyer and for other arrangements ancillary to the
purchase and sale of the Shares.
NOW, THEREFORE, in consideration of the premises and mutual and dependent
promises set forth herein, the parties hereto agree as follows:
ARTICLE 1 CERTAIN DEFINITIONS.
The following defined terms shall have the following meanings:
1.1 "Affiliate" means, with respect to the Company, Sellers or Buyer,
another corporation, partnership, joint venture, other entity of any type or
individual that directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the Company or
Buyer, respectively, other than Grand Avenue Associates.
1.2 "Agreement" means this Agreement, as the same may be extended,
modified, supplemented or terminated from time to time.
1.3 "Business" means the business of providing home health care products
conducted by the Company as of the date hereof.
1.4 "Company" has the meaning set forth in the Preliminary Statement to
this Agreement.
<PAGE>
1.5 "Copyrights" means all copyrights, domestic or foreign, whether
registered or unregistered, owned or controlled by Seller relating to the
Business, and all materials and matter (and, if in writing, shall include any
machine-readable forms) to which such copyrights relate.
1.6 "Employee Benefit Plan" shall have the meaning set forth in Section
3(3) of ERISA.
1.7 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
1.8 "ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 414 of the Internal Revenue Code, as amended from time to time.
1.9 "Facilities" means the office and warehouse space leased by the Company
at 3847-89 Boston Road, Bronx, NY 10466, 3855 Boston Road, Bronx, New York
10466, 3820 Boston Road, Bronx, New York 10466 and 79 Forest Avenue, Glen Clove,
New York.
1.10 "Financial Statements" has the meaning set forth in Section 4.19
hereto.
1.11 "Governmental Rights" means all governmental permits, easements,
rights and other authorizations related to the Business owned or controlled by
the Company.
1.12 "Indemnitee" means a party asserting a claim for indemnification under
Article 9 hereof.
1.13 "Indemnitor" means the party from whom indemnification is sought under
Article 9 hereof.
1.14 "Leases" means the leases for the Facilities as set forth on Schedule
1.14 hereto.
1.15 "March 31 Compilation" means the financial statements of the Company
as of March 31, 1997.
1.16 "Material" means (i) with respect to contracts, commitments and
agreements of a party, those contracts, commitments and agreements under which a
party's undischarged obligations exceed
-2-
<PAGE>
Ten Thousand Dollars ($10,000), (ii) with respect to other liabilities of a
party, those liabilities and obligations under which a party's liability or
potential liability exceeds Ten Thousand Dollars ($10,000) and (iii) with
respect to the assets of a party, those assets having a value in excess of Ten
Thousand Dollars ($10,000).
1.17 "Notes" has the meaning set forth in Section 2.2(b) hereof.
1.18 "Notice Date" has the meaning set forth in Section 9.3(a) hereof.
1.19 "Operational Matters" means any and all matters directly or indirectly
related to the operation of the Business, not including regulatory matters, tax
assessments owed by the Company (including matters relating to Employee Benefits
Plans), or any other matters relating to events prior to the Closing which
results in litigation against Buyer or the Company.
1.20 "Outstanding Debt" means the Company's current outstanding line of
credit in the amount of $800,000 from Merrill Lynch, bearing interest at the
rate of prime plus one percent% per annum.
1.21 "Patents" means all United States and foreign patents and patent
applications (and any patents issuing therefrom), together with any extensions,
reissues, renewals, divisions, continuations or continuations in part thereof
and any foreign equivalents of any of the foregoing.
1.22 "Prince" means Jack Prince.
1.23 "Products" means the medical supplies and equipment offered for sale
or rent to the clients of the Company, as set forth as Schedule 1.23 hereto.
1.24 "Programs" has the meaning set forth in Section 4.24(a).
1.25 "Purchase Price" means the aggregate amount to be paid by Buyer to
Sellers for the Shares, as set forth in Section 2.2 hereof.
1.26 "Related Agreements" means
(a) the stock powers provided for in Section 6.2, below;
-3-
<PAGE>
(b) the Employment Agreements to be executed by Sellers provided for
in Section 3.1, below;
(c) the Non-Competition Agreements to be executed by Sellers provided
for in Section 3.2, below;
(d) the Convertible Promissory Notes provided for in Section 2.2(b),
below;
(e) The Escrow Agreement to be executed by Burdi and Nordlicht & Hand,
as escrow agent, provided for in Section 2.2(c) below; and
(f) all other instruments, agreements and documents to be executed and
delivered at Closing by Sellers, Buyer or their Affiliates and which are
referred to in this Agreement.
1.27 "Shares" has the meaning set forth in the Preliminary Statement of
this Agreement.
1.28 "Stockholders Agreement" means the Agreement among Harold Raskin,
Rocco, Fargnoli and the Company dated October 20, 1981.
1.29 "Trade Secrets" means any and all information developed by or for
and/or owned or controlled by the Company at the Closing, including but not
limited to any data processing or research; compilations; programs; methods;
ideas; inventions; discoveries; know-how; show-how; improvements; procedures;
results; designs; product ordering, handling, storage and distribution systems;
products components or composition; product quality and sanitary or cleanliness
protocols and specifications; sales, marketing or client service manuals or
methods; client and prospective client lists, requirements and preferences,
purchase and credit information, and other client and prospective client data;
supplier and distributor lists, terms, ordering and other supplier and
distributor data; business files, records, plans, notebooks, quality and
sanitary control data, books and publications, and other business information;
computer programs and data.
1.30 "Trademarks" includes all U.S. and foreign trademarks, tradenames, or
service marks, whether registered, under application or in common law, or with
respect to which an Intent to Use filing has been made as of the Closing Date
(collectively, the "Trademarks").
-4-
<PAGE>
ARTICLE 2 SALE AND PURCHASE OF SHARES.
Subject to the terms and conditions and on the basis of and in reliance on
the representations, warranties, obligations and agreements set forth in this
Agreement, the parties agree as follows:
2.1 Shares to be Acquired. At the Closing, Sellers shall sell, assign,
transfer and convey, and Buyer shall purchase and accept, the Shares, free and
clear of any liens, claims or encumbrances of any kind.
2.2 Purchase Price. The Purchase Price for the Shares is Five Million Eight
Hundred Thirty Eight Thousand Dollars ($5,838,000). The Purchase Price shall be
paid by Buyer as follows:
(a) Two Million Eight Hundred Thousand Dollars ($2,800,000), payable
by certified check, to be divided among Sellers as set forth on Schedule
2.2(a) hereto;
(b) Two Million Seven Hundred Eighty Nine Thousand Twenty-Eight
Dollars ($2,789,028) issued to Fargnoli and Rocco payable pursuant to
Non-Negotiable Convertible Promissory Notes in the form of Exhibit 2.2(b)
attached hereto (the "Notes").
(c) Sixty Two Thousand Two Hundred Forty Three (62,243) shares of
Buyer's common stock, par value $.01 per share (the "Purchase Shares") to
Burdi, Seventeen Thousand Eight Hundred Forty Two (17,842) of such shares
to be deposited in escrow pursuant to the Escrow Agreement, it being
understood that (i) the Purchase Shares shall be "restricted securities",
as such term is defined under rule 144 promulgated under the Securities Act
of 1933, as amended, and shall be subjected to all restrictions imposed by
law on restricted securities, (ii) may not be sold, gifted, pledged,
hypothecated or otherwise transferred for a period of two years, unless
otherwise permitted as provided herein and (iii) the Purchase Shares placed
into escrow shall immediately be released from escrow if Buyer sells Fifty
One percent (51%) or more of the Company's outstanding capital stock or
sells substantially all of the assets of the Company.
-5-
<PAGE>
ARTICLE 3 CERTAIN SPECIFIC MATTERS RELATING TO EMPLOYMENT,
NON-COMPETITION, APPOINTMENTS OF SELLERS AND PURCHASE SHARES.
3.1 Employment Agreements. Upon the execution of this Agreement, Buyer will
enter into three year Employment Agreements with each Seller, substantially in
the forms attached as Exhibit 3.1 hereto.
3.2 Non-Competition Agreements With Sellers. Upon the execution of this
Agreement, each Seller shall deliver to Buyer a Non-Competition Agreement,
substantially in the forms attached as Exhibit 3.2 hereto, for a period equal to
the greater of (i) four years or (ii) the duration of each Seller's Employment
Agreement plus one year.
3.3 Appointments of Sellers. After Closing, Buyer shall use its best
efforts to cause Fargnoli to be appointed or elected to Buyer's Board of
Directors for at least a period of two years following the Closing, including
listing Fargnoli on the slate of candidates for election to the Board of
Directors proposed by Buyer's Management. Rocco and Burdi will be permitted by
Buyer to attend meetings of Buyer's Board of Directors for a period of
twenty-four (24) months following the Closing, subject to their delivery of
written agreements to treat all matters discussed by the Board in their presence
as highly confidential information, such agreements to be substantially in the
forms attached as Exhibit 3.3 hereto. Buyer will also cause (i) Rocco, Fargnoli
and Burdi to be appointed or elected as the Company's President, Vice President
and Secretary, respectively, and (ii) each of the Sellers to be elected to the
Company's Board of Directors for so long as such individuals are employed by
Buyer.
3.4 Tag Along Rights. In the event Buyer conducts a secondary public
offering, Burdi and, to the extent provided in the Notes are converted, Fargnoli
and/or Rocco, shall have the opportunity to sell the Purchase Shares and the
shares issued upon the conversion of the Notes in such offering to the same
extent and in proportion to the rights that the other executive officers of
Buyer and Dean Sloan (collectively, with Sellers, the "Executives") have to
include their own shares of Buyer's common stock in the offering, subject to the
approval of the underwriter(s) of such offering, if any. If the underwriter(s)
determine that all of the stock which Executives wish to sell in the offering
cannot be sold, the amount of shares which each individual officer may include
in the offering shall be determined by multiplying (a) the total number of
shares owned by
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the Executives as a group, which the underwriter(s) will allow to be included in
the offering by (b) a fraction, the numerator of which is the number of shares
an individual Executive desired to have included in the offering and the
denominator of which is the total number of shares which the Executive as a
group, desired to have included in the offering. For example, assume that the
Executives as a group, desired to include 500,000 shares in the offering, of
which 100,000 shares were owned by Officer X. Assume further that the
underwriter(s) will permit the Executives as a group, to sell only 300,000
shares in the offering. The number of shares which Executives may sell in the
offering shall be 60,000, determined by multiplying 300,000 by 100,000 over
500,000.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS.
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Sellers hereby represent and warrant to
Buyer that as of the date of this Agreement:
4.1 Representations Regarding the Company and the Shares.
(a) Subsidiaries. Except as set forth an Schedule 4.1(a), the Company
has no subsidiaries and does not own stock or any other interest in or
directly or indirectly control any corporation, association or business
entity. The Company is not a party to any joint venture or partnership
agreement.
(b) Capitalization. The aggregate number of shares which the Company
is authorized to issue is Two Thousand (2,000) shares of common stock, par
value Ten Dollars ($10.00) per share, of which Seventy Seven and one-half
(77.5) shares are issued, presently outstanding, Fifty Two and one-half
(52.5) of which are owned by Sellers in the amounts set forth on Schedule
4.1(b) hereto. The Company has no authorized capital stock except for the
common stock and there are no shares of capital stock reserved for
issuance. All of the Shares have been validly issued and are fully paid and
non-assessable. The Company has no outstanding subscriptions, contracts,
options, warrants, or other obligations (including conversion or preemptive
rights) to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any of its capital stock. The sale of the Shares to
Buyer will not give rise to any rights of first refusal of any person or
entity. Except for Prince, no person or entity other than Sellers owns or
has any interest in
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the capital stock of the Company. Sellers own the Shares free and clear of
any encumbrances, pledges, security interests, liens, charges, claims,
equities and options of whatever nature and have the full right and
authority to transfer the Shares to Buyer. The Shares are not subject to
any agreement, commitments or restrictions with respect to their
transferability. Upon transfer of the Shares to Buyer, Buyer shall receive
title to the Shares free and clear of all encumbrances, pledges, security
interests, liens, charges, claims, equities and options of whatever nature.
(c) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and is duly qualified to conduct business and is in good
standing in each of the jurisdictions in which it conducts business where
the failure to be so qualified would have a material adverse effect on the
Company or the Business.
(d) Charter, By-Laws, Minutes. True, complete and correct copies of
the Certificate of Incorporation and By-Laws of the Company, as currently
in effect, and the Company's minute book, stock ledger and stock transfer
register have been provided by Sellers to Buyer.
4.2 Compliance with Law. Except as set forth on Schedule 4.2 hereto, there
are no authorizations, including those of any governmental authority, court or
regulatory body, that are required to be obtained by Sellers or the Company in
order to permit Sellers to execute and deliver and consummate and perform the
transactions contemplated by this Agreement and the Related Agreements to which
all or any one or more of the Sellers is a party, it being understood that Buyer
has agreed that no such authorization is required to be obtained from Medicare
or Medicaid, other than a notification of the change of ownership of the
Company, which notification will be made by Buyer.
4.3 Authority and Compliance.
(a) The Company has all requisite corporate power and authority to own
or lease the assets used in the Business.
(b) Each Seller has the unencumbered right to execute and deliver this
Agreement and the Related Agreements to which each is a party and to
perform the transactions contemplated hereby and thereby. This Agreement
and each of the Related Agreements
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constitutes a legal, valid and binding obligation of each Seller
enforceable against each of them in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and (ii) the remedy of specific
performance and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) The execution and the delivery of this Agreement and the Related
Agreements to which each of the Sellers is a party and the consummation and
performance by Sellers of the transactions contemplated hereby and thereby
will not: (i) violate the Certificate of Incorporation or By-Laws of the
Company; (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, any instrument,
agreement, mortgage, judgment, order, award, or decree to which Sellers,
the Company or any of their Affiliates is a party or by which Sellers, the
Company or any of their Affiliates is bound, or (iii) give any third party
the right under any instrument, agreement, mortgage, judgment, order, award
or decree to terminate, modify or otherwise change the rights or
obligations of all or any one or more of the Sellers or the Company under
such instrument, agreement, mortgage, judgment, order, award or decree.
4.4 Inventory, Machinery, Equipment and other Property.
(a) Schedule 4.4(a) sets forth a list of the Material machinery,
medical and other equipment, warehouse and office furniture, computer
hardware and software and vehicles owned by the Company. The Company owns
such property free and clear of all liens, claims and encumbrances of any
kind whatsoever and no other person or entity has any rights to any of such
property.
(b) Seller makes no representation as to the condition of the
Company's machinery and equipment, warehouse and office furniture, computer
hardware and vehicles, such assets being sold as is.
