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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1996
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTENSIVA HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8069 43-1690769
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
7733 FORSYTH BLVD., 11TH FLOOR
ST. LOUIS, MISSOURI 63105
(314) 725-0112
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
------------------------
DAVID W. CROSS, PRESIDENT
INTENSIVA HEALTHCARE CORPORATION
7733 FORSYTH BLVD., 11TH FLOOR
ST. LOUIS, MISSOURI 63105
(314) 725-0112
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LARRY K. HARRIS, ESQ. JOHN J. EGAN III, ESQ.
SUELTHAUS & WALSH, P.C. GOODWIN, PROCTER & HOAR LLP
7733 FORSYTH BLVD., 12TH FLOOR EXCHANGE PLACE
ST. LOUIS, MISSOURI 63105 BOSTON, MASSACHUSETTS 02109
(314) 727-7676 (617) 570-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED BE REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, $0.001 par
value................. Shares $ $40,000,000 $13,793.10
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</TABLE>
(1) Includes shares of Common Stock which the underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JULY 25, 1996
PROSPECTUS
SHARES
INTENSIVA LOGO
COMMON STOCK
Of the shares of common stock (the "Common Stock") offered
hereby, shares are being sold by the Company and 326,287 shares are being
sold by a stockholder of the Company (the "Selling Stockholder"). The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Stockholder. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price for the Common Stock will be between $ and $ per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol IHCC.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
<TABLE>
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ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
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Per Share.......................... $ $ $ $
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Total(3)........................... $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public set
forth above. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them, and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for the shares of Common Stock will
be available for delivery on or about , 1996, at the offices of the
agent of Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
NEEDHAM & COMPANY, INC.
, 1996
<PAGE> 3
Intensiva Logo
HIGHLY SPECIALIZED MEDICAL SERVICES FOR CRITICALLY ILL OR INJURED PATIENTS
[PATIENT PROFILE CHART]
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<CAPTION>
PATIENT PROFILES
CLINICAL MEDICALLY UNSTABLE CRITICALLY ILL OR INJURED, MEDICALLY STABLE,
REQUIREMENTS WITH UNDETERMINED UNSTABLE WITH MULTIPLE REQUIRING MEDICAL
DIAGNOSTIC/INVASIVE MEDICAL CONDITIONS MAINTENANCE, AND
INTERVENTIONS REHABILITATION
<S> <C> <C> <C>
DIAGNOSTIC STUDIES Frequent/Expensive ROUTINE/LESS EXPENSIVE Infrequent/Inexpensive
IMAGING STUDIES Frequent/Expensive INFREQUENT/LESS EXPENSIVE Seldom/Inexpensive
SURGICAL INTERVENTIONS Yes MINOR PROCEDURES None
SPECIALIZED MONITORING Yes YES No
PHYSICIAN VISITS Daily DAILY 1-2 Times Per Week
NURSING HOURS PER PATIENT DAY Intensive Care 12+ 8-10 3-5
General Care 5-6
TREATMENT METHODOLOGY Individual Patient PROGRAMMATIC CARE FOR Programmatic Care for
Protocols MEDICALLY UNSTABLE Medically stable
PATIENTS Patients
AVERAGE LENGTH OF STAY 4-6 Days 30-60 DAYS 15-20 Days
COST EFFECTIVE SETTING General Acute Care ACUTE LONG-TERM HOSPITAL Subacute/Skilled
Hospital Nursing Facilities
MEDICARE REIMBURSEMENT PPS/DRG COST BASED; PPS/DRG EXEMPT Primarily Cost Based
(Emphasized)
</TABLE>
"Intensiva HealthCare" is a trademark of the Company.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH MAY STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Investors should carefully consider the information set forth
under the heading "Risk Factors."
THE COMPANY
Intensiva HealthCare Corporation ("Intensiva" or the "Company") provides
highly specialized, acute long-term care for critically ill or injured patients
who require intensive medical monitoring and treatment, and who often have
multiple medical conditions and are medically unstable. The Company provides
high quality, cost effective, specialized care for its patients, who typically
require an average length of stay of greater than 25 days in an intensive
inpatient setting. Intensiva's medical staffs provide specialized medical
services, as well as nursing and respiratory care, and the Company is developing
disease-specific pathways to treat patients with pulmonary, cancer, renal and
cardiac conditions, among others. The Company's clinical programs utilize
specialized staff, equipment and protocols for the treatment of its patients.
Extended stay critically ill or injured patients are difficult and
expensive to treat and, as a result, are in danger of becoming disenfranchised
by the current health care system. These patients generally require an
interdisciplinary team of specialists due to their multiple system deficits and
the critical nature of their illnesses or injuries. Traditional acute care
hospitals serve a general population which consists primarily of short-stay
patients. These hospitals are not well positioned to provide the most cost
effective services to critically ill and injured extended stay patients because
of their focus and lack of critical mass with respect to these patients.
Traditional hospitals have an incentive to discharge these patients to other
specialty care providers as soon as practicable. In addition, payors are seeking
specialized clinical programs that provide high quality, predictable outcomes
that demonstrate reduced cost for this disenfranchised, expensive patient
population. The Company estimates that the cost of treatment for this discrete
patient population exceeds $2 billion annually.
Intensiva leases underutilized space from general acute care hospitals
("Host Hospitals") in underserved secondary markets, creating a separate
"hospital within a hospital." By leasing space from the Host Hospital, Intensiva
is able to minimize capital and overhead costs, including owning and operating
the physical plant and expensive medical and diagnostic equipment. The Company
is able to purchase certain services from its Host Hospitals, such as laboratory
and radiology (MRI, CAT Scan, X-Ray), as well as hotel services such as laundry,
housekeeping, dietary and property management. The Company's business model
provides for each of its specialized hospitals to become certified as a long-
term care hospital and exempt from Medicare's Prospective Payment System ("PPS")
after a minimum of six months of operations, and receive cost-based
reimbursement, which the Company believes is more appropriate given the medical
condition of its patients.
The Company's objective is to be a leading provider of high quality,
clinically appropriate, cost effective care for critically ill or injured
patients requiring extended lengths of stay. To achieve this goal the Company
intends to: (i) penetrate underserved secondary markets, defined as service area
populations of one million or less; (ii) maintain and develop key referral
sources, including managed care organizations and insurance companies; (iii)
explore the development of management services organizations; (iv) maintain a
highly focused admissions process; (v) expand its clinical protocols to address
the needs of patients with similar diagnoses; and (vi) leverage its existing
infrastructure. As of August 31, 1996, the Company operated seven clinical
programs in four states (254 beds), had an additional two clinical programs
under development in two states (61 beds), and had entered into a letter of
intent to open one additional clinical program (40 beds).
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... shares
Common Stock offered by the Selling Stockholder....... 326,287 shares
Common Stock to be outstanding after the Offering..... shares(1)
Use of proceeds....................................... For development of additional
facilities, working capital and
general corporate purposes,
including possible acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol................ IHCC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED STATISTICAL DATA)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM ENDED
JULY 18, 1994 YEAR JUNE 30,
THROUGH ENDED --------------------
DEC. 31, 1994 DEC. 31, 1995 1995 1996
-------------- ------------- ------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................. $ -- $ 1,488 $ 165 $ 6,076
Operating expenses............................ -- 2,521 714 6,305
General and administrative.................... 214 1,884 736 1,324
Provision for doubtful accounts............... -- 139 30 150
Depreciation and amortization................. -- 29 14 249
Operating income (loss)....................... (214) (3,085) (1,329) (1,952)
Interest (expense) income, net................ (1) 238 128 202
Net income (loss)............................. $ (215) $(2,847) $(1,201) $(1,750)
Pro forma:(2)
Net income (loss) per share................ $(0.39) $(0.24)
Weighted average shares outstanding........ 7,268 7,268
SELECTED STATISTICAL DATA:
Long-term exempt hospitals:
Open at end of period...................... -- 1 -- 1
Average daily census(3).................... -- 6 -- 17
Medicare revenue(4)........................ -- 44.4% -- 45.5%
All other facilities:
Open at end of period...................... -- 1 1 5
Average daily census(3).................... -- 1 4 18
Medicare revenue(4)........................ -- 100.0% 92.3% 90.9%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(5)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 5,217 $ 5,217 $
Working capital........................................ 8,564 8,564
Total assets........................................... 13,431 13,431
Long-term obligations.................................. 710 710
Stockholders' equity................................... 10,040 10,040
</TABLE>
See notes on following page.
4
<PAGE> 6
(1) Does not include 15,950 shares issuable upon the exercise of warrants at a
weighted average exercise price of $3.76 and 575,850 shares issuable upon
the exercise of options at a weighted average exercise price of
approximately $0.74, in each case outstanding as of August 31, 1996. See
"Capitalization," "Management" and Notes 4 and 9 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of net loss per share, weighted average shares
outstanding and pro forma balance sheet information.
(3) Average daily census for all applicable facilities. Calculated based upon
number of days patient services were provided during period shown.
(4) As a percentage of net revenues. Excludes net revenues from managed care
organizations including Medicare managed care, traditional indemnity
insurers, third-party administrators and other non-governmental payors.
(5) Adjusted to give effect to the sale of Common Stock offered hereby at an
assumed initial public offering price of $ , and application of the net
proceeds therefrom and conversion of the Convertible Preferred Stock into
Common Stock. See "Use of Proceeds" and "Capitalization."
Except as otherwise stated, all information in this Prospectus assumes no
exercise by the Underwriters of their option to purchase from the Company up to
shares of Common Stock to cover over-allotments, if any, and has been
adjusted to reflect the occurrence of the following transactions on or before
closing of this Offering: (i) a five and one-half-for-one stock split in the
form of a stock dividend with respect to the Common Stock to be effective
immediately prior to the Offering; (ii) conversion of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock (the "Convertible
Preferred Stock") into 5,697,967 shares of Common Stock; and (iii) the filing
and effectiveness of the Company's Third Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation").
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
History of Operating Losses; Uncertainty of Profitability. As a result of
its early stage of development, the Company has generated limited revenue to
date, has experienced operating losses since its inception in 1994, and has not
yet achieved profitability. The Company had operating losses of approximately
$2.0 million for the six-month period ending June 30, 1996, and an accumulated
deficit of approximately $4.8 million at June 30, 1996. At the present time, the
Company anticipates that it will continue to generate losses through at least
the second quarter of 1997. There can be no assurance that the Company will
successfully penetrate the market for its targeted patient population or that
the Company will ever produce significant levels of net revenues or achieve
sustainable profitability. In addition, the Company may fail to attract
sufficient patients, develop acceptance among referral sources and payors or
receive adequate reimbursement from governmental and non-governmental payors,
any of which may limit the Company's ability to achieve profitability. The
likelihood of the Company's success must be considered in light of these and
other challenges, expenses, complications and delays frequently encountered in
connection with the formation of a new business and the development and
commercialization of new services. The Company may also experience fluctuations
in net revenues and earnings as a result of its rate of development of new
facilities and other factors such as the mix of non-exempt and exempt hospitals.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations" "--Dependence on Host Hospitals," "--Reliance Upon Referral Sources"
and "--Payor Mix."
Limited Operating Experience. The Company has limited experience operating
acute long-term care facilities and providing care to critically ill and injured
patients. Further, the Company is seeking to substantially expand the number of
facilities it operates. There can be no assurance that the Company will be able
to successfully operate its business, particularly in light of the Company's
expansion plans. Failure to successfully operate the Company's business would
have a material adverse effect on the Company's business, financial condition or
results of operation.
Health Care Reform; Reliance Upon Government Programs; Possible Reduction
in Reimbursement. Approximately 44% and 46% of the Company's net revenues in
1995, and the six months ended June 30, 1996, respectively, were derived from
payments made by Medicare. The Company's hospitals operate under an exemption
from Medicare's Prospective Payment System ("PPS") pursuant to which non-exempt
hospitals are reimbursed based upon diagnosis-related groups ("DRGs"). This
exemption, created in 1983, was intended to be temporary. Efforts to eliminate
this exemption, coupled with increasing budgetary pressures may lead to
substantial changes in government-sponsored health care programs. Currently,
there are various proposals which, if enacted, would affect Medicare and
Medicaid reimbursement for long-term care hospitals. President Clinton's 1997
budget proposal would put a moratorium on the exemption from PPS for new
long-term care hospitals. The moratorium would be effective upon enactment of
the proposed legislation, or possibly retroactive to October 1, 1995. The effect
of the moratorium would be to reimburse new long-term care hospitals under PPS
on the same basis that general acute care hospitals are reimbursed. From an
economic perspective, the Company could not open new long-term care hospitals
under that reimbursement system, and if existing Company hospitals (none of
which were certified as long-term care hospitals as of October 1, 1995) are
included within the scope of the moratorium, those hospitals would also be
reimbursed at rates below incurred costs, rendering these hospitals
unprofitable. For existing long-term care hospitals, the President's budget
proposal would rebase cost limits for all long-term care hospitals, capping
reimbursable operating costs at 150% of the national mean inpatient operating
costs for all long-term care hospitals. Because of the high acuity of the
patients in the Company's hospitals, the Company's costs for Medicare patients
would probably exceed the amount of Medicare reimbursement for those
6
<PAGE> 8
patients if the President's proposal is enacted. Further, for existing long-term
care hospitals, the President's budget proposal would reduce capital payments by
15%, reduce future increases in the operating cost limits, eliminate incentive
payments for long-term care hospitals that reduce costs below cost ceilings and
treat a move from a PPS hospital to a PPS exempt setting as a transfer rather
than a discharge. All of the President's budget proposals would reduce Medicare
reimbursement to the Company's hospitals. The President's current proposals on
these issues are similar to those contained in his 1996 budget proposal. In the
Balanced Budget Act of 1995, which was vetoed by President Clinton, long-term
care hospitals' reimbursable operating costs would have been limited to 130% of
the average payment amount for all long-term care hospitals based on cost
reports for cost years beginning in 1991. Implementation of this proposal would
have imposed a de facto moratorium on the creation of new long-term care
hospitals that treat high acuity Medicare patients. Also, the Balanced Budget
Act of 1995 would have reduced capital payments to long-term care hospitals as
well as reduced future ceilings for operating cost increases. It is anticipated
that the Republican's 1997 budget plan would include most of the same provisions
for Medicare providers contained in the Balanced Budget Act of 1995. All of
these additional potential proposals would reduce Medicare payments to the
Company's hospitals. Other proposals to reform Medicare that contain these and
other changes to Medicare are being actively considered. The Company cannot
predict what or when legislation, if any, may be enacted. Any such legislation
may have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Government Regulation."
Start-Up Costs; Licensure and Certification Risks. The Company incurs
substantial costs in opening and initially operating new hospitals, including
leasing costs, renovation and equipment costs and working capital needs. The
Company seeks to have its hospitals certified by Medicare as long-term care
hospitals, which are exempt from the PPS limitations and thus eligible to
receive cost-based reimbursement for services rendered to Medicare patients. The
certification process to qualify for cost-based reimbursement takes a minimum of
six months (the "qualification period"). In order to successfully complete the
certification process, the Company's patients must have an average length of
stay of greater than 25 days. Failure to maintain an average length of stay
greater than 25 days would result in the loss of certification and qualification
to receive cost-based reimbursement. Reimbursement under PPS results in lower
payments to the hospital than under cost-based reimbursement and is not received
until after a patient is discharged, rather than periodically as costs are
incurred. If the Company is unable to receive Medicare certification as a
long-term care hospital on a timely basis for one or more of its facilities and
other exemptions from PPS are not available, the Company's business, financial
condition or results of operations may be adversely affected. In addition, the
Company expects to incur substantial losses with respect to each of its
hospitals during the certification process. Depending on the rate at which the
Company opens new hospitals, such losses could have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company's plans to expand its business are dependent in part upon its
ability to obtain requisite licenses, certifications, permits, approvals and
certificates of need. In some states, for example, health care providers have
experienced delays in obtaining Medicare certification or certification as a
long-term care hospital. As another example, the Company is seeking to overturn
an administrative ruling that Missouri's certificate of need process was
applicable to a proposed Company hospital in Missouri. See "Business--Legal
Proceedings." No assurance can be given that the requisite licenses and
certifications will be granted by the applicable regulatory agencies for all, or
even any, of the Company's future hospitals or those currently under
development. Failure to obtain requisite licenses, certifications, permits,
approvals or certificates of need for any hospital or the delay in issuance of
any such licenses, certifications, permits, approvals or certificates of need
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Government Regulation."
Collection and Reimbursement Risks. The Company assumes the financial risk
related to collection of its accounts receivable, including the potential
uncollectibility of accounts and delays and adjustments attendant to
reimbursement by third party payors, such as government programs, private
7
<PAGE> 9
insurance plans and managed care plans. In addition, the nature of the services
rendered by the Company can result in the incurrence of significant charges with
respect to individual patients, which can be difficult to collect from patients
and/or payors. Because the Company is in the early stages of developing its
facilities, credit risk is concentrated in a small number of its patients and/or
payors. Failure to adequately manage the collection risks and working capital
demands could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Government Regulation."
Payor Mix. For services provided to patients covered by Medicare, the
Company receives reimbursement that is either limited by PPS, or, if the
applicable Company hospital is exempt from PPS, is based upon the Company's
reasonable costs. The Company has or anticipates entering into contracts with
managed care organizations that provide for per diem, per discharge or other
capitated forms of payment. Most of the Company's agreements with managed care
organizations also provide for significant discounts from the Company's routine
charges. The Company receives payment for other patients based upon fee for
service arrangements or negotiated rates. The Company's success will be
determined in part upon its ability to achieve the anticipated mix of payors and
to enter into contractual arrangements with managed care organizations and other
payors that will allow the Company to be paid in excess of the costs incurred in
rendering services. Failure to achieve the anticipated payor mix could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Sources of Revenue."
Reliance Upon Referral Sources. The Company's patient admissions are
dependent upon establishing and maintaining relationships with unrelated third
parties who refer patients to the Company. The Company believes that its ability
to obtain referrals is based upon demonstrating high quality of care,
convenience to referral sources and cost effective outcomes. The Company
believes it will continue to receive a large number of referrals from its Host
Hospitals. To the extent that a Host Hospital's census, reputation or general
acceptance in the community declines, or to the extent the Company does not
adequately manage its relationships with referral sources, there could be a
material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Government Regulation--Regulation of
Relationships Among Health Care Providers."
Dependence on Host Hospitals. The Company relies upon its Host Hospitals to
provide a variety of necessary services and amenities. Typically, each Intensiva
facility will contract with a Host Hospital to provide diagnostic and other
support, hotel and ancillary services such as laundry and linen, dietary and
waste disposal, as well as for access to certain medical services, such as
laboratory and radiology (MRI, CAT Scan, X-Ray). Should the Host Hospital fail
to adequately provide these services, it is uncertain whether another cost
effective source could be found or effectively utilized. Further, should the
Host Hospital cease or significantly reduce operations, it is unlikely the
Intensiva facility could continue operations at that location.
Non-renewal or Termination of Leases. The Company's facilities have leases
that have an initial term of five or more years. Intensiva has been operating
for approximately one and one-half years. Accordingly, none of its leases have
come up for renewal. It is unknown whether the Host Hospitals will renew such
leases upon expiration of their initial terms, or what new payments or other
lease terms the Host Hospital will negotiate upon renewal. In addition, a lease
could be terminated because of a breach of the lease by either the Company or
the Host Hospital. Failure to renew leases with adequate financial terms upon
expiration or early termination of a lease could have a material adverse effect
on the Company's business, financial condition or results of operation.
Relocation of Oklahoma City Facility. The Company's facility in Oklahoma
City, Oklahoma, is currently located in Southwest Medical Center. Subsequent to
the opening of that facility, Southwest Medical Center merged with
Integris/Baptist Medical Center of Oklahoma ("Baptist"). At the request of the
merged entity, the Company anticipates relocating its facility to Baptist.
Relocation is expected to be completed before 1997. Such relocation could have a
material adverse effect upon the operations
8
<PAGE> 10
of that facility, which is contributing a substantial amount of the Company's
net revenues. As of June 30, 1996, this was the only Company facility with a
positive cash flow and producing operating income.
Regulation of Relationships Among Health Care Providers. Federal and state
laws regulate the relationships among providers of health care services,
physicians and other clinicians. These laws include the fraud and abuse
provisions of the Medicare and Medicaid statues, which prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or for
recommendation, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services, as well as laws that impose significant penalties for
false or improper restrictions on physician referrals for designated health
services to entities with which they have financial relationships. While the
Company believes it has complied with all applicable requirements in its leases
with Host Hospitals and contracts and relationships with its medical staff,
other entities and individuals, there can be no assurance that, if reviewed, the
arrangements would be found to be in compliance. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil money penalties and exclusion from participation in
Medicare and Medicaid programs. Such exclusion and penalties, if applied to the
Company, could result in significant loss of reimbursement, and could have a
materially adverse effect on the Company's business, financial condition or
results of operations. See "Business--Government Regulation."
Management Systems. The Company's success will depend in part on its
ability to develop, implement, protect and maintain its management systems,
particularly as they relate to the growth of the Company. There can be no
assurance that the Company's management systems will be adequate to support the
Company's anticipated growth or meet future patient care, reimbursement or
outcome reporting requirements. In addition, some of the Company's management
systems are licensed from third parties and there can be no assurance that such
systems will be maintained and updated so as to meet the Company's ongoing
requirements. There can be no assurance that the Company's systems do not
infringe upon the proprietary rights of others. See "Business--Management
Systems."
Competition. The services provided by the Company are subject to
substantial competition. Competition exists from several sources, including
regional and local hospitals and other health care organizations providing
competitive services. Certain of the Company's competitors are larger and better
capitalized, have greater experience in providing acute long-term care hospital
services and may have longer established relationships with the referral sources
and payors for such services. While general acute care hospitals cannot
currently qualify for cost-based reimbursement as long-term care hospitals on
their existing campuses, in certain urban markets rapid consolidation of general
acute care hospitals is occurring and hospital operators could apply for PPS
exemption for long-term care hospitals that are not located on the same campus
as their general acute care hospitals, and thereby compete with the Company on a
similar basis. The regulations could also change to permit general acute care
hospitals to operate exempt long-term care hospitals located on their campuses.
As a result of this competition, the Company may not be able to maintain or
increase its market share, achieve profitability or continue its operations. See
"Business--Competition."
Professional Liability and Uncertainty of Adequate Insurance. The Company's
medical staff provides care to critically ill and injured patients. A certain
percentage of these patients are expected to deteriorate in condition, and some
will die. The Company may be subject to professional liability claims and costs.
In addition, the Company's leases with Host Hospitals generally require the
Company to indemnify the Host Hospitals for losses resulting from the negligence
of the Company, its employees and those affiliated with the Company. The Company
maintains professional and general liability insurance. While the Company
believes it has adequate professional and general liability coverage, there can
be no assurance that the insurance maintained by the Company would be sufficient
to fully cover the Company in the event of a claim. Furthermore, there can be no
assurance that the Company will be able to obtain liability insurance in the
future with adequate coverages or at acceptable costs. Any claim against the
Company could have a material adverse effect on the Company's reputation,
patient referrals, business, financial conditions or results of operations. "See
Business--Insurance."
9
<PAGE> 11
Expansion; Capital Requirements. The Company's expansion plans depend in
part on its ability to lease excess capacity from general acute care hospitals
and to develop acute long-term care hospitals in such space. There can be no
assurance that the Company will be able to successfully select new geographic
markets and Host Hospitals or otherwise develop new hospital facilities. The
Company's expansion strategy may also divert management's attention from the
operation of the Company's existing hospitals. In addition, the Company's growth
strategy requires substantial capital for the development of additional acute
long-term care hospitals. Development of additional new acute long-term care
hospitals requires capital for renovation, expansion and working capital. The
Company believes that its existing cash resources, together with the net
proceeds from the sale of shares of Common Stock offered by the Company hereby,
will be sufficient to meet to the Company's anticipated expansion and working
capital needs through year end 1997. However, there can be no assurance that
additional capital will not be needed. See "Use of Proceeds."
Dependence on Key Personnel; Recruitment. The Company is highly dependent
on the principal members of its management and development team, the loss of
whose services might impede the achievement of the Company's business
objectives. The loss of David W. Cross, President and Chief Executive Officer,
John R. Lewis, Executive Vice President and Chief Operating Officer, or other
key personnel, could have a material adverse effect on the Company. The Company
has employment agreements with Messrs. Cross, Lewis and other key personnel.
Among other things, these agreements prohibit such executive employees from
competing with the Company under certain conditions for a specific period
following termination, subject to certain exceptions. There can be no assurance
that these non-competition agreements are enforceable under all circumstances.
Currently the Company has key person life insurance in the amount of $1.0
million on the lives of each of Messrs. Cross and Lewis. In addition, as the
Company grows, recruiting and retaining additional qualified personnel to
supervise and manage the Company's development and operations will be important
to the Company's success. Competition exists for qualified personnel, and there
can be no assurance that the Company will be able to attract and retain skilled
and experienced management, development and operations personnel on acceptable
terms. See "Management."
Control by Directors and Executive Officers. Upon completion of this
Offering, the directors and executive officers of the Company, and their
affiliates, as a group will beneficially own approximately [50]% of the
outstanding shares of Common Stock of the Company. As a result, these
stockholders acting together would be able to exert considerable influence over
the election of the Company's directors and the outcome of most corporate
actions requiring stockholder approval, such as certain amendments to the
Certificate of Incorporation. Additionally, such directors and executive
officers will have significant influence over the policies and operations of the
Company's management and the conduct of the Company's business. Such
concentration of ownership may have the effect of delaying, deferring or
preventing a change of control of the Company and consequently could affect the
market price of the Common Stock. See "Management--Executive Officers and
Directors" and "Principal and Selling Stockholders."
Board of Directors and Management Control of Use of Proceeds. Of the
Company's estimated $ million in net proceeds from this Offering, the Company
expects to use approximately $18 million for development of additional
facilities, and the balance for working capital and other general corporate
purposes, including the possible acquisition of long-term care hospitals.
Accordingly, management and the Board of Directors of the Company will have
complete discretion as to the application of substantially all of the funds
raised in this Offering. See "Use of Proceeds."
Anti-Takeover Effect of Certain Charter, By-Law and Delaware Law
Provisions; Possible Issuance of Preferred Stock. Certain provisions of the
Company's Certificate of Incorporation, Amended and Restated By-laws
("By-laws"), and Delaware law could, together or separately, discourage
potential acquisition proposals, delay or prevent a change in control of the
Company and limit the price that certain investors might be willing to pay in
the future for shares of the Common Stock. These provisions, among other things,
provide for advance notice provisions and other limitations on the right to call
a special meeting of stockholders, to nominate directors and to submit proposals
to be
10
<PAGE> 12
considered at stockholders' meetings. The Certificate of Incorporation provides
for a staggered Board of Directors, with one-third of the board members being
elected each year to a three-year term. Directors may be removed only for
"cause," as defined in the Certificate of Incorporation. The Company is also
subject to Section 203 of the Delaware General Corporation Law which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in a broad
range of business combinations with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder. In addition, the Company's Certificate of Incorporation, as amended
prior to consummation of this Offering, will authorize the Board of Directors to
issue preferred stock with no par value ("Undesignated Preferred Stock") without
stockholder approval and upon such terms as the Board of Directors may
determine. While no shares of Undesignated Preferred Stock will be outstanding
upon the consummation of this Offering, and the Company has no present plans to
issue any shares of Undesignated Preferred Stock, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
any holders of Undesignated Preferred Stock that may be issued in the future.
See "Description of Capital Stock."
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or be sustained after
this Offering or that the market price of the Common Stock will not decline
below the initial public offering price. The initial public offering price of
the Common Stock has been determined through negotiations between the Company
and the Representatives of the Underwriters. Factors such as market acceptance
of the Company's services, development of additional hospitals, physician
referrals, regulatory reform as well as other government regulations, investor
perception of the Company, fluctuations in the Company's operating results and
general market conditions in the industry may cause the market price of the
Common Stock to fluctuate significantly. In addition, the stock market in
general has recently experienced extreme price and volume volatility. These
broad market fluctuations may have a material adverse effect on the market price
of the Common Stock. See "Underwriting."
Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market following this
Offering could have a material adverse effect on the market price of the Common
Stock and the Company's ability to raise capital in the capital markets at a
time and on terms favorable to the Company. The Company, its executive officers
and directors and certain other of its stockholders who, in the aggregate,
currently hold approximately 7,050,000 shares of Common Stock, have agreed
pursuant to lock-up agreements that they will not, without the prior written
consent of Hambrecht & Quist LLC, sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock beneficially owned by them for a period of 180 days from the
date of this Prospectus (the "Effective Date"). Upon the expiration of these
lock-up agreements, certain of these shares will become eligible for sale in the
public market, and other shares will become eligible for sale in the public
market from time to time after the date of this Prospectus, subject to the
exemptive provisions of the Securities Act of 1933, as amended (the "Securities
Act"), and Rule 144 promulgated thereunder.
The holders of approximately 7,050,000 shares of Common Stock, including
shares issuable upon the exercise of outstanding warrants and issuable upon
conversion of the Convertible Preferred Stock, are entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be sold in the
public market pursuant to such a registration, such sales could have a material
adverse effect on the market price for the Common Stock. See "Shares Eligible
for Future Sale" and "Description of Capital Stock."
Dilution. The existing stockholders of the Company acquired their shares of
Common Stock at an average cost substantially below the initial public offering
price set forth on the cover page of this Prospectus. Accordingly, investors in
this Offering will experience immediate and substantial dilution. See
"Dilution."
11
<PAGE> 13
THE COMPANY
The Company was incorporated as a Delaware corporation in July 1994. The
original name of the Company was Transitional Care of America, Inc. Its
principal executive offices are located at 7733 Forsyth Blvd., 11th Floor, St.
Louis, Missouri 63105, and its telephone number is (314) 725-0112.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $ million ($ million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share and after deduction of estimated
underwriting discounts and commissions and offering expenses payable by the
Company. The Company expects to use approximately $18 million for development
and operation of additional facilities, and the balance for working capital and
other general corporate purposes, including the possible acquisition of other
facilities through 1997. Although the Company has had preliminary discussions
from time to time regarding possible acquisition opportunities, the Company has
no agreements, understandings or commitments with respect to any such
opportunity nor has the Company allocated any portion of the net proceeds
hereunder for any specific acquisition. There can be no assurance that any
future acquisition will be consummated. Pending application of the net proceeds
as described above, the Company intends to invest the net proceeds of the
Offering in interest-bearing securities of investment grade.
The Company will not receive any of the proceeds from the sale of shares
offered by the Selling Stockholder. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock and
does not anticipate declaring or paying any dividends in the foreseeable future.
The Company currently intends to retain all of its earnings, if any, for use in
the operation and expansion of its business. The payment of future dividends, if
any, will be at the discretion of the Company's Board of Directors and will be
dependent upon the Company's future earnings, financial condition, capital
requirements and other relevant factors.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis, (ii) a pro forma basis, assuming the
Convertible Preferred Stock was converted to Common Stock, and (iii) as adjusted
to reflect the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share, and application of the
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations......................................... $ 710 $ 710 $
-------- ------- -------
Stockholders' equity:
Preferred stock, no par value, 30,000,000 shares authorized,
no shares issued......................................... -- -- --
Series A Convertible Preferred Stock, 3,465,000 shares
issued and outstanding--actual; no shares issued--pro
forma and pro forma as adjusted.......................... 3 -- --
Series B Convertible Preferred Stock, 2,232,967 shares
issued and outstanding--actual; no shares issued--pro
forma and pro forma as adjusted.......................... 2 -- --
Common Stock, 1,332,100 shares issued and
outstanding--actual; 7,030,067 shares issued--pro forma
and shares issued--pro forma as adjusted(1).... 1 7
Additional paid-in capital.................................. 14,847 14,846
Accumulated deficit......................................... (4,813) (4,813)
-------- ------- -------
Total stockholders' equity............................... 10,040 $10,040
-------- ------- -------
Total capitalization................................ $10,750 $10,750 $
======== ======== =======
</TABLE>
- ------------------------------
(1) Includes 5,697,967 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock immediately prior to consummation of the sale of
shares of Common Stock hereunder. Outstanding shares exclude 15,950 shares
issuable upon exercise of warrants at a weighted average exercise price of
$3.76 and 575,850 shares issuable upon exercise of options at a weighted
average exercise price of $0.74, in each case outstanding as of August 31,
1996.
13
<PAGE> 15
DILUTION
The net tangible book value of the Company at June 30, 1996, was
approximately $10.0 million, or $1.42 per share of Common Stock assuming the
conversion of the 5,697,967 shares of Convertible Preferred Stock into Common
Stock upon the completion of this Offering. "Net tangible book value" represents
the amount of total tangible assets less total liabilities. Net tangible book
value per share is determined by dividing the number of outstanding shares of
Common Stock into the net tangible book value of the Company. After giving
effect to the sale of shares offered by the Company hereby and the
receipt and application of net proceeds therefrom the pro forma net tangible
book value of the Company at June 30, 1996, would have been approximately $
million, or $ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing shareholders and an immediate
dilution of $ per share to new investors. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Actual net tangible book value per share............................ $
Pro forma net tangible book value per share at June 30, 1996........ 1.42
Increase per share attributable to new investors....................
Pro forma net tangible book value per share after the Offering........
-----
Dilution per share to new investors................................... $
=====
</TABLE>
The following table sets forth on a pro forma basis, as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by (i)
the existing stockholders of the Company (assuming conversion of the Convertible
Preferred Stock), and (ii) the purchasers of shares sold by the Company
in this Offering (at an assumed public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 7,030,067 % $14,853,103 % $2.11
New stockholders............... --------- ----- ----------- -----
Total........................ 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables do not take into account the exercise of the
Underwriters' over-allotment option or the exercise of outstanding stock options
or warrants. There were 575,850 shares of Common Stock issuable upon exercise of
options outstanding at a weighted average exercise price of $0.74 per share,
15,950 shares of Common Stock issuable upon exercise of warrants at a weighted
average exercise price of $3.76 per share, and 209,550 additional shares of
Common stock reserved for issuance upon exercise of options that may be granted
in the future under the Company's Stock Option Plan, in each case as of August
31, 1996. To the extent that these options or warrants are exercised, there will
be further dilution to new investors. See "Management--Executive Compensation,"
"Description of Capital Stock--Stock Option Plan," "Shares Eligible for Future
Sale" and Note 1 of Notes to Consolidated Financial Statements.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the period
from July 18, 1994 (inception) through December 31, 1994, and the year ended
December 31, 1995, have been derived from the consolidated financial statements
of the Company included elsewhere in this Prospectus which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Data at June
30, 1996, and for the six month periods ended June 30, 1995, and 1996, is
unaudited. Results for the six months ended June 30, 1996, are not necessarily
indicative of the results to be expected for the full fiscal year. The selected
consolidated financial data set forth below should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM ENDED
JULY 18, 1994 YEAR JUNE 30,
THROUGH ENDED ------------------
DEC. 31, 1994 DEC. 31, 1995 1995 1996
------------- ------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED
STATISTICAL DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................. $ -- $ 1,488 $ 165 $ 6,076
Expenses:
Operating expenses..................................... -- 2,521 714 6,305
General and administrative............................. 214 1,884 736 1,324
Provision for doubtful accounts........................ -- 139 30 150
Depreciation and amortization.......................... -- 29 14 249
----- ------- ------- -------
Total expenses.................................... 214 4,573 1,494 8,028
Operating income (loss).................................. (214) (3,085) (1,329) (1,952)
Interest (expense) income, net........................... (1) 238 128 202
----- ------- ------- -------
Net income (loss)........................................ $(215) $(2,847) $(1,201) $(1,750)
Pro forma:(1)
Net income (loss) per share............................ $ (0.39) $ (0.24)
Weighted average shares outstanding.................... 7,268 7,268
SELECTED STATISTICAL DATA:
Long-term exempt hospitals:
Open at end of period.................................. -- 1 -- 1
Average daily census(2)................................ -- 6 -- 17
Medicare revenue(3).................................... -- 44.4% -- 45.5%
All other facilities:
Open at end of period.................................. -- 1 1 5
Average daily census(2)................................ -- 1 4 18
Medicare revenue(3).................................... -- 100.0% 92.3% 90.9%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------ ------------------------
1994 1995 ACTUAL PRO FORMA(1)
------ ------- ------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 190 $11,261 $ 5,217 $ 5,217
Working capital.......................................... 4,173 11,207 8,564 8,564
Total assets............................................. 4,560 13,698 13,431 13,431
Long-term obligations.................................... -- 291 710 710
Stockholders' equity..................................... 4,238 11,790 10,040 10,040
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of net loss per share, weighted average shares
outstanding and pro forma balance sheet information.
(2) Average daily census for applicable facilities. Calculated based upon number
of days patient services were provided during period shown.
(3) As a percentage of net revenues. Excludes net revenues from managed care
organizations including Medicare managed care, traditional indemnity
insurers, third-party administrators and other non-governmental payors.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Intensiva provides highly specialized, acute long-term care for critically
ill or injured patients who require intensive medical monitoring and treatment,
and who often have multiple medical conditions and are medically unstable. The
Company provides high quality, cost effective, specialized care for its
patients, who typically require an average length of stay of greater than 25
days in an intensive inpatient setting. Intensiva's medical staffs provide
specialized medical services, as well as nursing and respiratory care, and the
Company is developing disease-specific pathways to treat pulmonary, cancer,
renal and cardiac conditions, among others. The Company's clinical programs
utilize specialized staff, equipment and protocols for the treatment of its
patients.
Intensiva leases underutilized space from Host Hospitals in underserved
secondary markets, creating a separate "hospital within a hospital." By leasing
space from the Host Hospital, Intensiva is able to minimize capital and overhead
costs including owning and operating the physical plant and expensive medical
and diagnostic equipment. The Company is able to purchase certain services from
its Host Hospitals, such as laboratory and radiology (MRI, CAT Scan, X-Ray), as
well as hotel services such as laundry, housekeeping, dietary and property
management. The Company's business model provides for each of its specialized
hospitals to become certified as a long-term care hospital and exempt from PPS
after a minimum of six months of operations, and receive cost-based
reimbursement, which the Company believes is more appropriate given the medical
condition of its patients. In addition, the Company's business model seeks to
maintain the anticipated payor mix which includes both non-governmental and
governmental payors. The Company is reimbursed by non-governmental payors on per
diem, per discharge or other capitated forms of payment and upon fee for service
arrangements or negotiated charges.
Operations begin approximately four months after an agreement is executed
with a Host Hospital. During the qualification period, the Company spends
approximately one million dollars on renovation costs, equipment purchases,
pre-opening costs and working capital before the facility becomes eligible for
certification as a long-term care hospital. Patient volumes are lower during the
non-exempt phase while physicians, case managers and payors are educated as to
the benefits of the Company's clinical services.
During 1995, the Company's first certified long-term care hospital
generated net revenues of $690,000 and had an operating loss of $13,000 in its
first two months of PPS-exempt operations. In contrast, the Company generated
net revenues of $800,000 and operating losses (exclusive of general and
administrative expenses) of $1.2 million from all other facilities during fiscal
1995.
During the first six months of 1996, the Company's first certified
long-term care hospital generated revenue of $3.3 million and an operating
margin of $800,000, or 24%. In contrast, all other clinical operations generated
net revenues of $2.8 million and had operating losses (exclusive of general and
administrative expenses) of $1.4 million during the same period. The Company
anticipates that it will continue to realize operating losses for at least the
first seven months of operations at each location.
The Company currently operates seven facilities in four states. In
addition, the Company has three other facilities in three states at various
stages of the development process, each of which the Company anticipates will
begin operations in 1996. The Company has generated historical operating losses
as a result of its rapid growth and anticipates that it will continue to incur
such losses through at least the second quarter of 1997.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentages
of net revenues represented by certain items reflected in the Company's
statements of operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------
1995 1995 1996
------------ ------ -------
<S> <C> <C> <C>
Net revenues............................................ 100.0% 100.0% 100.0 %
Expenses:
Operating expenses.................................... 169.4 446.1 103.8
General and administrative expenses................... 126.6 445.5 21.8
Provision for doubtful accounts....................... 9.4 18.2 2.4
Depreciation and amortization......................... 1.9 8.5 4.1
--------- ------ -----
Total expenses..................................... 307.3 905.5 132.1
--------- ------ -----
Operating loss.......................................... (207.3) (805.5) (32.1)
Interest income, net.................................... 16.0 77.6 3.3
--------- ------ -----
Net loss................................................ (191.3)% (727.9)% (28.8)%
========= ====== =====
</TABLE>
As indicated in the above table, operating expenses, corporate general and
administrative expenses, the provision for doubtful accounts and depreciation
and amortization as a percentage of operating revenues have declined over time
as the Company has developed additional facilities and increased net revenues.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Revenues. Net revenues for the six months ended June 30, 1996 were $6.1
million compared to $200,000 for the comparable period in 1995. Approximately
$2.8 million of this revenue growth is attributed to new facilities, and the
remaining $3.3 million was generated by the Company's Oklahoma City, Oklahoma,
facility. The Company opened its first location in Oklahoma, City, Oklahoma, in
March 1995 and had six operational sites at June 30, 1996. Prior to March 1995,
the Company was a development stage company.
Operating Expenses. Operating expenses for the six months ended June 30,
1996 increased $5.6 million from the comparable period in 1995. Approximately
$3.2 million of this increase is attributable to new facilities, while the
remaining $2.4 million was generated by the Company's Oklahoma City, Oklahoma,
facility. As a percentage of net revenues, operating expenses decreased from
433% to 104%. The Company expects this percentage to continue to decline as its
facilities mature.
General and Administrative. General and administrative expenses for the six
months ended June 30, 1996 increased $600,000, or 80%, to $1.3 million for the
comparable period in 1995. The increase in expenses was partially attributable
to salaries, related payroll taxes and employee benefits relating to additional
personnel retained to support the Company's growth strategy. As a percentage of
net revenues, general and administrative expenses decreased from 446% to 22%.
The Company expects that its general and administrative expenses will continue
to decrease as a percentage of net revenues as the Company grows and achieves
certain economies of scale.
Depreciation and Amortization. Depreciation and amortization for the six
months ended June 30, 1996 increased $235,000 to $250,000 from the comparable
period in 1995. The increase relates to the acquisition of additional property
and equipment and the amortization of a computer software license, and
organizational and pre-opening costs associated with the six open hospitals at
June 30, 1996. Property and equipment increased from $300,000 at June 30, 1995
to $2.0 million at June 30, 1996. A computer software license was obtained in
December 1995 for $500,000 and is being amortized over the three-year estimated
useful life of the license. Organizational and preopening costs increased from
$5,328 at June 30, 1995 to $200,000 at June 30, 1996.
17
<PAGE> 19
Income Taxes. The Company has paid minimal income taxes to date and has
approximately $2.5 million of net operating loss carryforwards for income tax
purposes, which, if unused, will begin to expire in the year 2009.
YEAR ENDED DECEMBER 31, 1995 AND PERIOD (SINCE INCEPTION--JULY 18, 1994) ENDED
DECEMBER 31, 1994
The Company began providing patient services in late March 1995. Prior to
that time, the Company was a development stage company. Activities in 1994
consisted primarily of raising capital, organizing administrative functions and
initial development activities. The Company's focus during 1995 was directed
toward market selection and the opening and operation of its first facility. In
addition, considerable effort was concentrated on preparations for opening its
Hammond, Indiana (December 1995) and Beech Grove, Indiana (January 1996)
facilities.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly financial position and results of operations have
fluctuated due to its emerging from the development stage status in March 1995,
obtaining PPS-exempt status for its first facility in November 1995, and the
opening of additional facilities in December 1995, January 1996, February 1996,
April 1996 and June 1996. The following table presents unaudited quarterly
operating results for each of the six quarters in the period from January 1,
1995 through June 30, 1996. The Company believes that all necessary adjustments
have been included in the amounts stated below to present fairly the following
selected quarterly information when read in conjunction with the financial
statements included elsewhere in this Prospectus. The information includes all
normal recurring adjustments the Company considers necessary for a fair
presentation thereof, in accordance with generally accepted accounting
principles.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
STATEMENT OF OPERATIONS DATA: 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................ $ -- $ 165 $ 459 $ 864 $ 2,509 $ 3,567
Operating loss...................... (572) (756) (838) (919) (834) (1,118)
Net loss............................ (504) (696) (772) (875) (729) (1,021)
</TABLE>
The Company anticipates relocating its Oklahoma City, Oklahoma operations
to a new location during the fourth quarter of 1996. The new Host Hospital is a
member of the same health care system as the Company's current Host Hospital.
This relocation could have a material adverse effect on the 1996 fourth quarter
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Through June 1996, the Company has financed its operations primarily
through proceeds from the sale of the Company's equity securities. Cash flows
from operations have not been sufficient to support ongoing operations primarily
due to losses incurred during the qualification period and the continuing
development of new facilities in accordance with the Company's growth strategy.
Cash flows used in investing activities have consisted primarily of capital
renovations, equipment purchases, a software license acquisition, and
organizational and preopening costs incurred prior to providing patient services
at each new facility. In addition to the sale of the Company's equity
securities, financing activities have included borrowings under capital leases
and a sale-leaseback agreement.
The Company made capital expenditures of approximately $600,000 and $1.4
million during the year ended December 31, 1995 and the six months ended June
30, 1996, respectively. Additional equipment was acquired through capital
leases, amounting to approximately $600,000 for both the year ended December 31,
1995 and the six months ended June 30, 1996.
18
<PAGE> 20
During March 1996, the Company entered into a sale-leaseback agreement with
a third party to take advantage of favorable borrowing rates and maintain
liquidity. This party received warrants for the Company's equity securities as a
part of this transaction. The net book value of assets sold and subsequently
leased under this agreement totaled $342,244. Net proceeds were $337,792,
resulting in a net loss of $4,452. As part of this agreement, the Company has an
available line of credit to finance additional capital expenditures (up to $1.0
million in the aggregate).
Accounts receivable balances have increased $3.8 million since December 31,
1995. Most of the increase is a result of additional new facilities and their
corresponding increase in accounts receivable.
At December 31, 1995, the Company's working capital was $11.2 million,
compared to $4.2 million at December 31, 1994, representing an increase of $7.0
million. This increase was primarily attributable to the issuance of 200,000
additional shares of Series A Convertible Preferred Stock and 405,994 shares of
Series B Convertible Preferred Stock totaling $2.0 million and $8.4 million,
respectively. Working capital at June 30, 1996 was $8.6 million, representing a
decrease of $2.6 million from December 31, 1995 which was primarily attributable
to the financing of current operations. The Company expects to invest
approximately $1.0 million per facility to fund capital renovations for
preopening costs and working capital requirements before a facility achieves
profitability.
The Company leases space from Host Hospitals under operating lease
agreements having initial terms of five or more years. The Company leases
corporate office space under a noncancellable operating lease which expires in
the year 2000. Minimum annual lease payments on noncancellable operating leases
with maturities in excess of one year are as follows: $1.8 million in 1996, $3.1
million in 1997, $3.2 million in 1998, $3.2 million in 1999, $3.3 million in
2000 and $2.3 million thereafter.
The Company estimates that the net proceeds from the Offering, together
with existing or planned financing commitments, will be sufficient to fund its
continued development and meet anticipated cash needs of the Company through at
least 1997. However, there can be no assurance that the Company will not be
required to seek additional capital.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996 and the effect was
not material to the Company's operations or financial position taken as a whole.
Under Statement 121, property and equipment of the Company are reviewed for
impairment whenever events or circumstances indicate that the asset's
undiscounted expected cash flows are not sufficient to recover its carrying
amount. The Company measures an impairment loss by comparing the fair value of
the asset to its carrying amount. Fair value of an asset is calculated as the
present value of expected future cash flows.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which provides an alternative to Accounting Principles
Board Opinion No. 25. Accounting for Stock Issued to Employees, in accounting
for stock-based compensation issued to employees. Statement No. 123 allows for a
fair value-based method of accounting for employee stock options and similar
equity instruments. However, for companies that continue to account for
stock-based compensation arrangements under Opinion No. 25, Statement No. 123
requires disclosure of the pro forma effect on net income and earnings per share
of its fair value-based accounting for those arrangements. The Company adopted
Statement No. 123 in the first quarter of 1996 and has elected to continue to
account for stock-based compensation arrangements under APB Opinion No. 25.
19
<PAGE> 21
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the business,
financial condition or results of operations of the Company. Inflation could,
however, affect the Company's future net revenues and results of operation. As a
result, the Company may not be able to increase revenues to account fully for
increased operating expenses. In structuring its charges, the Company attempts
to anticipate inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any future inflationary
pressures.
20
<PAGE> 22
BUSINESS
OVERVIEW
Intensiva HealthCare Corporation ("Intensiva" or the "Company") provides
highly specialized, acute long-term care for critically ill or injured patients
who require intensive medical monitoring and treatment, and who often have
multiple medical conditions and are medically unstable. The Company provides
high quality, cost effective, specialized care for its patients, who typically
require an average length of stay of greater than 25 days in an intensive
inpatient setting. Intensiva's medical staffs provide specialized medical
services, as well as nursing and respiratory care, and the Company is developing
disease-specific pathways to treat patients with pulmonary, cancer, renal and
cardiac conditions, among others. The Company's clinical programs utilize
specialized staff, equipment and protocols for the treatment of its patients.
Intensiva leases underutilized space from general acute care hospitals
("Host Hospitals") in underserved secondary markets, creating a separate
"hospital within a hospital." By leasing space from the Host Hospital, Intensiva
is able to minimize capital and overhead costs, including owning and operating
the physical plant and expensive medical and diagnostic equipment. The Company
is able to purchase certain services from its Host Hospitals, such as laboratory
and radiology (MRI, CAT Scan, X-Ray), as well as hotel services such as laundry,
housekeeping, dietary and property management. The Company's business model
provides for each of its specialized hospitals to become certified as a
long-term care hospital and exempt from Medicare's Prospective Payment System
("PPS") after a minimum of six months of operations, and receive cost-based
reimbursement, which the Company believes is more appropriate given the medical
condition of its patients.
Intensiva believes that it offers medical and financial advantages to
patients, physicians, payors and Host Hospitals. For the patient, advantages
include immediate access to the services provided by the general acute care
hospital, the convenience of not being transferred to a different location for
extended specialized acute care services, increased physician continuity and
lower cost. For the treating physician, the Company's facilities offer a
specialized and dedicated treatment environment that is convenient, efficient
and cost effective. For the payor, the primary benefits are reduced cost and
higher quality of care. The Company's programs allow Host Hospitals to generate
revenues from underutilized space. In addition, the Host Hospital can offer a
continuum of services including the specialized extended stay clinical programs
provided by the Company. As of August 31, 1996, the Company operated seven
clinical programs in four states (254 beds), had an additional two programs
under development in two states (61 beds) and had entered into a letter of
intent to open one additional clinical program (40 beds).
INDUSTRY BACKGROUND
The health care system in the United States continues to undergo
significant change. As the elderly population grows more rapidly than the
overall population and as advances in medicine and technology continue to
increase life expectancies, national health care costs are expected to outstrip
the availability of resources from government sponsored health care programs.
Accordingly, health care reform proposals have increased their focus on cost
containment. Payors, led by managed care networks, are demanding higher quality
patient care at lower cost tied to predictable outcomes. These demographic
changes, technological advances and cost containment pressures are changing
medical practice patterns, resulting in an increasing proportion of complex
medical care being delivered outside of the general acute care hospital, in more
cost effective settings. As a result, the patient population has become
increasingly segmented.
Extended stay critically ill or injured patients are difficult and
expensive to treat and, as a result, are in danger of becoming disenfranchised
by the current health care system. These patients generally require an
interdisciplinary team of specialists due to their multiple system deficits and
the critical nature of their illnesses or injuries. Traditional acute care
hospitals serve a general population which consists primarily of short-stay
patients. These hospitals are not well positioned to provide the most
21
<PAGE> 23
cost effective services to critically ill and injured extended stay patients
because of their focus and lack of critical mass with respect to these patients.
Traditional hospitals have an incentive to discharge these patients to other
specialty care providers as soon as practicable. In addition, payors are seeking
specialized clinical services that provide high quality, predictable outcomes at
reduced cost for this disenfranchised, expensive patient population. The Company
estimates that the cost of treatment for this discrete patient population
exceeds $2 billion annually.
The following table highlights the Company's view of various patient
populations and outlines the medical and economic characteristics which
distinguish how and where their treatment is provided:
[PATIENT PROFILE CHART]
<TABLE>
<CAPTION>
PATIENT PROFILES
CLINICAL MEDICALLY UNSTABLE CRITICALLY ILL OR INJURED, MEDICALLY STABLE,
REQUIREMENTS WITH UNDETERMINED UNSTABLE WITH MULTIPLE REQUIRING MEDICAL
DIAGNOSTIC/INVASIVE MEDICAL CONDITIONS MAINTENANCE, AND
INTERVENTIONS REHABILITATION
<S> <C> <C> <C>
DIAGNOSTIC STUDIES Frequent/Expensive ROUTINE/LESS EXPENSIVE Infrequent/Inexpensive
IMAGING STUDIES Frequent/Expensive INFREQUENT/LESS EXPENSIVE Seldom/Inexpensive
SURGICAL INTERVENTIONS Yes MINOR PROCEDURES None
SPECIALIZED MONITORING Yes YES No
PHYSICIAN VISITS Daily DAILY 1-2 Times Per Week
NURSING HOURS PER PATIENT DAY Intensive Care 12+ 8-10 3-5
General Care 5-6
TREATMENT METHODOLOGY Individual Patient PROGRAMMATIC CARE FOR Programmatic Care for
Protocols MEDICALLY UNSTABLE Medically stable
PATIENTS Patients
AVERAGE LENGTH OF STAY 4-6 Days 30-60 DAYS 15-20 Days
COST EFFECTIVE SETTING General Acute Care ACUTE LONG-TERM HOSPITAL Subacute/Skilled
Hospital Nursing Facilities
MEDICARE REIMBURSEMENT PPS/DRG COST BASED; PPS/DRG EXEMPT Primarily Cost Based
</TABLE>
STRATEGY
The Company's objective is to be a leading provider of high quality,
clinically appropriate, cost effective care for critically ill and injured
patients requiring extended lengths of stay. To achieve this goal, the Company
intends to:
PENETRATE UNDERSERVED SECONDARY MARKETS. The Company believes it has one of
the most experienced and proven development teams for building a network of new
clinical programs. This team utilizes specific criteria for selecting and
entering new markets, including regulatory and reimbursement environments,
population demographics and trends and extent of competition. The Company seeks
to enter secondary markets, defined as service area populations of one million
or less, which are either void of or underserved by services similar to the
Company's. The average service area population for Intensiva hospitals is
approximately 600,000. The Company believes secondary markets will not support
large, freestanding, competitive hospitals, but will support Intensiva's
business and financial model. As a result, the Company's entry into these
markets responds to existing unmet market needs which can reduce the market
attractiveness to any future competitors.
MAINTAIN AND DEVELOP KEY REFERRAL SOURCES. The Company maintains and
develops relationships with key referral sources including general acute care
hospitals, managed care companies and
22
<PAGE> 24
insurance companies. Intensiva educates physicians general acute care hospitals,
payors and case managers on the benefits of the Company's specialized clinical
services. The Company believes that creating an interactive, responsive
relationship with referral sources will be crucial in maintaining long-term
relationships and growing its business.
EXPLORE DEVELOPMENT OF MANAGEMENT SERVICES ORGANIZATIONS. The Company is
considering the possibility of selectively developing management services
organizations ("MSOs") to help manage relationships with key physicians, to
facilitate the further development of its clinical protocols and pathways and to
be better positioned to negotiate attractive managed care contracts.
MAINTAIN A HIGHLY FOCUSED PATIENT ADMISSION PROCESS. The Company strives to
maintain a patient focus through a disciplined admission process, enabling it to
utilize specialized medical personnel, equipment and interdisciplinary treatment
strategies yielding high-quality clinically appropriate patient care. This
disciplined admission process should enable the Company to admit patients most
likely to benefit from its clinical services.
EXPAND CLINICAL PROTOCOLS. The Company is developing standardized clinical
pathways to address the medical requirements of critically ill or injured
patients with similar diagnoses. The Company believes the use of well defined
clinical protocols will increase consistency of care, measurability of outcomes,
cost efficiency and will ultimately improve outcomes and quality of care. The
Company is expanding its clinical protocols and developing clinical pathways to
address the unique and specific needs of patients with pulmonary, cancer, renal
and cardiac conditions, among others.
LEVERAGE EXISTING INFRASTRUCTURE. The Company continues to centralize
business office and accounting operations to improve overall efficiency. The
Company is also negotiating system-wide vendor agreements to decrease per-site
costs of supplies, and plans to decrease per-site labor costs by refining its
care delivery models.
PATIENTS SERVED
The Company provides acute care services for critically ill or injured
patients suffering from multiple medical conditions and requiring an extended
length of stay of typically 30 to 60 days. Extended hospital stays are medically
necessary due to a combination of conditions, including:
- Respiratory conditions resulting from chronic obstructive pulmonary
disease and cancer. Many of the Company's patients require a tracheostomy
or ventilator care and/or weaning.
- Cancer conditions, including the management of patients undergoing
radiation therapy or chemotherapy. Many patients also require specialized
pain management.
- Cardiac conditions, including complicated myocardial infarction with or
without congestive heart failure, cardiac dysrhythmias requiring
intravenous drug therapy, post operative coronary bypass and aortic
aneurysm surgery.
- Renal conditions, ranging from acute kidney and urinary tract infections
to acute and/or chronic renal failure. These include management of renal
transplant patients.
- Neurological conditions, including cerebral vascular accidents,
craniotomies and other post-surgical conditions, brain and spinal cord
injuries and Guillain Barre and other degenerative syndromes.
Many of the Company's patients suffer from combinations of these conditions and
often require long-term intravenous antibiotic therapy, clinical nutrition, pain
control and wound management. In addition, the Company's patients are often
dependent on sophisticated technology for continued life support.
23
<PAGE> 25
CLINICAL PATHWAYS
The Company delivers high quality patient care by following an
interdisciplinary care management model. The delivery model aligns quality,
costs and measurable outcomes with patient needs. Once a referral is made, the
relevant information is reviewed with the interdisciplinary team to determine if
it falls within established admission criteria. The team then processes the
referral and reports back promptly to the referral source. After admission, an
interdisciplinary clinical team consisting of a physician, the admissions
director, the medical director and nursing and therapy personnel complete a
comprehensive assessment of the patient. This provides for a coordinated
approach to the patient's care and sets internally developed benchmarks to be
monitored throughout treatment of the patient.
The overall goals of the Company's clinical pathways are to restore maximum
functioning, manage pain and assist the patient to return to normal activities
of daily living. Components of these pathways will be integrated, as needed, to
treat medically complex conditions, will be directed by an appropriate
specialist and will be combined with medical and psychological counseling, case
management and discharge planning. Among the clinical pathways under development
by the Company are the following:
Pulmonary Pathway. The Company weans patients from the use of
ventilators when physically possible. In addition, the interdisciplinary
team evaluates the patient and develops a treatment plan to provide upper
airway management, reduce aspiration, reduce lung infection and minimize
medical complications. The pulmonary pathway will be directed by a
pulmonologist.
Cancer Pathway. The cancer pathway is being designed to provide a
broad spectrum of care including pain management, nutritional care,
chemotherapy and access to radiation therapy. In addition, education and
counseling is provided to patients and families experiencing life changes
from cancer.
Renal Pathway. Renal diseases are among the most complex body system
failures, often requiring lengthy peritoneal or hemodialysis treatments,
non-invasive cardiopulmonary and metabolic monitoring, fluid and
electrolyte management and complex polydrug therapy. Directed by a
nephrologist, this pathway will use technologically sophisticated
equipment.
Cardiac Pathway. This pathway will be guided by cardiologists and will
offer specialized monitoring capabilities, physical and cardiac
rehabilitation and management of operative local and systemic
complications.
POTENTIAL MANAGEMENT SERVICES ORGANIZATION DEVELOPMENT
In response to the continued growth of managed care and the importance of
physicians in the Company's operating strategy, the Company is exploring the
formation of structured relationships, including MSOs, with key physicians in
selected markets. Through the joint development of treatment protocols and
benchmarks, the Company believes that it will be able to align its outcomes and
quality goals with those of its physicians. The Company also believes that more
structured physician relationships will enhance its ability to accept risk under
managed care arrangements with the objective of reducing costs and demonstrating
high quality outcomes. In addition, through a collaborative physician
arrangement, the Company may be better able to collect data and establish
clinical pathways to identify "best practices" and optimum treatment plans for
patient specific acute episodes of care.
SITE LOCATION/DEVELOPMENT CRITERIA
The Company's growth strategy is to continue to penetrate underserved
secondary markets in strong Host Hospitals. To achieve this objective, the
Company has developed a comprehensive, disciplined methodology to evaluate
potential geographic locations and identify the most attractive potential Host
Hospitals within those markets.
24
<PAGE> 26
In evaluating geographic markets, Intensiva considers a number of factors.
First, the Company examines the state regulatory environment, reviewing and
discussing with the appropriate regulatory bodies the applicability of
certificate of need laws to the Company's operations and other regulatory
requirements. Next, the Company examines the reimbursement environment,
including the nature and penetration of managed care and the prevailing rates
for medical services. The Company then considers population demographics and
trends, including size, density, age, employment and income. Finally, the
Company considers the extent of any existing or contemplated competition,
including the size and reputation of other providers of similar services. In
considering competition, the Company's strategy is to target markets that have
no current competitive services and which, after the Company's entrance, would
be less attractive for any future competitor.
Once the Company has selected an attractive geographic market, it evaluates
potential Host Hospitals, targeting strong general acute care facilities in the
community, taking into account licensed bed capacity and occupancy rate, the
composition of the medical staff, reputation, financial strength and size and
scope of its network. The Company believes that having a strong host will
provide the Company with a number of advantages. Host Hospitals refer a
substantial number of patients to Intensiva hospitals, and the larger, stronger
general acute care hospital in a community generally will have a significant
proportion of the patient population sought by the Company. In addition, strong
hospitals tend to have highly qualified medical staffs. A significant portion of
the Company's medical staff will also be on staff at the Host Hospital. Also, by
being located within a strong Host Hospital, the Host Hospital's facilities are
immediately available if a patient requires access to its sophisticated
diagnostic equipment.
In each market in which Intensiva operates, the Company establishes a fully
licensed acute care hospital to be certified as a long-term care hospital by
Medicare. Intensiva's hospitals have an average of approximately 35 licensed
beds and generally are located on one floor of the Host Hospital. The initial
lease term is five or more years and may be renewed or extended under varying
renewal/extension terms.
FACILITIES
Intensiva currently operates one PPS-exempt long-term care hospital, six
hospitals in the qualification period to obtain PPS-exempt status as a long-term
care hospital, has entered into two additional leases to open acute long-term
care hospitals and has one letter of intent with a Host Hospital to open an
acute long-term care hospital. Once a lease has been signed, it takes
approximately four months to open the hospital and a minimum additional six
months to receive Medicare certification as a long-term care hospital. All of
the Company's hospitals are located within general acute care hospitals.