(c) Schedule 4.4(c) sets forth a list of Material leases of tangible
personal property to which the Company is a party. The Company and Sellers
have not received any notice of cancellation or termination of any such
lease, or of the exercise or non-exercise of any option or right reserved
to the lessor of any such lease. The Company has not received written
notice of any default in the
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performance of any term of such lease, and Sellers have no knowledge of any
event which has occurred which, with notice or lapse of time or both, would
constitute a default by the Company under any such lease. To Sellers
knowledge, without further inquiry, the transactions contemplated by this
Agreement do not constitute and shall not trigger a default under any such
lease, except for the Company's agreement with Blue Cross/Blue Shield of
Connecticut, which requires five days advance notice of any change in
ownership (the "BC/BS Connecticut Agreement"), it being understood that
Sellers will have no liability to Buyer for failing to deliver such notice.
(d) Schedule 4.4(d) lists the Company's inventory of Material Products
and supplies, including packing materials, pallets and other shipping and
handling materials.
(e) The Company does not own, license or use any Patents.
(f) The Company does not own, license or use any Trademarks.
(g) The Company does not own, license or use any registered
Copyrights.
(h) Neither any of the Sellers, nor the Company are aware of any claim
that the Company has infringed the patent or other proprietary or
intellectual rights of any other person. The Company has not received any
written notification that it is subject to any outstanding order, judgment
or decree of any court or administrative agency, and has not entered into
any stipulation or agreement, restricting the Company's use of any Patents,
Trademarks, Trade Secrets or Copyrights.
(i) Schedule 4.4(i) lists the Company's accounts receivable. Sellers
expressly do not make any representation regarding the collectablity of any
account receivable.
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(j) Schedule 4.4(j) sets forth lists of (i) substantially all of the
patients serviced by the Company, (ii) personnel records of the Company
(including descriptions of both hard and electronic copies) and (iii) all
corporate records used in operating the Business, including, without
limitation, personnel policies and files and manuals, accounting records
and computer software.
4.5 Contracts.
(a) Schedule 4.5 lists all of the Company's Material contracts,
including, without limitation:
(i) all Material contracts for the purchase, sale or lease of
real property;
(ii) all Material contracts for the lease or sublease of tangible
personal property;
(iii) all Material contracts for the purchase or sale of
Inventory, commodities, merchandise, other materials or tangible
personal property;
(iv) all Material contracts for the furnishing or receipt of
services or sale or lease of products;
(v) all Material supplier, distributor dealer, manufacturer's
representative, sales agency or advertiser agreements;
(vi) all Material customer contracts;
(vii) all Material contracts relating to the Patents, Trademarks,
Copyrights, Trade Secrets or other proprietary or intellectual
property to which the Company is a party and
(viii) all other Material contracts, whether or not made in the
ordinary course of business, which affects the Company.
(b) To Sellers knowledge, without undertaking any inquiry: (i) all
contracts set forth in Schedule 4.5 are in full force and effect, and are
legal, valid and binding obligations of the Company, enforceable against
the Company, in accordance with their terms, except where (a) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors rights
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generally and (b) the remedy of specific performance and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought, (ii) the
Company is not now in default in the performance of any term of any such
contract, and no event has occurred which, with notice or lapse of time or
both, would constitute a default by the Company under any such contract
(except with respect to the failure to give notice required under the BC/BS
Connecticut Agreement) and (iii) the transactions contemplated by this
Agreement do not constitute and shall not trigger a default under any such
contract which would have a material adverse effect on the Company.
(c) The suppliers, distributors and representatives that are parties
to the contracts listed on Schedule 4.5 constitute substantially all
suppliers, distributors and representatives being used by the Company.
Within the last twelve (12) months, the Company has not made any claims
against or initiated any disputes with any such supplier, distributor or
representative and has not received notice of any claim or dispute with
Seller or the Company from any such supplier, distributor or
representative.
(d) The sale of the Shares to Buyer will not constitute an assignment
under any contract listed on Schedules 4.4(c) and 4.5 which would require
the consent of the other party to the contract, except the BC/BS
Connecticut Agreement.
4.6 Facilities.
(a) In the last five years, all of the Company's activities have been
conducted at the Facilities.
(b) The Company has not received written notice that the operations of
the Business as currently conducted by the Company do not comply in all
material respects with the terms of the Leases, all applicable federal,
State and local laws, regulations and ordinances, including but not limited
to the Americans with Disabilities Act, and any equivalent applicable State
or local laws, regulations and ordinances, all Environmental Laws (as
defined in Section 9.1(c)), and all applicable zoning regulations and
building and fire codes.
4.7 Legal Proceedings, Etc.
(a) Except as set forth on Schedule 4.7(a) hereto, there are no claims
or actions pending or, threatened in writing against
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the Company or Sellers before any court, governmental authority, or
arbitrator (i) pertaining to the Company or involving the Shares or the
assets of the Company or (ii) which question or challenge the validity of
this Agreement or any of the Related Agreements or any action taken, or to
be taken, by the Sellers pursuant to this Agreement or any of the Related
Agreements, or in connection with the transactions contemplated hereby or
thereby, which, if decided adversely against the Company or any of the
Sellers, would have a material adverse effect upon the ability of the
Sellers to carry out their obligations under this Agreement or any of the
Related Agreements or would have a material adverse effect on the Company
or the Business. Neither the Company nor any of the Sellers (with respect
to the operation of the Business) is subject to or in default with respect
to any indictment, order, injunction, decree or award of any court,
arbitrator or governmental agency.
(b) The Company and Sellers have not received written notice of any
claim for any action or proceeding, against the Company (or any officer,
director, employee, agent of the Company) or any Seller arising out of any
statute, ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety
and health standards (including, without limitation, the Fair Labor
Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the
Occupational Safety and Health Act, the Age Discrimination in Employment
Act of 1967 or the Americans With Disabilities Act).
(c) Neither the Company nor the Sellers have made any kickback, bribe
or payment to any person or entity, directly or indirectly, for referring,
recommending or arranging current business or patients with, to or for the
Company, which action could have a material adverse effect on the Business.
None of the Company's current contracts and no current activity of the
Company or Sellers violates Paragraph 1877 of the Social Security Act or
any similar provision of applicable state law in any material respect. None
of the Company's current contracts and no current activity of the Company
or Sellers violates provisions of applicable state law relating to the
corporate practice of medicine in any material respect.
4.8 Substantial Clients. Listed on Schedule 4.8 are the Company's ten
largest clients during the twelve-month periods ended December 31, 1995 and
December 31, 1996, as well as the dollar amount for which each such client was
invoiced during such period. Regarding the clients set forth in Schedule 4.8 for
the twelve-month
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period ended December 31, 1996, the Company and Sellers have not received any
notice from any of such clients, that such client will cease to purchase or
materially decrease its purchases.
4.9 Substantial Suppliers. Listed on Schedule 4.9 are the Company's ten
largest suppliers for the twelve-month period ending March 31, 1997, as well as
the dollar amount of goods and services purchased from each such supplier during
such period. The Company and Sellers have not received any notice from any of
such suppliers that such supplier will cease to sell goods or services to Buyer
on terms and conditions similar to those imposed on prior sales to the Company,
or have given any written complaint to the Company or Sellers.
4.10 No Finder. None of the Sellers has paid or become obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement, except to Wade Wilson, which will
be paid by Buyer in the form of a Convertible Non-Negotiable Promissory Note
convertible into 125,000 shares of Buyer's common stock.
4.11 Absence of Certain Events. To Sellers' knowledge without undertaking
any inquiry, since December 31, 1996, the Company has not, other than in the
ordinary course of business consistent with past practices:
(a) incurred or discharged any liabilities;
(b) except as required in connection with the transactions
contemplated by this Agreement, transferred any of its assets or
properties;
(c) subjected any of the assets of the Company to any encumbrance;
(d) made or suffered any amendment or termination of any Material
contract (excluding real property leases for the Company's facilities in
The Bronx, New York, which have expired pursuant to their terms), or waived
any Material debts, claims or rights, including intellectual property
rights;
(e) suffered any Material damage to its tangible assets, destruction
or casualty loss;
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(f) suffered any labor trouble involving any union or other group of
employees or suffered the loss of any key employee;
(g) increased the salaries, benefits or other compensation of, or made
any advance or loan to, any of its officers or employees of the Company,
except as set forth on Schedule 4.11(g);
(h) made any capital expenditure or capital addition or betterment
(including any capitalized lease transaction);
(i) changed any of the accounting practices followed by it, except as
set forth on Schedule 4.11(i);
(j) entered into any agreement or made any commitment to take any of
the types of action described in subparagraphs (a) through (i) above or
(k) suffered any change to its business which, either individually or
in the aggregate, had or will have a material adverse effect on the
Company's financial condition.
4.12 Dating of Schedules. The information set forth in the Schedules
attached hereto is true and complete as of the date specified on the first page
of each Schedule, provided that if no date is specified on a schedule, it is
true and correct as of the date hereof.
4.13 Delivery of Documents. Sellers have delivered or made available to
Buyer true, correct and complete copies of all Material documents, including all
amendments, supplements or modifications thereof or waivers currently in effect
thereunder, described in any Schedule to any Section of this Agreement unless
otherwise expressly provided in any such Schedule.
4.14 Taxes. The Company has timely filed all local, state and federal tax
returns required to be filed by it as of the date of this Agreement and has paid
all taxes shown as due on such tax returns.
4.15 Officers and Directors. The officers and directors of the Company are
as follows:
Officers
--------
Donald Fargnoli President
Louis Rocco Vice President and Secretary
Jack Prince Vice President and Treasurer
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Directors
---------
Donald Fargnoli
Louis Rocco
Jack Prince
4.16 Bank Accounts. Schedule 4.16 hereof sets forth a list of all bank
accounts, money market accounts and safety deposit boxes of Company, together
with a description of the authorized signatories for such accounts. All the
Company's cash and cash equivalents are maintained in the aforesaid accounts and
boxes, and nowhere else.
4.17 Business Operations.
(a) To Sellers' knowledge, without undertaking inquiry, the Company
has all permits, licenses and other authorizations necessary for the
operation of the Business as currently conducted, copies of which are
annexed hereto as Schedule 4.17(a). To Sellers' knowledge without
undertaking any inquiry, the Business is currently conducted in compliance
with all applicable laws, rules and regulations, and all applicable
statements and reports required to be filed by law as to which the Business
is currently subject have been filed by the Company. The Company is not in
violation of any applicable federal, State or local laws, rules or
regulations, which singly or in the aggregate would have a material adverse
effect on the Business or the Company. To Sellers' knowledge, without
undertaking any inquiry, the Company currently conforms with all policies,
procedures, contracts, laws, rules and regulations with respect to
reimbursement from any source, including governmental sources (including
without limitation Medicare and Medicaid), third party payors and
individual payors. Neither the Company nor any one or more of the Sellers
has made any payment or other inducement to any individual or entity in
return for buying, leasing or renting, using or ordering Products or
Services from the Company, or in return for referring or influencing
another individual or entity to buy, lease or rent, use or order Products
or services from the Company, which arrangement is in effect on the date
hereof. Neither the Company nor any one or more of the Sellers has received
any payment or other inducement from any individual or entity in return for
buying, leasing or renting, using or ordering products or services from any
health care provider or in return for referring or influencing another
individual or entity to buy, lease or rent, use or order products or
services from any health care provider, which arrangement is in effect on
the date hereof.
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(b) To Sellers' knowledge and without undertaking any inquiry, (i)
each employee of the Company who the Company employs as a licensed
respiratory therapist has all licenses and permits required for each such
employee to perform such employee's designated functions and duties for the
Company in connection with conducting the Business, and there exists no
waivers or exemptions relating thereto and (ii) there is no default under,
nor does there exist any grounds for revocation, suspension or limitation
of, any such licenses and permits.
(c) The Company is duly accredited by the Joint Commission on
Accreditation of Health Care Organizations ("JCAHO") to operate and conduct
the Business.
4.18 Contracts and Agreements With Sellers. With respect to the Company,
none of the Sellers is a party to any (a) lease of real or personal property;
(b) royalty, distribution, agency or license agreement; (c) contract or
employment agreement with any officer, employee, professional personnel, or firm
or independent contractor providing services or Products to or receiving
services or Products from, the Company; (d) agreement guaranteeing the payment
or performance of the obligations of others; (e) vendor contract or agreement;
(f) commitment, contract or agreement requiring the services of or Products of
the Company for which a prepayment or advance has been made; (g) commitment or
agreement with any party for the sale of all or any part of the Shares or assets
of the Company (except as set forth in this Agreement) or (h) any other
contract, commitment or agreement extending by their terms beyond the date
hereof.
4.19 Financial Statements.
(a) Audited financial statements of the Company as of December 31,
1996, including the balance sheet of the Company as of such date, have been
previously provided to Buyer by Sellers (the "Financial Statements"). To
Sellers' knowledge, the Financial Statements have been prepared in
accordance with generally accepted accounting principles, are true,
complete and correct and fairly present the financial position of the
Company as of their respective dates and the results of operations for
their respective year and periods then ended. As of December 31, 1996, the
Company did not have any Material liabilities, absolute, accrued,
contingent or otherwise, except as reflected in the Financial Statements or
on the Schedules hereto, and at the Closing Date there will be no other
Material liabilities relating to the Business except those incurred
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since December 31, 1996 in the ordinary course of business. Except as
stated on the Financial Statements or set forth in Schedule 4.5, the
Company has no obligations of future performance due after the Closing Date
under Material contracts, Material open purchase orders, Material leases,
Material licenses and other Material agreements.
(b) As of the Closing, the Company shall have no Material liabilities,
accrued, contingent or otherwise, except as set forth in Section 4.19(a),
above, or the March 31 Compilation or as set forth on Schedule 4.19(b).
4.20 Compliance with ERISA.
(a) The employee benefit plans set forth in Schedule 4.20 (a) are the
only Employee Benefit Plans, programs, arrangements or practices which the
Company and its ERISA Affiliates maintain or contribute (the "Plans"). The
Company and its ERISA Affiliates are not parties to any Multiemployer Plan
(as defined under ERISA ss. 3(37)). The Company and its ERISA Affiliates
have no obligation to create any additional such plan or to amend any Plan
so as to increase benefits thereunder.
(b) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or Title IV of ERISA or the penalty or excise tax provisions of the
Internal Revenue Code of 1986, as amended (the "Code") relating to Employee
Benefit Plans, and no event, transaction or condition has occurred or
exists that could reasonably be expected to result in the incurrence of any
such liability by the Company or any ERISA Affiliate, or in the imposition
of any lien, charge, claim or encumbrance (a "Lien") on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or Section 412 of the Code, other than
such liabilities or Liens as would not be individually or in the aggregate
material. Each Plan which is intended to be "qualified" within the meaning
of Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and such determination has not been modified,
revoked or limited by failure to satisfy any condition thereof or by a
subsequent amendment thereto or a failure to amend. There is no pending, or
to the knowledge of the Sellers, threatened or anticipated claims involving
any of the Plans other than claims for benefits in the ordinary course.
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(c) The present value of the aggregate benefit liabilities under each
of the Plans, determined as of the end of such Plan's most recently ended
plan year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities by more than $1,000 in the aggregate for all
Plans. The term "benefit liabilities" has the meaning specified in section
4001 of ERISA and the terms "current value" and "present value" have the
meanings specified in Section 3 of ERISA.