The following table presents information on the locations where the Company
provides its services:
<TABLE>
<CAPTION>
DATE OF
MEDICARE AVERAGE HOST
CERTIFICATION DAILY HOSPITAL SERVICE
DATE AS LONG-TERM LICENSED CENSUS IN LICENSED AREA
FACILITY OPENED HOSPITAL(1) BEDS AUGUST 1996 BEDS POPULATION
- ------------------------------ ---------- ------------ -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Oklahoma City, Oklahoma....... 3/16/95 Nov. 95 38 298 1,015,000
Hammond, Indiana.............. 12/26/95 (Aug. 96) 43 592 560,000
Beech Grove, Indiana.......... 1/18/96 (Sept. 96) 37 420 460,000
Muskogee, Oklahoma............ 2/29/96 (Oct. 96) 30 225 410,000
Kansas City, Kansas........... 4/29/96 (Nov. 96) [34](3) 249 640,000
Evansville, Indiana........... 6/19/96 (Jan. 97) [36](3) 416 795,000
Akron, Ohio................... 7/18/96 (Mar. 97) [36](3) -- 275 460,000
Muskegon, Michigan............ Oct. 96(2) (June 97) 31 -- 228 440,000
Corpus Christi, Texas......... Dec. 96(2) (Aug. 97) 30 -- 307 770,000
</TABLE>
See notes on following page.
25
<PAGE> 27
(1) Dates shown in parentheses are the dates on which the Company anticipates
that it will receive long-term care hospital certification from Medicare.
There can be no assurance that certifications will be achieved by such date,
or at all.
(2) Forecasted opening.
(3) The number of beds shown includes beds not being utilized as of August 31,
1996, but for which the Company has contractual rights to operate at its
option. At August 31, 1996, the Company utilized beds in Kansas City,
Kansas, beds in Evansville, Indiana, and beds in Akron, Ohio.
The Company's hospital in Oklahoma City, Oklahoma is currently located in
Southwest Medical Center. Subsequent to the opening of that hospital, Southwest
Medical Center merged with Integris/Baptist Medical Center of Oklahoma, Inc.
("Baptist"). At the request of the merged entity, the Company anticipates moving
its hospital to Baptist. Baptist has 529 licensed beds and an occupancy rate of
69%. The parties have agreed in principal on the terms and conditions of a lease
which would have a seven year term commencing on the date that the Company's
hospital would relocate to Baptist, at which time the lease with Southwest
Medical Center would terminate. The Company has been notified by the State of
Oklahoma Department of Health that the move to Baptist may be accomplished under
the hospital's existing license. The Health Care Financing Administration has
informed the Company that the move will not result in a change in the hospital's
status as a certified Medicare provider exempt from PPS. The Company believes
that moving its clinical program will be beneficial to its performance.
The Company has entered into a letter of intent with Ohio State University,
located in Columbus, Ohio, and is currently negotiating a lease for a hospital
to be located within its general acute care hospital. The letter of intent
specifies that the lease will provide space for 40 beds with the option under
certain conditions to lease space for an additional 20 beds. The Ohio State
University Medical Center has 680 licensed beds and an occupancy rate of 74%.
The Company entered into a lease with Deaconess Hospital in St. Louis,
Missouri, on September 14, 1995, to open an acute long-term care hospital. The
Company's request to the state regulatory agency for a determination that it was
not required to obtain a certificate of need was denied. The Company has filed a
lawsuit appealing that decision which is pending. See "--Legal Proceedings."
Most of the Company's hospital leases contain non-competition provisions
pursuant to which the Host Hospital will not provide similar services within a
certain mile radius of the Host Hospital. In return, the Company agrees not to
own or operate another acute long-term care program or competitive business
within a certain radius of the Host Hospital.
The Company leases approximately 4,000 square feet in St. Louis, Missouri,
for its corporate headquarters. The Company considers all of its physical
properties to be in good operating condition and suitable for the purposes for
which they are being used.
SOURCES OF REVENUE
The Company receives payment for health care services primarily from
non-governmental payors such as managed care organizations and other private
health insurance carriers and the federal government and state governments under
Medicare, Medicaid and other governmental programs. Consistent with initiatives
to control health care costs, the Company generally negotiates payments with
non-governmental payors based upon the type and extent of services to be
provided to individual patients. The Company currently has approximately ten
managed care contracts to provide services to
26
<PAGE> 28
participating members. The following table sets forth the approximate
percentages of the Company's net revenues derived from the specified payor
sources indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Medicare.............................................. 44.4% 65.4%
Medicaid.............................................. 2.3 1.7
All other payors(1)................................... 53.3 32.9
------ ----------
100.0% 100.0%
========== ========
</TABLE>
- ------------------------------
(1) Includes managed care organizations including Medicare managed care,
traditional indemnity insurers, third-party administrators and other
non-governmental payors.
The increase in the percentage of net revenues from Medicare for the six
months ended June 30, 1996, is due to the additional four hospitals opened
during that period. More than 90% of the net revenues of those four hospitals
was derived from Medicare during that period. For the one hospital certified as
a long-term care hospital for the period ended June 30, 1996, Medicare payments
constituted 46% of its revenue.
PATIENT REFERRAL AND ADMISSION
The Company's relationships with referral sources has a significant impact
on its operations. These referral sources make decisions based upon several
factors, including quality of care, ability to match intensity of care to
diagnosed condition, convenience for family and physicians, access to ongoing
clinical information, outcomes management and cost. Intensiva's single focus on
the critically ill or injured patient, its development of clinical pathways, its
location within a general acute care hospital, its management systems and its
low cost structure specifically address these key factors and make it an
attractive provider to payors and referral services.
Four major referral sources generate the majority of the Company's
admissions: general acute care hospitals, physicians, managed care organizations
and insurance companies. Key decision makers in the referral process include
treating physicians, discharge planners, case managers, social workers and
third-party administrators. The majority of the Company's patients are referred
directly from general acute care hospitals.
The Company seeks to maintain patient focus by carefully screening
potential patients. The criteria considered include length of stay, diagnoses,
complications and intensity and mix of services needed. This assessment is
coordinated by a Nurse Liaison.
Each facility has a Vice President of Provider Relations and a Nurse
Liaison who regularly visit referral sources to educate them about the services
and benefits of the Company's programs. The Vice President of Provider Relations
develops an annual admission plan for the clinical program, with assistance from
the on-site executive management team. The admission plan takes into account a
variety of factors, including population, demographic characteristics, physician
practice patterns and incidence of disability statistics.
MANAGEMENT SYSTEMS
The Company provides each of its facilities with several key financial,
administrative, clinical and performance measurement systems, part of which was
developed by a national hospital systems vendor. The Company believes that by
standardizing these systems it has improved the efficiency and effectiveness of
its hospital operations and gives the Company the capability of integrating
financial, demographic and clinical information both locally and centrally. The
performance measurement
27
<PAGE> 29
system includes a wide variety of financial and non-financial indicators that
help monitor each Intensiva facility's results.
The Company also contracts with a national information services
organization which has developed a set of clinical outcomes measures which may
be used for external comparisons. The information is submitted to the vendor,
which maintains a nationwide data base used to generate periodic comparative
reports.
The Company has developed various other administrative and clinical systems
in template form which are being implemented at each of its facilities. The
Company believes its standardization strategy leverages the Company's knowledge,
experience and resources obtained from its exclusive focus on critically ill and
injured patients, for use in multiple locations.
MEDICAL ADVISORY BOARD
The Company intends to form a medical advisory board to provide the Company
with input on quality and efficiency of care initiatives. The board initially
will be composed of Intensiva physicians selected because of their expertise and
commitment to improving cost effective care through programmatic initiatives.
The board will serve a number of specific functions. Its central role will be in
the further development and roll-out of the Company's clinical pathways and
outcomes measurement system. It will also assist in the evaluation of clinical
performance compared to established outcomes indicators. Finally, it will assist
in the review of medical literature and keeping the Company appraised of
relevant medical research developments.
QUALITY ASSURANCE
Intensiva has implemented a Quality Assurance and Improvement Plan which
focuses on the continuing refinement of patient care services and work processes
to improve patient outcomes, increase efficiency, decrease costs and position
the Company as the preferred choice for critically ill and injured patients.
Each Intensiva facility has an Organizational Improvement Coordinator to
implement and monitor this plan, and each of Intensiva's program services is
designed to conform industry guidelines including those set by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") and federal
and state regulatory authorities.
COMPETITION
A number of health care providers compete with the Company for the
admission and treatment of critically ill or injured patients. In each of the
Company's geographic markets, general acute care hospitals provide services
comparable to those offered by the Company. In addition, other health care
providers certified by Medicare as long-term hospitals provide similar services
to those provided by the Company and some of which are in the Company's
geographic markets. Among these competitors are Vencor, Inc., American
Transitional Hospitals, Inc. and Transitional Hospitals Corporation. Many of
these general acute care hospitals and long-term hospitals are larger and more
established than the Company's operations. Certain hospitals that compete with
the Company are operated by not-for-profit, non-taxpaying or governmental
agencies, which can finance capital expenditures on a tax-exempt basis, and
which receive funds and charitable contributions unavailable to the Company.
Cost containment efforts by federal and state governments and other
third-party payors designed to encourage more efficient utilization of acute
care services have generally resulted in lower hospital occupancy rates in
recent years. As a result of these efforts, a number of acute care hospitals
have converted to specialized care facilities. The Company may experience
increased competition from existing general acute care hospitals and converted
facilities.
Competition for patients covered by non-governmental reimbursement sources
is intense. The primary competitive factors among acute long-term care providers
include quality of services, charges for services, outcomes and responsiveness
to the needs of patients, families, payors and physicians.
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<PAGE> 30
Other companies have entered into the acute long-term care market with licensed
hospitals that compete with the Company, many of which are larger and have
greater financial resources than the Company.
PROFESSIONAL STAFF
Each of the Company's facilities is staffed with an interdisciplinary team
of health care professionals including physicians, nurses and therapists, who
specialize in areas needed for the treatment of the critically ill or injured.
Each Company facility has its own Medical Director and its own Vice President of
Patient Care Services. A professional nursing staff trained to care for the
extended stay acute patient is on duty 24 hours each day in each of the
Company's facilities. Other professional staff include respiratory therapists,
physical therapists, occupational therapists, speech/language pathologists,
social services and psychological services. Each Company facility has a Chief
Executive Officer who supervises and is responsible for day-to-day operations
and an Organizational Improvement Coordinator to direct an integrated quality
assurance and improvement program. The Company's corporate headquarters provides
services in the areas of system design, development, training, human resource
management, reimbursement expertise, financial control, legal advice, technical
accounting support, purchasing and facilities management.
GOVERNMENT REGULATION
The health care industry is subject to regulation by a number of
governmental agencies. Regulatory activities affect the Company's business
activities, requiring licensure and certification of its hospitals, regulating
relationships between health care providers and controlling reimbursement to the
Company for services provided.
Each Company hospital is a fully licensed acute care speciality hospital
and each has a separate Medicare provider agreement. Under the Medicare program,
after a hospital has been in operation for a minimum of six months, it is
certified as a long-term care hospital if its patients have an average length of
stay of at least 25 days. The Company's hospital that has been in operation for
six months or more has patients with an average length of stay in excess of 25
days and has been certified as a long-term care hospital.
The Company intends to operate all of its hospitals to achieve an average
length of stay of greater than 25 days. At August 31, 1996, the average length
of stay for all Intensiva hospitals was in excess of [30] days.
HEALTH CARE REFORM. In recent years, an increasing number of legislative
proposals have been introduced or proposed in Congress and in some state
legislatures which could affect major changes in the health care system. Several
of these legislative proposals have included provisions that affect long-term
care hospitals. Currently, there are various proposals which, if enacted, would
affect Medicare and Medicaid reimbursement for long-term care hospitals.
President Clinton's 1997 budget proposal would put a moratorium on the exemption
from PPS for new long-term care hospitals. The moratorium would be effective
upon enactment of the proposed legislation, or possibly retroactive to October
1, 1995. The effect of the moratorium would be to reimburse new long-term care
hospitals under PPS on the same basis that general acute care hospitals are
reimbursed. From an economic perspective, the Company could not open new
long-term care hospitals under that reimbursement system, and if existing
Company hospitals are included within the scope of the moratorium (none of which
were certified as long-term care hospitals as of October 1, 1995), those
hospitals would also be reimbursed at rates below incurred costs, rendering
these hospitals unprofitable. For existing long-term care hospitals, the
President's budget proposal would rebase cost limits for all long-term care
hospitals, capping reimbursable operating costs at 150% of the national mean
inpatient operating costs for all long-term care hospitals. Because of the high
acuity of the patients in the Company's hospitals, the Company's costs for
Medicare patients would probably exceed the amount of Medicare reimbursement for
those patients if the President's proposal is enacted. Further, for existing
long-term care hospitals,
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<PAGE> 31
the President's budget proposal would reduce capital payments by 15%, reduce
future increases in the operating cost limits, eliminate incentive payments for
long-term care hospitals that reduce costs below cost ceilings, and treat a move
from a PPS hospital to a PPS-exempt setting as a transfer rather than a
discharge. All of the President's budget proposals would reduce Medicare
reimbursement to the Company's hospital. The President's current proposals on
these issues are similar to those contained in his 1996 budget proposal. In the
Balanced Budget Act of 1995, which was vetoed by President Clinton, long-term
care hospitals' reimbursable operating costs would have been limited to 130% of
the average payment amount for all long-term care hospitals based on cost
reports for cost years beginning in 1991. Implementation of this proposal would
have imposed a de facto moratorium on the creation of new long-term care
hospitals that treat high acuity Medicare patients. Also, the Balanced Budget
Act of 1995 would have reduced capital payments to long-term care hospitals, as
well as reduced future ceilings for operating cost increases. It is anticipated
that the Republican's 1997 budget plan would include most of the same provisions
for Medicare providers contained in the Balanced Budget Act of 1995. All of
these additional anticipated proposals would reduce Medicare payments to the
Company's hospitals. Other proposals to reform Medicare that contain these and
other changes to Medicare are being actively considered.
In March 1996 the House Ways and Means Committee introduced the Health
Coverage Availability and Affordability Act of 1996 (H.R. 3103) which has
several provisions that would affect acute long-term care hospitals. In addition
to establishing a national health care fraud and abuse control program, the
legislation provides for mandatory exclusion from Medicare and state health care
programs of those individuals convicted of a felony related to health care
fraud. Permissive exclusion of individuals convicted of misdemeanor criminal
health care offenses for a specified minimum period is also provided for in H.R.
3103. In addition, this bill authorizes permissive exclusion from Medicare and
state health care programs of entities owned, controlled or managed by a
sanctioned individual. Finally, the bill would impose administrative sanctions
up to $10,000 for each instance of medically improper or unnecessary health care
services.
The proposals under consideration or others which may be proposed, could,
if adopted, have a material adverse effect on the Company's business, financial
condition or results of operations. However, the Company cannot predict the form
of any additional health care or budget reform legislation which may be proposed
in Congress or in state legislatures in the future, or whether any currently
proposed or new legislation, if any, will be adopted. Accordingly, the Company
is unable to assess the effect of any such legislation on its business. There
can be no assurance that any legislation will not have a material adverse effect
on the Company's business, financial condition or results of operation.
CERTIFICATE OF NEED AND STATE LICENSING. Certificate of Need ("CON")
regulations control the development and expansion of health care services and
facilities in certain states. CON laws generally provide that approval must be
obtained from the designated state health planning agency prior to expansion of
existing facilities, construction of new facilities, addition of beds,
acquisition of major items of equipment or introduction of new services. Because
of the additional regulatory burden and cost of complying with CON programs, as
of the date of the offering the Company operates hospitals only in states in
which it is either exempt from the CON program or no CON program exists. CONs
may be required in connection with Intensiva's future hospital expansion. There
can be no assurance that the Company will be able to obtain the CONs necessary
for all of such projects. If the Company is unable to obtain requisite CONs its
growth and business could be adversely effected.
State licensing of hospitals is a prerequisite to the operation of each
hospital and to participation in government programs. Once a hospital becomes
licensed and operational, it must continue to comply with federal, state and
local licensing requirements in addition to local building and life-safety
codes. All of the Intensiva hospitals in operation have obtained the necessary
licenses to conduct business. Failure to obtain a necessary license or loss of
such a license, would necessitate not opening or halting operations of the
hospital. See "Business--Legal Proceedings."
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<PAGE> 32
MEDICARE AND MEDICAID. Medicare is a federal program that provides certain
hospital and medical insurance benefits to persons age 65 and over and to
certain disabled persons. Medicaid is a medical assistance program administered
by each state pursuant to which hospital benefits are available to certain low
income patients. Within the Medicare and Medicaid statutory framework, there are
substantial areas subject to administrative rulings, interpretations and
discretion which may affect payments received by a health care provider under
Medicare and Medicaid. A substantial portion of Intensiva's net revenues are
derived from patients covered by Medicare.
In order to receive Medicare reimbursement, a hospital must meet the
applicable Conditions of Participation set forth by the Department of Health and
Human Services ("HHS") relating to the type of hospital, its equipment,
personnel and standards of medical care, as well as comply with state and local
laws and regulations. Hospitals undergo periodic on-sight Medicare certification
surveys, which are generally limited if the hospital is accredited by JCAHO. As
of August 31, 1996, [all seven] of Intensiva's operating hospitals were
certified as Medicare providers, were also certified by their respective state
Medicaid programs and had received JCAHO accreditation. A loss of
certification could adversely effect Intensiva's ability to receive payments
under the Medicare and Medicaid programs.
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and
indirect costs of the services provided to beneficiaries. The Social Security
Act Amendments of 1983 implemented PPS as a means of controlling health care
costs. Under PPS, Medicare inpatient costs are reimbursed based upon a fixed
payment amount per discharge based upon diagnosis-related groups ("DRGs").
Although the average length of stay varies for each DRG, the average stay for
all Medicare patients subject to PPS is approximately six days. An additional
outlier payment is made for patients with unusually extended lengths of stay or
higher treatment costs. Outlier payments are designed to cover only marginal
costs.
The Social Security Act Amendments of 1983 exempted psychiatric,
rehabilitation, cancer, children and general long-term hospitals from PPS. A
long-term hospital is defined as a hospital which has an average length of stay
of greater than 25 days. Inpatient operating costs for hospitals certified as
long-term hospitals are exempt from PPS and are reimbursed by Medicare under a
cost-based reimbursement system. Hospitals that receive cost-based reimbursement
establish a hospital specific cost per discharge ceiling in their second full
cost report year, which serves as a ceiling for future reimbursable costs. This
cost per discharge is subject to annual cost increases. Prior to setting that
ceiling, a hospital is reimbursed based on its reasonable allowable costs.
Hospitals may not be certified as long-term hospitals until they have operated
for at least six months. Prior to such time, reimbursement is based upon PPS
(unless another exemption from PPS is available).
Unlike the situation in the rehabilitation industry, general acute care
hospitals that have their own acute long-term care hospital facilities within
their hospital or on the same physical campus as their hospital are severely
restricted in terms of reimbursement. Current Medicare regulations establish a
more favorable reimbursement mechanism for hospitals within hospitals that have
a separate governing body, separate medical staff, separate chief medical
officer and separate chief executive officer, and that are not under the control
of their host facility. General acute care hospitals attempting to operate their
own hospitals within hospitals (including hospitals on the same physical campus)
cannot meet the independence criteria to be exempt from PPS.
Federal regulations provide that admission to and utilization of hospitals
by Medicare and Medicaid patients must be reviewed by Peer Review Organizations
("PRO") consisting of groups of practicing physicians and other health care
professionals, in order to insure efficient utilization of hospitals and
services. A PRO may conduct such a review either prospectively or retroactively
and may, as appropriate, recommend denial of payments for services provided to a
patient. Such review is subject to administrative and judicial appeal.
ANTI-FRAUD LEGISLATION. Medicare and Medicaid Anti-Fraud and Abuse
Amendments codified under Section 1128B(b) of the Social Security Act (the
"Anti-Fraud Amendments") prohibit certain
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<PAGE> 33
business practices and relationships that might affect provision and cost of
health care services reimbursable under Medicare and Medicaid. Sanctions for
violating the Anti-Fraud Amendments includes criminal and civil penalties and
exclusion from Medicare and Medicaid programs.
In December 1989, as part of the Omnibus Reconciliation Act of 1989,
Congress amended the Social Security Act passing the Ethics in Patient Referral
Act (commonly known as "Stark I") which provides that a physician who has a
financial relationship with a clinical laboratory is generally prohibited from
referring patients to that laboratory. The Omnibus Budget Reconciliation Act of
1993 contains provisions further amending the Social Security Act to greatly
expand the scope of Stark I which provisions are commonly referred to as Stark
II (and collectively referred to as "Stark Provisions"). Effective January 1995,
Stark II broadened the referral limitations of Stark I to include, among other
designated health services, inpatient and outpatient hospital services. The
Stark Provisions prohibit referrals for designated health services for which
Medicare and Medicaid would otherwise pay to entities in which the referring
physician, or a member of the physician's immediate family, has a financial
relationship. Under the Stark Provisions, a "financial relationship" is defined
as (i) an ownership or investment interest, (ii) a compensation arrangement
between the physician and the entity or (iii) an interest in an entity that
holds an ownership or investment interest in any entity providing designated
health services. If any such financial relationship exists, the entity is
generally prohibited from receiving reimbursement payments for services under
the Medicare or Medicaid programs.
In addition to the Stark Provisions, Congress has enacted the Medicare and
Medicaid Anti-Kickback statute and the Medicare and Medicaid Patient and Program
Protection Act of 1987 (the "Anti-Kickback Laws") which prohibit the payment of
remuneration to any person in return for the referral of Medicare or Medicaid
patients. Under the Anti-Kickback Laws, it is a felony punishable by up to a
$25,000 fine and/or up to five years in prison to knowingly or willfully offer,
pay, solicit or receive any remuneration, direct or indirect, in cash or in kind
for referring an individual for the furnishing of any item or service for which
payment may be made in whole or in part under the Medicare program or a state
health care program like Medicaid. In addition, civil sanctions in the form of
exclusions from participation in the Medicare and Medicaid programs may be
imposed for violations. Additionally, some private parties have asserted
violations of the Anti-Kickback Laws to invalidate leases between health care
providers.
Under each of the Anti-Fraud Amendments, the Stark Provisions and the
Anti-Kickback Laws, Congress authorized the creation of certain "safe harbor"
regulations which describe relationships and transactions that would not be
subject to prosecution under such statutes. Compensation arrangements are
generally exempted from these statutes if, among other things, the compensation
to be paid is set in advance, does not exceed fair market value and is not
determined in a manner that takes into account the volume or value of any
referrals or other business generated between the parties. Although, Intensiva
believes it is in compliance with these laws and regulations, there can be no
assurance that federal or state regulatory authorities will not challenge
Intensiva's current or future activities under these laws.
GRAMM-RUDMAN-HOLLINGS ACT. The Company's Medicare revenues may be adversely
effected by the Balanced Budget and Emergency Deficit Control Act of 1985, as
amended (the "Gramm-Rudman-Hollings Act"). Under the Gramm-Rudman-Hollings Act,
if the Office of Management and Budget in the Congressional Budget Office
determines that the federal deficit will exceed certain specified levels for a
federal fiscal year, sufficient reductions in federal spending must be made to
remove the excess deficit. One-half of these reductions must be made in
non-defense programs. Although Medicaid funding is exempt from reductions under
the Gramm-Rudman-Hollings Act, the Medicare program may be reduced by up to four
percent. If reductions are made in the Medicare program, payments to providers
that are paid on a reasonable cost basis may be reduced.
STATE REGULATORY ENVIRONMENT. Certain states regulate hospital rates. At
this time, the Company does not operate any hospitals in any states that
regulate rates. However, the adoption of such
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<PAGE> 34
legislation or other cost containment measures in states in which the Company
operates could have a material adverse effect on the Company's hospitals and
revenues and operating income. The Company is unable to predict whether and in
what form any such legislation might be adopted. The Company's business,
financial condition or results of operations could be affected by other state
rate setting laws. Certain states in which the Company operates require
hospitals to disclose specified financial information. In addition to federal
anti-fraud and anti-kickback statutes, many states have enacted statewide
limitations on physician referrals to entities providing services reimbursed by
Medicare, Medicaid or other third-party payors. State laws governing physician
referrals vary from notice requirements to absolute prohibitions. Although
Intensiva believes it is in compliance with such regulations, there can be no
assurance that state regulatory authorities will not challenge current or future
relationships Intensiva has with physicians.
ACCREDITATION
Hospitals may receive accreditation from JCAHO, a nationwide
non-governmental commission which establishes standards relating to the physical
plan, administration, quality of patient care and operation of medical staffs of
hospitals. The purpose of this accreditation is to (i) promote ongoing
compliance with industry recognized standards for hospitals, (ii) assist
management in analyzing each hospital to identify opportunities to improve
patient care, and (iii) assist in patient attraction. Generally, hospitals and
certain other health care facilities are required to have been in operation for
at least six months in order to be eligible for accreditation by JCAHO. After
conducting on-site surveys, JCAHO awards accreditation for up to three years to
hospitals found to be in substantial compliance with JCAHO standards. Accredited
hospitals are periodically resurveyed, at the option of JCAHO, upon a major
change in facilities or organizations and after merger or consolidation.
INSURANCE
The Company maintains professional liability coverage on each of its
facilities in addition to coverage for the customary risks inherent in the
operation of health care facilities and business in general. The current
policies provide coverage on an occurrence basis. The Company's management
believes that it has adequate professional liability coverage. The Company also
currently maintains a directors' and officers' liability insurance policy. The
Company believes that it will be able to continue to maintain adequate
insurance; however, there can be no assurance that adequate insurance will be
available on terms acceptable to the Company.
LEGAL PROCEEDINGS
The Company is not aware of any asserted or unasserted claims against it.
However, it can be expected that in the ordinary course of business various
claims may arise from time to time. The Company filed suit on February 16, 1996,
in the Circuit Court of Cole County, Missouri, against the Missouri Health
Facilities Review Committee. In the lawsuit, the Company seeks to overturn the
determination by the Missouri Health Facilities Review Committee that a
certificate of need is required to open an acute long-term care hospital in St.
Louis, Missouri. The Company contends that it is not required to obtain a
certificate of need because its budgeted expenditures for capital expenditures
and equipment fall below the standard required for a certificate of need. This
proceeding has been stayed pending the outcome of similar litigation involving
another party.
EMPLOYEES
The Company had approximately full-time employees and part-time
employees as of August 31, 1996. The Company believes its relationship with its
employees is good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------
<S> <C> <C>
David W. Cross...................... 49 President and Chief Executive Officer, Director
John R. Lewis....................... 50 Executive Vice President and Chief Operating Officer
John P. Keefe....................... 47 Chief Financial Officer
Samuel A. Morse..................... 53 Executive Vice President, Operations
Kathie Nohre, R.N................... 50 Vice President, Professional Services
James D. Pomeroy.................... 49 Vice President, Business Development
Anthony J. Torrente................. 38 Vice President, Business Development
Jeffrey J. Collinson(1)............. 54 Director
Wilfred E. Jaeger, M.D.(1)(2)....... 40 Director
Phillip M. Nudelman, Ph.D........... 60 Director
David L. Steffy(1)(2)............... 53 Director
James B. Tananbaum, M.D.(2)......... 33 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
David W. Cross is a founder of the Company and has served as President and
Chief Executive Officer and as a Director since the Company's inception in 1994.
Prior to founding the Company, Mr. Cross was a founder, the President and Chief
Executive Officer, and a director of Advanced Rehabilitation Resources, Inc.,
serving in each of these capacities from 1990 to 1993. From 1987 to 1990, he was
Senior Vice President of Business for RehabCare Group, Inc., a publicly traded
rehabilitation care company, and in 1993 and 1994 served as Executive Vice
President and Chief Development Officer of RehabCare Group, Inc. Mr. Cross
currently serves on the board of directors of Odyssey Healthcare, Inc., a
hospice health care company, and he is a Trustee and President-elect of the Long
Term Acute Care Hospital Association of America, a trade association. Mr. Cross
holds a B.A. from the University of California at Fullerton.
John R. Lewis is a founder of the Company and has served as Executive Vice
President and Chief Operating Officer since its inception in 1994. Prior to
joining the Company, Mr. Lewis was a co-founder of Advanced Rehabilitation
Resources, Inc. and served as its Chief Operating Officer from 1990 to 1993.
From 1984 until 1990, he served as the Chief Operating Officer of RehabCare
Group, Inc. and in 1993 and 1994 served in various senior executive positions
including Chief Operating Officer with RehabCare Group, Inc. Mr. Lewis holds an
M.A. from Ohio University.
John P. Keefe has served as Chief Financial Officer for the Company since
June 1995. From 1993 to 1995, Mr. Keefe served as Northwestern Region Area
Manager for Sons of Norway, a fraternal insurance company, and from 1988 to
1993, he served as Chief Financial Officer and Senior Vice President for
Safecare Health Services, a hospital management company. From 1980 until 1988,
he held senior level financial positions with American Medical International, a
hospital management company. He also served as the Chief Financial Officer for
the George Washington University Health Plan. Mr. Keefe is a certified public
accountant and holds a B.A. in business administration from Georgia State
University.
Samuel A. Morse has served as Executive Vice President, Operations for the
Company since February 1995. Prior to joining the Company, Mr. Morse was Vice
President of the acute long-term care division of Cornerstone Health Management,
Inc., a health care services company from 1994 to 1995. From 1992 to 1994, he
served as a Chief Executive Officer of the CPC Hospital in Arlington, Texas.
From 1991 to 1992, Mr. Morse served as Chief Executive Officer of the Charter
Hospital in Little
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Rock, Arkansas. From 1990 to 1991, he served in active military service, as
Commander of an air Transportable Hospital during Operation Desert Storm.
Formerly, he served as Chief Executive Officer in both proprietary and
not-for-profit hospitals and hospital systems. Mr. Morse is a Fellow in the
American College of Healthcare Executives. He holds a B.S. in business
administration from Abilene Christian University and an M.S. in health care
administration from Trinity University.
Kathie Nohre, R.N. has served as Vice President, Professional Services
since November 1995. Prior to joining the Company, from 1994 to 1995, Ms. Nohre
was Regional Vice President of Operations for Postacute Services, Management
Division for Integrated Health Services, a publicly traded health care services
company. Prior to that she was Assistant Vice President of Patient Care Services
for Lake Forest Hospital from 1993 to 1994, and Assistant Executive Director of
Nursing for Humana Hospital, Hoffman Estates from 1989 to 1993. Ms. Nohre holds
a B.S. in nursing from the University of Phoenix and an M.B.A. from Illinois
Benedictine College.
James D. Pomeroy has served as Vice President, Business Development since
January 1995. Mr. Pomeroy served as President of Rehabilitation Consulting
Services from July 1990, until joining the Company. From 1984 to 1990, Mr.
Pomeroy was Executive Vice President of Business Development for Rehabilitation
Institutes of America. Mr. Pomeroy holds a B.S.W. and M.A. from Southern
Illinois University-Edwardsville.
Anthony J. Torrente has served as Vice President, Business Development for
the Company since January 1995. Prior to joining the Company, Mr. Torrente was
Group Vice President, New Markets for RehabCare Group, Inc. from 1993 to 1995,
and Vice President, Business Development with Advanced Rehabilitation Resources,
Inc. from 1991 to 1993. Formerly, he served as a development officer for The
Rader Institute, a health care services company, from 1988 to 1991. Mr. Torrente
holds a B.S. in business administration from Southeast Missouri State
University.
Jeffrey J. Collinson has served as a director of the Company since December
1994. Since 1990, Mr. Collinson has served as President of Collinson Howe
Venture Partners Inc. (formerly named Schroder Venture Advisers, Inc.), a
venture capital management firm, and from 1983 to 1990, was President of
Schroder Venture Managers, Inc., a venture capital firm. Mr. Collinson is also a
Director of Incyte Pharmaceuticals, Inc., Neurogen Corporation and Spare,
Kaplan, Bischel & Associates.