(d) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities)
under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans.
(e) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by Section
4980B of the Code) of the Company and its Subsidiaries is not material.
(f) The execution and delivery of this Agreement and the Related
Agreements and the performance and consummation of the transactions
contemplated hereby and thereby will not involve any transaction that is
subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975(c)(1)(A) through
Section 4975(c)(1)(D), inclusive, of the Code. There have been no
prohibited transactions within the meaning of Section 406 and 407 of ERISA
or Section 4975 of the Code that could result in penalties, taxes or
liabilities.
(g) Neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Plans
subject to Title IV of ERISA other than in a "standard termination"
described in Section 4041(b) of ERISA.
4.21 Authority. Sellers, singly and jointly, have full power and authority
to execute and deliver this Agreement and the Related Agreements to which they
are parties and to consummate the transactions contemplated hereunder and
thereunder.
4.22 Relationships. None of Sellers nor any of their immediate family
(including spouses, lineal descendants, parents and siblings)
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owns directly or indirectly any interest in any supplier, customer, lessor or
distributor of the Company, nor any interest in any party that has entered into
a contract, commitment or understanding with the Company (other than interests
of less than five percent in companies whose stock is publicly traded).
4.23 No Omissions or Untrue Statements. To each Sellers' knowledge, without
having made any investigation, no representation or warranty made by the other
Sellers in this Agreement (including the Exhibits and Schedules hereto) or in
any Certificate or other instrument furnished by any Seller to Buyer pursuant to
this Agreement, or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
and which would have a material adverse effect on the Company.
4.24 Medicare, Medicaid and Other Third-Party Payors.
(a) The Company participates in the Medicare and Medicaid Programs
(collectively, the "Programs"). A list of and copies of its existing
Medicare and Medicaid contracts and other documentation evidencing such
participation (collectively, the "Program Agreements") are included in
Schedule 4.5 attached hereto. To Sellers' knowledge, without undertaking
any inquiry, the Company is in compliance in all material respects with all
of the terms, conditions and provisions of the Program Agreements.
(b) No notice of any offsets against future reimbursements under or
pursuant to the Programs has been received by either the Company any of the
Sellers. There are no pending appeals, adjustments, challenges, audits,
litigation or notices of intent to recoup past or present reimbursements
with respect to the Programs. The Company has not been subject to or
threatened with loss of waiver of liability for utilization review denials
with respect to the Programs during the past twelve (12) months, nor has
either the Company or any of the Sellers received written notice of any
pending or threatened decertification or other loss of participation in any
of the Programs.
(c) The Company currently has contractual arrangements with Blue Cross
and other third party payors. A list of and copies of its existing Blue
Cross contract(s) and other third party payor contract(s) are included in
Schedule 4.5 attached hereto. The Company is, and will be at the time of
Closing, in full compliance
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with all of the material terms, conditions and provisions of such
contracts, except for the failure to give notice required under the BC/BS
Connecticut Agreement.
(d) All liabilities and contractual adjustments of the Company under
any third party payor or reimbursement programs in excess of Twenty-Five
Thousand Dollars ($25,000) individually have been properly reflected and
adequately reserved for in the Financial Statements. In the event that,
following Closing, the Company suffers any offsets against any
reimbursement under any third-party payor or reimbursement programs due to
Buyer or the Company relating to the periods on or prior to the Closing,
then the Sellers shall immediately pay to the Company the amounts so offset
in excess of Twenty-Five Thousand Dollars ($25,000).
(e) The Company is not now subject to any Material asserted claim or
lawsuit with respect to tax, environmental, Medicare and Medicaid fraud
laws, third party reimbursement for the Company's Products or services or
product liability matters, nor, to the best knowledge of Sellers, is there
any basis for any Material claim to be made against the Company relating to
any of such matters.
(f) Neither any of the Sellers nor the Company is subject to any
Material inquiry or dispute of any nature with the United States Department
of Health and Human Services (Medicare), the New York State Department of
Social Services (Medicaid), the New York State Deputy Attorney General for
Medicaid Fraud Control, the New York State Department of Health, or any
other federal, State or local governmental agency that regulates or has the
authority to regulate the Company or Business of the Company which would
have a Material adverse effect on the Company's financial condition.
Neither any of the Sellers nor the Company is subject to any Material
inquiry or dispute with any insurance company or other entity responsible
for paying or administering reimbursement for Products and services of the
Company and its Business.
4.25 Company Employees. Schedule 4.25 attached hereto sets forth: (a) a
complete list of all of the Company's employees and rates of pay, (b) true and
correct copies of any and all fringe benefits and personnel policies, (c) the
employment dates and job titles of each such person, (d) categorization of each
such person as a full-time or part-time employee of the Company and (e) a list
of all ex-employees of the Company utilizing or eligible to utilize COBRA
(health insurance). For purposes of this Section, "part-time
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employee" means an employee who is employed for an average of fewer than
twenty-hours per week or who has been employed for fewer than six (6) of the
twelve (12) months preceding the date on which notice is required pursuant to
the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C.
Section 2102 et seq. Except as provided in Schedule 4.5, the Company has no
employment agreements with its employees and all such employees are employed on
an "at will" basis.
4.26 Labor Relations. The Company is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding, or any other
arrangement, formal or informal, with any labor union or organization which
obligates the Company to compensate the Company's employees at prevailing rates
or union scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the best knowledge of Sellers, asserted
labor dispute, work stoppage, unfair labor practice complaint, strike,
administrative or court proceeding or order between the Company and any present
or former employee(s) of the Company which Sellers' reasonably believe will
result in litigation. There is no pending or, to the best knowledge of Sellers,
asserted, suit, action, investigation or claim between the Company and any
present or former employee(s) of the Company which Sellers' reasonably believe
will result in litigation. There has not been any labor union organizing
activity at any location of the Company, or elsewhere, with respect to the
Company's employees within the last three years.
4.27 WARN Act. Since ninety (90) days prior to the date hereof, the Company
has not temporarily or permanently closed or shut down any single site of
employment or any facility or any operating unit, department or service within a
single site of employment, as such terms are used in WARN.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER.
As an inducement to Sellers to enter into this Agreement and to consummate
the transactions contemplated hereby, Buyer hereby represents and warrants to
the Sellers that as of the date of this Agreement:
5.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and is duly qualified to conduct business
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and is in good standing in each of the jurisdictions in which it conducts
business where the failure to be so qualified would have a material adverse
effect on Buyer's business or assets.
5.2 Compliance with Law. There are no licenses, permits, approvals,
registrations, qualifications, certificates or other authorizations including
those of any governmental authority, court or regulatory body, that are required
to be obtained by Buyer in order to permit Buyer to execute and deliver and
consummate and perform the transactions contemplated by this Agreement and the
Related Agreements to which Buyer is a party
5.3 Authority and Compliance.
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and the Related Agreements to which it is a party
and to perform the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and such Related
Agreements by Buyer has been duly authorized and approved by all requisite
corporate action on the part of the Buyer. This Agreement and each of the
Related Agreements to be executed by Buyer constitutes a legal, valid and
binding obligation of Buyer enforceable in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and (ii) the remedy of specific
performance and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(b) The execution and the delivery of this Agreement and the Related
Agreements and the consummation and performance by Buyer of the
transactions contemplated thereby will not: (i) violate the Certificate of
Incorporation or By-Laws of Buyer; (ii) conflict with or result in a breach
of any of the terms, conditions or provisions of, or constitute a default
under, any instrument, agreement, mortgage, judgment, order, award, or
decree to which Buyer is a party or by which Buyer is bound or (iii) give
any third party the right under any instrument, agreement, mortgage,
judgment, order, award or decree to terminate, modify or otherwise change
the rights or obligations of Buyer under such instrument, agreement,
mortgage, judgment, order, award or decree.
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5.4 No Finder. Buyer has not paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
5.5 Legal Proceedings, Etc.
(a) Buyer is not subject to or in default with respect to any
indictment, order, injunction, decree or award of any court, arbitrator or
governmental agency which would adversely affect the ability of the Buyer
to execute, deliver and carry out its obligations under this Agreement and
the Related Agreements or have a material adverse effect on Buyer's
business. There are no claims or actions pending, or to Buyer's best
knowledge, threatened in writing against Buyer before any court,
governmental authority, or arbitrator, which question or challenge the
validity of this Agreement or any of the Related Agreements or any action
taken, or to be taken, by Buyer pursuant to this Agreement or any of the
Related Agreements, or in connection with the transactions contemplated
hereby or thereby, which, if decided adversely against Buyer, would have a
material adverse effect upon the ability of Buyer to carry out its
obligations under this Agreement or any Related Agreement or have a
material adverse effect on Buyer's business.
(b) Buyer has not received written notice of any claim for any action
or proceeding, against Buyer (or any officer, director, employee, agent of
Buyer) arising out of any statute, ordinance or regulation relating to
wages, collective bargaining, discrimination in employment or employment
practices or occupational safety and health standards (including, without
limitation, the Fair Labor Standards Act, Title VII of the Civil Rights Act
of 1964, as amended, the Occupational Safety and Health Act, the Age
Discrimination in Employment Act of 1967 or the Americans With Disabilities
Act).
(c) Buyer has not made any kickback, bribe or payment to any person or
entity, directly or indirectly, for referring, recommending or arranging
current business or patients with, to or for Buyer, which action could have
a material adverse effect on the business of Buyer. None of Buyer's current
contracts and no current activity of Buyer violates Paragraph 1877 of the
Social Security Act or any similar provision of applicable state law in any
material respect. None of Buyer's current contracts and no current activity
of Buyer violates provisions of applicable state law relating to the
corporate practice of medicine in any material respect.
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5.6 No Omissions or Untrue Statements. To Buyer's knowledge, without having
made any investigation, no representation or warranty made by Buyer in this
Agreement (including the Exhibits and Schedules hereto) or in any Certificate or
other instrument furnished or to be furnished by Buyer to Sellers pursuant
hereto, or in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading and which
would have a material adverse effect on Buyer.
5.7 Absence of Certain Events. To Buyer's knowledge without undertaking any
inquiry, since March 31, 1996, Buyer has not, other than in the ordinary course
of business consistent with past practices:
(a) incurred or discharged any liabilities, except for (i)
indebtedness to The Bank of New York and (ii) the settlement of the Adams
litigation;
(b) except as required in connection with the transactions
contemplated by this Agreement, transferred any of its assets or
properties;
(c) subjected any of its assets to any encumbrance, except security
interests granted in favor of The Bank of New York;
(d) made or suffered any amendment or termination of any Material
contract, or waived any Material debts, claims or rights, including
intellectual property rights, except in connection with the settlement of
the Adams litigation;
(e) suffered any Material damage to its tangible assets, destruction
or casualty loss;
(f) suffered any labor trouble involving any union or other group of
employees or suffered the loss of any key employee;
(g) increased the salaries, benefits or other compensation of, or made
any advance or loan to, any of its officers or employees of the Company;
(h) made any capital expenditure or capital addition or betterment
(including any capitalized lease transaction), other than
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the construction currently being undertaken at its Mt. Vernon, New York,
facility;
(i) changed any of the accounting practices followed by it;
(j) entered into any agreement or made any commitment to take any of
the types of action described in subparagraphs (a) through (i) above or
(k) suffered any change to its business which, either individually or
in the aggregate, had or will have a material adverse effect on Buyer's
financial condition.
5.8 Taxes. Buyer has timely filed all local, state and federal tax returns
required to be filed by it as of the date of this Agreement and has paid all
taxes shown as due on such tax returns.
5.9 Business Operations.
(a) To Buyer's knowledge, without undertaking inquiry, Buyer has all
permits, licenses and other authorizations necessary for the operation of
its business as currently conducted. To Buyer's knowledge without
undertaking any inquiry, its business is currently conducted in compliance
with all applicable laws, rules and regulations, and all applicable
statements and reports required to be filed by law as to which its Business
is currently subject have been filed by Buyer. Buyer is not in violation of
any applicable federal, State or local laws, rules or regulations, which
singly or in the aggregate would have a material adverse effect on its
business or Buyer. To Buyer's knowledge, without undertaking any inquiry,
Buyer currently conforms with all policies, procedures, contracts, laws,
rules and regulations with respect to reimbursement from any source,
including governmental sources (including without limitation Medicare and
Medicaid), third party payors and individual payors. Buyer has not made any
payment or other inducement to any individual or entity in return for
buying, leasing or renting, using or ordering products or services from
Buyer, or in return for referring or influencing another individual or
entity to buy, lease or rent, use or order products or services from Buyer,
which arrangement is in effect on the date hereof. Buyer has not received
any payment or other inducement from any individual or entity in return for
buying, leasing or renting, using or ordering products or services from any
health care provider or in return for referring or
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influencing another individual or entity to buy, lease or rent, use or
order products or services from any health care provider, which arrangement
is in effect on the date hereof.
(b) To Buyer's knowledge and without undertaking any inquiry, (i) each
employee of Buyer who Buyer employs as a licensed respiratory therapist has
all licenses and permits required for each such employee to perform such
employee's designated functions and duties for Buyer in connection with
conducting its business, and there exists no waivers or exemptions relating
thereto and (ii) there is no default under, nor does there exist any
grounds for revocation, suspension or limitation of, any such licenses and
permits.
(c) Buyer is duly accredited by the Joint Commission on Accreditation
of Health Care Organizations ("JCAHO") to operate and conduct the Business.
5.10 Medicare, Medicaid and Other Third-Party Payors.
(a) Buyer participates in the Programs. To Buyer's knowledge, without
undertaking any inquiry, Buyer is in compliance in all material respects
with all of the terms, conditions and provisions of its Program Agreements.
(b) No notice of any offsets against future reimbursements under or
pursuant to the Programs has been received by Buyer. There are no pending
appeals, adjustments, challenges, audits, litigation or notices of intent
to recoup past or present reimbursements with respect to the Programs.
Buyer has not been subject to or threatened with loss of waiver of
liability for utilization review denials with respect to the Programs
during the past twelve (12) months, nor has Buyer received written notice
of any pending or threatened decertification or other loss of participation
in any of the Programs.
(c) Buyer currently has contractual arrangements with Blue Cross and
other third party payors. Buyer is, and will be at the time of Closing, in
full compliance with all of the material terms, conditions and provisions
of such contracts.
(d) All liabilities and contractual adjustments of the Buyer under any
third party payor or reimbursement programs in excess of Twenty-Five
Thousand Dollars ($25,000) individually have
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been properly reflected and adequately reserved for in Buyer's audited
Financial Statements.
(e) Buyer is not now subject to any Material asserted claim or lawsuit
with respect to tax, environmental, Medicare and Medicaid fraud laws, third
party reimbursement for Buyer's products or services or product liability
matters, nor, to the best knowledge of Buyer, is there any basis for any
Material claim to be made against Buyer relating to any of such matters.
(f) The Buyer is not subject to any Material inquiry or dispute of any
nature with the United States Department of Health and Human Services
(Medicare), the New York State Department of Social Services (Medicaid),
the New York State Deputy Attorney General for Medicaid Fraud Control, the
New York State Department of Health, or any other federal, State or local
governmental agency that regulates or has the authority to regulate Buyer
or its business which would have a material adverse effect on Buyer's
financial condition. Buyer is not subject to any Material inquiry or
dispute with any insurance company or other entity responsible for paying
or administering reimbursement for products and services of Buyer and its
business.
5.11 Labor Relations. Buyer is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding, or any other
arrangement, formal or informal, with any labor union or organization which
obligates Buyer to compensate Buyer's employees at prevailing rates or union
scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the best knowledge of Buyer, asserted
labor dispute, work stoppage, unfair labor practice complaint, strike,
administrative or court proceeding or order between Buyer and any present or
former employee(s) of Buyer which Buyer reasonably believe will result in
litigation. There is no pending or, to the best knowledge of Buyer, asserted,
suit, action, investigation or claim between Buyer and any present or former
employee(s) of Buyer which Buyer reasonably believe will result in litigation.
There has not been any labor union organizing activity at any location of Buyer,
or elsewhere, with respect to Buyer's employees within the last three years.
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ARTICLE 6 CLOSING PROCEDURES.
Subject to the fulfillment of the conditions precedent specified the
following will occur:
6.1 Closing Date. The Closing shall take place at the offices of Buyer
simultaneous to the execution of this Agreement.
6.2 Closing Deliveries of Sellers. Simultaneous to the execution of this
Agreement, Sellers shall deliver to Buyer the following:
(a) Stock certificates evidencing the Shares (or affidavits of lost
stock certificates in form acceptable to Buyer) and such stock powers and
other instruments as are necessary or reasonably desirable to vest in Buyer
all right, title and interest in and to the Shares;
(b) all of the documents, Related Agreements, instruments and opinions
required to be delivered by Sellers to Buyer under this Agreement;
(c) A list certified by an officer of the Company setting forth the
names of all of the officers and directors of the Company;
(d) The minute books, stock ledgers and other similar corporate
records of the Company;
(e) Copies of the final tax returns of Metropolitan Home Care
Services, Inc., Metropolitan Respirator Service of New Jersey, Inc. and
Home Diagnostic Services, Inc and an undertaking to promptly file such
returns and to file with the appropriate Secretary of State Certificates of
Dissolution for such corporations as soon as practicable, or an undertaking
to provide such copies as soon as possible, if not available at the
closing. Certified copies of such Certificates of Dissolution will be
delivered by Sellers to Buyer promptly after being obtained by Sellers;
(f) The opinion of Gardner & Weiss, counsel for the Company, dated the
Closing Date, reasonably satisfactory in form and substance to Buyer;
(g) Each of the Related Agreements to which Sellers are a party, duly
executed and delivered by Sellers;
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(h) All documents and instruments required to effect the change of
control over the Company's bank accounts, money market accounts and safe
deposit box to Buyer;
(i) A copy of the Company's liability insurance policy in effect as of
the date hereof and satisfactory evidence of the payment of all premiums
due thereon through the date hereof, which insurance provides coverage for
the Company of at least $1,000,000.00 for personal injury and/or property
damage resulting from the Company's products and related services sold,
leased or distributed prior to the date hereof;
(j) Investor suitability letters in the form attached hereto as
Exhibit 6.2(j);
(k) The March 31 Compilation;
(l) Certificates of accreditation issued by the JCAHO, and copies of
the most recent JCAHO accreditation survey report, including a list of
deficiencies, if any, and
(m) Certified copies of the Company's Certificate of Incorporation and
By-Laws.
6.3 Closing Deliveries of Buyer. Simultaneous to the execution of this
Agreement, Buyer shall deliver to Seller the following:
(a) Certified checks or wire transfers in the aggregate amount of Two
Million Eight Hundred Thousand Dollars ($2,800,000) to Fargnoli, Rocco and
Burdi, as provided in Section 2.2(a);
(b) The Notes;
(c) The return of the personal guarantees issued by Fargnoli,and Rocco
guaranteeing the Outstanding Debt, to be delivered to Fargnoli and Rocco no
later than May 31, 1997;
(d) Copies of resolutions duly adopted by Buyer's Board of Directors
authorizing the transactions contemplated hereby, certified by the
Secretary of Buyer as being true, complete and in effect as of date hereof;
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(e) The opinion of Nordlicht & Hand, counsel for Buyer, dated the
Closing Date, reasonably satisfactory in form and substance to Sellers and
(f) Each of the Related Agreements to which Buyer is a party, duly
executed and delivered by Buyer.
ARTICLE 7 ENVIRONMENTAL MATTERS.
7.1 Definitions.
(a) "Company's Facilities" shall mean the Facilities and all other
real property owned, leased or occupied by the Company at any time prior to
the Closing.
(b) "Environmental Condition" shall mean the presence of Hazardous
Materials at the Company's Facilities which requires removal, remediation,
or corrective action pursuant to standards established under applicable
Environmental Laws or orders or other directives from any local, state or
federal government agency.
(c) "Environmental Laws" shall mean any applicable laws relating to or
imposing liability or standards of conduct concerning hazardous or toxic
materials and substances, air pollution (including noise and odors), water
pollution, liquid and solid waste, pesticides, drinking water, community
and employee health, environmental land use management, stormwater,
sediment control, radiation, wetlands, endangered species, environmental
permitting and petroleum products, whether now in effect or becoming
effective at any time after the date hereof, including but not limited to
those dealing with public health and safety and the protection of the
environment, such as the Federal Insecticide, Fungicide, and Rodenticide
Act, 7 U.S.C. 136 et seq., as amended; the Toxic Substances Control Act, 15
U.S.C. 2601 et seq., as amended; the Clean Water Act, 33 U.S.C. 1251 et
seq., as amended; the National Environmental Policy Act, 42 U.S.C. 4321 et
seq., as amended; the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601 et seq., as amended; the Clean Air Act, 42
U.S.C. 7401 et seq., as amended; the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. 11001 et seq., as amended; the Occupational
Safety and Health Act, 29U.S.C. 651 et seq., as amended; the Resource
Conservation and Recovery Act, as amended; all New York State, county and
local laws and ordinances relating to
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environmental, health and safety matters; and all rules and regulations
promulgated pursuant to such federal, State, county and local laws and
ordinances.
(d) "Hazardous Material" means any pollutant, contaminant, hazardous,
toxic or dangerous waste, substance or material, including, but not limited
to, any chemical products, petroleum substances, PCBs, asbestos, urea
formaldehyde, ammonia, nitrates, semi-volatile or purgeable organic,
flammable explosives, radioactive materials, hazardous waste, metals or
other materials or substances defined as or included in the definition of
substances defined as "hazardous substances," "hazardous materials," "solid
waste," "hazardous waste," "toxic substances" or analogous definitions
under any Environmental Law.
(e) "Material Compliance" means compliance which is not reasonably
likely to produce any material adverse change in or effect on the
operations, properties or condition (financial or otherwise), assets or
liabilities of the Company and which would not result in civil or criminal
liability to the Buyer, the Company or any individual.
7.2 Environmental Representations and Warranties. Sellers represent and
warrant that:
(a) To Sellers knowledge, without undertaking any inquiry, there have
been no studies, reports, notices, orders, warnings or similar documents
undertaken or created analyzing, describing or otherwise relating to
Environmental Conditions or activities at the Company's Facilities;
(b) To Sellers' knowledge, without undertaking any inquiry, there has
been no spill, discharge, burial, release, seepage or infiltration of any
Hazardous Material at, on or from the Company's Facilities in amounts which
exceed reportable thresholds under applicable Environmental Laws;
(c) To Sellers' knowledge, without undertaking any inquiry, there have
not been any underground or aboveground storage tanks at the Company's
Facilities during the times such facilities were owned or occupied by the
Company;
(d) To Sellers' knowledge, without undertaking any inquiry, there is
no condition at the Company's Facilities which could cause the imposition
of a lien or assessment of penalties
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against the Company or any of the Company's assets or which could require
remediation under any Environmental Law;
(e) To Sellers' knowledge, without undertaking any inquiry, the
Company has all federal, state and local permits, approvals and
authorizations related to environmental matters required by applicable
Environmental Laws to operate the Facility in the manner conducted prior to
the date hereof;
(f) To Sellers' knowledge, without undertaking any inquiry, the
handling and disposal of all Hazardous Materials used or produced by the
Company has been conducted in Material Compliance with all applicable
Environmental Laws and
(g) The Company has not received any written notice that its
activities fail to comply in any respect with any Environmental Law.
7.3 Application of Article 9 . The indemnification provisions of Article 9
hereof shall be applicable in the event of any breach of Sellers'
representations and warranties under Section 7.2 above.
ARTICLE 8 CERTAIN COVENANTS OF THE PARTIES
8.1 Third Party Consents. To the extent the transactions contemplated
hereby will constitute an assignment of the Company's rights under any
agreement, contract, lease or other property which requires the consent of any
person not a party to this Agreement,and the parties jointly agree to close
without having previously obtained such consent, Sellers will use their best
efforts to obtain such consent as soon as practicable following the closing,
unless such obligation is waived in writing by Buyer.
8.2 Medicare and Medicaid Reporting. Subject to the limitations on Sellers'
indemnification obligations set forth in Section 9.5 hereof, Sellers shall
assume and be responsible for any Material liability incurred by the Company as
a result of the actual improper filing of all reports and claims of every kind,
nature or description required by law or by written or oral contract to be filed
with respect to the purchases of services by third party payors, including,
without limitation, Medicare, Medicaid and Blue Cross. In addition, if any
Material adverse adjustments or offsets regarding operations of the Company on
or after the date hereof are the result of the willful acts of omissions, or
gross negligence, of
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the Company, Sellers, and/or the Company's employees, representatives and agents
on or prior to the date hereof, Sellers shall also be responsible for such
adjustments and offsets(subject to the limitations set forth in Section 9.5).
8.3 Cooperation. Buyer and Sellers shall cooperate with each other and
proceed, as promptly as is reasonably practicable, to prepare and file the
notifications and other filings required by applicable law in connection with
the transactions described in this Agreement, to seek to obtain all necessary
consents and approvals from lenders, lessors and other third parties, and to
endeavor to comply with all other legal or contractual requirements for or
preconditions to the execution, consummation and performance of this Agreement.
8.4 Confidentiality. Sellers shall keep all financial, technical and other
information concerning the Company known to them strictly confidential and shall
not disclose any of such information to any third party, except in connection
with (i) disclosure of information which is generally known by others engaged in
activities similar to the Company or which has been publicly disseminated
through no fault of Sellers, (ii) information necessary for the preparation of
Sellers' tax returns and responses to any audits or inquiries of tax regulatory
authorities and (iii) disclosure of information which is compelled by operation
of law, provided that in each case, Sellers will deliver written notice to Buyer
before making any such disclosure. Sellers shall use reasonable efforts to
ensure that such information is not used or disclosed by any other persons or
entities except as permitted by this Agreement. Sellers acknowledge the
competitive value and confidential nature of such information and the damage
that would result to Buyer and the Company if such information is disclosed to a
third party or used by Sellers in violation of this Agreement. Accordingly,
Sellers agree that both injunctive relief and monetary relief, alone or in
combination, are appropriate remedies for any breach of this Section 8.4 by
Sellers or their advisors.
8.5 Insurance. Buyer will cause the Company to maintain no less then its
current insurance coverage so long as Sellers are subject to the provisions of
Article 9 hereof.
8.6 Automobile. Title to the 1994 Lexus currently used by Fargnoli is being
simultaneously transferred to Fargnoli by the Company.
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ARTICLE 9 INDEMNIFICATION.
9.1 Indemnification of Buyer. Subject to the provisions of Section 9.5
hereof, from and after the date hereof, Sellers shall each jointly and severally
defend, indemnify and hold harmless Buyer from and against:
(a) any and all Material obligations of the Company which are not
disclosed in this Agreement or the Financial Statements or the March 31,
1997 Compilation;
(b) any and all damages, losses and liabilities resulting from or
relating to the Company and/or Operational Matters arising on or prior to
the Closing Date, (including claims made after the Closing Date which
relate to matters or events in existence or which arose prior to the
Closing Date), including, without limitation, all liabilities arising from
the provision, shipment, sale, lease or rental prior to the Closing Date of
Products and services of the Company, whether accrued, absolute, contingent
or otherwise;
(c) excluding what is covered by Sections 9.1(a) and 9.1(b) above, any
and all damages, losses and liabilities whatsoever resulting from any
misrepresentation or nonfulfillment of any covenant or agreement on the
part of Sellers hereunder, under any certificate or other instrument
furnished or to be furnished under this Agreement, and
(d) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other reasonable
expenses (including reasonable legal fees) arising out of or incident to
any of the foregoing.
9.2 Indemnification of Sellers. From and after the Closing Date, Buyer
shall defend, indemnify and hold harmless Sellers from and against:
(a) any and all obligations of the Company disclosed in this Agreement
or the Financial Statements or the March 31, 1997 compilation;
(b) any and all damages, losses and liabilities resulting from or
relating to the Company and/or Operational Matters arising after the
Closing Date including, without limitation, all liabilities arising from
the provision, shipment, sale, lease or rental after the Closing Date of
Products, and services of the
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Company (excluding liabilities arising from or relating to the service,
maintenance and repair of Products on or prior to the Closing Date),
whether accrued, absolute, contingent or otherwise;
(c) excluding what is covered by Sections 9.2(a) and 9.2(b) above, any
and all damages, losses and liabilities whatsoever resulting from any
misrepresentation or any breach of any warranty or nonfulfillment of any
covenant or agreement on the part of Buyer hereunder, under any certificate
or other instrument to be furnished under this Agreement, or under any of
the Related Agreements and
(d) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other reasonable
expenses (including reasonable legal fees) arising out of or incident to
any of the foregoing;
(e) any and all other obligations of the Company which Sellers are not
responsible for pursuant to the terms of this Agreement;
(f) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other reasonable
expenses (including reasonable legal fees) arising from Fargnoli's and
Rocco's personal guarantees of the Outstanding Debt; and
(g) any and all actions, suits, claims, proceedings, investigations,
audits, demands, assessments, fines, judgments, costs and other reasonable
expenses (including reasonable legal fees) resulting from a litigation
commenced against any Seller by Prince arising from the execution of this
Agreement or the consummation of the transactions contemplated hereby.
9.3 Indemnification Procedures Involving Only Sellers and Buyer. Any party
to this Agreement asserting a claim for indemnification in connection with this
Agreement shall proceed as follows:
(a) Notice. The party asserting the claim shall so notify the other
party in writing, setting forth the provision of this Agreement under which
the claim is made, and in reasonable detail the grounds therefor. The date
on which such notice is sent is the "Notice Date."