Wilfred E. Jaeger, M.D. has served as a director of the Company since
December 1994. Dr. Jaeger is a founding General Partner of the lead investor in
Intensiva, Three Arch Partners, a venture capital firm that focuses exclusively
on health care investments. Prior to joining Three Arch Partners in 1993, he was
a partner at Schroder Venture Advisors, Inc. from 1992 to 1993. From 1991 to
1992, Dr. Jaeger was an Associate and then General Partner of The Phoenix
Partners, a venture capital firm. Dr. Jaeger received his medical degree from
the University of British Columbia in Vancouver, Canada. He practiced medicine
for six years before earning an M.B.A. from Stanford University.
Phillip M. Nudelman, Ph.D. has served as a director of the Company since
June 1996. Since 1991, Dr. Nudelman has served as President and Chief Executive
Officer of Group Health Cooperative of Puget Sound, a not-for-profit managed
healthcare system with 10,000 employees that provides health care services to
over 650,000 people. Dr. Nudelman joined Group Health in 1973, and has served in
various senior level positions. Dr. Nudelman served on the White House Task
Force on Healthcare Reform and serves on the board of SpaceLabs Medical, Inc.,
Advanced Technology Laboratories, Inc., Cell Therapeutics, Inc., and Cytran,
Inc. He holds degrees in microbiology and pharmacy from the University of
Washington and an M.B.A. and a Ph.D. in Health Systems Management from Pacific
Western University.
David L. Steffy is a founder of the Company and has served as a director
since its inception. From 1985 to 1996, Mr. Steffy was Vice Chairman and
Director of Community Health Systems, a company he co-founded. From 1979 to
1981, he held management positions and was a co-founder of Republic Health
Corporation as well as a senior manager of Hospital Affiliates International.
Until 1979, Mr. Steffy served as Director, Hospital Administration of the Ohio
State University.
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<PAGE> 37
James B. Tananbaum, M.D. has served as a director of the Company since
December 1994. Since 1993, Dr. Tananbaum has served as a venture partner with
Sierra Ventures, a leading venture capital firm. From 1991 to 1993, Dr.
Tananbaum held various executive positions with Merck, Inc. Dr. Tananbaum is a
co-founder and Director of GelTex Pharmaceuticals, Inc., a biopolymer
pharmaceutical company. Dr. Tananbaum is the founding Chairman of Orange Coast
Managed Care Services, a physician practice management company in Southern
California. Dr. Tananbaum holds a medical degree from Harvard Medical School, an
M.B.A. from Harvard Business School, and a B.S.E.E. and B.S. from Yale
University.
DIRECTOR COMPENSATION
Non-employee directors other than Mr. Collinson and Drs. Jaeger and
Tananbaum receive $2,500 for each board meeting attended. After the first
election of directors subsequent to the closing of this offering, all
non-employee directors will receive $2,500 for each board meeting attended. The
Company anticipates four regularly scheduled board meetings per year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees: an Audit Committee and
a Compensation Committee. The Audit Committee has general responsibility for
supervision of financial controls as well as accounting and audit activities of
the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors concerning the selection of the accountants and reviews the
planning, fees and results of the accountants' audit. The Compensation Committee
has the authority to (i) administer the Company's stock option plan, including
the selection of optionees and the timing of option grants, and (ii) review and
monitor key employee compensation and benefits policies and administer the
Company's management compensation plans. The current members of the Audit
Committee are Messrs. Jeffrey J. Collinson, David L. Steffy, and Dr. Wilfred E.
Jaeger. The current members of the Compensation Committee are David L. Steffy
and Drs. Jaeger and Tananbaum.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth for the year
ended December 31, 1995, the compensation paid by the Company to Mr. Cross, the
Company's President and Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers") who earned salary and bonuses in excess of $100,000 during
1995 for all services rendered in all capacities in which they served:
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)
- ---------------------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
David W. Cross, President and Chief Executive Officer..... $ 125,000 $93,750 $ 7,800
John R. Lewis, Executive Vice President................... 100,000 75,000 7,800
Samuel A. Morse, Executive Vice President................. 88,936 44,000 --
Anthony J. Torrente, Vice President, Business
Development............................................. 90,000 46,250 --
John P. Keefe, Chief Financial Officer.................... 70,000 50,765 (1) --
</TABLE>
- ------------------------------
(1) Includes a relocation bonus payment of $36,765. In connection with Mr.
Keefe's relocation to St. Louis, the Company loaned Mr. Keefe $154,000,
without interest, for a bridge loan on his St. Louis home until his prior
home was sold. The loan was secured by deeds of trust on both homes and was
repaid in full upon sale of his prior home which occurred prior to December
31, 1995.
36
<PAGE> 38
Option Grants During 1995. The following table sets forth the option grants
during 1995 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN OF BASE EXPIRATION -------------------
NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
- -------------------------- ---------- ------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David W. Cross............ 33,000 6.1% $ 0.08 12/15/2005 $1,650 $ 4,290
John R. Lewis............. 33,000 6.1% 0.08 12/15/2005 1,650 4,290
Samuel A. Morse........... 107,800 20.1% 0.08 2/13/2005 5,390 14,014
Anthony J. Torrente....... 80,850 15.1% 0.08 1/26/2005 4,043 10,511
Anthony J. Torrente....... 19,250 3.6% 0.08 11/27/2005 963 2,503
John P. Keefe............. 107,800 20.1% 0.08 7/28/2005 5,390 14,014
</TABLE>
Option Exercises and Year-End Option Values. There were no option exercises
during 1995 by the Named Executive Officers.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Cross, Lewis, Morse, Torrente and Keefe, providing for annual salaries of
$175,000, $140,000, $125,000, $90,000 and $135,000, respectively. All the
agreements provide for discretionary bonuses except for Mr. Torrente's, which
provides for additional compensation in the form of commissions. Messrs. Cross'
and Lewis' agreements provide that, as a supplemental bonus, certain notes made
by each of them and acquired by the Company from RehabCare Group, Inc. will be
forgiven, if they are employed by the Company on September 22, 1997. Messrs.
Cross' and Lewis' agreements provide for a term of employment through September
1999, while the other agreements provide for two-year initial terms. The
agreements provide that if the Company terminates employment without cause (as
defined in the agreements) severance benefits of one year's salary will be paid
(six months salary in the case of Mr. Torrente). All of the agreements provide
that the employee will not compete with the Company for 12 months following
termination of employment (six months in the case of Mr. Torrente).
STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Stock Option Plan"), which was
adopted on January 26, 1995, 785,400 shares of Common Stock are reserved for
issuance upon exercise of stock options. The Stock Option Plan is designed as a
means to retain and motivate key employees and directors. The Compensation
Committee of the Board of Directors administers and interprets the Stock Option
Plan and is authorized to grant options thereunder to all eligible employees and
directors of the Company, except that no incentive stock options (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) may be granted to
a director who is not also an employee of the Company or a subsidiary.
The Stock Option Plan provides for the granting of both incentive stock
options and nonqualified stock options. Options are granted under the Stock
Option Plan on such terms and at such prices as determined by the Compensation
Committee, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Options granted to an individual who owns (or is
deemed to own) at least 10% of the total combined voting power of all classes of
stock of the Company must have an exercise price of at least 110% of the fair
market value of the Common Stock on the date of grant and a term of no more than
five years. Options granted under the Stock
37
<PAGE> 39
Option Plan are not transferable other than by will or by the laws of descent
and distribution. The Board of Directors has the authority to amend or terminate
the Stock Option Plan, provided that no such action may impair the rights of the
holder of any outstanding option without the written consent of such holder, and
provided further that certain amendments of the Stock Option Plan are subject to
stockholder approval. Unless terminated sooner, the Stock Option Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after 10 years from the date
the Board of Directors adopted the Stock Option Plan.
As of August 31, 1996, the Company had outstanding options to purchase an
aggregate of 575,850 shares of Common Stock under the Stock Option Plan at a
weighted average exercise price of approximately $0.74 per share.
401(K) PLAN
As of September 22, 1995, the Company adopted a 401(k) plan (the "401(k)
Plan"), effective January 1, 1996. All employees of the Company (other than
officers of the Company) and all employees of subsidiaries of the Company
adopting the 401(k) Plan who are at least 21 years old and have performed one
month of service are eligible to participate in the 401(k) Plan on the first day
of the month following the date such an employee meets the 401(k) Plan's
eligibility requirements. The Company contributes to the 401(k) Plan an amount
equal to the participant's salary reduction election, in an amount up to 15% of
the participant's salary, plus an amount equal to 25% of each participant's
salary reduction contributions for a plan year. The 401(k) Plan also allows the
Company to make other discretionary matching contributions, which will be
determined by the Board of Directors from time to time.
The Company's matching contributions on behalf of an eligible employee
generally become fully vested if such employee reaches normal retirement age,
dies or becomes disabled while an employee. Such matching contributions vest on
a pro rata basis over a five-year period from the date of the employee's
commencement of employment with the Company or a related employer.
An employee generally will be entitled to payment of such employee's total
account balance under the 401(k) Plan upon such employee's retirement, death or
permanent disability. In the event employment is terminated for any other
reason, an employee will be entitled to payment of such employee's vested
account balance. See Note 5 of Notes to Consolidated Financial Statements.
38
<PAGE> 40
CERTAIN TRANSACTIONS
On September 22, 1994, 1,305,148 shares of the Company's Common Stock (as
adjusted for subsequent stock splits) were sold to the following investors:
David W. Cross 326,287 shares; John R. Lewis 326,287 shares; David L. Steffy
326,287 shares; and RehabCare Group, Inc. 326,287 shares. In connection with
that transaction, the Company entered into a Transition Agreement with
RehabCare, Messrs. Cross and Lewis. Pursuant to the terms of the Transition
Agreement, RehabCare Group, Inc. loaned the Company a total of $265,200 pursuant
to the terms of a revolving credit note with interest at the rate of one percent
above the interest rate announced from time to time by The Boatmen's National
Bank of St. Louis as its corporate base rate. The Company repaid this loan in
full on March 29, 1996. Under the Transition Agreement, RehabCare Group, Inc.
was obligated to provide certain start-up services to the Company and to make
available certain purchased services at fair market value. The Transition
Agreement terminated on December 30, 1994.
On September 22, 1994, the Company also entered into a Stockholders'
Agreement, which has subsequently terminated, with Messrs. Cross, Lewis and
Steffy, and RehabCare Group, Inc., concerning, among other things, the
disposition of any shares of Common Stock owned by the stockholders, rights to
purchase additional shares of Common Stock, election of directors and officers,
and certain special voting procedures. On September 22, 1994, the Company and
RehabCare Group, Inc. also entered into Non-Compete, Non-Hire, Non-Disclosure
and Release Agreement whereby the Company and RehabCare Group, Inc. agreed for a
certain defined period not to compete, not to hire the other Company's employees
and not to disclose any confidential information, and also released each other
from any claims that might exist. Messrs. Cross, Lewis and Steffy also entered
into similar agreements with RehabCare Group, Inc. The non-hire and
non-competition covenants in said agreements have terminated.
On December 30, 1994, and January 6, 1995, the Company sold a total of
630,000 shares of its Series A Convertible Preferred Stock (the "Series A
Transactions"), convertible into an aggregate of 3,465,000 shares of Common
Stock, at an as converted price of $1.82 per share (as adjusted for subsequent
stock splits) to investors that included, among others, the following 5%
stockholders, directors and entities associated with directors: ALTA V Limited
Partnership, 98,960 shares; Customs House Partners, 1,040 shares; Sierra
Ventures IV, L.P., 192,300 shares; Sierra Ventures IV International, L.P., 7,700
shares; Weiss, Peck & Greer Venture Associates III, L.P., 41,160 shares; WPG
Enterprise Fund II, L.P., 58,840 shares; Schroder Ventures Limited Partnership,
60,000 shares; Schroder Ventures U.S. Trust, 15,000 shares; Schroders
Incorporated, 50,000 shares; Three Arch Partners, L.P., 81,600 shares; and Three
Arch Associates, L.P., 18,400 shares.
As part of the Series A Transactions, the Company entered into a
Stockholders' Agreement with all of the Company's stockholders that provided,
among other things, for certain rights upon disposition of any securities by a
stockholder, rights to purchase additional securities issued by the Company,
election of directors and the conduct of the Company's business. The
Stockholders' Agreement was amended and restated on December 20, 1995, in
connection with the issuance of the Company's Series B Convertible Preferred
Stock. The Amended and Restated Stockholders' Agreement terminates on the
closing of this Offering.
Holders of shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock and Messrs. Cross, Lewis, Steffy and RehabCare
Group, Inc. are entitled to certain registration rights in respect of the Common
Stock issued or issuable on conversion thereof. See "Description of Capital
Stock--Registration Rights."
On December 22, 1995, the Company sold a total of 405,994 shares of its
Series B Convertible Preferred Stock, convertible into an aggregate of 2,232,967
shares of Common Stock, at an as converted price of $3.76 (as adjusted for
subsequent stock splits) to investors that included, among others, the following
5% stockholders, directors and entities associated with directors: ALTA V
Limited Partnership, 47,830 shares; Customs House Partners, 503 shares; Sierra
Ventures IV, L.P., 69,708 shares; Sierra Ventures IV International, L.P., 2,791
shares; Weiss, Peck & Greer Venture Associates III, L.P., 21,943
39
<PAGE> 41
shares; WPG Enterprise Fund II, L.P., 26,390 shares; Schroder Ventures Limited
Partnership, 8,159 shares; Schroder Ventures U.S. Trust, 2,040 shares; Schroders
Incorporated, 6,800 shares; Three Arch Partners, L.P., 39,456 shares; Three Arch
Associates, L.P., 8,877 shares; Mayfield VIII, 162,922 shares; and Mayfield
Associates Fund II, 8,575 shares.
For a description of compensation of officers and directors of the Company
and the eligibility of officers and directors of the Company to participate in
the Company's employee benefit plans, see "Management--Director Compensation"
and "--Executive Compensation."
For a description of limitations of liability and certain indemnification
arrangements with respect to the Company's directors and officers, see
"Description of Capital Stock--Director Liability and Indemnification."
40
<PAGE> 42
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of August 31, 1996, and
as adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director or executive officer of
the Company who beneficially owns any shares, (iii) the Selling Stockholder, and
(iv) all directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) NUMBER OF OFFERING(1)
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- -------------------------------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Sierra Ventures(3).......................... 1,498,744 21.3% -0- 1,498,744 %
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
James B. Tananbaum, M.D.(4)................. 1,498,744 21.3 -0- 1,498,744
Schroder(5)................................. 780,994 11.1 -0- 780,994
c/o Collinson Howe Venture Partners
1055 Washington Boulevard
Stamford, Connecticut 06901
Jeffrey J. Collinson(6)..................... 780,994 11.1 -0- 780,994
Weiss, Peck & Greer(7)...................... 815,831 11.6 -0- 815,831
555 California Street
Suite 4760
San Francisco, California 94104
Burr, Egan, DeLeage & Co.(8)................ 815,831 11.6 -0- 815,831
One Embarcadero Center
Suite 4050
San Francisco, California 94111
Three Arch(9)............................... 842,781 12.0 -0- 842,781
2800 Sand Hill Road
Suite 270
Menlo Park, California 94025
Wilfred E. Jaeger, M.D.(10)................. 842,781 12.0 -0- 842,781
Mayfield(11)................................ 943,233 13.4 -0- 943,233
2800 Sand Hill Road
Menlo Park, California 94025
David W. Cross(12).......................... 326,287 4.6 -0- 326,287
John R. Lewis(13)........................... 326,287 4.6 -0- 326,287
David L. Steffy............................. 326,287 4.6 -0- 326,287
John P. Keefe(14)........................... 26,950 0.4 -0- 26,950
Samuel A. Morse(15)......................... 39,523 0.6 -0- 39,523
Anthony J. Torrente(16)..................... 29,645 0.4 -0- 29,645
James D. Pomeroy(17)........................ 32,340 0.5% -0- 32,340
Kathie Nohre, R.N.(18)...................... -0- -0- -0- -0- 0
RehabCare Group, Inc........................ 326,287 4.6 326,287 -0- 0
All Directors and Executive Officers
as a Group (11 Persons)................... 4,229,838 59.1 -0- 4,229,838
</TABLE>
- ------------------------------
(1) All numbers based upon 7,030,067 shares of Common Stock issued and
outstanding prior to this Offering and shares of Common Stock
issued and outstanding immediately after this Offering. This includes
5,697,967 shares of Common Stock to be issued upon conversion of the
41
<PAGE> 43
Convertible Preferred Stock immediately prior to consummation of the sale
of Common Stock pursuant to this offering, but does not include 15,950
shares issuable upon exercise of warrants.
(2) Pursuant to rules of the Securities and Exchange Commission certain shares
of Common Stock which a person has the right to acquire within 60 days of
the date hereof pursuant to the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person, but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Includes 1,441,044 shares held by Sierra Ventures IV, L.P. and 57,700
shares held by Sierra Ventures IV International, L.P. (collectively these
entities are referred to as "Sierra Ventures"). James B. Tananbaum, a
director of the Company, shares voting and investment powers with respect
to such shares. Mr. Tananbaum disclaims beneficial ownership of shares held
by Sierra Ventures, except to the extent of his proportionate interest
therein.
(4) Includes 1,441,044 shares held by Sierra Ventures IV, L.P. and 57,700
shares held by Sierra Ventures IV International, L.P. (collectively these
entities are referred to as "Sierra Ventures"). James B. Tananbaum, a
director of the Company, shares voting and investment powers with respect
to such shares. Mr. Tananbaum disclaims beneficial ownership of shares held
by Sierra Ventures, except to the extent of his proportionate interest
therein.
(5) Includes 312,400 shares held by Schroders Incorporated, 374,874 shares held
by Schroder Ventures Limited Partnership and 93,720 shares held by Schroder
Ventures U.S. Trust (collectively these entities are referred to as
"Schroder"). Jeffrey J. Collinson, a director of the Company, shares voting
and investment power with respect to such shares. Mr. Collinson disclaims
beneficial ownership of shares held by the Schroder entities, except to the
extent of his proportionate interest therein.
(6) Includes 312,400 shares held by Schroders Incorporated, 374,874 shares held
by Schroder Ventures Limited Partnership and 93,720 shares held by Schroder
Ventures U.S. Trust (collectively these entities are referred to as
"Schroder"). Jeffrey J. Collinson, a director of the Company, shares voting
and investment power with respect to such shares. Mr. Collinson disclaims
beneficial ownership of shares held by the Schroder entities, except to the
extent of his proportionate interest therein.
(7) Includes 347,066 shares held by Weiss, Peck & Greer Venture Associates III,
L.P. and 468,765 shares held by WPG Enterprise Fund II, L.P. (collectively
these entities are referred to as "Weiss, Peck & Greer"). Ellen M. Feeney
shares voting and investment power with respect to such shares. Ms. Feeney
disclaims beneficial ownership of shares held by Weiss, Peck & Greer,
except to the extent of her proportionate interest therein.
(8) Includes 807,345 shares held by ALTA V Limited Partnership and 8,486 shares
held by Customs House Partners (collectively these entities are referred to
as "Burr, Egan, DeLeage & Co."). Guy Nohra shares voting and investment
power with respect to such shares. Mr. Nohra disclaims beneficial ownership
of shares held by Burr, Egan, DeLeage & Co., except to the extent of his
proportionate interest therein.
(9) Includes 687,797 shares held by Three Arch Partners, L.P. and 154,984
shares held by Three Arch Associates, L.P. (collectively these entities are
referred to as "Three Arch"). Wilfred E. Jaeger, M.D. shares voting and
investment power with respect to such shares. Dr. Jaeger disclaims
beneficial ownership of shares held by Three Arch, except to the extent of
his proportionate interest therein. Messrs. Lewis and Steffy are limited
partners of Three Arch Partners, L.P., but do not have voting or investment
power with respect to such shares.
(10) Includes 687,797 shares held by Three Arch Partners, L.P. and 154,984
shares held by Three Arch Associates, L.P. (collectively these entities are
referred to as "Three Arch"). Wilfred E. Jaeger, M.D., a director of the
Company, shares voting and investment power with respect to such shares.
Dr. Jaeger disclaims beneficial ownership of shares held by Three Arch,
except to the extent of his proportionate interest therein. Messrs. Lewis
and Steffy are limited partners of Three Arch Partners, L.P., but do not
have voting or investment power with respect to such shares.
(11) Includes 896,071 shares held by Mayfield VIII and 47,162 shares held by
Mayfield Associates Fund II (collectively these entities are referred to as
"Mayfield"). Wende S. Hutton shares voting and investment power with
respect to such shares held by Mayfield VIII, but has no voting or
42
<PAGE> 44
investment power with respect to shares held by Mayfield Associates Fund
II. Ms. Hutton disclaims beneficial ownership of shares held by Mayfield,
except to the extent of her proportionate interest therein.
(12) Mr. Cross holds options for 33,000 shares, of which none are exercisable
within 60 days and none are included in shares beneficially owned.
(13) Mr. Lewis holds options for 33,000 shares, of which none are exercisable
within 60 days of August 31, 1996, and none are included in the shares
beneficially owned.
(14) Mr. Keefe holds options for 107,800 shares, of which 26,950 are exercisable
within 60 days of August 31, 1996, and are included in the shares
beneficially owned.
(15) Mr. Morse holds options for 107,800 shares, of which 39,523 are exercisable
within 60 days of August 31, 1996, and are included in the shares
beneficially owned.
(16) Mr. Torrente holds options for 100,100 shares, of which 29,645 are
exercisable within 60 days of August 31, 1996, and are included in the
shares beneficially owned.
(17) Mr. Pomeroy holds options for 80,850 shares, of which 32,340 are
exercisable within 60 days of August 31, 1996, and are included in the
shares beneficially owned.
(18) Ms. Nohre holds options for 27,500 shares, of which none are exercisable
within 60 days of August 31, 1996, and none are included in the shares
beneficially owned.
RehabCare Group, Inc., the Selling Stockholder, was one of the founders of
the Company, and James M. Usdan, President and Chief Executive Officer of the
Selling Stockholder served as a director of the Company from September 1994
through July 1996. See "Certain Transactions."
Assuming conversion of the Convertible Preferred Stock, there are 18
holders of record of the Company's Common Stock as of August 31, 1996.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The statements made under this section include summaries of certain
provisions contained in the Company's Third Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation") and in its Amended and Restated
By-Laws ("By-Laws"), each of which will become effective prior to this Offering.
These statements do not purport to be complete and are qualified in their
entirety by reference to the Certificate of Incorporation and By-Laws, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
Prior to the filing and effectiveness of the Certificate of Incorporation,
a total of 1,420,774 shares of Common Stock, par value $0.001 per share, 630,000
shares of Series A Convertible Preferred Stock, par value $0.001 per share and
405,994 shares of Series B Convertible Preferred Stock, par value $0.001 per
share, are authorized. Upon filing and effectiveness of the Certificate of
Incorporation immediately prior to the Offering hereunder, conversion of the
Convertible Preferred Stock and taking into effect a 5.5:1 stock split for
Common Stock (by way of a stock dividend) to be effective immediately prior to
the Offering hereunder, 70,000,000 shares of Common Stock will be authorized, of
which 7,030,067 will be issued and outstanding, and 30,000,000 shares of
Preferred Stock, no par value (the "Undesignated Preferred Stock) will be
authorized. As of August 31, 1996, [1,332,100] shares of Common Stock were
issued and outstanding. In addition, [575,850] shares of Common Stock are
issuable pursuant to options granted under the Company's Stock Option Plan,
[15,950] shares of Series B Convertible Preferred Stock are issuable upon
exercise of outstanding warrants to purchase such shares, [5,697,967] shares of
Common Stock are issuable pursuant to conversion of the Convertible Preferred
Stock, and [209,550] shares are available for the grant of additional options
under the Stock Option Plan.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders (except for
certain matters upon which the holders of Convertible Preferred Stock are
entitle to vote upon as a class) and do not have cumulative voting rights.
Subject to preferences that may be applicable to any outstanding shares of
Convertible Preferred Stock and the Undesignated Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors of the Company out of funds
legally available therefor. See "Dividend Policy." All outstanding shares of
Common Stock are, and the shares to be sold in this Offering when issued and
paid for will be, fully paid and nonassessable, and the holders thereof will
have no preferences or conversion, exchange or preemptive rights. In the event
of any liquidation, dissolution or winding up of the affairs of the Company,
holders of Common Stock will be entitled to share ratably in the assets of the
Company remaining after payment or provision for payment of all of the Company's
debts and obligations and liquidation payments to holders of outstanding shares
of Convertible Preferred Stock and Undesignated Preferred Stock, if any.
UNDESIGNATED PREFERRED STOCK
The Certificate of Incorporation authorizes the designation and issuance by
the Company of 30,000,000 shares of Undesignated Preferred Stock issuable in one
or more series or classes. Under the Certificate of Incorporation the Company's
Board of Directors is authorized, without further shareholder action, to provide
for the issuance of Undesignated Preferred Stock in one or more classes or
series in such number of shares, and with such voting rights, designations,
preferences, limitations and special or relative rights (if any) as shall be set
forth in resolutions providing for the issuance thereof adopted by the Board of
Directors. The Board of Directors is authorized to determine, among other
things, with respect to each class or series of Undesignated Preferred Stock:
(i) the number of shares constituting that class or series; (ii) the dividend
rate, whether dividends will be cumulative, and, if so, from which date or
dates; (iii) whether, and upon what terms, such class or series will have voting
rights, in addition to any voting rights provided by law; (iv) whether, and upon
what terms, such class
44
<PAGE> 46
or series will have conversion privileges (including rights to convert such
stock into other capital stock of the Company or any other entity (so-called
"poison pill" stock)); (v) whether, and upon what terms, such class or series
will be redeemable at the option of the Company or the holder (or both); (vi)
the rights of the shares of that class or series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Company; and (vii) any
other relative rights, preferences and limitations of that class or series as
may be permitted or required by law.
It is not possible to state the actual effect of the authorization of the
Undesignated Preferred Stock upon the rights of holders of the Common Stock
until the Board of Directors determines the specific rights of the holders of a
series of Undesignated Preferred Stock. However, the issuance of shares of
Undesignated Preferred Stock could adversely affect the rights of the holders of
Common Stock. Such effects might include: (i) restrictions on dividends on the
Common Stock if dividends on the Undesignated Preferred Stock have not been
paid; (ii) dilution of the voting power of the Common Stock to the extent that
the Undesignated Preferred Stock has voting rights; (iii) dilution of the equity
interest of the Common Stock to the extent that the Undesignated Preferred Stock
is converted into Common Stock; or (iv) the Common Stock not being entitled to
share in the Company's assets upon liquidation until satisfaction of any
liquidation preference granted the holders of the Undesignated Preferred Stock.
Additionally, the issuance by the Board of Directors of any shares of
Undesignated Preferred Stock, while providing desired flexibility in connection
with possible acquisitions and other corporate purposes, may be used to deter,
discourage or make more difficult the assumption of control of the Company by
another corporation or person through a tender offer, merger, proxy context or
similar transaction or series of transactions.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Delaware General Corporation Law and of the
Company's Certificate of Incorporation and By-laws, summarized in the following
paragraphs, may be considered to have an anti-takeover effect and may delay,
deter or prevent a tender offer, proxy contest or other takeover attempt that a
stockholder might consider to be in such stockholder's best interest, including
such an attempt as might result in payment of a premium over the market price
for shares held by stockholders. These provisions, together with the classified
Board of Directors and the ability of the Board of Directors to issue
Undesignated Preferred Stock without further stockholder action, also could
delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption would be beneficial
to stockholders of the Company. The Board of Directors of the Company believes
that these provisions are appropriate to protect the interests of the Company
and all of its stockholders.
Board of Directors. The By-laws provide, subject to the rights of the
holders of the Undesignated Preferred Stock, if and when issued, that the number
of directors shall be fixed by the Board of Directors. The directors, other than
those who may be elected by the holders of Undesignated Preferred Stock, if and
when issued, are divided into three classes, as nearly equal in number as
possible, with each class serving for a three-year term. Subject to any rights
of the holders of Undesignated Preferred Stock, if and when issued, to elect
directors, and to remove any director whom the holders of any such stock had the
right to elect, any director of the Company may be removed from office only with
cause and by the affirmative vote of at least two-thirds of the total votes
eligible to be cast by stockholders in the election of such director. Any
vacancies on the Board of Directors shall be filled by the Board of Directors.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The By-laws establish an advance notice procedure with
regard to the nomination by the stockholders of the Company of candidates for
election as directors (the "Nomination Procedure") and with regard to other
matters to be brought by stockholders before a meeting of stockholders of the
Company (the "Business Procedure").
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<PAGE> 47
The Nomination Procedure requires that a stockholder give written notice,
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting, in
proper form, of a planned nomination for the Board of Directors to the Secretary
of the Company. Detailed requirements as to the form and timing of that notice
are specified in the By-laws. If the Board of Directors (or any committee
designated by the Board of Directors) determines that a person was not nominated
in accordance with the Nomination Procedure, such person will not be eligible
for election as a director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give written notice, delivered to or mailed
and received at the principal executive offices of the corporation not less than
60 days nor more than 90 days prior to the meeting, in proper form, to the
Secretary of the Company. Detailed requirements as to the form and timing of
that notice are specified in the By-laws. If the Board of Directors (or any
committee designated by the Board of Directors) determines that the other
business was not properly brought before such meeting in accordance with the
Business Procedure, such business will not be conducted at such meeting.
Although the By-laws do not give the Board of Directors any power to
approve or disapprove stockholder nominations for the election of directors or
of any other business desired by stockholders to be conducted at an annual or
any other meeting, the By-laws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Special Meetings of the Stockholders of the Company. The Company's By-laws
provide that a special meeting of the stockholders of the Company may be called
only by the affirmative vote of a majority of the Board of Directors. Under this
provision the stockholders are unable to call a special meeting of stockholders
and the provision potentially limits the stockholders' ability to offer
proposals at meetings of stockholders, if no special meetings are otherwise
called by the Board of Directors.
Written Action in Lieu of Special Meeting of Stockholders. The Company's
Certificate of Incorporation precludes stockholders from taking action by
written consent. This provision prohibits stockholders from taking formal action
without the holding of a special or annual meeting of stockholders.
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law which, with certain exceptions, prohibits a
Delaware corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and officers, and (b) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or after such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
46
<PAGE> 48
Although Section 203 of the Delaware General Corporation Law permits a
corporation to elect not to be governed by Section 203, the Company to date has
not made this election.
Amendment of Certificate of Incorporation. The Certificate of Incorporation
provides that an amendment thereof must first be approved by a majority of the
Board of Directors and (with certain exceptions) thereafter approved by the
holders of a majority of the total votes eligible to be cast by holders of
voting stock, voting by class with respect to such amendment or repeal; provided
however, that the affirmative vote of not less than two-thirds of the total
votes eligible to be cast by holders of voting stock, voting by class, is
required to amend the provisions with respect to shareholder action, provisions
regarding directors, limitation of liability and amendment of the By-laws and
Certificate of Incorporation.
Amendment of By-laws. The Certificate of Incorporation provides that the
By-laws may be amended or repealed by the Board of Directors or by the
stockholders. Such action by the Board of Directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of the holders of at least two-thirds
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal at an annual meeting of stockholders or a special
meeting called for such purpose, unless the Board of Directors recommends that
the stockholders approve such amendment or repeal at such meeting, in which case
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal.
DIRECTOR LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or to its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that such provision will not eliminate or limit the liability of a director: (i)
for any breach of the director's duty of loyalty to the Company or to its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for the payment of a
dividend or the payment for the purchase or redemption of the Company's stock in
violation of Section 174 of the Delaware General Corporation Law; or (iv) for
any transaction from which the director derived an improper personal benefit. In
essence, stockholders of the Company may not seek to hold the directors,
directly or through a derivative action, personally liable for damages for
breach of their fiduciary duty involving negligent or grossly negligent acts or
omissions. These provisions may have the effect of discouraging stockholders'
derivative actions against directors and officers. The personal liability of a
director for violation of the federal securities laws is not limited or
otherwise affected. In addition, these provisions do not affect the ability of
stockholders to obtain injunctive or other equitable relief from the courts with
respect to a transaction which is the product of negligence. Nor would these
provisions preclude an action by stockholders for damages against the director
for breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law, payment of an unlawful dividend or
approval of an unlawful stock repurchase or any transaction in which the
director obtained an improper personal benefit or actions by third parties
against the Company.