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(b) Good Faith Discussions. Within ten (10) days after the Notice
Date, the parties shall meet, either in person or by telephone, for the
purpose of resolving the claim. Both parties agree that they will meet and
negotiate in good faith for this purpose. Such discussions and negotiations
shall be conducted in accordance with the provisions for dispute resolution
set forth in Section 10.9(a) and (b).
9.4 Certain Procedures Regarding Indemnification of Third Party Claim, Etc.
All claims for indemnification under this Agreement shall be made as follows: In
the event a claim or demand is made by a third party against an Indemnitee, the
Indemnitee shall promptly notify the Indemnitor of such claim or demand,
specifying the nature and the amount (the "Claim Notice"). The Indemnitee shall
be responsible for handling the defense of such matter. The Indemnitee shall
keep the Indemnitor informed of all material developments in such matter and
will permit the Indemnitor (at Indemnitor's sole cost and expense) to
participate in settlement negotiations or the defense of any matter for which
the Indemnitor is liable hereunder through counsel chosen by the Indemnitor. The
Indemnitee agrees to preserve and provide access to all evidence that may be
useful in defending against such claim and to provide reasonable cooperation in
the defense thereof or in the prosecution of any action against a third party in
connection therewith. The Indemnitee's defense of any claim or demand shall not
constitute an admission or concession of liability therefor or otherwise operate
in derogation of any rights the Indemnitee may have against the Indemnitor or
any third party.
9.5 Limitations on Indemnity.
(a) The aggregate liability of Sellers for all claims made against it
under this Agreement for indemnification for Operational Matters will be
Nine Hundred Thousand ($900,000), provided that if the reason for such
liability is the commission of fraud by any Seller or by the Company prior
to the Closing, there shall be no limit on the amount of Sellers'
indemnification obligations hereunder, provided that only those Sellers who
are responsible for the commission of the fraud shall be liable to Buyer
hereunder for losses and liabilities resulting from the commission of the
fraud. Claims by Buyer for indemnification for Operational Matters may not
be made after the first anniversary of the Closing.
(b) With respect to (i) taxes owed by Sellers or the Company
(including matters relating to Employee Benefit Plans) and
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(ii) medicare and medicaid regulatory matters. Without limiting the
generality of the foregoing, claims for breaches of the representations and
warranties of Sellers set forth in Sections 4.7(c), 4.14, 4.17 and 4.24,
above, are excluded from the limitations on indemnification set forth
above, and shall be treated pursuant to this Section 9.5(b). Claims by
Buyer for indemnification for the matters covered in this Section 12.5(b)
may not be made after the third anniversary of the Closing. Sellers shall
have no liability for any claim of the type described in this Section
9.5(b) under which the total liability is less than Twenty Five Thousand
Dollars ($25,000) and will have no liability for the first Twenty Five
Thousand Dollars ($25,000) of any claim under this Section 9.5(b) under
which the total liability exceeds Twenty Five Thousand Dollars ($25,000);
provided, however, that if more than four claims in excess of Twenty Five
Thousand Dollars ($25,000) arise under this Section 9.5(b), commencing with
the fifth claim, Sellers will be responsible for the full amount of the
claim, subject to the other limitations set forth in this Section 9.5.
(c) With respect to any matter which results in litigation,
arbitration or other proceedings involving either the Company or Buyer,
Sellers shall have no liability for any settlement or award of any court,
arbitrator, agency or other tribunal against Buyer or the Company for any
matter under which Buyer is entitled to indemnification under this
Agreement unless the total award against Buyer or the Company exceeds Ten
Thousand Dollars ($10,000) and Sellers will have no liability for the first
Ten Thousand Dollars ($10,000) of any claim for indemnification under this
Section 9.5(c) pursuant to which the total liability of Buyer or the
Company exceeds Ten Thousand Dollars ($10,000); provided, however, that if
more than four litigations or other proceedings result in awards against
Buyer and/or the Company in excess of Ten Thousand Dollars ($10,000),
commencing with the fifth such award, Sellers will be responsible for the
full amount of the claim, subject to the other limitations set forth in
this Section 9.5. With respect to legal fees and expenses incurred by the
Company and/or Buyer in defending, negotiating a settlement or
investigating such matters, Sellers will be responsible for and will
reimburse Buyer for the first Twenty Five Thousand Dollars ($25,000) of
such fees and expenses for each of the first four proceedings brought
against the Company and/or Buyer, with Buyer paying the remainder of such
expenses. Commencing with the fifth such proceeding, Buyer shall be
responsible for One Hundred Percent (100%) of such legal fees and expenses.
Claims by Buyer for indemnification for matters covered in this Section
9.5(c) may not be made after two years from the date hereof. For the
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purpose of clarification, if Buyer receives notice of a litigation or other
legal proceeding during such two year period and notifies Seller of its
intent to seek indemnification for such claims pursuant to this Section
9.5(c), Sellers will be fully responsible for any award and legal fees
incurred by Buyer to the extent described in this Section, whether or not
the award is paid and fees paid during the two year period, or thereafter.
However, Sellers will not have any liability for litigation or other legal
proceedings commenced after the termination of the two year period.
(d) A basket of up to Six Hundred Fifty Thousand Dollars ($650,000)
(the "Basket") shall apply to the all claims for indemnification ultimately
resolved to be owed to Buyer hereunder, except for claims arising from the
commission of fraud by the Company or any Seller, to which the Basket will
not apply. The Basket is subject to reduction for all expenses related to
the Company's pension plan and the legal, accounting and other professional
fees of Sellers which are paid by Buyer. In addition, to the extent that
the Outstanding Debt exceeds Eight Hundred Thousand Dollars ($800,000) and
is not otherwise paid by Sellers, the excess amount shall also be deducted
from the Basket. In the event that there are insufficient funds remaining
in the Basket for Sellers to use, Sellers will have the right to use a
second basket of the Two Hundred Thousand Dollars ($200,000) for claims
covered by Section 9.5(b) and 9.5(c).
(e) Notwithstanding anything else herein to the contrary, the
liability of each of the Sellers with respect to any matter for which
Sellers are required to indemnify Buyer hereunder shall be limited to the a
percentage based on the total percentage of the Purchase Price paid to each
Seller, as follows: Fargnoli, 42.85714%, Rocco, 46.66666% and Burdi,
10.47619%. For example, if, after application of all thresholds and the
Basket provided for herein, Sellers are required to indemnify Buyer for a
$100,000 liability, such liability will be divided among Sellers as
follows: Fargnoli, $42,857.14, Rocco, $46,666.66 and Burdi, $10,476.19.
(f) Notwithstanding anything else herein to the contrary, Sellers will
have no responsibility for any matter which is fully covered by the
Company's or Buyer's insurance.
(g) Notwithstanding anything else herein to the contrary, Buyer will
not seek indemnification from Sellers for any matter which Buyer has been
advised in writing prior to the date hereof might constitute a
misrepresentation, breach of warranty or breach
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of covenant by any Seller, or which Buyer, in the course of its due
diligence acting in good faith, has discovered and failed to disclose to
Sellers.
(h) Notwithstanding anything else herein to the contrary, while the
parties believe that the Stockholders Agreement is of no further force and
effect, if there is a breach of any representation or covenant of Sellers
hereunder or as a result of any circumstances arising out of the
Stockholders Agreement, Buyer will not seek indemnification hereunder from
Sellers for such breach.
9.6 Application of Notes. In the event Sellers have any obligation to
indemnify Buyer under this Article 9 after the application of all thresholds and
the Basket, Buyer will be entitled to and agrees to first offset amounts due
Sellers under the notes against Sellers' indemnification obligations hereunder.
ARTICLE 10 MISCELLANEOUS MATTERS.
10.1 Survival of Representations and Warranties. All representations and
warranties shall survive the Closing for the time periods applicable pursuant to
Section 9.5 hereof.
10.2 Further Assurances; Access to Records. At any time and from time to
time after the date hereof, at the request of Buyer and without further
consideration, Sellers shall execute, acknowledge and deliver all such further
documents, and shall do and perform all such further acts and deeds, as may
reasonably be requested to more effectively vest in Buyer the rights and
benefits intended to be conferred hereby and to consummate more effectively the
transactions contemplated hereby. Buyer shall make available to Sellers after
the date hereof such records regarding the Company as Seller may require for the
purposes set forth in Section 8.4.
10.3 Mail. After the date hereof and for a period of one year thereafter,
Buyer shall remit to Sellers all mail and other communications received by Buyer
that does not relate to the Company, and Sellers shall remit to Buyer all mail
and other communications received by Sellers that relates to the Company.
10.4 Changes, Waivers. This Agreement may not be changed in any manner
except by a written agreement signed by each of the parties hereto. The failure
of any party to enforce at any time any of the provisions of this Agreement
shall in no way be construed to
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be a waiver of any such provision, nor in any way affect the validity of this
Agreement or any part thereof or the right of either party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
10.5 Expenses, Etc. Buyer and Sellers shall be responsible for and bear all
of its or their own costs and expenses (including without limitation attorneys'
fees and costs, accountants' fees and costs and other professionals' fees and
costs) incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and the Related Agreements and the consummation of
the proposed transactions described in this Agreement; provided that Sellers
shall have the option of requiring Buyer to pay such professional fees, in which
case such payment shall be deducted from the Basket as described in Section 9.5
above. Sellers shall be responsible for the purchase of any stock transfer
stamps and payment of any assignment, recording or filing fees triggered by or
imposed upon the transactions contemplated by this Agreement. No broker's,
finder's or similar fees shall be payable in connection with the proposed
transactions described in this Agreement, except as set forth in Section 4.10,
and each party to this Agreement shall indemnify the other parties hereto with
respect to any such fees.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of such
counterparts together shall be deemed to be one and the same instrument.
10.7 Contents of Agreement; Parties in Interest; Assignment, Etc.
(a) This Agreement, including the Schedules and Exhibits hereto and
the documents referred to herein, sets forth the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof.
All previous agreements, promises, representations, commitments and
understandings, whether verbal or written, between the parties regarding
the subject matter hereof are merged into and superseded by this Agreement.
All representations, warranties, covenants, terms and conditions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective legal representatives, successors and
permitted assigns of the parties hereto. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person or
entity other than the parties hereto and their respective successors and
permitted
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assigns any rights or remedies under or by reason of this Agreement or any
Related Agreement.
(b) This Agreement may not be assigned by any party hereto without the
prior written consent of the other party.
10.8 Conflict with Related Agreements. In the event that the terms of this
Agreement conflict with the terms of any of the Related Agreements, the terms of
this Agreement shall govern.
10.9 Dispute Resolution.
(a) Good Faith Negotiation. In the event of any controversy, claim or
dispute, the party initiating the controversy, claim or dispute shall
provide to the other party a written notice containing a brief and concise
statement of the matter, together with relevant supporting facts. During a
period of sixty (60) days or such longer period as mutually agreed, the
parties shall attempt to settle the matter by good faith negotiation. Such
efforts shall include, but not be limited to, full presentation by each
party of its claims, with or without counsel, with the presentation of
Sellers to be made to the Chief Executive Officer of Buyer.
(b) Outside Decisionmaker. If efforts under Section 10.9(a) are not
successful, the dispute shall be referred to an outside decisionmaker. Such
decisionmaker shall be a person reasonably acceptable to Buyer and a
majority of Sellers. If the parties cannot agree on one person, then each
shall select one person and those two individuals shall hear the claim. If
they cannot arrive at a unanimous decision, then they shall select a third
person who shall act independently. The decision of the outside
decisionmaker(s) shall not be binding on the parties, but shall be used as
a basis for resolving disputes prior the institution of litigation. In any
case, the outside decisionmaker(s) shall be required to render a decision
on the claim in writing within thirty (30) days of being retained for this
purpose by either party, or sixty (60) days if a third person is necessary.
The costs and expenses of this decisionmaker shall be shared equally by the
parties. Failure to comply with Sections 10.9(a) and 10.9(b) with respect
to any controversy, claim or dispute shall be an absolute bar to the
institution of any litigation or other proceeding.
(c) In the event any action is required to enforce the terms of this
Agreement, the unsuccessful party in such action shall
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reimburse the prevailing party for all costs and expenses (including
reasonable attorneys' fees) incurred by the prevailing party.
10.10 Receipt of Monies or Other Assets. If any monies or other assets are
received by Sellers or Buyer to which the other party is entitled in accordance
with the terms of this Agreement, such party shall hold such monies or assets in
trust and shall promptly notify and account therefor to the other within fifteen
(15) days of receipt.
10.11 Section Headings and Gender. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of masculine or any
other pronoun herein when referred to any party is for convenience only and
shall be deemed to refer to the particular party intended regardless of the
actual gender of such party.
10.12 Schedules. The Schedules and Exhibits to this Agreement shall be
construed with and as an integral party of this Agreement to the same extent as
if the same had been set forth verbatim herein.
10.13 Notices. All notices, consents, waivers or other communications which
are required or permitted hereunder shall be in writing and shall be sufficient
if delivered personally (including by means of a nationally recognized overnight
courier service for which a written receipt is given) or by registered or
certified mail, return receipt requested, postage prepaid, or by facsimile
transmission providing a receipt, as follows (or to such other address as shall
be set forth in a notice given in the same manner):
If to Buyer:
Mr. Alan T. Sheinwald
President and Chief Executive Officer
Community Care Services, Inc.
18 Sargent Place
Mount Vernon, New York 10550
FAX: 914-665-9063
With a required copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
FAX: 212-421-0499
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If to Sellers:
Mr. Donald Fargnoli
4 Martine Avenue
White Plains, New York 10606
Mr. Louis Rocco
34 Devon Road
Rockville Centre, New York 11570
Mr. Saverio D. Burdi
100 Cleveland Avenue
Rockville Centre, New York 11570
With required copies to:
Kenneth H. Gardner, Esq.
Gardner & Weiss
100 Park Avenue
New York, New York 10017
FAX: 212-818-0477
Michael J. Comerford, Esq.
1225 Franklin Avenue, Suite 475
Garden City, New York 11530
FAX: 516-248-8907
All such notices shall be deemed to have been given on the date personally
delivered, upon possession of a receipt establishing a facsimile transmission
was received or five (5) days after being mailed in the manner provided above.
10.14 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of laws.
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
/s/ Donald Fargnoli
-----------------------------
Donald Fargnoli
/s/ Louis Rocco
-----------------------------
Louis Rocco
/s/ Saverio D. Burdi
------------------------------
Saverio D. Burdi
COMMUNITY CARE SERVICES, INC.