The Company's By-laws provide that the Company shall indemnify any person
who was or is involved in any manner or was or is threatened to be made so
involved in any threatened, pending or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the Company or is
or was serving at the request of the Company as a director or officer of the
corporation or other enterprise against all expenses, liability and loss
actually and reasonably incurred by him in connection with such proceeding. The
Company may confer on such person the right to receive payment of any expenses
incurred by the person being indemnified in connection with such proceeding in
advance of the final disposition of the proceeding, consistent with applicable
law as then in effect.
47
<PAGE> 49
The right of indemnification, including the right, if any, to receive
payment in advance of expenses, conferred by the Company's By-laws is not
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled. The By-laws also specify certain procedures, presumptions
and remedies that apply with respect to the right to indemnification and the
advancement of expenses provided for therein.
The Company intends to maintain directors' and officers' liability
insurance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Boatmen's Trust Company, St. Louis, Missouri.
REGISTRATION RIGHTS
The holders of 5,697,967 shares of Common Stock issuable upon conversion of
Convertible Preferred Stock prior to this Offering, the holder of a warrant
exercisable for 15,950 shares of Common Stock, and the holders of 1,332,100
shares of Common Stock (the "Registrable Stock") are entitled to certain rights
with respect to the registration of the sale of such shares under the Securities
Act. These rights are provided under the terms of an Amended and Restated
Registration Rights Agreement between the Company and the holders of Registrable
Securities and in a Warrant Agreement. Subject to certain limitations in the
Amended and Restated Registration Rights Agreement, the holders of at least 40%
of the Registrable Stock may require, on two occasions at any time after six
months from the effective date of this offering, that the Company use its best
efforts to register the Registrable Stock for public resale. If the Company
registers for sale or resale any of its Common Stock either for its own account
or for the account of other security holders, the holders of Registrable Stock
are entitled to include their shares of Common Stock in such registration. A
holder's right to include shares in the underwritten registration is subject to
the ability of the underwriters to limit the number of shares included in the
offering. Holders of at least 40% of the Registrable Stock may also require the
Company to register for resale all or a portion of their Registrable Stock on
Form S-3 when use of such form becomes available to the Company, provided, among
other limitations, that the proposed aggregate price to the public of the shares
sold would exceed $1.0 million. All fees, costs and expenses of such
registrations must be borne by the Company and all selling expenses (including
underwriting discounts, selling commissions and stock transfer taxes) relating
to Registrable Stock must be borne by the holders of the securities being
registered.
48
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
7,030,067 shares of Common Stock (based on the number of shares of Common Stock
outstanding as of August 31, 1996, and assuming conversion of the Convertible
Preferred Stock). Of these shares, the 326,287 shares of Common Stock sold in
this Offering will be freely tradable in the public market without restriction
under the Securities Act, except that any shares purchased by affiliates
("Affiliates") of the Company, as that term is defined in Rule 144 ("Rule 144")
adopted under the Securities Act, may generally only be sold in compliance with
the applicable provisions of Rule 144.
The remaining 6,703,780 shares ("Restricted Shares") are deemed to be
"restricted securities" under Rule 144 because they were originally issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act. Approximately 978,861 Restricted Shares
will become eligible for sale in the public market pursuant to Rule 144
beginning 90 days after the date of this Prospectus (subject to compliance with
the volume and other limitations of Rule 144 described below), all of which
shares are subject to the lock-up agreements described below. Additional
Restricted Shares will become subject to sale under Rule 144 from time to time.
The Company and its executive officers, directors and certain other
stockholders of the Company who in the aggregate will hold 6,703,780 shares of
Common Stock upon completion of this Offering, have agreed pursuant to certain
agreements (the "Lock-up Agreements") that they will not without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock or any securities convertible into or exchangeable or
exercisable for any shares of Common Stock for a period of 180 days from the
date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company or the date they were acquired
from an Affiliate, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (x) 1% of the then outstanding shares
of the Common Stock, or (y) the average weekly trading volume in the Common
Stock in the over-the-counter market during the four calendar weeks preceding
the date on which notice of such sale was filed under Rule 144. Sales under Rule
144 are also subject to certain provisions relating to the manner and notice of
sale and availability of current public information about the Company.
Affiliates may sell shares not constituting Restricted Securities in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period.
Further, under Rule 144(k), after three years have elapsed from the later
of the date Restricted Shares were acquired from the Company or the date they
were acquired from an Affiliate, a holder of such Restricted Shares who is not
an Affiliate at the time of the sale and has not been an Affiliate for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The Securities and Exchange Commission has recently proposed amendments to
Rule 144 and Rule 144(k) that would permit resales of Restricted Shares under
Rule 144 after a one-year, rather than a two-year holding period, subject to
compliance with the other provisions of Rule 144, and would permit resale of
Restricted Shares by non-Affiliates under Rule 144(k) after a two-year, rather
than a three-year holding period. Assuming adoption of such amendments,
approximately 978,861 restricted securities will be eligible for sale in the
public market immediately after this offering pursuant to Rule 144(k), all of
which shares are subject to the Lock-up Agreements, and approximately 4,470,811
Restricted Shares will become eligible for sale in the public market pursuant to
Rule 144 beginning 90 days after the date of this Prospectus (subject to
compliance with the volume and other limitations of Rule 144), all of which
shares are subject to the Lock-up Agreements. Additional Restricted Shares will
become eligible for sale under Rule 144 from time to time.
49
<PAGE> 51
The Company intends to file registration statements on Form S-8 under the
Securities Act to register issuance of up to 575,850 shares of Common Stock
subject to options which may be granted under the Company's Stock Option Plan.
See "Management--Executive Compensation."
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and no precise prediction can be made as to the effect, if
any, that market sales of shares of Common Stock or the availability of shares
of Common Stock for sale will have on the market price of the Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market could have a material adverse
effect on prevailing market prices and could impair the Company's future ability
to raise capital through the sale of its equity securities.
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") through their representatives
Hambrecht & Quist LLC, Robertson, Stephens & Company and Needham & Company, Inc.
(the "Representatives"), have severally agreed to purchase from the Company and
the Selling Stockholder the following respective number of shares of Common
Stock set forth opposite the name of each such Underwriter below at the initial
public offering price less the underwriting discount set forth on the cover of
this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------
<S> <C>
Hambrecht & Quist LLC.............................................
Robertson, Stephens & Company LLC.................................
Needham & Company, Inc. ..........................................
----------
Total.............................................................
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, their counsel and
the Company's independent auditors. The nature of the Underwriters' obligation
is such that they are committed to purchase all shares of Common Stock offered
hereby if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow
a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to an additional
shares of Common Stock, at the initial public offering price, less the
underwriting discounts set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as, and if accepted
by the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The officers and directors of the Company and certain stockholders are
subject to lock-up agreements which provide that they will not, without the
prior written consent of Hambrecht & Quist LLC, sell, offer, contract to sell,
make any short sale, pledge, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock, any options, rights or warrants to
purchase any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock owned by them or with respect to which
the undersigned has the power of disposition during the 180-day period following
the date of this Prospectus. In addition, each of the Company and the Selling
51
<PAGE> 53
Stockholder have agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, issue, sell, offer, contract to sell, make any short
sale, pledge, issue or sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock, or securities
exchangeable for or convertible into or exercisable for any rights to purchase
or acquire any shares of Common Stock during the 180-day period following the
date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof and may grant additional
options under its stock option plans. Hambrecht & Quist LLC may, in its sole
discretion, release any of the shares subject to lock-up agreements at any time,
without prior notice.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Representatives of the Underwriters.
Among the factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenues and earnings of
the Company, market valuations of other companies engaged in activities similar
to the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, an assessment
of the Company's management and other factors deemed relevant.
52
<PAGE> 54
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Suelthaus & Walsh, P.C., St. Louis,
Missouri. As of September 1, 1996, Thomas M. Walsh, President of Suelthaus &
Walsh, P.C. and general counsel to the Company, beneficially owned 35,750 shares
of Common Stock. The Company leases its corporate offices in St. Louis,
Missouri, pursuant to a sublease with Suelthaus & Walsh, P.C., which expires
March 30, 2000, and provides for payments of $7,000 per month, increasing to
$8,333 per month on April 1, 1998. Certain legal matters will be passed upon for
the Selling Stockholder by Thompson Coburn, St. Louis, Missouri. Certain legal
matters will be passed upon for the Underwriters by Goodwin, Procter & Hoar LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Intensiva HealthCare Corporation
and subsidiaries as of December 31, 1994 and 1995 and for the period from July
18, 1994 (inception) through December 31, 1994 and the year ended December 31,
1995 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and in the Registration Statement upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-l, including amendments
thereto, relating to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company intends to furnish its stockholders annual reports containing
financial statements audited by its independent certified public accountants.
53
<PAGE> 55
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report......................................................... F-1
Consolidated balance sheets, as of December 31, 1994 and 1995........................ F-2
Consolidated statements of operations, period from July 18, 1994 (inception) through
December 31, 1994 and the year ended December 31, 1995............................. F-3
Consolidated statements of stockholders' equity, period from July 18, 1994
(inception) through December 31, 1994 and the year ended December 31, 1995......... F-4
Consolidated statements of cash flows, period from July 18, 1994 (inception) through
December 31, 1994 and the year ended December 31, 1995............................. F-5
Notes to consolidated financial statements........................................... F-6
Condensed consolidated balance sheet, as of June 30, 1996 (unaudited)................ F-11
Condensed consolidated statements of operations, six months ended June 30, 1995 and
1996 (unaudited)................................................................... F-12
Condensed consolidated statements of cash flows, six months ended June 30, 1995 and
1996 (unaudited)................................................................... F-13
Notes to condensed consolidated financial statements (unaudited)..................... F-14
</TABLE>
54
<PAGE> 56
WHEN THE TRANSACTIONS DESCRIBED IN NOTE 9 OF THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS HAVE BEEN COMPLETED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING
REPORT.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Intensiva HealthCare Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheets of Intensiva
HealthCare Corporation and subsidiaries (the Company) as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from July 18, 1994 (inception) through
December 31, 1994 and the year ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Intensiva
HealthCare Corporation and subsidiaries as of December 31, 1994 and 1995, and
the results of their operations and their cash flows for the period from July
18, 1994 (inception) through December 31, 1994 and the year ended December 31,
1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 31, 1996, except as to note 9,
which is as of , 1996
F-1
<PAGE> 57
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
PRO FORMA
1995
1994 1995 -----------
---------- ----------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 190,284 $11,261,422 $11,261,422
Receivable on sale of common and preferred stock...... 4,304,900 -- --
Accounts receivable, less allowance for doubtful
accounts of $139,508 in 1995....................... -- 985,697 985,697
Inventories........................................... -- 9,087 9,087
Prepaid expenses...................................... -- 134,318 134,318
---------- ------------ ------------
Total current assets............................... 4,495,184 12,390,524 12,390,524
Property and equipment, net............................. 2,993 587,904 587,904
Organizational and preopening costs, net................ 5,632 164,158 164,158
Other assets............................................ 55,707 555,467 555,467
---------- ------------ ------------
$4,559,516 $13,698,053 $13,698,053
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations......... $ -- $ 210,290 $ 210,290
Accounts payable...................................... 45,387 483,707 483,707
Accrued salaries, wages, and benefits................. 11,268 224,139 224,139
Note payable--stockholder............................. 265,200 265,200 265,200
---------- ------------ ------------
Total current liabilities.......................... 321,855 1,183,336 1,183,336
---------- ------------ ------------
Long-term obligations, less current installments........ -- 291,208 291,208
Deferred rent expense................................... -- 433,333 433,333
Stockholders' equity:
Preferred stock, no par value, 30,000,000 shares
authorized, no shares issued....................... -- -- --
Series A convertible preferred stock, $0.001 par
value, 3,465,000 shares authorized; 2,365,000,
3,465,000 and no shares issued and outstanding for
1994, 1995, and pro forma 1995, respectively....... 2,365 3,465 --
Series B convertible preferred stock, $0.001 par
value, 2,232,967 shares authorized; no shares,
2,232,967 shares and no shares issued and
outstanding for 1994, 1995 and pro forma 1995,
respectively....................................... -- 2,233 --
Common stock, $0.001 par value, 70,000,000 shares
authorized; 1,332,100, 1,332,100 and 7,030,067
shares issued and outstanding for 1994, 1995 and
pro forma 1995, respectively....................... 1,332 1,332 7,030
Additional paid-in capital............................ 4,449,384 14,846,051 14,846,051
Accumulated deficit................................... (215,420) (3,062,905) (3,062,905)
---------- ------------ ------------
Total stockholders' equity......................... 4,237,661 11,790,176 11,790,176
---------- ------------ ------------
$4,559,516 $13,698,053 $13,698,053
========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 58
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JULY 18, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Net patient service revenues........................................ $ -- $ 1,488,389
Costs and expenses:
Operating expenses................................................ -- 2,520,873
General and administrative........................................ 213,739 1,884,063
Provision for doubtful accounts................................... -- 139,508
Depreciation and amortization..................................... 475 29,494
---------- ------------
Total costs and expenses..................................... 214,214 4,573,938
---------- ------------
Operating loss............................................... (214,214) (3,085,549)
Interest income..................................................... 1,026 266,668
Interest expense.................................................... (2,232) (28,604)
---------- ------------
Net loss..................................................... $(215,420) $(2,847,485)
========== ============
Pro forma loss per share..................................... $ (0.39)
============
Pro forma weighted average outstanding shares................ 7,268,492
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 18, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK ------------------ ADDITIONAL TOTAL
------------------- NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
SERIES A SERIES B OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- --------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
issuance of common
stock.................. $-- $-- 1,305,150 $1,305 $ 146,876 $ -- $ 148,181
Issuance of common
stock.................. -- -- 26,950 27 4,873 -- 4,900
Issuance of Series A
convertible preferred
stock, 2,365,000
shares................. 2,365 -- -- -- 4,297,635 -- 4,300,000
Net loss................. -- -- -- -- -- (215,420) (215,420)
------- ------- ---------- ------- ------------ ------------ ------------
Balance, December 31,
1994................... 2,365 -- 1,332,100 1,332 4,449,384 (215,420) 4,237,661
Issuance of Series A
convertible preferred
stock, 1,100,000
shares................. 1,100 -- -- -- 1,998,900 -- 2,000,000
Issuance of Series B
convertible preferred
stock, 2,232,967
shares................. -- 2,233 -- -- 8,397,767 -- 8,400,000
Net loss................. -- -- -- -- -- (2,847,485) (2,847,485)
------- ------- ---------- ------- ------------ ------------ ------------
Balance, December 31,
1995................... $3,465 $2,233 1,332,100 $1,332 $14,846,051 $(3,062,905) $ 11,790,176
======= ======= ========== ======= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JULY 18, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $(215,420) $(2,847,485)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 475 29,494
Provision for doubtful accounts................................. -- 139,508
Increase in accounts receivable................................. -- (1,125,205)
Increase in inventories, prepaid expenses, and other assets..... (7,526) (130,665)
Increase in accounts payable.................................... 45,387 438,320
Increase in accrued salaries, wages, and benefits............... 11,268 212,871
Increase in accrued rent differential........................... -- 433,333
---------- ------------
Net cash used in operating activities......................... (165,816) (2,849,829)
---------- ------------
Cash flows from investing activities:
Additions to property and equipment................................ (3,468) (555,171)
Organizational and preopening costs................................ (5,632) (162,881)
---------- ------------
Net cash used in investing activities......................... (9,100) (718,052)
---------- ------------
Cash flows from financing activities:
Proceeds from issuance of preferred and common stock............... 100,000 14,704,900
Proceeds from issuance of note payable stockholder................. 265,200 --
Payments on long-term obligations.................................. -- (65,881)
---------- ------------
Net cash provided by financing activities....................... 365,200 14,639,019
---------- ------------
Increase in cash and cash equivalents........................... 190,284 11,071,138
Cash and cash equivalents, beginning of period....................... -- 190,284
---------- ------------
Cash and cash equivalents, end of period............................. $ 190,284 $11,261,422
========== ============
Supplemental cash flow information--cash paid for interest........... $ 2,232 $ 28,604
========== ============
Supplemental information--noncash activity:
Acquisition of software license.................................... $ -- $ 512,500
Acquisition of equipment through capital leases.................... -- 54,609
Notes receivable received for exchange of common stock............. 48,181 --
Receivable for common and preferred stock subscribed............... 4,304,900 --
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Description of Business
Intensiva HealthCare Corporation and subsidiaries (the Company) was
incorporated in Delaware on July 18, 1994. The Company is developing and
operating a network of acute long-term care hospitals in certain health care
markets across the United States. Activities in 1994 primarily consisted of
raising capital, obtaining financing, and organizing administrative functions.
(b) Principles of Consolidation
The consolidated financial statements of the Company include all of its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents consist of interest-bearing money market accounts and debt
instruments with maturities of three months or less.
(d) Inventories
Inventories, which consist principally of medical supplies, are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments.
Depreciation and amortization is calculated using the straight-line method
over the estimated useful lives of the assets (leasehold improvements are
amortized over the shorter of the lease term or estimated useful life of the
asset). Useful lives for property and equipment are leasehold improvements--5
years and equipment--3-10 years.
(f) Organizational, Preopening, and Other Costs
Organizational and preopening costs consist of legal, consulting, and other
start-up costs incurred by the Company during the development phase of a new
hospital. These costs are capitalized and amortized to expense over a period of
twelve months beginning when the new hospital is certified by Medicare and
begins to admit patients. Costs related to marketing and development of new
facilities at the corporate level are expensed as incurred.
(g) Other Assets
Other assets consist of notes receivable from officers (see note 7) and a
software license agreement of $512,500. The software license agreement will be
amortized into expense over the three-year estimated useful life of the license.
(h) Income Taxes
Deferred taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those differences are expected to be recovered or settled.
F-6
<PAGE> 62
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(i) Revenue Recognition
The Company recognizes revenue as services are provided to patients.
Net patient service revenues and related accounts receivable are reported
at the estimated net realizable amounts from patients, third-party payors, and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined.
Approximately 44% of the Company's net patient service revenues for 1995
were derived from funds under the Medicare program, and approximately 66% of the
Company's net accounts receivable at December 31, 1995 are from this source.
(j) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
(k) Net Loss Per Share
The Company's net loss per share calculations are based upon the weighted
average number of shares of common stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options to purchase common stock issued at prices below the initial
public offering price during the twelve months immediately preceding the
contemplated initial filing of the registration statement relating to the
initial public offering (IPO), have been included in the computation of net loss
per share as if they were outstanding for all periods presented. Other shares
issuable upon the exercise of stock options or conversion of convertible
preferred stock have been excluded from historical per share amounts because the
effect of their inclusion would be anti-dilutive.
(l) Pro Forma Balance Sheet (unaudited)
As more fully described elsewhere in the accompanying footnotes, each share
of the Series A and B convertible preferred stock will automatically convert to
one share of common stock upon the closing of an IPO that meets certain
conditions. The accompanying pro forma balance sheet as of December 31, 1995
assumes that these securities were converted as of December 31, 1995. The pro
forma loss per share assumes the conversion of the Series A and B convertible
preferred stock as of the beginning of the year.
(m) Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996 and the effect was not material to the Company's
operations or financial position taken as a whole. Under SFAS No. 121, property
and equipment of the Company are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The
F-7
<PAGE> 63
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Company measures an impairment loss by comparing the fair value of the asset to
its carrying amount. Fair value of an asset is calculated as the present value
of expected future cash flows.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stockbased
compensation issued to employees. The Statement allows for a fair value-based
method of accounting for employee stock options and similar equity instruments.
However, for companies that continue to account for stock-based compensation
arrangements under Opinion No. 25, Statement No. 123 requires disclosure of the
pro forma effect on net income and earnings per share of its fair value-based
accounting for those arrangements. The Company adopted Statement No. 123 in the
first quarter of 1996 and has elected to continue to account for stock-based
compensation arrangements under APB Opinion No. 25.
(2) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------ --------
<S> <C> <C>
Leasehold improvements..................................... $ -- $210,331
Equipment.................................................. 3,468 351,902
Equipment under capital leases............................. -- 54,609
------- --------
3,468 616,842
Less accumulated depreciation and amortization............. 475 28,938
------- --------
Property and equipment, net........................... $2,993 $587,904
======= ========
</TABLE>
(3) LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1995 consist of various capital
leases and a software license agreement aggregating $501,498, with a combined
effective interest rate of approximately 8%, and maturities from three to five
years.
The aggregate maturities of long-term obligations at December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996............................................................... $239,168
1997............................................................... 259,797
1998............................................................... 32,448
1999............................................................... 10,916
2000............................................................... 4,964
---------
547,293
Less interest on capital lease obligations......................... 45,795
---------
$501,498
=========
</TABLE>
(4) STOCKHOLDERS' EQUITY
The Company and its stockholders have entered into an Amended and Restated
Stockholders' Agreement, dated December 20, 1995 (the Agreement) which expires
on December 20, 1999, or the completion of an IPO, whichever occurs first. The
Agreement includes provisions which restrict stockholders as to the sale or
transfer of stock and restrict the Company as to the issuance or repurchase of
stock and payment of dividends on common stock.
F-8
<PAGE> 64
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Series A convertible preferred stock and Series B convertible preferred
stock require an 8% annual, cumulative dividend payable quarterly. Each share of
preferred stock is convertible into one share of common stock, subject to
antidilution provisions. Under certain circumstances, the Company can force
conversion of the preferred stock or, at the Company's option, redeem for cash
the Series A convertible preferred stock and the Series B convertible preferred
stock for $1.8181 and $3.7618 per share, respectively, plus accrued dividends.
Preferred stock dividends in arrears as of December 31, 1994 and 1995 totaled
$942 and $522,562, respectively.
On January 26, 1995, the Board of Directors of the Company approved a stock
option plan (Stock Plan) pursuant to which incentive stock options and
nonqualified stock options may be granted. Under the Stock Plan, options to
purchase 785,400 common shares may be for a term not to exceed 10 years (five
years with respect to a person who owns more than 10% of the capital stock of
the Company). The exercise price of all stock options must be at least equal to
the fair market value of the shares of stock, as determined by the Company's
Board of Directors (110% of fair market value for a person who owns more than
10% of the capital stock of the Company). During 1995, options to purchase
536,800 shares were granted under the Stock Plan at an exercise price of $0.08
per share. As of December 31, 1995, options to purchase 69,702 shares had vested
and were exercisable.
The Company has reserved for issuance 6,250,717 shares of common stock for
purposes of conversion of preferred stock and exercise of stock options.
(5) EMPLOYEE BENEFITS
As of September 22, 1995, the Company adopted an employee savings plan (the
Plan), a defined contribution plan qualified under Section 401(k) of the
Internal Revenue Code, which covers substantially all employees. Each
participant may make an annual contribution to their account of 15% of their
compensation, subject to certain limitations. The Company's matching
contribution is 25% of participant contributions. The Company may make annual
discretionary contributions to the Plan not to exceed 15% of the total
compensation of all plan participants. Participants vest in the Company's
matching portion at a rate of 20% per year. Forfeitures of contributions related
to nonvested participant balances will be used to reduce the Company's
contributions and/or plan expenses. For the year ended December 31, 1995, no
expense had been incurred by the Company related to the Plan.
(6) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------- ----------
<S> <C> <C>
Net operating loss carryforwards......................... $73,243 $ 834,230
Allowance for doubtful accounts.......................... -- 47,433
Deferred rent expense.................................... -- 147,333
Other.................................................... -- 12,392
------- ----------
73,243 1,041,388
Less valuation allowance................................. 73,243 1,041,388
------- ----------
$ -- $ --
======= =========
</TABLE>
A valuation allowance is necessary for deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
F-9
<PAGE> 65
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
taxable income during the period in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. The Company has approximately $2,500,000 of net
operating loss carryforwards for income tax purposes, which, if unused, will
begin to expire in the year 2009. No cash was paid for taxes in 1994 or 1995.
(7) RELATED PARTY TRANSACTIONS
Other assets as of December 31, 1994 and 1995 include notes receivable from
two executive officers aggregating $48,181 and $42,967, respectively. Pursuant
to employment agreements with these two officers, amounts receivable are
forgiven through their service to the Company over a period which extends
through September 22, 1997.
Note payable - stockholder represents unsecured advances received from a
minority stockholder which bear interest at 1% over the prime rate published by
a local bank (9.75% at December 31, 1995), and are payable in quarterly
installments, with the final installment due June 30, 1996.
(8) COMMITMENTS AND CONTINGENCIES
The Company's health care facilities are located in space leased from acute
care health care providers (Host Hospitals) under operating lease agreements
with Host Hospitals with initial terms of five or more years, with varying
renewal terms. The Company leases corporate office space under a noncancellable
operating lease which expires in the year 2000.
Minimum annual lease payments on noncancellable operating leases with
maturities in excess of one year are as follows: $1,097,250 in 1996, $2,094,000
in 1997, $2,100,667 in 1998, $2,110,000 in 1999, and $2,168,333 in 2000. Rent
expense was approximately $965,000 in 1995.
(9) SUBSEQUENT EVENTS
On July 15, 1996, the Board of Directors authorized and the stockholders
approved, contingent upon completion of an IPO, the filing of a Restated
Certificate of Incorporation that provides for (a) the authorization of 30
million shares of preferred stock, no par value, the terms of which may be
determined by the Board of Directors from time to time, and (b) the
authorization of 70 million shares of common stock, $0.001 par value. On July
15, 1996, the Board of Directors also authorized and approved a 5 1/2 for 1
stock split of its common stock in the form of a stock dividend, contingent upon
completion of an IPO. Accordingly, the stock split and the changes in preferred
and common stock have been given retroactive effect in the accompanying
consolidated financial statements.
F-10
<PAGE> 66
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, JUNE 30,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 5,217,325 $ 5,217,325
Accounts receivable, less allowance for doubtful accounts of
$103,800...................................................... 4,835,737 4,835,737
Inventories...................................................... 119,982 119,982
Prepaid expenses................................................. 267,208 267,208
------------ ------------
Total current assets.......................................... 10,440,252 10,440,252
Property and equipment, net........................................ 2,038,391 2,038,391
Organizational and preopening costs, net........................... 252,273 252,273
Other assets....................................................... 700,524 700,524
------------ ------------
$13,431,440 $13,431,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations.................... $ 214,799 $ 214,799
Accounts payable and accrued expenses............................ 1,133,579 1,133,579
Accrued salaries, wages, and benefits............................ 527,661 527,661
------------ ------------
Total current liabilities..................................... 1,876,039 1,876,039
------------ ------------
Long-term obligations, less current installments................... 710,049 710,049
Deferred rent expense.............................................. 805,125 805,125
Stockholders' equity:
Preferred stock, no par value, 30,000,000 shares authorized, no
shares issued................................................. -- --
Series A convertible preferred stock, $0.001 par value, 3,465,000
shares authorized; 3,465,000 and no shares issued and
outstanding, respectively..................................... 3,465 --
Series B convertible preferred stock, $0.001 par value, 2,232,967
shares authorized; 2,232,967 and no shares issued and
outstanding, respectively..................................... 2,233 --
Common stock, $0.001 par value, 70,000,000 shares authorized,
1,332,100 and 7,030,067 shares issued and outstanding,
respectively.................................................. 1,332 7,030
Additional paid-in capital....................................... 14,846,073 14,846,073
Accumulated deficit.............................................. (4,812,876) (4,812,876)
------------ ------------
Total stockholders' equity.................................... 10,040,227 10,040,227
------------ ------------
$13,431,440 $13,431,440
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-11
<PAGE> 67
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net patient service revenues....................................... $ 165,721 $ 6,076,075
Costs and expenses:
Operating expenses............................................... 714,189 6,304,812
General and administrative....................................... 736,036 1,323,748
Provision for doubtful accounts.................................. 30,000 150,036
Depreciation and amortization.................................... 13,979 248,879
---------- ----------
Total costs and expenses...................................... 1,494,204 8,027,475
---------- ----------
Operating loss................................................ (1,328,483) (1,951,400)
Interest income.................................................... 143,522 235,601
Interest expense................................................... (15,875) (34,172)
---------- ----------
Net loss...................................................... $(1,200,836) $(1,749,971)
========== ==========
Pro forma loss per share........................................... $ (0.24)
==========
Pro forma weighted average outstanding shares...................... 7,268,492
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-12
<PAGE> 68
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(1,200,836) $(1,749,971)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 13,979 248,879
Provision for doubtful accounts............................... 30,000 150,036
Increase in accounts receivable............................... (217,217) (3,814,680)
Increase in inventories, prepaid expenses, and other assets... (86,558) (621,535)
Increase in accounts payable and accrued expenses............. 113,167 649,872
Increase in accrued salaries, wages, and benefits............. 60,117 303,522
Increase in accrued rent differential......................... 173,333 371,792
------------ ------------
Net cash used in operating activities....................... (1,114,015) (4,462,085)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment.............................. (273,328) (1,372,543)
Proceeds from sale of equipment.................................. -- 337,792
Organizational and preopening costs.............................. -- (117,879)
------------ ------------
Net cash used in investing activities....................... (273,328) (1,152,630)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred and common stock............. 6,304,900 22
Proceeds from issuance of note payable--stockholder.............. -- (265,200)
Payments on long-term obligations................................ (7,398) (164,204)
------------ ------------
Net cash provided by (used in) financing activities......... 6,297,502 (429,382)
------------ ------------
Increase in cash and cash equivalents....................... 4,910,159 6,044,097
Cash and cash equivalents, beginning of period..................... 190,284 11,261,422
------------ ------------
Cash and cash equivalents, end of period........................... $ 5,100,443 $ 5,217,325
============ ============
Supplemental cash flow information--cash paid for interest......... $ 15,875 $ 34,172
============ ============
Supplemental information--noncash activity:
Acquisition of equipment through capital leases.................. $ 57,218 $ 587,554
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-13
<PAGE> 69
INTENSIVA HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1996 and condensed
consolidated statements of operations and cash flows for the six months ended
June 30, 1995 and 1996 contained herein, which are unaudited, include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts have been eliminated in consolidation. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Adjustments consist only of normal recurring
items. The results of operations for the six months ended June 30, 1995 and
1996, are not necessarily indicative of the results to be expected for the full
fiscal year.
The condensed consolidated financial statements do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Reference is made to the Company's 1994 and 1995
audited financial statements and the related notes which provide additional
disclosures and a further description of accounting policies.
(2) PRO FORMA BALANCE SHEET
As more fully described elsewhere in the accompanying footnotes, each share
of the Series A and B convertible preferred stock will automatically convert on
a share-for-share basis to common stock upon the closing of an initial public
offering (IPO) that meets certain conditions. As the Company is currently in
registration for an IPO that meets the conversion criteria, the accompanying pro
forma balance sheet as of June 30, 1996 assumes that these securities were
converted as of June 30, 1996. The pro forma loss per share assumes the
conversion of the Series A and B convertible preferred stock as of the beginning
of the period.
(3) SUBSEQUENT EVENTS
On July 15, 1996, the Board of Directors authorized and the stockholders
approved, contingent upon completion of an IPO, the filing of a Restated
Certificate of Incorporation that provides for (a) the authorization of 30
million shares of preferred stock, no par value, the terms of which may be
determined by the Board of Directors from time to time, and (b) the
authorization of 70 million shares of common stock, $0.001 par value. On July
15, 1996, the Board of Directors also authorized and approved a 5 1/2 for 1
stock split of its common stock in the form of a stock dividend, contingent upon
completion of an IPO. Accordingly, the stock split and the changes in preferred
and common stock have been given retroactive effect in the accompanying
condensed consolidated financial statements.
F-14
<PAGE> 70
------------------------------------------------------------
------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 6
The Company.................................. 12
Use of Proceeds.............................. 12
Dividend Policy.............................. 12
Capitalization............................... 13
Dilution..................................... 14
Selected Consolidated Financial Data......... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 16
Business..................................... 21
Management................................... 34
Certain Transactions......................... 39
Principal and Selling Stockholders........... 41
Description of Capital Stock................. 44
Shares Eligible for Future Sale.............. 49
Underwriting................................. 51
Legal Matters................................ 53
Experts...................................... 53
Additional Information....................... 53
Index to Consolidated Financial Statements... 54
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
SHARES
[INTENSIVA LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
NEEDHAM & COMPANY, INC.
, 1996
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
<TABLE>
<CAPTION>
ITEM AMOUNT(1)
-----------
<S> <C>
SEC Registration Fee............................................. $ 13,793.10
NASD Filing Fee.................................................. 30,500.00
Nasdaq National Market Listing Fee............................... 17,500.00
Blue Sky Filing Fees and Expenses................................ (2)
Printing and Engraving Costs..................................... (2)
Transfer Agent Fees.............................................. (2)
Legal Fees and Expenses.......................................... (2)
Accounting Fees and Expenses..................................... (2)
Miscellaneous.................................................... (2)
----------
Total.......................................................... $500,000.00
</TABLE>
- ------------------------------
(1) All amounts are estimated except for the SEC Registration Fee, the NASD
Filing Fee and the Nasdaq National Market Listing Fee.
(2) To be filed by amendment.
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision eliminating
or limiting director liability to the Company and its stockholders for monetary
damages arising from acts or omissions in the director's capacity as a director.
The provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the Delaware
statutory provision making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock purchases or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
the Company protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above). As a result of this
provision, the ability of the Company or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
the duty of care. The Securities and Exchange Commission (the "Commission") has
taken the position that the provision will have no effect on claims arising
under the federal securities laws.
In addition, the Certificate of Incorporation and the Company's By-laws
provide for mandatory indemnification rights, subject to limited exceptions, for
any director or officer of the Company who by reason of the fact that he or she
is a director or officer of the Company, is involved in a legal proceeding of
any nature. Such indemnification rights include reimbursement for expenses
incurred by such director or officer in advance of the final disposition of such
proceeding in accordance with the applicable provisions of Delaware General
Corporation Law. The Company may from time to time agree to provide similar
indemnifications to certain employees and other agents.
The Company also maintains directors' and officers' liability insurance.
II-1
<PAGE> 72
In addition, the Underwriting Agreement provides for indemnification by the
Underwriters of the Registrant, its directors and officers against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Act").
15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth sales of securities by the Company within
the past three years that were not sold pursuant to a registered offering. All
sales of Common Stock, warrants for Common Stock, Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock were pursuant to transactions by
the issuer not involving any public offer, and thus were exempt from
registration pursuant to Section 4(2) of the Securities Act. Grants of options
of Common Stock were made with receipt of no consideration by the Company and
were exempt for all of the following reasons: (a) the transactions did not
constitute a public offer pursuant to Section 4(2) of the Securities Act; (b)
the grants did not constitute a sale; and (c) the grants constituted a
transaction exempt pursuant to Rule 701 et seq. promulgated under the Securities
Act. None of the securities were sold through underwriters. Share numbers have
not been adjusted for the 5.5:1 stock split to be effected immediately prior to
the closing of the Company's initial public offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
SECURITY/PURCHASER DATE SOLD/GRANTED SOLD/GRANTED CONSIDERATION
- ---------------------------------------------- ------------------ ------------ -------------
<S> <C> <C> <C>
COMMON STOCK
David W. Cross................................ September 22, 1994 59,325 $ 25,000
John R. Lewis................................. September 22, 1994 59,325 $ 25,000
David L. Steffy............................... September 22, 1994 59,325 $ 25,000
RehabCare Group, Inc.......................... September 22, 1994 59,325 $ 73,181(1)
Three Arch Partners, L.P...................... December 30, 1994 3,998 $ 3,998
Three Arch Associates, L.P.................... December 30, 1994 902 $ 902
WARRANTS FOR COMMON STOCK
Comdisco, Inc................................. February 15, 1996 2,900 $ (2)
OPTIONS FOR COMMON STOCK
James D. Pomeroy.............................. January 2, 1995 14,700 N/A
Anthony J. Torrente........................... January 2, 1995 14,700 N/A
Thomas M. Walsh............................... January 27, 1995 6,500 N/A
Samuel A. Morse............................... February 13, 1995 19,600 N/A
John P. Keefe................................. July 28, 1995 19,600 N/A
Anthony J. Torrente........................... November 27, 1995 3,500 N/A
Kathie Nohre R.N.............................. November 27, 1995 5,000 N/A
Madalene Roedl................................ November 27, 1995 2,000 N/A
David W. Cross................................ December 15, 1995 6,000 N/A
John R. Lewis................................. December 15, 1995 6,000 N/A
Phillip M. Nudelman Ph.D...................... June 28, 1996 1,000 N/A
Robert H. Grimes.............................. June 28, 1996 500 N/A
Barbara C. Bentrup............................ June 28, 1996 200 N/A
Patrick L. Burton............................. June 28, 1996 150 N/A
SERIES A CONVERTIBLE PREFERRED STOCK
ALTA V Limited Partnership.................... December 30, 1994 98,960 $ 989,600
Customs House Partners........................ December 30, 1994 1,040 $ 10,400
Sierra Ventures IV, L.P....................... December 30, 1994 192,300 $ 1,923,000
Sierra Ventures IV International, L.P......... December 30, 1994 7,700 $ 77,000
Weiss, Peck & Greer Venture Associates III,
L.P......................................... January 6, 1995 41,160 $ 411,600
WPG Enterprise Fund II, L.P................... January 6, 1995 58,840 $ 588,400
Life Science Entrepreneur Fund................ December 30, 1994 5,000 $ 50,000
Schroder Ventures Limited Partnership......... December 30, 1994 60,000 $ 600,000
Schroder Ventures U.S. Trust.................. December 30, 1994 15,000 $ 150,000
Schroders Incorporated........................ December 30, 1994 50,000 $ 500,000
</TABLE>
II-2
<PAGE> 73
<TABLE>
<CAPTION>
NUMBER OF
SHARES
SECURITY/PURCHASER DATE SOLD/GRANTED SOLD/GRANTED CONSIDERATION
- ---------------------------------------------- ------------------ ------------ -------------
<S> <C> <C> <C>
Three Arch Partners, L.P...................... January 6, 1995 81,600 $ 816,000
Three Arch Associates, L.P.................... January 6, 1995 18,400 $ 184,000
SERIES B CONVERTIBLE PREFERRED STOCK
ALTA V Limited Partnership.................... December 22, 1995 47,830 $ 989,602.70
Customs House Partners........................ December 22, 1995 503 $ 10,407.07
Sierra Ventures IV, L.P. ..................... December 22, 1995 69,708 $1,442,258.52
Sierra Ventures IV International, L.P. ....... December 22, 1995 2,791 $ 57,745.79
Weiss, Peck & Greer Venture Associates III,
L.P. ....................................... December 22, 1995 21,943 $ 454,000.67
WPG Enterprise Fund II, L.P. ................. December 22, 1995 26,390 $ 546,009.10
Schroder Ventures Limited Partnership......... December 22, 1995 8,159 $ 168,809.71
Schroder Ventures U.S. Trust.................. December 22, 1995 2,040 $ 42,207.60
Schroders Incorporated........................ December 22, 1995 6,800 $ 140,692.00
Three Arch Partners, L.P. .................... December 22, 1995 39,456 $ 816,344.64
Three Arch Associates, L.P. .................. December 22, 1995 8,877 $ 183,665.13
Mayfield VIII................................. December 22, 1995 162,922 $3,370,856.18
Mayfield Associates Fund II................... December 22, 1995 8,575 $ 177,416.75
</TABLE>
- ------------------------------
(1) Purchase price consisted of $25,000 in cash, and transfer of certain
promissory notes of David W. Cross and John R. Lewis (issued with respect to
transactions unrelated to the Company).
(2) Granted as part of consideration for entering into capital lease
arrangement.
16. EXHIBITS
(a) EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not applicable, are not
required, or because the information is included elsewhere in the Consolidated
Financial Statements or the Notes thereto.
17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing as specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and
II-3
<PAGE> 74
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in St. Louis, Missouri on the 25th day of
July, 1996.
INTENSIVA HEALTHCARE CORPORATION
By: /s/ DAVID W. CROSS
--------------------------------------
David W. Cross, President
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
David W. Cross and John P. Keefe, or either of them, as his attorney-in-fact,
with full power of substitution and resubstitution, to sign and file on his
behalf individually and in each such capacity stated below any and all
amendments and post-effective amendments to this Registration Statement (or any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), as fully as such
person could do in person, hereby verifying and confirming all that said
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------- ----------------------------- --------------
<S> <C> <C>
/s/ David W. Cross President, Chief Executive July 25, 1996
------------------------------------------- Officer (Principal Executive
David W. Cross Officer) and Director
/s/ Jeffrey J. Collinson Director July 25, 1996
-------------------------------------------
Jeffrey J. Collinson
/s/ Wilfred E. Jaeger Director July 25, 1996
-------------------------------------------
Wilfred E. Jaeger, MD
/s/ James B. Tananbaum Director July 25, 1996
-------------------------------------------
James B. Tananbaum, MD
/s/ David L. Steffy Director July 25, 1996
-------------------------------------------
David L. Steffy
/s/ Phillip M. Nudelman Director July 25, 1996
-------------------------------------------
Phillip M. Nudelman, Ph.D.
/s/ John P. Keefe Chief Financial Officer July 25, 1996
------------------------------------------- (Principal Financial and
John P. Keefe Accounting Officer)
</TABLE>
II-5
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3(i).1 Amended and Restated Certificate of Incorporation
3(i).2 Certificate of Amendment to Amended and Restated Certificate of Incorporation
*3(i).3 Form of Third Amended and Restated Certificate of Incorporation
3(ii).1 By-Laws
*3(ii).2 Form of Amended and Restated By-Laws
+4.1 Specimen Certificate of Shares of Common Stock, $0.001 par value, of the Company
4.2 Amended and Restated Stockholders' Agreement, dated December 20, 1995
4.3 Amended and Restated Registration Rights Agreement, dated December 20, 1995
+5.1 Form of Opinion of Suelthaus & Walsh, P.C., regarding legality of securities being
offered
10.1 Form of Lease Agreement with Host Hospitals
10.2 Warrant Agreement to Purchase Shares of Series B Convertible Preferred Stock of
Transitional Care of America, Inc., by and between the Company and Comdisco, Inc.,
dated as of February 15, 1996
10.3 Master Lease Agreement by and between the Company and Comdisco, Inc., dated
December 11, 1995
10.4 Agreement by and between the Company and Healthcare Management Systems, Inc., dated
November 29, 1995
10.5 Escrow Agreement by and among the Company, Healthcare Management Systems, Inc. and
Wyatt, Tarrant & Combs, dated November 29, 1995
10.6 Second Amended and Restated Employment Agreement of David W. Cross, by and between
the Company and David W. Cross, dated June 12, 1996
10.7 Second Amended and Restated Employment Agreement of John R. Lewis, by and between
the Company and John R. Lewis, dated June 12, 1996
10.8 Employment Agreement of John P. Keefe, by and between the Company and John P.
Keefe, dated June 1, 1995
10.9 Employment Agreement of Samuel A. Morse, by and between the Company and Samuel A.
Morse, dated December 2, 1994
10.10 Employment Agreement of Tony J. Torrente, by and between the Company and Tony J.
Torrente, dated December 8, 1994
10.11 Employment Agreement of James D. Pomeroy, by and between the Company and James D.
Pomeroy, dated December 28, 1994
10.12 Employment Agreement of Kathie Nohre, R.N., by and between the Company and Kathie
Nohre, R.N., dated November 6, 1995
10.13 Transitional Care of America, Inc. Stock Option Plan
10.14 Subscription Agreement for the sale of Common Stock of the Company, by and among
the Company, RehabCare Corporation, David L. Steffy, David W. Cross, and John R.
Lewis, dated September 22, 1994
10.15 Stockholders' Agreement by and among the Company, RehabCare Corporation, David L.
Steffy, David W. Cross and John L. Lewis, dated September 22, 1994
10.16 Transition Agreement by and among the Company, RehabCare Corporation, David W.
Cross and John R. Lewis, dated September 22, 1994
10.17 TCA Non-Compete, Non-Hire, Non-Disclosure and Release Agreement by and between the
Company and RehabCare Corporation, dated September 22, 1994
10.18 RehabCare Non-Compete, Non-Hire, Non-Disclosure and Release Agreement by and
between the Company and RehabCare Corporation, dated September 22, 1994
</TABLE>
II-6
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<S> <C>
10.19 Steffy/RehabCare Non-Development, Non-Hire and Release Agreement, by and between
David L. Steffy and RehabCare Corporation, dated September 22, 1994
10.20 Cross Non-Compete, Non-Hire, Non-Disclosure and Release Agreement by and between
David W. Cross and RehabCare Corporation, dated September 22, 1994
10.21 Lewis Non-Compete, Non-Hire, Non-Disclosure and Release Agreement by and between
John R. Lewis and RehabCare Corporation, dated September 22, 1994
10.22 Series A Convertible Preferred Stock Purchase Agreement by and among the Company
and certain purchasers named therein, dated December 30, 1994
10.23 Stock Repurchase Agreement by and between the Company and David W. Cross, dated
December 30, 1994
10.24 Stock Repurchase Agreement by and between the Company and John R. Lewis, dated
December 30, 1994
10.25 Series B Convertible Preferred Stock Purchase Agreement by and among the Company
and certain purchasers named therein, dated December 20, 1994
11.1 Statement Re Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1 Consent of Suelthaus & Walsh, P.C. (consent included in Exhibit 5.1)
+23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included as part of Signature Page to Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* To be effective immediately prior to effectiveness of the Registration
Statement.
+ To be filed by amendment.
II-7
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
INTENSIVA HEALTHCARE CORPORATION
___________ SHARES*
COMMON STOCK
______________, 1996
HAMBRECHT & QUIST LLC
ROBERTSON, STEPHENS & COMPANY LLC
NEEDHAM & COMPANY, INC.
as Representatives of the Several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Intensiva HealthCare Corporation, a Delaware corporation (herein
called the Company), proposes to issue and sell ____________ shares of its
authorized but unissued Common Stock, $0.001 par value per share (herein called
the Common Stock) and RehabCare Group, Inc. (the "Selling Stockholder" proposes
to sell ___ shares of Common Stock (said _________ shares of Common Stock being
herein called the Underwritten Stock). The Company proposes to grant to the
Underwriters (as hereinafter defined) an option to purchase up to __________
additional shares of Common Stock (herein called the Option Stock and with the
Underwritten Stock herein collectively called the Stock). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter described.
The Company and the Selling Stockholder hereby confirm the agreements
made with respect to the purchase of the Stock by the several underwriters, for
whom you are acting, named in Schedule I hereto (herein collectively called the
Underwriters, which term shall also include any underwriter purchasing Stock
pursuant to Section 4(b) hereof). You represent and warrant that you have been
authorized by each of the other Underwriters to enter into this Agreement on
its behalf and to act for it in the manner herein provided.
___________________
*Plus an option to purchase from the Company up to ______ additional shares
to cover over-allotments.
<PAGE> 2
1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (herein called the Commission) a
registration statement on Form S-1 (No. 333-______), including the related
preliminary prospectus, for the registration of the Stock under the Securities
Act of 1933, as amended (herein called the Securities Act). Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you. The term Registration Statement as
used in this Agreement shall mean such registration statement, including all
exhibits and financial statements and all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to below, in
the form in which it became effective, and any registration statement
increasing the size of the offering filed pursuant to Rule 462(b) of the rules
and regulations of the Commission with respect to the Stock (herein called a
Rule 462(b) Registration Statement), and, in the event of any amendment thereto
after the effective date of such registration statement (herein called the
Effective Date), the term Registration Statement shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended (including any Rule 462(b) Registration Statement). The term
Prospectus as used in this Agreement shall mean the prospectus relating to the
Stock first filed with the Commission pursuant to Rule 424(b) and Rule 430A or
(if no such filing is required) as included in the Registration Statement, and,
in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as
so supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Underwriters as follows:
(a) The Registration Statement, in the form delivered to
you, has been declared effective under the Securities Act, and other than a
462(b) Registration Statement, if any, no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement. No
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been initiated or, to the
knowledge of the Company, threatened by the Commission. The Company has caused
to be delivered to you copies of the Registration Statement and each
Preliminary Prospectus and has consented to the use of such copies for the
purposes permitted by the Securities Act.
(b) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.1 of the Registration Statement. The Company
and each of its subsidiaries have been duly incorporated and each is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has full corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the
2
<PAGE> 3
Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified
would not have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company and its subsidiaries, taken as a whole). The outstanding shares of
capital stock of each such subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and are owned by the Company free and
clear of all liens, encumbrances and security interests; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in any such subsidiary are outstanding. The Company and
each of its subsidiaries has all requisite power and authority, and now hold,
and at the Closing Date (as defined in Section 6(a) hereof) will hold, all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses, certificates and permits of and from all federal,
state and other regulatory and governmental agencies and bodies necessary to
own, lease and operate their properties and conduct their business, taken as a
whole, as now being conducted as described in the Registration Statement and
the Prospectus (except where the failure to hold such consent, approval,
authorization, order, registration, qualification, license, certificate or
permit would not have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company and its subsidiaries, taken as a whole). No such consent, approval,
authorization, order, registration, qualification, license, certificate or
permit contain a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. Neither the Company nor any of
its subsidiaries has provided or provides monetary compensation to the medical
community in return for patient referrals in violation of any applicable law,
rule or regulation.
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material adverse change in the business, properties, operations, financial
condition or results of operations or prospects of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus. Since such dates neither the Company nor any of
its subsidiaries has entered into any material transaction not referred to in
the Registration Statement and the Prospectus other than in the ordinary course
of business.
(d) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, nor
instituted proceedings for that purpose. The Registration Statement and the
Prospectus comply, and on the Closing Date (as hereinafter defined) and any
later date on which Option Stock is to be purchased, the Registration Statement
and the Prospectus will comply, in all material respects, with the provisions
of the Securities Act and the rules and regulations of the Commission
thereunder. On the Effective Date and on the Closing Date and any later date
on which Option Stock may be purchased, neither the Registration Statement nor
any amendment thereto, and neither the Prospectus nor any supplements thereto,
contains or will contain any untrue statement of a
3
<PAGE> 4
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which such statements were made, not misleading.
None of the representations and warranties in this subparagraph (d) shall apply
to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus. There are no contracts or documents
of the Company or any of its subsidiaries which would be required by the
Securities Act or by the rules and regulations of the Commission to be filed as
exhibits to the Registration Statement which have not been so filed.
(e) The authorized, issued and outstanding capital stock
of the Company and the outstanding long-term debt of the Company and its
subsidiaries is as described in the Prospectus. All of the issued shares of
capital stock of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable, and conform to the description thereof
contained in the Prospectus. All of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, security interests and
claims whatsoever. The Stock is duly and validly authorized and will be, when
issued and sold to the Underwriters as provided herein duly and validly issued,
fully paid, nonassessable, free of pre-emptive rights and conforms to the
description thereof in the Prospectus. There are no outstanding options,
warrants or other rights granted to or by the Company to purchase shares of
Common Stock or other securities of the Company other than as described in the
Prospectus; and no such option, warrant or other right has been granted to any
person, the exercise of which would cause such person to own more than five
percent of the Common Stock outstanding immediately after the offering other
than as described in the Prospectus. No Person or entity holds a right to
require or participate in the registration under the Securities Act of shares
of Common Stock of the Company which right has not been waived by the holder
thereof as of the date hereof with respect to the registration of shares
pursuant to the Registration Statement, and except as described in the
Prospectus, no person holds a right to require registration under the
Securities Act of shares of Common Stock of the Company at any other time. No
person or entity has a right of participation with respect to the sale of
shares of the Stock by the Company. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Stock by the Company or for the transfer and sale of
the Stock by the Selling Stockholder as contemplated herein.
(f) The Company and its subsidiaries now hold, and at the
Closing Date (as defined in Section 6(a) hereof) will hold, all material
licenses, certificates and permits from state, federal and other regulatory
authorities which are necessary for the conduct of the business of the Company
and its subsidiaries, taken as a whole; neither the Company nor any of its
subsidiaries is in violation of its corporate charter or by-laws, or in default
in the performance or observance of any provision of any obligation, agreement,
covenant or condition contained in any bond, debenture or material contract,
lease, indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which the Company or such
4
<PAGE> 5
subsidiary is a party or by which it or any of its properties is bound or is in
violation of any law, order, rule, regulation, writ, injunction or decree of
any government, governmental instrumentality or court, domestic or foreign,
including without limitation, all applicable local, state and federal
environmental regulations.
(g) Except as disclosed in the Prospectus, the Company
and its subsidiaries have all necessary trademarks, trade names, patent rights,
mask works, copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted and as proposed to be conducted,
without any conflicts with the rights of others; and the Company has no
knowledge of any material infringement by the Company or its subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights, licenses,
trade secret or other similar rights of others, and there is no litigation or
other proceedings pending or threatened against the Company or its subsidiaries
regarding trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement which singly or in the aggregate could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company and its subsidiaries, nor, to
the best of the Company's knowledge, is there any basis therefor.
(h) This Agreement has been duly authorized, executed and
delivered by the Company; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, (i) any indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the property of the Company or any of the
subsidiaries is bound, (ii) the corporate charter or by-laws of the Company or
any of the subsidiaries or (iii) (assuming the making of all filings required
under Rule 424(b) or Rule 430A and the due qualification of the Stock for
public offering by the Underwriters under state and foreign securities laws)
any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or over the properties of the Company.
(i) Except as set forth in the Prospectus, there is not
any action, suit or proceeding before any court or administrative agency, at
law or in equity, pending against the Company or any subsidiary or of which any
property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any subsidiary, would individually or in
the aggregate materially adversely affect the business, properties, operations,
financial condition, income or business prospects of the Company and the
subsidiaries, taken as a whole, or prevent consummation of the transactions
contemplated hereby; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others.
(j) The consolidated financial statements of the Company
and its subsidiaries, together with the related notes and schedules as set
forth in the Registration Statement, present fairly the consolidated financial
position and the results of operations of the Company and its subsidiaries, at
the indicated dates and for the indicated periods. Such
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<PAGE> 6
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved, and
all adjustments necessary for a fair presentation of results for such periods
have been made. The summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein.
(k) The Company and its subsidiaries have filed all
federal, state and foreign income tax returns which have been required to be
filed (or have filed extensions therefor or obtained any required extensions in
connection therewith), and have paid all taxes indicated by said returns and
all assessments received by them or any of them to the extent that such taxes
have become due and are not being contested in good faith.
(l) Each approval, consent, order authorization,
designation, declaration or filing by or with any United States regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation by
the Company of the transactions herein contemplated (except (i) such additional
steps as may be required by the National Association of Securities Dealers,
Inc. (the "NASD"), (ii) as may be necessary to make the Registration Statement
effective (and to maintain such effectiveness) and to qualify the Stock for
public offering by the Underwriters under state and foreign securities laws or
(iii) filings required under Rule 424(b) or Rule 430(A)) has been obtained or
made and is in full force and effect.
(m) KPMG Peat Marwick LLP, who have certified the
financial statements of the Company and its subsidiaries filed with the
Commission as part of the Registration Statement, are independent public
accountants as required by the Securities Act and the rules and regulations of
the Commission thereunder.
(n) The Company and the subsidiaries have good and
marketable title or leasehold title, as the case may be, to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which are not material in amount.
(o) Neither the Company nor any of its subsidiaries is
involved in any material labor dispute nor, to the knowledge of the Company, is
any such dispute threatened.
(p) The Company and each of its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for their
business, including, but not limited to, medical malpractice insurance and
insurance covering real and personal property owned or leased by the Company or
any of its subsidiaries against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is in
full force and effect.
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(q) The Company is not aware that (A) any executive
officer, key employee or significant group of employees of the Company or any
of its subsidiaries plans to terminate employment with the Company or any of
its subsidiaries or (B) any such executive officer or key employee is subject
to any non-competition, non-disclosure, confidentiality, employment, consulting
or similar agreement that would be violated by the present or proposed business
activities of the Company or any of its subsidiaries.
(r) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, are an accurate and complete description of
such terms in all material respects.
(s) The Company is not and, after giving effect to the
offering and sale of the Stock, will not be an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
(t) The Company has filed a registration statement
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(hereinafter the Exchange Act), to register the Stock, has filed an application
to list the Stock on the Nasdaq National Market, and has received notification
that such listing has been approved, subject to official notice of issuance and
sale.
(u) Neither the Company nor its subsidiaries are engaged
in the practice of medicine. Neither the Company nor any of its subsidiaries
exercises any influence or control over the practice of medicine by the
physicians attending patients at the facilities of the Company or of its
subsidiaries in violation of any law, rule or regulation.
(v) Neither the Company nor any of its subsidiaries nor
any employee or agent of the Company or any physician has made any payment of
funds of the Company or any subsidiary of the Company or received or retained
any funds in violation of any law, rule or regulation, including laws and
regulations prohibiting fee-splitting or fees for the referral of patients.
(w) There are no material Medicare, Medicaid or other
managed care recoupment or recoupments of any third-party payor being sought,
threatened, requested or claimed against the Company or any of its
subsidiaries.
(x) The Company and its subsidiaries conduct the business
now operated by them in the manner required pursuant to Federal law, including
without limitation 42 U.S.C. Section 1886(1)(B)(iv) of the Social Security Act,
in order to be exempt and to preserve their exemption as general long term care
hospitals.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER.
The Selling Stockholder hereby represents and warrants to the Underwriters as
follows:
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<PAGE> 8
(a) The Selling Stockholder has good and marketable title
to all the shares of Stock to be sold by the Selling Stockholder hereunder,
free and clear of all liens, encumbrances, security interests and claims
whatsoever, with full right and authority to deliver the same hereunder,
subject to the rights of Boatmen's Trust Company, as Custodian (herein called
the Custodian), and that upon the delivery of and payment for such shares of
Stock hereunder, the several Underwriters, will receive good and marketable
title thereto, free and clear of all liens, encumbrances, security interests
and claims whatsoever.
(b) Certificates in negotiable form for the shares of the
Stock to be sold by the Selling Stockholder have been placed in custody with
the Custodian under a Custody Agreement for delivery under this Agreement. The
Selling Stockholder specifically agrees that the shares of Stock represented by
the certificates so held in custody for the Selling Stockholder are subject to
the interests of the several Underwriters and the Company, that the
arrangements made by the Selling Stockholder for such custody, including the
Power of Attorney provided for with such Custody Agreement, are to that extent
irrevocable, and that the obligations of the Selling Stockholder shall not be
terminated by any act of the Selling Stockholder or by operation of law,
whether by the dissolution or liquidation of the Selling Stockholder or the
occurrence of any other event. If any such dissolution, liquidation or other
such event should occur before the delivery of such shares of Stock hereunder,
certificates for such shares of Stock shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such
dissolution, liquidation or other event had not occurred, regardless of whether
the Custodian shall have received notice of such dissolution, liquidation or
other event.
(c) To the extent that any statements or omissions made
in the Registration Statement, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with written information
furnished to the Company by the Selling Stockholder expressly for use therein,
the Registration Statement and the Prospectus conform, and on the Closing Date
and any later date on which Option Stock is to be purchased, the Registration
Statement and the Prospectus will conform, in all material respects, to the
provisions of the Securities Act and the rules and regulations of the
Commission thereunder. The Selling Stockholder has reviewed the information
relating to the Selling Stockholder in the Registration Statement and
Prospectus and, although the Selling Stockholder has not independently verified
the accuracy or completeness of any information contained therein other than
information relating specifically to the Selling Stockholder, nothing has come
to the actual attention of the Selling Stockholder that would lead the Selling
Stockholder to believe that on the Effective Date the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that on the Effective Date or, on the
Closing Date and any later date on which the Option Stock is to be purchased,
the Registration Statement or the Prospectus contained or will contain any
untrue statement of a material fact or omitted or will omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or
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<PAGE> 9
omissions from, the Registration Statement or the Prospectus made in reliance
upon and in conformity with information furnished in writing to the Company by
or on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(d) All consents, approvals, authorizations and orders
necessary for the execution and delivery by the Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement referred to
herein, and for the sale and delivery of the Stock to be sold by the Selling
Stockholder hereunder, have been obtained; and the Selling Stockholder has full
right, power and authority to enter into this Agreement, the Power of Attorney
and the Custody Agreement and to sell, assign, transfer and deliver the Stock
to be sold by the Selling Stockholder hereunder.
(e) The sale of the Stock to be sold by the Selling
Stockholder hereunder and the compliance by the Selling Stockholder with all of
the provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Selling Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property or assets of the Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation (or similar charter document) or
By-laws of the Selling Stockholder or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Selling Stockholder or the property of the Selling Stockholder.
(f) The Selling Stockholder has not taken and will not
take, directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Stock.
(g) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, the Selling Stockholder will deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
4. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell __________ shares of the Underwritten Stock to the several
Underwriters, the Selling Stockholder agrees to sell to the several
Underwriters ______ shares of the Underwritten Stock, and each of the
Underwriters agrees to purchase from the Company and the Selling Stockholder
the respective
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<PAGE> 10
aggregate number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be sold
by the Company and the Selling Stockholder and purchased by the several
Underwriters shall be $__________ per share. The obligation of each
Underwriter to the Company and to the Selling Stockholder shall be to purchase
from the Company and the Selling Stockholder that number of shares of the
Underwritten Stock which represents the same proportion of the total number of
shares of the Underwritten Stock to be sold by each of the Company and the
Selling Stockholder pursuant to this Agreement as the number of shares of the
Underwritten Stock set forth opposite the name of such Underwriter in Schedule
I hereto represents of the total number of shares of the Underwritten Stock to
be purchased by all Underwriters pursuant to this Agreement, as adjusted by you
in such manner as you deem advisable to avoid fractional shares. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 4, the agreement
of each Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 9 or Section 10
hereof) to purchase and pay for the number of shares of Stock agreed to be
purchased by such Underwriter or Underwriters, the Company or the Selling
Stockholder shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within twenty-four (24) hours
after the receipt by you of such notice to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares,
the number of shares of Stock that each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on
a pro rata basis to absorb the remaining shares which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the
non-defaulting Underwriters shall not be obligated to purchase the shares which
the defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such shares of Stock exceeds 10% of the total number of shares of
Stock that all Underwriters agreed to purchase hereunder. If the total number
of shares of Stock that the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company and the Selling Stockholder shall have the
right, within twenty-four (24) hours next succeeding the 24-hour period
referred to above to make arrangements with other underwriters or purchasers
satisfactory to you for the purchase of such shares on the terms herein set
forth. In any such case, either you, the Company or the Selling Stockholder
shall have the right to postpone the Closing Date determined as provided in
Section 6 hereof for not more than seven business days after the date
originally fixed as the Closing Date pursuant to said Section 6 in order that
any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company and the Selling
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<PAGE> 11
Stockholder shall make arrangements within the 24-hour periods stated above for
the purchase of all the shares of Stock that the defaulting Underwriter or
Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the
Company or the Selling Stockholder to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company or the Selling Stockholder. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to _________ shares in the aggregate, of the
Option Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said options may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the Underwriters
and may be exercised in whole or in part at any time (but not more than once)
on or before the thirtieth (30th) day after the date of this Agreement upon
written or telegraphic notice by you to the Company setting forth the aggregate
number of shares of the Option Stock as to which the several Underwriters are
exercising the option(s). Delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made as provided in Section 6 hereof.