By: /s/ Alan T. Sheinwald
--------------------------------
Alan T. Sheinwald
President and Chief Executive Officer
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SCHEDULES
Schedule 1.14 Facility Leases
Schedule 1.23 Products
Schedule 2.2(a) Allocation of Purchase Price
Schedule 2.2(c) Allocation of Purchase Shares
Schedule 4.1(a) Subsidiaries
Schedule 4.1(b) Share Ownership
Schedule 4.2 Consents and Approvals (Sellers)
Schedule 4.4(a) Machinery and Equipment
Schedule 4.4(c) Leases of Tangible Personal Property
Schedule 4.4(d) Inventory
Schedule 4.4(i) Accounts Receivable
Schedule 4.4(j) Records
Schedule 4.5 Contracts
Schedule 4.7(a) Litigation
Schedule 4.8 Customers
Schedule 4.9 Suppliers
Schedule 4.11(g) Compensation and Benefits
Schedule 4.11(i) Change in Accounting Procedures
Schedule 4.16 Bank Accounts
Schedule 4.17(a) Licenses and Permits
Schedule 4.19(b) Liabilities
Schedule 4.20 Employee Benefit Plans
Schedule 4.22 Relationships
Schedule 4.25 Employees
<PAGE>
EXHIBITS
Exhibit 2.1(b)(i) Non-Negotiable Convertible Promissory Note of Community
Care Services, Inc. in favor of Donald Fargnoli.
Exhibit 2.1(b)(ii) Non-Negotiable Convertible Promissory Note of Community
Care Services, Inc. in favor of Louis Rocco.
Exhibit 3.1(a) Employment Agreement between Community Care Services, Inc.
and Donald Fargnoli
Exhibit 3.1(b) Employment Agreement between Community Care Services, Inc.
and Louis Rocco
Exhibit 3.1(c) Employment Agreement between Community Care Services, Inc.
and Saverio D. Burdi
Exhibit 3.2(a) Non-Competition Agreement between Community Care Services,
Inc. and Donald Fargnoli
Exhibit 3.2(b) Non-Competition Agreement between Community Care Services,
Inc. and Louis Rocco
Exhibit 3.2(c) Non-Competition Agreement between Community Care Services,
Inc. and Saverio D. Burdi
Exhibit 3.3 Form of Confidentiality Agreement
Exhibit 6.2(j) Form of Investor Suitability Letter
<PAGE>
SCHEDULE 1.14
FACILITY LEASES
Facility leases between Metropolitan Home Care Service, Inc
And:
Frank & Claudio Iodice
3847 - 3849 Boston Road
Bronx, NY
Fred & James Filomio
3855 Boston Road
Bronx, NY
Bobron Bros.
87 Forest Avenue
Glen Cove, NY
<PAGE>
SCHEDULE 1.23
PRODUCTS
See Schedule 4.4(d)
<PAGE>
SCHEDULE 2.2(a)
ALLOCATION OF PURCHASE PRICE
Donald Fargnoli $ 970,598
Louis Rocco $1,063,502
Saverio D. Burdi $ 765,900
<PAGE>
SCHEDULE 4.1(a)
SUBSIDIARIES
Metropolitan Home Care Services, Inc.
Metropolitan Respirator Services of New Jersey, Inc.
<PAGE>
SCHEDULE 4.1(b)
SHARE OWNERSHIP
Donald Fargnoli 22.5
Louis Rocco 24.5
Saverio D. Burdi 5.5
<PAGE>
SCHEDULE 4.2
CONSENTS AND APPROVALS
None
EXHIBIT 2.2
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of May 10, 1997, among COMMUNITY CARE
SERVICES, INC., a New York corporation ("Buyer"), and JACK PRINCE ("Seller").
Preliminary Statement
WHEREAS, Seller owns Twenty Five (25) shares of the issued and outstanding
capital stock, par value $10.00 per share (the "Shares"), of METROPOLITAN
RESPIRATOR SERVICE, INC. D/B/A METROPOLITAN HOME CARE SERVICE, a New York
corporation (the "Company");
WHEREAS, Seller wishes to sell and Buyer wishes to buy the Shares;
NOW, THEREFORE, in consideration of the premises and mutual and dependent
promises set forth herein, the parties hereto agree as follows:
ARTICLE 1 CERTAIN DEFINITIONS.
The following defined terms shall have the following meanings:
1.1 "Agreement" means this Agreement, as the same may be extended,
modified, supplemented or terminated from time to time.
1.2 "Outstanding Debt" means the Company's current outstanding line of
credit from Merrill Lynch, bearing interest at the rate of prime plus one
percent% per annum.
1.3 "Related Agreements" means
(a) the stock powers provided for in Section 5.1, below;
(b) a Non-Competition Agreement to be executed by Seller in form
satisfactory to Buyer and Seller;
(c) an Investor's Representation Letter addressed to Buyer in form
satisfactory to Buyer and Seller;
(d) the General Releases referred to in Sections 5.1(c), 5.2(d) and
5.3(a), below and
<PAGE>
(e) the Note (as defined in Section 2.2(b), below).
1.4 "Shares" has the meaning set forth in the Preliminary Statement of this
Agreement.
1.5 "Stockholders Agreement" means the Agreement among Harold Raskin, Louis
Rocco ("Rocco"), Donald Fargnoli ("Fargnoli") and the Company dated October 20,
1981.
ARTICLE 2 SALE AND PURCHASE OF SHARES.
Subject to the terms and conditions and on the basis of and in reliance on
the representations, warranties, obligations and agreements set forth in this
Agreement, the parties agree as follows:
2.1 Shares to be Acquired. Upon the execution of this Agreement, Seller
shall sell, assign, transfer and convey, and Buyer shall purchase and accept,
the Shares, free and clear of any liens, claims or encumbrances of any kind.
2.2 Purchase Price. The Purchase Price for the Shares shall be paid by
Buyer as follows:
(a) One Million Three Hundred Thousand Dollars ($1,300,000), payable
by certified check;
(b) One Hundred Thousand Dollars ($100,000), payable by a negotiable
promissory note to be executed and delivered by Buyer simultaneous to the
execution of this Agreement (the "Note") and
(b) Three Hundred Thousand (300,000) shares of Buyer's common stock,
par value $.01 per share (the "Purchase Shares"), it being understood that
(i) the Purchase Shares shall be "restricted securities", as such term is
defined under Rule 144 promulgated under the Securities Act of 1933, as
amended, and shall be subject to all restrictions imposed by law on
restricted securities and (ii) may not otherwise be sold, gifted, pledged,
hypothecated or otherwise transferred until October 18, 1998, or such
earlier time as the restrictions on sales or other transfers of Buyer's
common stock imposed on Alan T. Sheinwald, President and Chief Executive
Officer of Buyer, by Maidstone Financial, Inc. in connection with Buyer's
initial public offering expire, except that Seller may transfer Two Hundred
Thousand (200,000) Purchase Shares to Seller's spouse, Lorri Cae Prince,
upon written notification of same to Buyer.
2.3 Tag Along Rights. In the event Buyer conducts a secondary public
offering, Seller and Seller's spouse, shall include all of the Purchase Shares
in such offering to the same extent and in proportion to the rights that
Fargnoli, Rocco, Saverio D. Burdi, the other executive officers of Buyer and
Dean Sloan (collectively, the "Executives") have to include their own
2
<PAGE>
shares of Buyer's common stock in the offering, subject to the approval of the
underwriter(s) of such offering, if any. If the underwriter(s) determine that
all of the stock which Executives, Seller and his spouse, as a group, wish to
sell in the offering cannot be sold, the amount of shares which each individual
may include in the offering shall be determined by multiplying (a) the total
number of shares owned by the Executives, Seller and his spouse, as a group,
which the underwriter(s) will allow to be included in the offering by (b) a
fraction, the numerator of which is the number of shares an individual Executive
or Seller and his spouse desired to have included in the offering and the
denominator of which is the total number of shares which the Executives, Seller
and his spouse, as a group, desired to have included in the offering. For
example, assume that the Executives, Seller and his spouse, as a group, desired
to include 500,000 shares in the offering, of which 100,000 shares were owned by
Seller. Assume further that the underwriter(s) will permit the Executives,
Seller and his spouse, as a group, to sell only 300,000 shares in the offering.
The number of shares which Seller and his spouse may sell in the offering in the
aggregate shall be 60,000, determined by multiplying 300,000 by 100,000 over
500,000. Notwithstanding anything herein to the contrary, in no event will
Seller and his spouse, collectively, sell more than Two Hundred Thousand
(200,000) Purchase Shares in any secondary offering.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller hereby represents and warrants to
Buyer that as of the date of this Agreement:
3.1 Representations Regarding the Shares. All of the Shares have been
validly issued and are fully paid and non-assessable. The sale of the Shares to
Buyer will not give rise to any rights of first refusal of any person or entity.
No person or entity other than Seller owns or has any interest in the Shares.
Seller owns the Shares free and clear of any encumbrances, pledges, security
interests, liens, charges, claims, equities, options and rights of first refusal
of whatever nature and has the full right and authority to transfer the Shares
to Buyer. Upon transfer of the Shares to Buyer, Buyer shall receive title to the
Shares free and clear of all encumbrances, pledges, security interests, liens,
charges, claims, equities, options and rights of first refusal of whatever
nature.
3.2 Authority and Compliance.
(a) Seller has the unencumbered right to execute and deliver this
Agreement and the Related Agreements and to perform the transactions
contemplated hereby and thereby. This Agreement and each of the Related
Agreements to which Seller is a party constitutes a legal, valid and
binding obligation of Seller enforceable against Seller in accordance with
its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors rights generally and (ii) the
remedy of specific performance and other forms of equitable relief may be
subject
3
<PAGE>
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) The execution and the delivery of this Agreement and the Related
Agreements to which Seller is a party and the consummation and performance
by Seller of the transactions contemplated hereby and thereby will not
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, any instrument, agreement,
mortgage, judgment, order, award, or decree to which Seller is a party or
by which Seller is bound.
3.3 Legal Proceedings, Etc. There are no claims or actions pending or,
threatened in writing against Seller before any court, governmental authority,
or arbitrator (i) involving the Shares or (ii) which question or challenge the
validity of this Agreement or any of the Related Agreements or any action taken,
or to be taken, by Seller pursuant to this Agreement or any of the Related
Agreements, or in connection with the transactions contemplated hereby or
thereby, which, if decided adversely against Seller, would have a material
adverse effect upon the ability of Seller to carry out his obligations under
this Agreement or any of the Related Agreements. Seller (with respect to his
ownership of the Shares) is not subject to or in default with respect to any
indictment, order, injunction, decree or award of any court, arbitrator or
governmental agency.
3.4 No Finder. Seller has not paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER.
As an inducement to Seller to enter into this Agreement and to consummate
the transactions contemplated hereby, Buyer hereby represents and warrants to
Seller that as of the date of this Agreement:
4.1 Representations Regarding the Purchase Shares. All of the Purchase
Shares have been validly issued and are fully paid and non-assessable. The sale
of the Purchase Shares to Seller will not give rise to any rights of first
refusal of any person or entity, except for rights, if any, granted by Seller to
third parties. Buyer has the full right and authority to issue the Purchase
Shares to Seller.
4.2 Authority and Compliance.
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and the Related Agreements to which it is a party
and to perform the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and such Related
Agreements by Buyer has been duly authorized and approved by all requisite
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corporate action on the part of the Buyer. This Agreement and each of the
Related Agreements to be executed by Buyer constitutes a legal, valid and
binding obligation of Buyer enforceable in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and (ii) the remedy of specific
performance and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(b) The execution and the delivery of this Agreement and the Related
Agreements and the consummation and performance by Buyer of the
transactions contemplated thereby will not: (i) violate the Certificate of
Incorporation or By-Laws of Buyer or (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute a
default under, any instrument, agreement, mortgage, judgment, order, award,
or decree to which Buyer is a party or by which Buyer is bound.
4.3 Legal Proceedings, Etc. Buyer is not subject to or in default with
respect to any indictment, order, injunction, decree or award of any court,
arbitrator or governmental agency which would adversely affect the ability of
the Buyer to execute, deliver and carry out its obligations under this Agreement
and the Related Agreements to which it is a party. There are no claims or
actions pending, or to Buyer's knowledge, threatened in writing against Buyer
before any court, governmental authority, or arbitrator, which question or
challenge the validity of this Agreement or any of the Related Agreements or any
action taken, or to be taken, by Buyer pursuant to this Agreement or any of the
Related Agreements, or in connection with the transactions contemplated hereby
or thereby, which, if decided adversely against Buyer, would have a material
adverse effect upon the ability of Buyer to carry out its obligations under this
Agreement or any Related Agreement.
4.4 No Finder. Buyer has not paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
4.5 Representations Regarding the Shares. Purchaser represents that except
as may be specifically set forth in Article 3 hereof, no representations or
warranties have been directly or indirectly made by Seller with respect to the
Shares, the financial condition or the operations of the Company, or any other
aspects or consequences of the purchase of the Shares, and that Purchaser has
not relied upon any information with respect thereto, other than as may be
expressly set forth herein. Purchaser further represents and acknowledges that
it has been separately given access to obtain any and all information,
documents, statements, records and books relating to the Shares and the Company,
and all materials and other information requested by Purchaser or by its
representatives, counsel and/or accountants have been made available and
examined.
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ARTICLE 5 DELIVERIES.
5.1 Deliveries of Seller. Simultaneous to the execution of this Agreement,
Seller shall deliver to Buyer the following:
(a) stock certificate(s) evidencing the Shares (or affidavits of lost
stock certificates in form acceptable to Buyer) and such stock powers and
other instruments as are necessary or reasonably desirable to vest in Buyer
all right, title and interest in and to the Shares;
(b) an Agreement with Fargnoli, Rocco and Burdi confirming that the
Stockholders Agreement is of no force and effect and waiving any and all
rights of the parties thereto;
(c) General Releases in favor of Fargnoli, Rocco, Burdi, the Company
and Buyer;
(d) Seller's resignation as a Director, Officer and employee of the
Company and
(e) all of the Related Agreements required to be delivered by Seller
to Buyer or other parties under this Agreement, each duly executed by
Seller.
5.2 Deliveries of Buyer. Simultaneous to the execution of this Agreement,
Buyer shall deliver to Seller the following:
(a) A certified check in the amount of One Million Three Hundred
Thousand Dollars ($1,300,000);
(b) The Note;
(c) a stock certificate for Three Hundred Thousand shares (300,000) of
Buyer's common stock, to be delivered by no later than May 16,1997.
(d) General Releases from the Company and Buyer in favor of Seller
(e) Each of the Related Agreements to which Buyer is a party, duly
executed and delivered by Buyer.
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5.3 Other Deliveries.
(a) As soon as possible following the execution of this Agreement,
Buyer will arrange for the delivery to Seller of General Releases from
Fargnoli, Rocco and Burdi in favor of Seller.
(b) Buyer will arrange for the return to Seller, by no later than May
31, 1997, of the personal Guaranty issued by Seller guaranteeing the
Outstanding Debt. Buyer shall defend, indemnify and hold harmless Seller
from and against any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines, judgments, costs and
other reasonable expenses (including reasonable legal fees) arising from
Seller's personal Guaranty of the Outstanding Debt or in causing Buyer to
comply.