The number of shares of the Option Stock to be purchased by each Underwriter
shall be the same percentage of the total number of shares of the Option Stock
to be purchased by the several Underwriters as such Underwriter is purchasing
of the Underwritten Stock, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
5. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Stock to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the initial public offering and increase or decrease
the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on
the front cover page and under "Underwriting" in the Registration Statement,
any Preliminary Prospectus and the Prospectus (insofar as such information
relates to the Underwriters) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
6. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the options granted by Section 4(c)
hereof shall have been exercised not later
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<PAGE> 12
than 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date), and payment therefor, shall be made at the office of Hambrecht &
Quist LLC, One Bush Street, San Francisco, California 94104 at 7:00 a.m., San
Francisco time, on the third business day after the date of this Agreement, or
at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company, the
Selling Stockholder and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 4(b) hereof) are herein called
the Closing Date.
(b) If the options granted by Section 4(c) hereof shall
be exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Hambrecht & Quist LLC, One
Bush Street, San Francisco, California 94104 at 7:00 a.m., San Francisco time,
on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company
shall be made to the Company or its order and payment for the Stock purchased
from the Selling Stockholder shall be made to the Custodian for the account of
the Selling Stockholder, in each case by one or more certified or official bank
check or checks in next day funds (and the Company and the Selling Stockholder
agree not to deposit any such check in the bank on which drawn until the day
following the date of its delivery to the Company or the Custodian, as the case
may be). Such payment shall be made upon delivery of certificates for the
Stock to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Stock to be delivered to
you shall be registered in such name or names and shall be in such
denominations as you may request at least two business days before the Closing
Date, in the case of Underwritten Stock, and at least two business days prior
to the purchase thereof, in the case of the Option Stock. Such certificates
will be made available to the Underwriters for inspection, checking and
packaging at the offices of Lewco Securities Corporation, 2 Broadway, New York,
New York 10004, at least two business days prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, at least two business
days preceding the date of purchase. Time shall be of the essence and delivery
at the time and place specified above is a further condition to the obligations
of the Underwriters.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholder for shares to be purchased by any Underwriter whose
check shall not have been received by you on the Closing Date or any later date
on which Option Stock is purchased for the account of such Underwriter. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
7. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
Each of the Company and, with respect to the matters specifically designated in
this Section 7, the Selling Stockholder respectively covenants and agrees as
follows:
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(a) The Company will prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A; provided, however, that the Company will not file such Prospectus
under Rule 424(b) or any amendment to the Registration Statement or supplement
to the Prospectus of which you shall not previously have been advised and
furnished with a copy or to which you shall have reasonably objected in writing
or which is not in compliance with the Securities Act or the rules and
regulations of the Commission. The Company will provide evidence satisfactory
to the Underwriters of the timely filing of the Prospectus filed under Rule
424(b) and any registration statement filed under Rule 462(b).
(b) If the Company elects to rely on Rule 462(b), the
Company shall file a 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
(c) The Company will promptly notify each Underwriter in
the event of (i) the request by the Commission for amendment of the
Registration Statement or for any supplement to the Prospectus or for any
additional information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding for
that purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by the Company of notice of the initiation or
threatening of any proceeding for such purpose. The Company and, to the extent
that action by the Selling Stockholder is required, the Selling Stockholder
will make every reasonable effort to prevent the issuance of such a stop order
and, if such an order shall at any time be issued, to obtain the withdrawal
thereof at the earliest possible moment.
(d) The Company will (i) on or before the date hereof
and, with respect to documents filed after the date hereof, on or before the
Closing Date, deliver to you a signed copy of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing thereof,
a signed copy of each post-effective amendment, if any, to the Registration
Statement (together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of the
foregoing (but without exhibits) so that a sufficient number of copies of each
may be distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you may
designate, as many copies of the Prospectus as you may reasonably request, and
(iii) thereafter from time to time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, likewise send to
the Underwriters as many additional copies of the Prospectus and as many copies
of any supplement to the Prospectus and of any amended
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<PAGE> 14
prospectus, filed by the Company with the Commission, as you may reasonably
request for the purposes contemplated by the Securities Act.
(e) If at any time during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer any
event relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in light of the circumstances existing at the time it is delivered
to a purchaser of the Stock, the Company will forthwith prepare and file with
the Commission, at its own expense, a supplement to the Prospectus or an
amended prospectus so that the Prospectus as so supplemented or amended will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the Stock
by the Underwriters and during such period, the Underwriters shall propose to
vary the terms of the offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the proposed
variation, and, if in the opinion either of counsel for the Company or of
counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission, at its own expense, a supplement or amendment to the
Prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(f) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement or amendment to the
Prospectus proposed to be filed.
(g) The Company will cooperate, when and as requested by
you, in the qualification of the Stock for offer and sale under the securities
or blue sky laws of such jurisdictions as you may designate and, during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports, and
other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Stock.
(h) During a period of five years commencing with the
date hereof, the Company will furnish to you, and to each Underwriter who may
so request in writing, copies
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of all periodic and special reports furnished to stockholders of the Company
and of all information, documents and reports filed with the Commission
(including the Report on Form SR required by Rule 463 of the Commission under
the Securities Act).
(i) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its securityholders an
earnings statement in accordance with Section 11(a) of the Securities Act and
Rule 158 thereunder.
(j) Whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, the Company agrees
to pay all costs and expenses incident to the performance of the obligations of
the Company and the Selling Stockholder under this Agreement, including all
costs and expenses incident to (i) the preparation, printing and filing with
the Commission and the National Association of Securities Dealers, Inc.
("NASD") of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required by paragraph (d)
of this Section 7 to be so furnished, (iii) the printing of this Agreement and
related documents delivered to the Underwriters, (iv) the preparation, printing
and filing of all supplements and amendments to the Prospectus referred to in
paragraph (e) of this Section 7, (v) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (h) of this Section 7
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees. The Company will also pay any transfer taxes incident
to the transfer to the Underwriters of the shares of Stock being sold by the
Selling Stockholder. Notwithstanding the above, the Selling Stockholder agrees
to pay all underwriting discounts and selling commissions applicable to the
sale of the Stock sold by such Selling Stockholder to the Underwriters.
(k) The Company agrees to reimburse you, for the account
of the several Underwriters, for blue sky fees and related disbursements
(including, without limitation, filing fees, counsel fees and disbursements and
the cost of printing memoranda for the Underwriters) paid by or for the account
of the Underwriters or their counsel in qualifying the Stock under state
securities or blue sky laws and for filing fees incident to the review of the
offering by the NASD.
(l) The provisions of paragraphs (j) and (k) of this
Section are intended to relieve the Underwriters from the payment of the
expenses and costs which the Company and the Selling Stockholder hereby agree
to pay and shall not affect any agreement which the Company and the Selling
Stockholder may make, or may have made, for the sharing of any such expenses
and costs.
(m) The Company agrees that, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, the Company
will not for a period of 180 days following the Closing Date, directly or
indirectly, (i) issue, sell, offer, contract to sell, make any short sale,
pledge, issue or sell any option or contract to purchase, purchase
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<PAGE> 16
any option or contract to sell, grant any option, right, warrant to purchase or
otherwise transfer or dispose of any of the Company's equity securities or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire any of the Company's equity securities or (ii) enter into
any swap or other agreement that transfers, in whole or in part, any of the
economic consequences or ownership of any other Company's equity securities,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of any of the Company's equity securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Stock to be sold
to the Underwriters pursuant to this Agreement, (B) shares of Common Stock
issued by the Company upon the exercise of options granted under the stock
option plans of the Company, as described in the Prospectus (the "Option
Plans"), and (C) options to purchase Common Stock granted under the Option
Plans as described in the Prospectus. For purposes of this paragraph (1), a
sale, offer, or other disposition shall be deemed to include any sale to an
institution which can, following such sale, sell Common Stock to the public in
reliance on Rule 144A. The Selling Stockholder hereby agrees to deliver to
Hambrecht & Quist LLC on behalf of the Underwriters a lock-up agreement
restricting the Selling Stockholder's right to transfer equity securities of
the Company which shall be in the form described in Section 10(j) hereof.
(n) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
(o) The Company is familiar with the Investment Company
Act of 1940, as amended, and has in the past conducted its affairs, and will in
the future conduct its affairs, in such a manner to ensure that the Company was
not and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(p) The Company will apply the net proceeds of the sale
of the Stock sold by it substantially in accordance with its statements under
the caption "Use of Proceeds" in the Prospectus.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Stockholder jointly and
severally agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or
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<PAGE> 17
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, the common law or otherwise, and
the Company and the Selling Stockholder jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus constituting a part thereof and any Rule 462(b)
Registration Statement) or any post-effective amendment thereto (including any
Rule 462(b) Registration Statement), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company and the Selling Stockholder
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, (2) the indemnity agreement contained
in this paragraph (a) with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Stock which is
the subject thereof (or to the benefit of any person controlling such
Underwriter) if at or prior to the written confirmation of the sale of such
Stock a copy of the Prospectus (or the Prospectus as amended or supplemented)
was not sent or delivered to such person and the untrue statement or omission
of a material fact contained in such Preliminary Prospectus was corrected in
the Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (d) of
Section 7 hereof, and (3) the Selling Stockholder shall only be liable under
this paragraph with respect to (A) information pertaining to the Selling
Stockholder furnished by or on behalf of the Selling Stockholder expressly for
use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of the Selling
Stockholder set forth in Section 3 hereof. The indemnity agreements of the
Company and the Selling Stockholder contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Stockholder
contained in Section 2 and Section 3 hereof, respectively, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
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<PAGE> 18
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of its
directors, each other Underwriter and each person (including each partner or
officer thereof) who controls the Company or any such other Underwriter within
the meaning of Section 15 of the Securities Act, and the Selling Stockholder
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, the common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus
constituting a part thereof and any Rule 462(b) Registration Statement) or any
post-effective amendment thereto (including any Rule 462(b) Registration
Statement) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 8 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any
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<PAGE> 19
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to
assume (alone or in conjunction with any other indemnifying party or parties)
the entire defense of such action, suit, investigation, inquiry or proceeding,
in which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying party or
parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the
indemnifying party or parties and of the indemnified party or parties in
conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 8
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 8, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 8 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholder on the one hand
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<PAGE> 20
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received
by the Company and the Selling Stockholder and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of
the Prospectus, bear to the aggregate public offering price of the Stock.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
each indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparation to defend or defense against any
action or claim which is the subject of this paragraph (d). Notwithstanding
the provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Stock purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this paragraph
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 8).
(e) Neither the Company nor the Selling Stockholder will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not such Underwriter or any person who controls such
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act is a party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of such Underwriter and each such controlling person from all liability arising
out of such claim, action, suit or proceeding.
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<PAGE> 21
9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Custodian on behalf of the Selling Stockholder if after the date of this
Agreement trading in the Common Stock shall have been suspended, or if there
shall have occurred (i) the engagement in hostilities or an escalation of major
hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak
of hostilities or other national or international calamity or crisis or change
in economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets
of the United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, the NASD
Automated Quotation System or the Nasdaq National Market, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
pursuant to this Section 9, there shall be no liability of the Company or the
Selling Stockholder to the Underwriters and no liability of the Underwriters to
the Company or the Selling Stockholder; provided, however, that in the event of
any such termination the Company agrees to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Stockholder under this Agreement,
including all costs and expenses referred to in paragraphs (j) and (k) of
Section 7 hereof, and the Selling Stockholder agrees to indemnify and hold
harmless the Underwriters from all costs and expenses incident to the
performance of the obligations of the Selling Stockholder under the last
sentece of paragraph (j) of Section 7.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Stock shall be subject to
the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholder herein set forth and the performance by the Company
and by the Selling Stockholder of all of their respective obligations to be
performed hereunder, in each case at or prior to the Closing Date and on any
later date on which Option Stock is to be purchased, as the case may be, and to
the following further conditions:
(a) The Registration Statement shall have become
effective no later than 2 p.m., San Francisco time, on the date of
this Agreement; if the filing of the Prospectus is required pursuant
to Rule 424(b), the Prospectus shall have been filed in the manner
21
<PAGE> 22
and within the time period required by Rule 424(b); if a registration
statement is required under Rule 462(b), such registration statement
shall have been filed and become effective in accordance with Rule
462(b) by 10:00 p.m., Washington D.C. time, on the date of this
Agreement; and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings
therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing
the Stock, all corporate proceedings and other legal matters incident
to the foregoing, and the form of the Registration Statement and of
the Prospectus (except as to the financial statements contained
therein), shall have been approved at or prior to the Closing Date by
Goodwin, Procter & Hoar LLP, counsel for the Underwriters.
(c) You shall have received from Suelthaus & Walsh, P.C.,
counsel for the Company, and from Thompson Coburn, counsel for the
Selling Stockholder, opinions, addressed to the Underwriters and dated
the Closing Date, covering the matters set forth in Annex A and Annex
B hereto, respectively. If Option Stock is purchased at any date
after the Closing Date, you shall receive additional opinions from
each such counsel, addressed to the Underwriters and dated such later
date, confirming that the opinions expressed as of the Closing Date in
each such opinion letter remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective
Date, the statements made in the Registration Statement and the
Prospectus were true and correct and neither the Registration
Statement nor the Prospectus omitted to state any material fact
required to be stated therein or necessary in order to make the
statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth
in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment filed with the Commission,
(iii) since the respective dates as of which information is given in
the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, and, since such
dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction
not referred to in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, (iv)
neither the Company nor any of its subsidiaries has any material
contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending or known
threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company or any of
its subsidiaries is the subject which are material and
22
<PAGE> 23
which are not disclosed in the Registration Statement and the
Prospectus, (vi) there are not any franchises, contracts, leases or
other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii)
the representations and warranties of the Company and the Selling
Stockholder herein are true and correct in all material respects as of
the Closing Date and on any later date on which Option Stock is to be
purchased, as the case may be, and (viii) there has not occurred any
circumstance described in clauses (i), (ii), (iii), (iv), (v) or (vi)
of Section 9 hereof.
(e) You shall have received on the Closing Date and on
any later date on which Option Stock is purchased a certificate, dated
the Closing Date or such later date, as the case may be, and signed by
the Chief Executive Officer and the Chief Financial officer of the
Company, stating that the respective signers of said certificate have
carefully examined the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this Section
10 are true and correct.
(f) You shall have received from KPMG Peat Marwick LLP, a
letter or letters, addressed to the Underwriters and dated the Closing
Date and any later date on which Option Stock is purchased, confirming
that they are independent public accountants with respect to the
Company and this subsidiaries within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and
based upon the procedures described in its letter delivered to you
concurrently with the execution of this Agreement (herein called the
Original Letter), but carried out to a date not more than three
business days prior to the Closing Date or such later date on which
Option Stock is purchased (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may
be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the
Original Letter since the date of the Original Letter or to reflect
the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any
development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries
which, in your sole judgment, makes it impractical or inadvisable to
proceed with the public offering of the Stock or the purchase of the
Option Stock as contemplated by the Prospectus.
(g) You shall have received from KPMG Peat Marwick LLP, a
letter stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of and as at June 30, 1996, did not disclose any
weakness in internal controls that they considered to be material
weaknesses.
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<PAGE> 24
(h) You shall have been furnished evidence in usual
written or telegraphic form from the appropriate authorities of the
several jurisdictions, or other evidence satisfactory to you, of the
qualification referred to in paragraph (k) of Section 7 hereof.
(i) Prior to the Closing Date, the Stock to be issued and
sold by the Company shall have been duly authorized for inclusion on
the Nasdaq National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have
received from all holders of the outstanding Common Stock or options
therefor, stockholders agreements in form reasonably satisfactory to
Hambrecht & Quist LLC, stating that without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, each such
holder will not, for a period of 180 days following the commencement
of the public offering of the Stock by the Underwriters, directly or
indirectly, (i) sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock any of the Company's equity
securities or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or
ownership of any other Company's equity securities, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of any of the Company's equity securities, in cash or
otherwise. Notwithstanding the foregoing, such holder may transfer
any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock either during his or her
lifetime or on death (i) by gift, will or intestacy or (ii) to his or
her immediate family or to a trust the beneficiaries of which are
exclusively the undersigned and/or a member or members of his or her
immediate family; provided, however, that prior to any such transfer
each transferee shall execute an agreement, reasonably satisfactory to
Hambrecht & Quist LLC, pursuant to which each transferee shall agree
to receive and hold such shares of Common Stock, or securities
exercisable or convertible into or exchangeable for Common Stock,
subject to identical restrictions on transfer, and there shall be no
further transfer except in accordance with such agreement.
For the purposes of this paragraph, "immediate family" shall mean
spouse, lineal descendant, father, mother, brother, sister, niece or
nephew of the transferor.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Goodwin, Procter & Hoar LLP, counsel for the
Underwriters, shall be reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Custodian
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<PAGE> 25
on behalf of the Selling Stockholder. Any such termination shall be without
liability of the Company or the Selling Stockholder to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholder; provided, however, that (i) in the event of such termination, the
Company agrees to indemnify and hold harmless the Underwriters from all costs
or expenses incident to the performance of the obligations of the Company and
the Selling Stockholder under this Agreement, including all costs and expenses
referred to in paragraphs (j) and (k) of Section 7 hereof, (ii) in the event of
termination, the Selling Stockholder agrees to indemnify and hold harmless the
Underwriters from all costs and expenses incident to the performance of the
obligations of the Selling Stockholder under the last sentece of paragraph (j)
of Section 7, (iii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with
any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the
transactions contemplated hereby.
11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
STOCKHOLDER. The obligation of the Company and the Selling Stockholder to
deliver the Stock shall be subject to the conditions that (a) the Registration
Statement shall have become effective and (b) no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission. In case either of the conditions
specified in this Section 11 shall not be fulfilled, this Agreement may be
terminated by the Company and the Selling Stockholder by giving notice to you
and such failure of condition is not because of any refusal, inability or
failure of the Company or the Selling Stockholder to perform any agreement
herein, to fulfill any condition herein or to comply with any provisions
hereof. Any such termination shall be without liability of the Company and the
Selling Stockholder to the Underwriters and without liability of the
Underwriters to the Company or the Selling Stockholder; provided, however, that
in the event of any such termination (I) the Company agrees to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Stockholder under
this Agreement, including all costs and expenses referred to in paragraphs (j)
and (k) of Section 7 hereof, and (ii) the Selling Stockholder agrees to
indemnify and hold harmless the Underwriters from all costs and expenses
incident to the performance of the obligations of the Selling Stockholder under
the last sentece of paragraph (k) of Section 7..
12. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 8 of this Agreement, the Company hereby agrees
to reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 8 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 12 and the possibility that such payments
might later be held to be improper; provided,
25
<PAGE> 26
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them, (ii)
such persons shall provide to the Company, upon request, reasonable assurances
of their ability to effect any refund, when and if due, and (iii) the Selling
Stockholder shall only be obligated to reimburse such expenses in advance
pursuant to this Section 12 if the Underwriters are seeking indemnification
from the Selling Stockholder in accordance with clause (3) of paragraph (a) of
Section 8 hereof.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Stockholder and the
several Underwriters and, with respect to the provisions of Section 8 hereof,
the several parties (in addition to the Company, the Selling Stockholder and
the several Underwriters) indemnified under the provisions of said Section 8,
and their respective personal representatives, successors and assigns. Nothing
in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
14. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht & Quist
LLC, One Bush Street, San Francisco, California 94104; and if to the Company,
shall be mailed, telegraphed or delivered to it at its office, 7733 Forsyth
Boulevard, 11th Floor, St. Louis, Missouri 63105, Attention: David W. Cross,
President ; and if the Selling Stockholder, shall be mailed, telegraphed or
delivered to the Selling Stockholder at its office, 7733 Forsyth Boulevard,
17th Floor, St. Louis, Missouri 63105, Attention: James M. Usdan, President.
All notices given by telegraph shall be promptly confirmed by letter.
15. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or the Selling Stockholder or their
respective directors or officers, and (c) delivery and payment for the Stock
under this Agreement; provided, however, that if this Agreement is terminated
prior to the Closing Date, the provisions of Section 7 hereof (other than
paragraphs (j) and (k) thereof) shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
26
<PAGE> 27
Please sign and return to the Company and to the Selling Stockholder
in care of the Company, the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Stockholder and the several Underwriters in accordance with its terms.
Very truly yours,
INTENSIVA HEALTHCARE CORPORATION
By:
-------------------------------------
David W. Cross
President and Chief Executive Officer
REHABCARE GROUP, INC.
By:
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
HAMBRECHT & QUIST LLC
ROBERTSON, STEPHENS & COMPANY LLC
NEEDHAM & COMPANY, INC.
By Hambrecht & Quist LLC
By:
-----------------------------------
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in Schedule I hereto.
27
<PAGE> 28
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . .
Robertson, Stephens & Company LLC . . . . . . . . . . . . . . . .
Needham & Company, Inc. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
28
<PAGE> 29
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR THE COMPANY
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, is duly qualified as a
foreign corporation and in good standing in each jurisdiction in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company and its subsidiaries, taken as a whole), and has full corporate
power and authority to own or lease its properties and to conduct its business
as described in the Registration Statement, the Prospectus and as being
conducted; all the issued and outstanding capital stock of each of the
subsidiaries of the Company has been duly authorized and validly issued and is
fully paid and nonassessable, and is owned by the Company free and clear of all
liens, encumbrances and security interests, and to the best of such counsel's
knowledge, no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in such subsidiaries are
outstanding;
(ii) the authorized capital stock of the Company will consist of
30,000,000 shares of Preferred Stock, no par value, of which no shares will be
outstanding, and 70,000,000 shares of Common Stock, $0.001 par value, of which
[__________________] shares will be outstanding (including the Underwritten
Stock and the Option Stock); proper corporate proceedings have been taken to
validly authorize such authorized capital stock; all of the outstanding shares
of such capital stock (including the Underwritten Stock and the shares of
Option Stock issued, if any) have been duly and validly issued and are fully
paid and nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, would have been duly and validly issued and be fully
paid and nonassessable; and no preemptive rights of, or rights of refusal in
favor of, stockholders exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Articles of Incorporation or By-laws of the Company
and, to the knowledge of such counsel, there will be no contractual preemptive
rights that have not been waived or rights of first refusal or rights of
co-sale which exist with respect to the Stock being sold by the Selling
Stockholder or the issue and sale of the Stock;
(iii) except as disclosed in or specifically contemplated by the
Registration Statement, to the knowledge of such counsel, there are no
outstanding options, warrants or other rights calling for the issuance of, and
no commitments, plans or arrangements to issue, any shares of Capital Stock of
the Company or any security convertible or exchangeable for Capital Stock of
the Company;
A-1
<PAGE> 30
(iv) the Registration Statement has become effective under the
Securities Act and, to the knowledge of such counsel, (A) no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and (B) no proceedings for
that purpose have been instituted or are pending or contemplated by the
Commission;
(v) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act and with the
rules and regulations of the Commission thereunder;
(vi) the information required to be set forth in the Registration
Statement in answer to Item 9, Item 10 (insofar as it relates to such counsel)
and Item 11(c) of Form S-1 is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items; and, to the best of such
counsel's knowledge the description of the Company's stock option plan and the
options granted and which may be granted thereunder and the options granted
otherwise than under such plan set forth in the Prospectus accurately and
fairly presents in all material respects the information required to be shown
with respect to said plan and options to the extent required by the Securities
Act and the rules and regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal or governmental proceedings, pending or threatened, which in
the opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required; and each
of the Company and its subsidiaries has and is in compliance with all material
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders required for the conduct of its business, all of which
are valid and in full force and effect;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company and the Selling Stockholder;
(ix) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholder; the Custody Agreement
between the Selling Stockholder and Boatmen's Trust Company, as Custodian, and
the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the Selling Stockholder; the Custody Agreement
entered into by, and the Power of Attorney given by, the Selling Stockholder is
valid and binding on the Selling Stockholder; and the Selling Stockholder has
full legal right and authority to enter into the Underwriting Agreement and to
sell, transfer and deliver in the manner provided in the Underwriting Agreement
the shares of Stock sold by the Selling Stockholder hereunder;
A-2
<PAGE> 31
(x) the issuance and sale by the Company and the sale by the
Selling Stockholder of the shares of Stock sold by the Company and the
consummation of the transactions as contemplated by the Underwriting Agreement
will not conflict with or result in a breach of, or a default under, the
Articles of Incorporation or By-laws of the Company or any of its subsidiaries
or the Selling Stockholder if the Selling Stockholder is a corporation, the
Partnership Agreement of the Selling Stockholder if the Selling Stockholder is
a partnership or any indenture, mortgage, deed of trust, agreement or
instrument known to such counsel to which the Company, any of its subsidiaries
or the Selling Stockholder is a party or by which the Company, any of its
subsidiaries, or the Selling Stockholder is bound or to which any of the
property or assets of the Company any of its subsidiaries, or the Selling
Stockholder is subject, or any applicable law or regulation, insofar as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the issuance or sale of the Stock
or the consummation of the transactions contemplated in the Underwriting
Agreement, except such as have been obtained under the Securities Act and such
as may be required under state securities or blue sky laws in connection with
the purchase and distribution of the Stock by the Underwriters;
(xiii) the Stock issued and sold by the Company and the Stock sold by
the Selling Stockholder has been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance and sale;
(xiv) the Company and its subsidiaries are in all material respects
in compliance with and conduct their business in conformity with all applicable
Federal and state laws, rules and regulations; otherwise than are set forth in
the Registration Statement and the Prospectus, no respective change in any of
such Federal or state laws, rules or regulations has been adopted which, when
made effective would have a material adverse effect on the operations of the
Company and its subsidiaries prospective; and the statements made in the
Registration Statement under the caption "Regulation" are true and correct and
fairly represent the information required to be disclosed;
(xv) neither the Company nor any of its subsidiaries is an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940;
(xvi) good and marketable title to the shares of Stock sold by the
Selling Stockholder under the Underwriting Agreement, free and clear of all
liens, encumbrances, equities, security interests and claims, has been
transferred to the Underwriters who have severally
A-3
<PAGE> 32
purchased such shares of Stock under the Underwriting Agreement, assuming for
the purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that (it being
understood that such counsel will not have independently verified the accuracy
or completeness of the information contained in the Registration Statement or
the Prospectus, and except as otherwise expressly set forth in such counsels
opinion letter, is not responsible for, and need not pass upon, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus) nothing has come to the attention of such counsel
that leads them to believe that the Registration Statement (except as to the
financial statements and schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need not express
any opinion or belief) at the Effective Date contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein as to which such
counsel need not express any opinion or belief) as of its date or at the
Closing Date (or any later date on which Option Stock is purchased), contained
or contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
-----------------------------
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, the State of Delaware or of
the State of Missouri, upon opinions of local counsel satisfactory in form and
scope to counsel for the Underwriters. Copies of any opinions so relied upon
shall be delivered to the Representatives and to counsel for the Underwriters
and the foregoing opinion shall also state that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinions of such local counsel.
A-4
<PAGE> 33
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR THE SELLING STOCKHOLDER
(i) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company and the Selling Stockholder;
(ii) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholder; the Custody Agreement
between the Selling Stockholder and the Transfer Agent, as Custodian, and the
Power of Attorney referred to in such Custody Agreement have been duly executed
and delivered by the Selling Stockholder; the Custody Agreement entered into
by, and the Power of Attorney given by, the Selling Stockholder is valid and
binding on the Selling Stockholder; and the Selling Stockholder has full legal
right and authority to enter into the Underwriting Agreement and to sell,
transfer and deliver in the manner provided in the Underwriting Agreement the
shares of Stock sold by the Selling Stockholder hereunder;
(iii) the sale by the Selling Stockholder of the shares of Stock
and the consummation of the transactions as contemplated by the Underwriting
Agreement will not conflict with or result in a breach of, or a default under,
the Certificate of Incorporation or By-laws of the Selling Stockholder or any
indenture, mortgage, deed of trust, agreement or instrument known to such
counsel to which the Selling Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property or assets of the Selling
Stockholder is subject, or any applicable law or regulation, insofar as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(iv) to the knowledge of such counsel, there will be no contractual
preemptive rights that have not been waived or rights of first refusal or
rights of co-sale which exist with respect to the Stock being sold by the
Selling Stockholder; and
(v) good and marketable title to the shares of Stock sold by the
Selling Stockholder under the Underwriting Agreement, free and clear of all
liens, encumbrances, equities, security interests and claims, has been
transferred to the Underwriters who have severally purchased such shares of
Stock under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without notice
of any adverse claims.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that (it being
understood that such counsel will not have independently verified the accuracy
or completeness of the information contained in the Registration Statement or
the Prospectus, and except as otherwise expressly set forth in such
A-5
<PAGE> 34
counsels opinion letter, is not responsible for, and need not pass upon, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus) nothing has come to the attention of
such counsel that leads them to believe that the information in the
Registration Statement pertaining to the Selling Stockholder (except as to the
financial statements and schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need not express
any opinion or belief) at the Effective Date contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein as to which such
counsel need not express any opinion or belief) as of its date or at the
Closing Date (or any later date on which Option Stock is purchased), contained
or contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
-----------------------------------
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, the State of Delaware or of
the State of Missouri, upon opinions of local counsel satisfactory in form and
scope to counsel for the Underwriters. Copies of any opinions so relied upon
shall be delivered to the Representatives and to counsel for the Underwriters
and the foregoing opinion shall also state that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinions of such local counsel.
A-6
<PAGE> 1
EXHIBIT 3(i).1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSITIONAL CARE OF AMERICA, INC.
TRANSITIONAL CARE OF AMERICA, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
I. The name of the Corporation is Transitional Care of America,
Inc. The name under which the corporation was originally organized was
Transitional Care of America, Inc., and the date of filing its original
Certificate of Incorporation with the Secretary of State was July 19, 1994.
II. This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the Certificate of Incorporation of
this corporation to read in its entirety, as follows:
1. The name of the Corporation is Transitional Care of
America, Inc.
2. The address of the principal office of the
Corporation's registered office in this state, and
the name of its registered agent at such address is:
The Corporation Trust Company
1209 Orange Street
New Castle County
Wilmington, Delaware 19802
3. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
4. The total number of shares of all classes of capital
stock which the Corporation shall have authority to
issue is 2,456,988 shares, consisting of 1,420,994
shares of Common Stock, $0.001 par value per share
(the "Common Stock") and 1,035,994 shares of
Preferred Stock, $0.001 par value per share (the
"PREFERRED STOCK").
A description of the respective classes of
stock and a statement of the designations,
preferences, voting powers (or no voting powers),
relative, participating, optional or other special
rights and privileges and the qualifications,
limitations and restrictions of the Preferred Stock
and Common Stock are as follows:
Transitional Care of America, Inc. - Amended and Restated Certificate Page 1
of Incorporation Adopted December 20, 1995
<PAGE> 2
A. PREFERRED STOCK
1. DESIGNATION. Of the shares of Preferred
Stock which the Corporation is authorized to issue
hereby, 630,000 shares are hereby designated as the
Series A Convertible Preferred Stock (the "SERIES A
CONVERTIBLE PREFERRED STOCK") and 405,994 shares are
hereby designated as the Series B Convertible
Preferred Stock (the "SERIES B CONVERTIBLE PREFERRED
STOCK," and collectively with the Series A Preferred
Stock, the "CONVERTIBLE PREFERRED STOCK"). The
preferences, limitations, voting rights, and relative
rights of the Convertible Preferred Stock shall be as
set forth below, and no distinction between the
Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock shall be made except as
specifically provided for below.