5.4 Other Matters. Buyer covenants that it shall fully cooperate with
Prince in delivering the following items as soon as practicable:
(a) Certified copies of the resolutions of the Board of Directors of
Buyer authorizing the transaction contemplated hereby;
(b) an assignment of the Company's existing life insurance policy on
the life of Seller at no additional cost to Seller, it being understood
that Seller is assuming all obligations to pay premiums thereon;
(c) continued medical insurance coverage for Seller and his family
under the Company's medical insurance pursuant to the applicable provisions
of COBRA at Seller's cost and expense;
(d) check(s) made payable to Seller's IRA accounts designated by him
in order to roll over as expeditiously as practicable his entire share of
all of his Company pension accounts (including the defined benefit, 401(k)
savings and profit sharing plans.) and
(e) a check from the Company for Prince's salary due for the last pay
period ending on May 9, 1997.
ARTICLE 6 INDEMNIFICATION
6.1 Indemnification for Fraud. From and after the date hereof, Seller shall
defend, indemnify and hold harmless Buyer and the Company from and against (i)
any and all damages, losses and liabilities resulting from or relating to the
commission of fraud by Seller committed at any time during his tenure as an
officer, director and/or employee of the Company as determined by a court of
competent jurisdiction or governmental agency and (ii) any and all actions,
suits, claims, proceedings, investigations, audits, demands, assessments, fines,
judgments, costs and other reasonable expenses (including reasonable legal fees)
arising out of
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or incident to any of the foregoing. The obligations of Seller set forth in this
Section 6.1 shall expire on the third anniversary of this Agreement.
6.2 Indemnification Procedures. All claims for indemnification by Buyer
pursuant to Section 6.1 shall be made as follows: In the event a claim or demand
is made by a third party against Buyer and Buyer in good faith determines that
such claim or demand is one which would come within Section 6.1, Buyer shall
promptly notify Seller of such claim or demand, specifying the nature and the
amount (the "Claim Notice"). Buyer shall be responsible for handling the defense
of such matter. Buyer shall keep Seller informed of all material developments in
such matter and will permit the Seller (at Seller's sole cost and expense) to
participate in settlement negotiations or the defense of any matter for which
Seller is liable hereunder through counsel chosen by the Seller. Buyer agrees to
preserve and provide access to all evidence that may be useful in defending
against such claim and to provide reasonable cooperation in the defense thereof
or in the prosecution of any action against a third party in connection
therewith. Buyer's defense of any claim or demand shall not constitute an
admission or concession of liability therefor or otherwise operate in derogation
of any rights Buyer may have against Seller or any third party.
ARTICLE 7 CERTAIN COVENANTS.
7.1 Cooperation. Buyer and Seller shall cooperate with each other and
proceed, as promptly as is reasonably practicable, to prepare and file the
notifications and other filings required by applicable law in connection with
the transactions described in this Agreement, if any, to seek to obtain all
necessary consents and approvals from lenders, lessors and other third parties,
if any, and to endeavor to comply with all other legal or contractual
requirements in connection with the execution, consummation and performance of
this Agreement.
7.2 Confidentiality. Seller shall keep all financial, technical and other
information concerning the Company known to him strictly confidential and shall
not disclose any of such information to any third party, except in connection
with (i) disclosure of information which is generally known by others engaged in
activities similar to the Company or which has been publicly disseminated
through no fault of Seller, (ii) information necessary for the preparation of
Seller's tax returns and responses to any audits or inquiries of tax regulatory
authorities and (iii) disclosure of information which is compelled by operation
of law, provided that in each case, Seller will deliver written notice to Buyer
before making any such disclosure. Seller shall use reasonable efforts to ensure
that such information is not used or disclosed by any other persons or entities
except as permitted by this Agreement. Seller acknowledges the competitive value
and confidential nature of such information and the damage that would result to
Buyer and the Company if such information is disclosed to a third party or used
by Seller in violation of this Agreement. Accordingly, Seller agrees that both
injunctive relief and monetary relief, alone or in combination, are appropriate
remedies for any breach of this Section 7.2 by Seller or his advisors.
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ARTICLE 8 MISCELLANEOUS MATTERS.
8.1 Survival of Representations and Warranties. All representations and
warranties of the parties set forth in this Agreement shall survive the Closing
for a period of one year from the date hereof.
8.2 Further Assurances; Access to Records. At any time and from time to
time after the date hereof, at the request of Buyer and without further
consideration, Seller and Buyer shall execute, acknowledge and deliver all such
further documents, and shall do and perform all such further acts and deeds, as
may reasonably be requested to more effectively vest in Buyer the rights and
benefits intended to be conferred hereby and to consummate more effectively the
transactions contemplated hereby. Buyer shall make available to Seller after the
date hereof such records regarding the Company as Seller may require for the
purposes set forth in Section 7.2.
8.3 Mail. After the date hereof and for a period of one year thereafter,
Buyer shall remit to Seller all mail and other communications received by Buyer
that does not relate to the Company, and Seller shall remit to Buyer all mail
and other communications received by Seller that relates to the Company.
8.4 Changes, Waivers. This Agreement may not be changed in any manner
except by a written agreement signed by each of the parties hereto. The failure
of any party to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision, nor in any
way affect the validity of this Agreement or any part thereof or the right of
either party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to be a waiver of any other or
subsequent breach.
8.5 Expenses, Etc. Buyer and Seller shall be responsible for and bear all
of its or their own costs and expenses (including without limitation attorneys'
fees and costs, accountants' fees and costs and other professionals' fees and
costs) incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and the Related Agreements and the consummation of
the proposed transactions described in this Agreement; provided, however, that
the fees and disbursements of Seller's counsel incurred in such counsel's
capacity as co-counsel to the Company through April 25, 1997 will be paid by
Buyer promptly after the submission of an invoice for such fees and
disbursements and review thereof by Buyer. Seller shall be responsible for the
purchase of any stock transfer stamps and payment of any assignment, recording
or filing fees triggered by or imposed upon the transactions contemplated by
this Agreement. No broker's, finder's or similar fees shall be payable in
connection with the proposed transactions described in this Agreement, and each
party to this Agreement shall indemnify the other parties hereto with respect to
any such fees.
8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of such
counterparts together shall be deemed to be one and the same instrument.
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8.7 Contents of Agreement; Parties in Interest; Assignment, Etc.
(a) This Agreement, together with the Related Agreements, sets forth
the entire understanding and agreement of the parties hereto with respect
to the subject matter hereof. All previous agreements, promises,
representations, commitments and understandings, whether verbal or written,
between the parties regarding the subject matter hereof are merged into and
superseded by this Agreement. All representations, warranties, covenants,
terms and conditions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective legal representatives,
successors and permitted assigns of the parties hereto. Nothing contained
in this Agreement, express or implied, is intended to confer upon any
person or entity other than the parties hereto and their respective
successors and permitted assigns any rights or remedies under or by reason
of this Agreement or any Related Agreement.
(b) This Agreement may not be assigned by any party hereto without the
prior written consent of the other party.
8.8 Conflict with Related Agreements. In the event that the terms of this
Agreement conflict with the terms of any of the Related Agreements, the terms of
this Agreement shall govern.
8.9 Dispute Resolution.
(a) Good Faith Negotiation. In the event of any controversy, claim or
dispute (other than a breach by Buyer of Section 5.3 hereof, to which this
Section 8.9 will not apply), the party initiating the controversy, claim or
dispute shall provide to the other party a written notice containing a
brief and concise statement of the matter, together with relevant
supporting facts. During a period of sixty (60) days or such longer period
as mutually agreed, the parties shall attempt to settle the matter by good
faith negotiation.
(b) Outside Decisionmaker. If efforts under Section 8.9(a) are not
successful, the dispute shall be referred to an outside decisionmaker. Such
decisionmaker shall be a person reasonably acceptable to Buyer and Seller.
If the parties cannot agree on one person, then each shall select one
person and those two individuals shall hear the claim. If they cannot
arrive at a unanimous decision, then they shall select a third person who
shall act independently. The decision of the outside decisionmaker(s) shall
not be binding on the parties, but shall be used as a basis for resolving
disputes prior the institution of litigation. In any case, the outside
decisionmaker(s) shall be required to render a decision on the claim in
writing within thirty (30) days of being retained for this purpose by
either party, or sixty (60) days if a third person is necessary. The costs
and expenses of this decisionmaker shall be shared equally by the parties.
Failure to comply with Sections 8.9(a) and 8.9(b) with respect to any
controversy, claim or dispute shall be an absolute bar to the institution
of any litigation or other proceeding.
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(c) In the event any action is required to enforce the terms of this
Agreement, the unsuccessful party in such action shall reimburse the
prevailing party for all costs and expenses (including reasonable
attorneys' fees) incurred by the prevailing party.
8.10 Receipt of Monies or Other Assets. If any monies or other assets are
received by Seller or Buyer to which the other party is entitled in accordance
with the terms of this Agreement, such party shall hold such monies or assets in
trust and shall promptly notify and account therefor to the other within fifteen
(15) days of receipt.
8.11 Section Headings and Gender. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of masculine or any
other pronoun herein when referred to any party is for convenience only and
shall be deemed to refer to the particular party intended regardless of the
actual gender of such party.
8.12 Notices. All notices, consents, waivers or other communications which
are required or permitted hereunder shall be in writing and shall be sufficient
if delivered personally (including by means of a nationally recognized overnight
courier service for which a written receipt is given) or by registered or
certified mail, return receipt requested, postage prepaid, or by facsimile
transmission providing a receipt, as follows (or to such other address as shall
be set forth in a notice given in the same manner):
If to Buyer:
Mr. Alan T. Sheinwald
President and Chief Executive Officer
Community Care Services, Inc.
18 Sargent Place
Mount Vernon, New York 10550
FAX: 914-665-9063
With a required copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
FAX: 212-421-0499
If to Seller:
Mr. Jack Prince
22 Branding Iron Lane
Glen Cove, New York 11542
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With required copies to:
Irwin Levy, Esq.
Stern, Wiener & Levy, LLP
950 Third Avenue
New York, New York 10022
FAX: 212-371-3215
All such notices shall be deemed to have been given on the date personally
delivered, upon possession of a receipt establishing a facsimile transmission
was received or five (5) days after being mailed in the manner provided above.
8.13 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
/s/ Jack Prince
-----------------------------
Jack Prince
COMMUNITY CARE SERVICES, INC.
By: /s/ Alan T. Sheinwald
-----------------------------------
Alan T. Sheinwald
President and Chief Executive Officer
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NON-NEGOTIABLE PROMISSORY NOTE
$1,176,400 May 10, 1997
WHEREAS, COMMUNITY CARE SERVICES, INC., a New York corporation ("Maker")
owes Donald Fargnoli, ("Payee") the amount of One Million One Hundred Seventy
Six Thosuand Four Hundred DOLLARS ($1,176,400) and Maker and Payee have agreed
upon the terms of payment of such obligation and desire to memorialize such
terms in writing.
NOW THEREFORE, FOR VALUE RECEIVED, Maker hereby promises to pay to Payee,
the principal amount of One Million One Hundred Seventy Six Thosuand Four
Hundred DOLLARS ($1,176,400) on the principal balance outstanding from time,
plus interest accruing at the rate of six percent (6%) per annum.
The principal amount of this Non-Negotiable Promissory Note (the "Note")
and all accrued interest thereon will be payable as follows:
(i) one-half (including one-half of the principal amount of this Note
and the interest attributable to such amount accrued from the date hereof
through the date of payment, for a total payment of $661,874) on January 2,
1999 and
(ii) one-half (including one-half of the principal amount of this Note
and the interest attributable to such amount accrued from the date through
the date of payment, for a total payment of $661,874) on January 2, 2000.
All payments hereunder shall be made in lawful money of the United States
of America to Payee, at Payee's residence at 14 Martine Avenue, White Plains,
New York, or to such other location as Payee may designate to Maker in writing.
In lieu of cash payment, Payee may elect to convert up to eighty percent
(80%) of the outstanding principal balance of the Note and the accrued interest
thereon payable on the dates set forth above into shares of Common Stock, par
value $.01 per share, of Maker (the "Shares") and Maker will not object to such
election. If Payee does not make such election, Maker may do so and Payee will
not object to Maker's election. With respect to the remaining twenty percent
(20%) of the payment due, Payee may, but is not obligated to, require that such
amount be converted into Shares or take such payment in cash. It is understood
that the total number of Shares to be issued to Payee, assuming the
<PAGE>
Note is exercised in full, shall be 330,937, with 165,468.5 issuable on each of
January 2, 1999 and January 2, 2000. To the extent so converted, the principal
and accrued interest on the Note will be considered fully paid and canceled.
Upon notice of such conversion from Payee, Maker shall issue to Payee a stock
certificate representing the number of Shares issuable to Maker upon conversion.
At any time subsequent to the first anniversary of the execution of this
Note, if Maker conducts a secondary public offering of Maker's common stock,
Payee shall have the opportunity to sell the Shares in such offering to the same
extent and in proportion to the rights that the other executive officers of
Maker and Dean Sloane (collectively, with Payee, the "Executives") have to
include their own shares of Maker's common stock in the offering, subject to the
approval of the underwriter(s) of such offering, if any. If the underwriter(s)
determine that all of the stock which the Executives, wish to sell in the
offering cannot be sold, the amount of shares which each individual may include
in the offering shall be determined by multiplying (a) the total number of
shares owned by the Executives as a group which the underwriter(s) will allow to
be included in the offering by (b) a fraction, the numerator of which is the
number of shares an individual Executive desired to have included in the
offering and the denominator of which is the total number of shares which the
Executives as a group desired to have included in the offering. For example,
assume that the Executives, as a group, desired to include 500,000 shares in the
offering, of which 100,000 shares were owned by Payee. Assume further that the
underwriter(s) will permit the Executives, as a group, to sell only 300,000
shares in the offering. The number of shares which Payee may sell in the
offering shall be 60,000, determined by multiplying 300,000 by 100,000 over
500,000.
If during the one year period commencing on the date hereof, Maker
consummates a secondary public offering of common stock, Maker will register the
Shares in connection with such offering, subject to the provisions of the
immediate proceeding paragraph regarding restrictions imposed by the
underwriters.
Notwithstanding anything in this Note to the contrary, at any time
subsequent to the first anniversary of the execution of this Note, if in the
event that Maker plans to either (i) sell fifty one percent (51%) or more of the
outstanding capital stock or substantially all of the assets of its subsidiary,
Metropolitan Respirator Services, Inc. or (ii) conduct a secondary public
offering of Maker's stock, Maker shall deliver to Payee advance written notice
of its intent no later than forty five (45) days prior to the closing of such
transaction and Payee, at its option may accelerate the conversion into Shares
of all or any portion of the remaining outstanding principal and accrued
interest on this
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Note by delivery of written notice to Maker no later than five days prior to the
closing date set forth in Maker's notice to Payee.
Payee acknowledges and confirms that Payee has delivered to Maker on this
date an Investor Representation Letter relating to the Shares and Payee's
investment in Maker. Payee agrees that the representations, warranties and
agreements of Payee contained in the Investor Representation Letter shall
survive the execution of this Note and the purchase of the Shares pursuant to
the conversion of this Note.
Maker shall at all times prior to the payment in full of this Note and all
accrued interest thereon or satisfaction of the same through conversion into
Shares reserve and keep available for issuance to Payee a sufficient number of
Shares to fulfill its obligations under this Note.
If an Event of Default occurs (as hereinafter defined), the entire unpaid
principal amount of this Note shall (at the option of Payee or, in certain
cases, automatically) become immediately due and payable without any requirement
of notice whatsoever (such notice being hereby waived by Maker). Maker agrees to
pay all costs (including attorneys' fees and disbursements) incurred by Payee in
collecting this Note following an Event of Default. An "Event of Default" shall
mean any of the following:
(a) if any payment under this Note is not made when due;
(b) if Maker makes an assignment for the benefit of creditors; or
(c) if an involuntary case is commenced in respect of Maker, or if a
court of competent jurisdiction enters a decree or order for relief with
respect to Maker under Title 11 of the United States Code as now
constituted or hereafter amended or under any other applicable Federal or
state bankruptcy law or other similar law, or if such court enters a decree
or order appointing a receiver, liquidator, assignee, trustee, sequestrator
(or similar official) of Maker or of any substantial part of its property,
or if such court decrees or orders the winding up or liquidation of the
affairs of Maker, and any such involuntary case shall not be dismissed or
such decree or order shall not be vacated or set aside or stayed within
sixty (60) days from the date of commencement of such case or entry of such
decree or order; or
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(d) if Maker files a petition or answer or consent seeking relief
under Title 11 of the United States Code as now constituted or hereafter
amended, or under any other applicable Federal or state bankruptcy law or
other similar law, or if Maker consents to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or of any
substantial part of its properties, or if Maker takes any action in
furtherance of any action described in this subparagraph.
Diligence, presentment of any instrument, demand for payment, protest,
notices of dishonor, nonpayment or protest, and any and all other notices and
demands of any nature whatsoever in connection with the delivery, acceptance,
performance, default or enforcement of this Note are hereby waived by all
parties to this Note, whether Maker, endorser, guarantor or surety, except for
such notices which are expressly set forth in this Note. The provisions of this
Note are binding on the legal representatives, assigns and successors of Maker
and shall inure to the benefit of Payee, its successors, assigns and legal
representatives.
In the event Maker defaults in the payment of this Note when due, Payee may
apply to any court of competent jurisdiction for a judgment directing Maker to
pay its obligations hereunder and is hereby authorized to act as Maker's
attorney in fact before such court for the purpose of confessing such judgment
against Maker. Maker agrees to pay the cost of such court proceeding and the
entering of such judgment and in the event Payee engages an attorney to enforce,
declare or adjudicate its rights hereunder, the costs and expenses thereof,
including reasonable attorneys' fees and expenses, shall be paid by Maker.
Upon either (i) the payment in full of the principal amount of this Note
and all accrued and unpaid interest thereon or (ii) the conversion of the entire
outstanding principal amount of this Note and all accrued and unpaid interest
thereon into Shares, Payee will be deemed to have released and discharged Maker
from any and all liability for the obligations evidenced by this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of New York without regard or giving effect to its principles of
conflict of laws. In addition to any other venue or jurisdiction permitted by
law, Maker consents to the jurisdiction, forum and venue of the state and
federal courts of and for New York, New York with respect to the enforcement of
this Note and to any claim, dispute or proceeding in connection therewith.
Payment of this Note, to the extent of Three Hundred
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<PAGE>
Thousand Dollars ($300,000) shall be subject to offset to the extent Payee
becomes obligated to indemnify Maker pursuant to that certain Stock Purchase
Agreement among Maker, Payee, Louis Rocco and Saverio D. Burdi of even date
herewith.
No provision of this Note may be changed or waived orally or by any course
of dealing, but only by an instrument in writing signed by the party to be
charged by such change or waiver.
If any term of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
All notices, consents, waivers or other communications which are required
or permitted hereunder shall be in writing and shall be sufficient if delivered
personally (including by means of a nationally recognized overnight courier
service for which a written receipt is given) or by registered or certified
mail, return receipt requested, postage prepaid, or by facsimile transmission
providing a receipt, as follows (or to such other address as shall be set forth
in a notice given in the same manner):
If to Maker:
Mr. Alan T. Sheinwald
President and Chief Executive Officer
Community Care Services, Inc.
18 Sargent Place
Mount Vernon, New York 10550
FAX: 914-665-9063
With a required copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
FAX: 212-421-0499
If to Payee:
Mr. Donald Fargnoli
4 Martine Avenue
White Plains, New York 10606
All such notices shall be deemed to have been given on the date personally
delivered, upon possession of a receipt establishing a facsimile transmission
was received or five (5) days after being mailed in the manner provided above.
Payee, at any time, may designate by delivery of written notice to Maker an
attorney to receive written copies of all notices sent to Payee hereunder.
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IN WITNESS WHEREOF, Maker has executed this Note the day and year first
above set forth.
COMMUNITY CARE SERVICES, INC.
By:/s/Alan Sheinwald
-------------------------------
Alan Sheinwald
President and Chief Executive Officer
WITNESS:
/s/ Brian M. Hand
- ---------------------
AGREED AND ACCEPTED
By: /s/ Donald Fargnoli
--------------------
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NON-NEGOTIABLE PROMISSORY NOTE
$1,302,182 May 10, 1997
WHEREAS, COMMUNITY CARE SERVICES, INC., a New York corporation ("Maker")
owes Donald Fargnoli, ("Payee") the amount of One Million Three Hundred Two
Thosuand One Hundred Eighty Two DOLLARS ($1,302,182) and Maker and Payee have
agreed upon the terms of payment of such obligation and desire to memorialize
such terms in writing.
NOW THEREFORE, FOR VALUE RECEIVED, Maker hereby promises to pay to Payee,
the principal amount of One Million Three Hundred Two Thosuand One Hundred
Eighty Two DOLLARS ($1,302,182) on the principal balance outstanding from time,
plus interest accruing at the rate of six percent (6%) per annum.
The principal amount of this Non-Negotiable Promissory Note (the "Note")
and all accrued interest thereon will be payable as follows:
(i) one-half (including one-half of the principal amount of this Note
and the interest attributable to such amount accrued from the date hereof
through the date of payment, for a total payment of $732,640) on January 2,
1999 and
(ii) one-half (including one-half of the principal amount of this Note
and the interest attributable to such amount accrued from the date through
the date of payment, for a total payment of $732,640) on January 2, 2000.
All payments hereunder shall be made in lawful money of the United States
of America to Payee, at Payee's residence at 34 Devon Road, Rockville Centre,
New York, or to such other location as Payee may designate to Maker in writing.
In lieu of cash payment, Payee may elect to convert up to eighty percent
(80%) of the outstanding principal balance of the Note and the accrued interest
thereon payable on the dates set forth above into shares of Common Stock, par
value $.01 per share, of Maker (the "Shares") and Maker will not object to such
election. If Payee does not make such election, Maker may do so and Payee will
not object to Maker's election. With respect to the remaining twenty percent
(20%) of the payment due, Payee may, but is not obligated to, require that such
amount be converted into Shares or take such payment in cash. It is understood
that the total number of Shares to be issued to Payee, assuming the
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Note is exercised in full, shall be 366,320, with 183,160 issuable on each of
January 2, 1999 and January 2, 2000. To the extent so converted, the principal
and accrued interest on the Note will be considered fully paid and canceled.
Upon notice of such conversion from Payee, Maker shall issue to Payee a stock
certificate representing the number of Shares issuable to Maker upon conversion.
At any time subsequent to the first anniversary of the execution of this
Note, if Maker conducts a secondary public offering of Maker's common stock,
Payee shall have the opportunity to sell the Shares in such offering to the same
extent and in proportion to the rights that the other executive officers of
Maker and Dean Sloane (collectively, with Payee, the "Executives") have to
include their own shares of Maker's common stock in the offering, subject to the
approval of the underwriter(s) of such offering, if any. If the underwriter(s)
determine that all of the stock which the Executives, wish to sell in the
offering cannot be sold, the amount of shares which each individual may include
in the offering shall be determined by multiplying (a) the total number of
shares owned by the Executives as a group which the underwriter(s) will allow to
be included in the offering by (b) a fraction, the numerator of which is the
number of shares an individual Executive desired to have included in the
offering and the denominator of which is the total number of shares which the
Executives as a group desired to have included in the offering. For example,
assume that the Executives, as a group, desired to include 500,000 shares in the
offering, of which 100,000 shares were owned by Payee. Assume further that the
underwriter(s) will permit the Executives, as a group, to sell only 300,000
shares in the offering. The number of shares which Payee may sell in the
offering shall be 60,000, determined by multiplying 300,000 by 100,000 over
500,000.
If during the one year period commencing on the date hereof, Maker
consummates a secondary public offering of common stock, Maker will register the
Shares in connection with such offering, subject to the provisions of the
immediate proceeding paragraph regarding restrictions imposed by the
underwriters.
Notwithstanding anything in this Note to the contrary, at any time
subsequent to the first anniversary of the execution of this Note, if in the
event that Maker plans to either (i) sell fifty one percent (51%) or more of the
outstanding capital stock or substantially all of the assets of its subsidiary,
Metropolitan Respirator Services, Inc. or (ii) conduct a secondary public
offering of Maker's stock, Maker shall deliver to Payee advance written notice
of its intent no later than forty five (45) days prior to the closing of such
transaction and Payee, at its option may accelerate the conversion into Shares
of all or any portion of the remaining outstanding principal and accrued
interest on this
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Note by delivery of written notice to Maker no later than five days prior to the
closing date set forth in Maker's notice to Payee.
Payee acknowledges and confirms that Payee has delivered to Maker on this
date an Investor Representation Letter relating to the Shares and Payee's
investment in Maker. Payee agrees that the representations, warranties and
agreements of Payee contained in the Investor Representation Letter shall
survive the execution of this Note and the purchase of the Shares pursuant to
the conversion of this Note.
Maker shall at all times prior to the payment in full of this Note and all
accrued interest thereon or satisfaction of the same through conversion into
Shares reserve and keep available for issuance to Payee a sufficient number of
Shares to fulfill its obligations under this Note.
If an Event of Default occurs (as hereinafter defined), the entire unpaid
principal amount of this Note shall (at the option of Payee or, in certain
cases, automatically) become immediately due and payable without any requirement
of notice whatsoever (such notice being hereby waived by Maker). Maker agrees to
pay all costs (including attorneys' fees and disbursements) incurred by Payee in
collecting this Note following an Event of Default. An "Event of Default" shall
mean any of the following:
(a) if any payment under this Note is not made when due;
(b) if Maker makes an assignment for the benefit of creditors; or
(c) if an involuntary case is commenced in respect of Maker, or if a
court of competent jurisdiction enters a decree or order for relief with
respect to Maker under Title 11 of the United States Code as now
constituted or hereafter amended or under any other applicable Federal or
state bankruptcy law or other similar law, or if such court enters a decree
or order appointing a receiver, liquidator, assignee, trustee, sequestrator
(or similar official) of Maker or of any substantial part of its property,
or if such court decrees or orders the winding up or liquidation of the
affairs of Maker, and any such involuntary case shall not be dismissed or
such decree or order shall not be vacated or set aside or stayed within
sixty (60) days from the date of commencement of such case or entry of such
decree or order; or
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(d) if Maker files a petition or answer or consent seeking relief
under Title 11 of the United States Code as now constituted or hereafter
amended, or under any other applicable Federal or state bankruptcy law or
other similar law, or if Maker consents to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or of any
substantial part of its properties, or if Maker takes any action in
furtherance of any action described in this subparagraph.
Diligence, presentment of any instrument, demand for payment, protest,
notices of dishonor, nonpayment or protest, and any and all other notices and
demands of any nature whatsoever in connection with the delivery, acceptance,
performance, default or enforcement of this Note are hereby waived by all
parties to this Note, whether Maker, endorser, guarantor or surety, except for
such notices which are expressly set forth in this Note. The provisions of this
Note are binding on the legal representatives, assigns and successors of Maker
and shall inure to the benefit of Payee, its successors, assigns and legal
representatives.
In the event Maker defaults in the payment of this Note when due, Payee may
apply to any court of competent jurisdiction for a judgment directing Maker to
pay its obligations hereunder and is hereby authorized to act as Maker's
attorney in fact before such court for the purpose of confessing such judgment
against Maker. Maker agrees to pay the cost of such court proceeding and the
entering of such judgment and in the event Payee engages an attorney to enforce,
declare or adjudicate its rights hereunder, the costs and expenses thereof,
including reasonable attorneys' fees and expenses, shall be paid by Maker.
Upon either (i) the payment in full of the principal amount of this Note
and all accrued and unpaid interest thereon or (ii) the conversion of the entire
outstanding principal amount of this Note and all accrued and unpaid interest
thereon into Shares, Payee will be deemed to have released and discharged Maker
from any and all liability for the obligations evidenced by this Note.
This Note shall be governed by and construed in accordance with the laws of
the State of New York without regard or giving effect to its principles of
conflict of laws. In addition to any other venue or jurisdiction permitted by
law, Maker consents to the jurisdiction, forum and venue of the state and
federal courts of and for New York, New York with respect to the enforcement of
this Note and to any claim, dispute or proceeding in connection therewith.
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Payment of this Note, to the extent of Three Hundred Twenty Six Thousand
Six Hundred Sixty Seven Dollars ($326,667) shall be subject to offset to the
extent Payee becomes obligated to indemnify Maker pursuant to that certain Stock
Purchase Agreement among Maker, Payee, Donald Fargnoli and Saverio D. Burdi of
even date herewith.
No provision of this Note may be changed or waived orally or by any course
of dealing, but only by an instrument in writing signed by the party to be
charged by such change or waiver.
If any term of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
All notices, consents, waivers or other communications which are required
or permitted hereunder shall be in writing and shall be sufficient if delivered
personally (including by means of a nationally recognized overnight courier
service for which a written receipt is given) or by registered or certified
mail, return receipt requested, postage prepaid, or by facsimile transmission
providing a receipt, as follows (or to such other address as shall be set forth
in a notice given in the same manner):
If to Maker:
Mr. Alan T. Sheinwald
President and Chief Executive Officer
Community Care Services, Inc.
18 Sargent Place
Mount Vernon, New York 10550
FAX: 914-665-9063
With a required copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
FAX: 212-421-0499
If to Payee:
Mr. Louis Rocco
34 Devon Road
Rockville Centre, New York 11570
All such notices shall be deemed to have been given on the date personally
delivered, upon possession of a receipt establishing a facsimile transmission
was received or five (5) days after being mailed in the manner provided above.
Payee, at any time, may designate by delivery of written notice to Maker an
attorney to receive written copies of all notices sent to Payee hereunder.
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IN WITNESS WHEREOF, Maker has executed this Note the day and year first
above set forth.
COMMUNITY CARE SERVICES, INC.
By:/s/Alan Sheinwald
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Alan Sheinwald
President and Chief Executive Officer
WITNESS:
/s/ Brian M. Hand
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AGREED AND ACCEPTED
By:/s/ Louis Rocco
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