2. VOTING.
2A. GENERAL. Except as may be otherwise
provided in these terms of the Convertible Preferred
Stock or by law, the Convertible Preferred Stock
shall vote together with all other classes and series
of stock of the Corporation as a single class on all
actions to be taken by the stockholders of the
Corporation. Each share of Convertible Preferred
Stock shall entitle the holder thereof to such number
of votes per share on each such action as shall equal
the number of shares of Common Stock (including
fractions of a share) into which each share of
Convertible Preferred Stock is then convertible.
2B. BOARD SEATS. The holders of the
Convertible Preferred Stock, voting as a separate
class, shall be entitled to elect four (4) directors
of the Corporation. At any meeting (or pursuant to a
written consent in lieu thereof) held for the purpose
of electing directors, the presence in person or by
proxy (or the written consent) of the holders of a
majority of the shares of Convertible Preferred Stock
then outstanding shall constitute a quorum of the
Convertible Preferred Stock for the election of
directors to be elected solely by the holders of the
Convertible Preferred Stock. A vacancy in any
directorship elected by the holders of the
Convertible Preferred Stock shall be filled only by
vote or written consent of the holders of the
Convertible Preferred Stock.
3. DIVIDENDS. The holders of the Series A
Convertible Preferred Stock shall be entitled to
receive, out of funds legally available therefor,
when and if declared by the Board of Directors,
quarterly dividends at the rate per annum of $0.80
per share. The holders of the Series B Convertible
Preferred Stock shall be entitled to receive, out of
funds legally available therefor, when and if
declared by the Board of Directors, quarterly
dividends at the rate per annum of $1.655 per share.
No dividends on the Common Stock shall be paid unless
all accrued dividends on the Convertible Preferred
Stock shall have been paid (the "ACCRUING
DIVIDENDS"). Such Accruing Dividends shall be
Transitional Care of America, Inc. - Amended and Restated Certificate Page 2
of Incorporation Adopted December 20, 1995
<PAGE> 3
deemed to have been declared by the Board of
Directors and shall be payable upon any liquidation,
dissolution or winding up of the Corporation within
the meaning of paragraph 4. Accruing Dividends shall
accrue from day to day, whether or not earned or
declared, and shall be cumulative.
4. LIQUIDATION. Upon any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the shares
of Convertible Preferred Stock shall first be
entitled, before any distribution or payment is made
upon any stock ranking on liquidation junior to the
Convertible Preferred Stock, including, without
limitation, the Common Stock, the amounts set forth
in this paragraph 4.
4A. The holders of the Series A
Convertible Preferred Stock shall be paid an amount
per share equal to $10.00 per share and the holders
of the Series B Preferred Stock shall be paid an
amount per share equal to $20.69, plus, for each
share of Series A Preferred Stock and for each share
of Series B Preferred Stock, an amount equal to all
Accruing Dividends unpaid thereon (whether or not
declared) and any other dividends declared but unpaid
thereon, computed to the date payment thereof is made
available, such amount payable with respect to one
share of Convertible Preferred Stock being sometimes
referred to as the "LIQUIDATION PREFERENCE PAYMENT"
and with respect to all shares of Convertible
Preferred Stock being sometimes referred to as the
"LIQUIDATION PREFERENCE PAYMENTS."
4B. If, upon any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be
distributed among the Stockholders of the Corporation
shall be more than the Liquidation Preference
Payments, immediately after the holders of
Convertible Preferred Stock shall have been paid in
full the amounts set forth above, the remaining net
assets of the Corporation available for distribution
shall be distributed ratably among the holders of
Common Stock. Written notice of such liquidation,
dissolution or winding up, stating a payment date and
the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telex to
non-U.S. residents, not less than twenty (20) days
prior to the payment date stated therein, to the
holders of record of Convertible Preferred Stock,
such notice to be addressed to each such holder at
its address as shown by the records of the
Corporation.
4C. The following events shall be deemed
to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of
this paragraph 4: (i) the reorganization,
consolidation or merger of the Corporation into or
with any other entity or entities which results in
(a) the exchange of outstanding shares of the
Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any
such entity or affiliate thereof or, (b) the issuance
by the Corporation of shares of capital
Transitional Care of America, Inc. - Amended and Restated Certificate Page 3
of Incorporation Adopted December 20, 1995
<PAGE> 4
stock, where such issuance results in either (x) all
the holders of voting stock of the Corporation, prior
to the consolidation or merger, holding less than a
majority of the voting stock of the Corporation after
the consolidation or merger, or (y) all the holders
of voting stock of the Corporation, prior to the
merger, no longer being assured of their ability
collectively, to elect a majority of the Board of
Directors of the Corporation; and (ii) the sale,
transfer or disposition by the Corporation of all or
substantially all of its assets. For purposes
hereof, the Common Stock shall rank on liquidation
junior to the Convertible Preferred Stock.
4D. In the case of any of the events described in
paragraph 4.A.4C. above, if the consideration
received by the Corporation is other than cash, its
value will be deemed its fair market value. Any
securities shall be valued as follows:
(i) Securities not subject to
investment letter or other similar
restrictions on free marketability covered by
(ii) below: (a) If traded on a securities
exchange or through NASDAQ-NMS, the value
shall be deemed to be the average of the
closing prices of the securities on such
exchange over the thirty- day period ending
three (3) days prior to the closing; (b) If
actively traded over-the-counter, the value
shall be deemed to be the average of the
closing bid or sale prices (whichever is
applicable) over the thirty-day period ending
three (3) days prior to the closing; and (c)
If there is no active public market, the
value shall be the fair market value thereof,
as mutually determined by the corporation and
the holders of at least a majority of the
voting power of all then outstanding shares
of Preferred Stock.
(ii) The method of valuation of
securities subject to investment letter or
other restrictions on free marketability
(other than restrictions arising solely by
virtue of a shareholder's status as an
affiliate or former affiliate) shall be to
make an appropriate discount from the market
value determined as above in (i) (a), (b) or
(c) to reflect the approximate fair market
value thereof, as mutually determined by the
corporation and the holders of at least a
majority of the voting power of all then
outstanding shares of such Preferred Stock.
5. RESTRICTIONS. At any time when shares of
Convertible Preferred Stock are outstanding, except
where the vote or written consent of the holders of a
greater number of shares of the Corporation is
required by law or by the Amended and Restated
Certificate of Incorporation, and in addition to any
other vote required by law or the Amended and
Restated Certificate of Incorporation, without the
approval of the holders of at least a majority of the
then total outstanding shares of the Convertible
Preferred Stock given in
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<PAGE> 5
writing or by vote at a meeting, consenting or voting
(as the case may be), the Corporation will not:
5A. (i) Alter, change or repeal the
preferences of the Convertible Preferred Stock, (ii)
create or authorize the creation of any additional
class or series of shares or increase the authorized
number of shares of stock unless the same ranks
junior to the Convertible Preferred Stock as to
voting, dividends, the distribution of assets on the
liquidation, dissolution or winding up of the
Corporation, (iii) increase or decrease the
authorized amount of the Convertible Preferred Stock,
(iv) increase, authorize, issue or obligate itself to
issue any security, including any other security
convertible into or exercisable for any equity
security having a preference or which is in parity to
the Convertible Preferred Stock as to voting,
dividends, the distribution of assets on the
liquidating, dissolution or winding up of the
Corporation, or (v) create or authorize any
obligation or security Convertible into shares of
Convertible Preferred Stock or into shares of any
other class or series of stock unless the same ranks
junior to the Convertible Preferred Stock as to
voting, dividends, the distribution of assets on the
liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization
or increase shall be by means of amendment to the
Amended and Restated Certificate of Incorporation, or
by merger, consolidation or otherwise;
5B. Consent to any liquidation,
dissolution or winding up of the Corporation or
consolidate or merge into or with any other entity or
entities or sell, transfer, or dispose of all or
substantially all its assets or enter into any other
transaction or series of transaction the effect of
which shall be the transfer of more than a majority
of the outstanding voting securities of the
Corporation;
5C. Amend, alter or repeal its Amended
and Restated Certificate of Incorporation;
5D. Redeem, purchase or otherwise
acquire (or pay into or set aside for a fund for such
purpose) any shares of Convertible Preferred Stock
except pursuant to a purchase offer made pro rata to
all holders of the shares of Convertible Preferred
Stock on the basis of the aggregate number of
outstanding shares of Convertible Preferred Stock
then held by each such holder.
5E. Redeem or otherwise acquire any
shares of the Common Stock (except for repurchases
from directors, employees, and consultants not
exceeding $25,000 in the aggregate in any twelve (12)
month period); declare or pay dividends on or make
any distributions on account of the Common Stock; or
permit any subsidiary of the corporation to sell its
stock to any third person.
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<PAGE> 6
6. CONVERSIONS. The holders of shares of
Convertible Preferred Stock shall have the following
conversion rights:
6A. RIGHT TO CONVERT. Subject to the
terms and conditions of this paragraph 6, the holder
of any share or shares of Convertible Preferred Stock
shall have the right, at its option at any time, to
convert any such shares of Convertible Preferred
Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate
at the close of business on the business day
preceding the day fixed for payment of the amount
distributable on the Convertible Preferred Stock)
into such number of fully paid and nonassessable
shares of Common Stock as is obtained by, in the case
of the Series A Convertible Preferred Stock, (i)
multiplying the number of shares of Series A
Convertible Preferred Stock so to be converted by
$10.00 (the "INITIAL SERIES A PRICE") and (ii)
dividing the result by the conversion price of $10.00
per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of
this paragraph 6, then by the conversion price for
Series A Convertible Preferred Stock as last adjusted
and in effect at the date any share or shares of
Series A Convertible Preferred Stock are surrendered
for conversion (such price, or such price as last
adjusted, being referred to as the "SERIES A
CONVERSION PRICE"); and in the case of the Series B
Convertible Preferred Stock, by (i) multiplying the
number of shares of Series B Convertible Preferred
Stock so to be converted by $20.69 (the "INITIAL
SERIES B PRICE") and (ii) dividing the result by the
conversion price of $20.69 per share, or in case an
adjustment of such price has taken place pursuant to
the further provisions of this paragraph 6, then by
the conversion price for Series B Convertible
Preferred Stock as last adjusted and in effect at the
date any share or shares of Series B Convertible
Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred
to as the "SERIES B CONVERSION PRICE" and together
with the Series A Conversion Price, the "CONVERSION
PRICE"). Such rights of conversion shall be
exercised by the holder thereof by giving written
notice that the holder elects to convert a stated
number of shares of Convertible Preferred Stock
(specifying the number of Series A Convertible
Preferred Stock and the number of Series B
Convertible Preferred Stock to be converted) into
Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the
Corporation at its principal office (or such other
office or agency of the Corporation as the
Corporation may designate by notice in writing to the
holders of the Convertible Preferred Stock) at any
time during its usual business hours on the date set
forth in such notice, together with a statement of
the name or names (with address) in which the
certificate or certificates for shares of Common
Stock shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME
CONVERSION EFFECTED. Promptly after the receipt of
the written notice referred to in subparagraph 6A
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<PAGE> 7
and surrender of the certificate or certificates for
the share or shares of Convertible Preferred Stock to
be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the
holder, registered in such name or names as such
holder may direct, a certificate or certificates for
the number of whole shares of Common Stock issuable
upon the conversion of such share or shares of
Convertible Preferred Stock. To the extent permitted
by law, such conversion shall be deemed to have been
effected and the Series A Conversion Price or Series
B Conversion Price, as applicable, shall be
determined as of the close of business on the date on
which such written notice shall have been received by
the Corporation and the certificate or certificates
for such share or shares shall have been surrendered
as aforesaid, and at such time the rights of the
holder of such share or shares of Convertible
Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or
certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares
represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS;
PARTIAL CONVERSION. No fractional shares shall be
issued upon conversion of Convertible Preferred Stock
into Common Stock and no payment or adjustment shall
be made upon any conversion on account of any cash
dividends on the Common Stock issued upon such
conversion. In case the number of shares of
Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares
converted, the Corporation shall, upon such
conversion, execute and deliver to the holder, at the
expense of the Corporation, a new certificate or
certificates for the number of shares of Convertible
Preferred Stock represented by the certificate or
certificates surrendered which are not to be
converted. If any fractional share of Common Stock
would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon
such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the
holder surrendering the Convertible Preferred Stock
for conversion an amount in cash equal to the current
market price of such fractional share as determined
in good faith by the Board of Directors of the
Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF
COMMON STOCK. Except as provided in subparagraph 6E,
if and whenever the Corporation shall issue or sell,
or is, in accordance with subparagraphs 6D(1) through
6D(7), deemed to have issued or sold, any shares of
Common Stock for a consideration per share less than
the Series A Conversion Price or Series B Conversion
Price, as applicable, in effect immediately prior to
the time of such issue or sale, then, forthwith upon
such issue or sale, the applicable Conversion Price
shall be reduced to the price determined by dividing
(i) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior
to such issue or sale multiplied by the then
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<PAGE> 8
existing applicable Conversion Price, and (b) the
consideration, if any, received by the Corporation
upon such issue or sale, by (ii) the total number of
shares of Common Stock outstanding immediately after
such issue or sale (in all cases assuming the
conversion of all Convertible Securities -- as
defined herein -- into Common Stock and the exercise
of all outstanding Options).
For purposes of this subparagraph 6D, the following
subparagraphs 6D(1) to 6D(7) shall also be applicable:
6D(1) ISSUANCE OF RIGHTS OR OPTIONS.
In case at any time the Corporation shall in any
manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security
convertible into or exchangeable for Common Stock
(such warrants, rights or options being called
"OPTIONS" and such convertible or exchangeable stock
or securities being called "CONVERTIBLE SECURITIES")
whether or not such Options or the right to convert
or exchange any such Convertible Securities are
immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable
by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible
Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable
upon such Options or upon the issue or sale of such
Convertible Securities and upon the conversion or
exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less
than the applicable Conversion Price in effect
immediately prior to the time of the granting of such
Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share
as of the date of granting of such Options or the
issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 6D(3), no
further adjustment of the applicable Conversion Price
shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issue of such
Common Stock upon conversion or exchange of such
Convertible Securities.
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<PAGE> 9
6D(2) ISSUANCE OF CONVERTIBLE
SECURITIES. In case the Corporation shall in any
manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or
convert any such Convertible Securities are
immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as
consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable
to the Corporation upon the conversion or exchange
thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be
less than the applicable Conversion Price in effect
immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have
been issued for such price per share as of the date
of the issue or sale of such Convertible Securities
and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in
subparagraph 6D(3), no further adjustment of the
applicable Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, (b) if any
such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of
the applicable Conversion Price have been or are to
be made pursuant to other provisions of this
subparagraph 6D, no further adjustment of the
applicable Conversion Price shall be made by reason
of such issue or sale.
6D(3) CHANGE IN OPTION PRICE OR
CONVERSION RATE. Upon the happening of any of the
following events, namely, if the purchase price
provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if
any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph
6D(1) or 6D(2), or the rate at which Convertible
Securities referred to in subparagraph 6D(1) or 6D(2)
are convertible into or exchangeable for Common Stock
shall change at any time (including, but not limited
to, changes under or by reason of provisions designed
to protect against dilution), the applicable
Conversion Price in effect at the time of such event
shall forthwith be readjusted to the applicable
Conversion Price which would have been in effect at
such time had such Options or Convertible Securities
still outstanding providing such changed purchase
price, additional consideration or conversion rate,
as the case may be, at the time initially granted,
issued or sold, but only if as a result of such
adjustment the applicable Conversion Price then in
effect hereunder is thereby reduced; and on the
expiration of any such Option or the termination of
any such right to convert or exchange such
Convertible Securities, the applicable Conversion
Price then in effect hereunder shall forthwith be
increased to the
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<PAGE> 10
applicable Conversion Price which would have been in
effect at the time of such expiration or termination
had such Option or Convertible Securities, to the
extent outstanding immediately prior to such
expiration or termination, never been issued.
6D(4) STOCK DIVIDENDS. In case the
Corporation shall declare a dividend or make any
other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible
Securities, any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
6D(5) CONSIDERATION FOR STOCK. In
case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash,
the amount of the consideration other than cash
received by the Corporation shall be deemed to be the
fair value of such consideration as determined in
good faith by the Board of Directors of the
Corporation, without deduction of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be
issued in connection with the issue and sale of other
securities of the Corporation, together comprising
one integral transaction in which no specific
consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in
good faith by the Board of Directors of the
Corporation.
6D(6) RECORD DATE. In case the
Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record
date, to the extent permitted by law, shall be the
date the shares of Common Stock are deemed to have
been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) TREASURY SHARES. The number of
shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the
account of the Corporation, and the disposition of
any such shares
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<PAGE> 11
shall be considered an issue or sale of Common Stock
for the purpose of this subparagraph 6D.
6E. CERTAIN ISSUES OF STOCK EXCEPTED.
Anything herein to the contrary notwithstanding, the
Corporation shall not be required to make any
adjustment of Conversion Price in the case of the
issuance of up to an aggregate of 142,800 shares
(appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common
Stock pursuant to a plan approved by a majority of
the Board of Directors to directors, consultants,
officers or employees of the Corporation in
connection with their service to or their employment
by the Corporation.
6F. SUBDIVISION OR COMBINATION OF COMMON
STOCK. In case the Corporation shall at any time
subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Series A
Conversion Price and the Series B Conversion Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Series A
Conversion Price and the Series B Conversion Price in
effect immediately prior to such combination shall be
proportionately increased.
6G. REORGANIZATION OR RECLASSIFICATION.
If any capital reorganization or reclassification of
the capital stock of the Corporation shall be
effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions
shall be made whereby each holder of a share or
shares of Convertible Preferred Stock shall thereupon
have the right to receive upon conversion, upon the
basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the
conversion of such share or shares of Convertible
Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or
in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of
such Common Stock immediately theretofore receivable
upon such conversion had such reorganization or
reclassification not taken place, and in any such
case appropriate provisions shall be made with
respect to the rights and interests of such holder to
the end that the provisions hereof (including without
limitation provisions for adjustments of the Series A
Conversion Price or the Series B Conversion Price)
shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of
such conversion rights.
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<PAGE> 12
6H. NOTICE OF ADJUSTMENT. Upon any
adjustment of the Series A Conversion Price or the
Series B Conversion Price then and in each such case
the Corporation shall give written notice thereof, by
first class mail, postage prepaid, or by telecopy or
telex to non-U.S. residents, addressed to each holder
of shares of Convertible Preferred Stock at the
address of such holder as shown on the books of the
Corporation, which notice shall state the applicable
Conversion Price resulting from such adjustment,
setting forth in reasonable detail the method upon
which such calculation is based.
6I. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare
any dividend upon its Common Stock payable in cash or
stock or make any other distribution to the holders
of its Common Stock;
(2) the Corporation shall offer for
subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital
reorganization or reclassification of the capital
stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of
all or substantially all its assets to, another
entity or entities; or
(4) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of
the Corporation;
then, in any one or more of said cases, the
Corporation shall give, by first class mail, postage
prepaid, or by telecopy to non-U.S. residents,
addressed to each holder of any shares of Convertible
Preferred Stock at the address of such holder as
shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which
the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote
in respect of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the
case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take
place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall
be entitled thereto and such notice in accordance
with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for
securities or other property deliverable upon such
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<PAGE> 13
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up,
as the case may be.
6J. STOCK TO BE RESERVED. The
Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of
Convertible Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding
shares of Convertible Preferred Stock. The
Corporation covenants that all shares of Common Stock
which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the
issue thereof. The Corporation will take all such
action as may be necessary to assure that all such
shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of
any requirement of any national securities exchange
upon which the Common Stock may be listed. The
Corporation will not take any action which results in
any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable
after such action upon conversion of the Convertible
Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the
Certificate of Incorporation, as amended.
6K. NO REISSUANCE OF CONVERTIBLE
PREFERRED STOCK. Shares of Convertible Preferred
Stock which are converted into shares of Common Stock
as provided herein shall not be reissued.
6L. ISSUE TAX. The issuance of
certificates for shares of Common Stock upon
conversion of Convertible Preferred Stock shall be
made without charge to the holders thereof for any
issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax
which may be payable in respect of any transfer
involved in the issuance and delivery of any
certificate in a name other than that of the holder
of the Convertible Preferred Stock which is being
converted.
6M. CLOSING OF BOOKS. The Corporation
will at no time close its transfer books against the
transfer of any Convertible Preferred Stock or of any
shares of Common Stock issued or issuable upon the
conversion of any shares of Convertible Preferred
Stock in any manner which interferes with the timely
conversion of such Convertible Preferred Stock,
except as may otherwise be required to comply with
applicable securities laws.
6N. DEFINITION OF COMMON STOCK. As used
in this paragraph 6, the term "COMMON STOCK" shall
mean and include the Corporation's authorized Common
Stock, par value $0.001 per share, as constituted on
the date of filing of this Amended and Restated
Certificate of Incorporation, and shall also include
any capital stock of any class of the Corporation
thereafter
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<PAGE> 14
authorized which shall neither be limited to a fixed
sum or percentage of par value in respect of the
rights of the holders thereof to participate in
dividends nor entitled to a preference in the
distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of
the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of
Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the
date of filing of this Amended and Restated
Certificate of Incorporation, or in case of any
reorganization or reclassification of the outstanding
shares thereof, the stock securities or assets
provided for in subparagraph 6G.
6O. MANDATORY CONVERSION. If at any
time (i) the Corporation shall effect a firm
commitment underwritten public offering of shares of
Common Stock in which the aggregate price paid for
such shares by the public is equal to or greater than
$10,000,000 at a per share price of at least $82.76,
(ii) the holders of seventy percent (70%) of the
outstanding Convertible Preferred Stock deliver
notice in writing requesting conversion of said
shares into Common Stock, or (iii) in the event the
holders of the majority of the Convertible Preferred
Stock vote affirmatively for any transaction defined
in Article 4.A.5B and if the total consideration to
be received by all the holders of Convertible
Preferred Stock (calculated on a fully diluted as
converted basis including any previously paid
dividends on such shares) exceeds the Liquidation
Preference Payments then, effective upon the closing
of the sale of such shares by the Corporation
pursuant to such public offering set forth in (i)
above, the delivery of such notice set forth in (ii)
above, or simultaneously with the consummation of
such transaction set forth in (iii) above, as
applicable, all outstanding shares of Convertible
Preferred Stock shall automatically convert to shares
of Common Stock , and, in the event of a transaction
defined in Article 4.A.5B, all previously paid
dividends to such holders shall be deemed part of the
consideration such holders receive in such
transaction.
7. AMENDMENTS. No provision of these terms of
the Convertible Preferred Stock may be amended,
modified or waived without the written consent or
affirmative vote of the holders of at least a
majority of the then outstanding shares of
Convertible Preferred Stock, voting separately as a
class.
B. COMMON STOCK
1. RELATIVE RIGHTS OF PREFERRED STOCK AND COMMON
STOCK. All preferences, voting powers, relative,
participating, optional or other special rights and
privileges, and qualifications, limitations, or
restrictions of the Common Stock are expressly made
subject and subordinate to those that may be fixed
with respect to any shares of the Preferred Stock.
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<PAGE> 15
2. VOTING RIGHTS. Except as otherwise required
by law or this Amended and Restated Certificate of
Incorporation, each holder of Common Stock shall have
one vote in respect of each share of stock held by
him of record on the books of the Corporation on all
matters submitted to a vote for stockholders of the
Corporation. With respect to the election of
directors, the holders of the Common Stock, voting
separately as a class, shall be entitled to elect
three (3) directors of the Corporation. At any
meeting (or pursuant to a written consent in lieu
thereof) held for the purpose of electing directors,
the presence in person or by proxy (or written
consent) of the holders of a majority of the Shares
of Common Stock then outstanding shall constitute a
quorum of the Common Stock for the election of
directors to be elected solely by the holders of the
Common Stock. A vacancy in any directorship elected
by the holders of the Common Stock shall be filled
only by vote or written consent of the holders of the
Common Stock.
3. DIVIDENDS. Subject to the preferential
rights of the Preferred Stock, the holders of shares
of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the
assets of the Corporation which are by law available
therefor, dividends payable either in cash, in
property or in shares of capital stock.
4. DISSOLUTION, LIQUIDATION OR WINDING UP.
Subject to the preferences and privileges of the
Convertible Preferred Stock, in the event of any
dissolution, liquidation or winding up the
Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders
of Common Stock shall be entitled, unless otherwise
provided by law or this Certificate of Incorporation,
to receive all of the remaining assets of the
Corporation of whatever kind available for
distribution to stockholders ratably in proportion to
the number of shares of Common Stock held by them
respectively.
5. The Corporation shall indemnify the directors and
officers of the Corporation and may indemnify the
directors and officers of any subsidiary of the
Corporation to the fullest extent permitted by The
General Corporation Law of Delaware, as such may be
awarded from time to time. All rights provided to
any person by this Article 5 shall be contract
rights. Any repeal or modification of the foregoing
provisions of this Article 5 shall not adversely
affect any right or protection hereunder of any
person in respect of any act or omission occurring
prior to the time of such repeal or modification.
6. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this
Amended and Restated Certificate of Incorporation in
the manner now or hereinafter prescribed by law, and
all rights and powers conferred herein on
stockholders, directors of officers are subject to
this reserved power.
Transitional Care of America, Inc. - Amended and Restated Certificate Page 15
of Incorporation Adopted December 20, 1995
<PAGE> 16
7. The Bylaws of the Corporation may be altered, amended
or repealed or new bylaws may be adopted by the Board
of Directors, except as specifically otherwise
provided therein.
III. This Restated Certificate of Incorporation was duly adopted by
joint unanimous written consent of the directors and stockholders in accordance
with the applicable provisions of Section 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by David W. Cross, its President, this 22 day of December, 1995.
By: David W. Cross
-------------------------------------
David W. Cross, President
Transitional Care of America, Inc. - Amended and Restated Certificate Page 16
of Incorporation Adopted December 22, 1995
<PAGE> 1
EXHIBIT 3(i).2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Transitional Care of America, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Transitional Care of
America, Inc., a resolution was adopted setting forth a proposed amendment of
the Amended and Restated Certificate of Incorporation of said Corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
BE IT RESOLVED, that the Amended and Restated Certificate of Incorporation of
this Corporation be amended by changing the Article thereof numbered "Article
1" so that, as amended, said Article shall be and read as follows:
"1. The name of the Corporation is Intensiva HealthCare Corporation."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the applicable
provisions of Sections 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed
by David W. Cross, its President, and Thomas M. Walsh, its Secretary, this 15th
day of July, 1996.
By: David W. Cross
-----------------------------------------
David W. Cross, President
Attest: Thomas M. Walsh
-------------------------------------
Thomas M. Walsh, Secretary
Certificate of Amendment to Restated Certificate of Incorporation
Adopted July 15, 1996
<PAGE> 1
EXHIBIT 3(i).3
Form of
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTENSIVA HEALTHCARE CORPORATION
INTENSIVA HEALTHCARE CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
as follows:
I. The name of the Corporation is Intensiva HealthCare
Corporation. The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was July 19,
1994. The name under which the Corporation filed its original Certificate of
Incorporation was Transitional Care of America, Inc.
II. This Third Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the second Amended and
Restated Certificate of Incorporation of the Corporation filed with the
Secretary of State of the State of Delaware on December 22, 1995 (the "Second
Amended and Restated Certificate of Incorporation"), as amended July 18, 1996,
was duly adopted by the Board of Directors of the Corporation in accordance
with the provisions of Sections 141(f), 242, and 245 of the General Corporation
Law of the State of Delaware (the "DGCL"), and was duly adopted by the written
consent of the stockholders of the Corporation in accordance with the
applicable provisions of Sections 228, 242 and 245 of the DGCL.
III. The text of the Second Amended and Restated Certificate of
Incorporation, as amended, is hereby further amended and restated in its
entirety to provide as follows:
ARTICLE I
NAME
The name of the Corporation is Intensiva HealthCare Corporation.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware, and the name of its registered agent at such address is:
The Corporation Trust Company
1209 Orange Street
New Castle County
Wilmington, Delaware 19802
Intensiva HealthCare Corporation - Third Amended and Restated Page 1
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 2
ARTICLE III
PURPOSE
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
Section 1. Number of Shares.
The total number of shares of capital stock which the Corporation
shall have the authority to issue is One Hundred Million shares, of which (a)
Thirty Million shares shall be preferred stock, of no par value per share (the
"Undesignated Preferred Stock") and (b) Seventy Million shares shall be common
stock, par value $0.001 per share (the "Common Stock"). As set forth in this
Article IV, the Board of Directors or any authorized committee thereof is
authorized from time to time to establish and designate one or more series of
Undesignated Preferred Stock, to fix and determine the variations in the
relative rights and preferences as between the different series of Undesignated
Preferred Stock in the manner hereinafter set forth in this Article IV, and to
fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock, pursuant to the resolution or resolutions establishing the
class of Undesignated Preferred Stock or this Third Amended and Restated
Certificate of Incorporation, as it may be amended from time to time.
Section 2. General.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of
stock shall be determined in accordance with, or as set forth below in,
Sections 3 and 4 of this Article IV.
Section 3. Common Stock.
Subject to all of the rights, powers and preferences of the
Undesignated Preferred Stock and except as provided by law or in this Article
IV (or in any certificate of designation of any series of Undesignated
Preferred Stock) or by the Board of Directors or any authorized committee
thereof pursuant to this Article IV:
Intensiva HealthCare Corporation - Third Amended and Restated Page 2
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 3
(a) the holders of the Common Stock shall have the
exclusive right to vote for the election of directors and on all other matters
requiring stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared
by the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests.
Section 4. Undesignated Preferred Stock.
Subject to any limitations prescribed by law, the Board of Directors
or any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to
be included in each such series, and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights
of the shares of each series and any qualifications, limitations and
restrictions thereof. Any action by the Board of Directors or any authorized
committee thereof under this Section 4 shall require the affirmative vote of a
majority of the directors then in office or a majority of the members of such
committee. The Board of Directors or any authorized committee thereof shall
have the right to determine or fix one or more of the following with respect to
each series of Undesignated Preferred Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to be
paid on the shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for dividends, and
the participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on
which, such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
Intensiva HealthCare Corporation - Third Amended and Restated Page 3
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 4
(f) Whether the shares of such series shall be entitled
to the benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares
of such series shall be issued;
(i) Whether the shares of such series which are redeemed
or converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights,
qualifications, limitations and restrictions thereof as the Board of Directors
or any authorized committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
Section 1. Actions at Stockholder Meetings.
Any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Section 2. Special Voting Requirements.
Where stockholder approval is required by applicable state law for any
of the following transactions, the vote required for such approval shall be the
affirmative vote of the holders of at least two-thirds of the voting power of
the outstanding shares:
(a) Any plan of merger;
(b) Any plan of exchange;
Intensiva HealthCare Corporation - Third Amended and Restated Page 4
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 5
(c) Any sale, lease, transfer or other disposition of all
or substantially all of this Corporation's property and assets, including its
goodwill, not in the usual and regular course of its business;
(d) Any dissolution of this Corporation;
(e) Any amendment to, or repeal of, a bylaw or bylaws
lawfully proposed by a stockholder or stockholders holding at least the
required statutory voting power; or
(f) Any amendment to, or repeal of, all or any portion of
this Article V, provided, however, that if the then current or a preexisting
Board of Directors of this Corporation shall by resolution adopted at a meeting
of the Board of Directors have approved one of the enumerated matters (other
than dissolution of this Corporation or an amendment of this Article V to alter
the two-thirds dissolution vote) and shall have determined to recommend it for
approval by the holders of shares entitled to vote on the matter, then the vote
required shall be the affirmative vote of the holders of at least a majority of
the voting power of the outstanding shares.
ARTICLE VI
DIRECTORS
Section 1. General.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
Section 2. Election of Directors.
Election of directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
Section 3. Terms of Directors.
The number of directors of the Corporation shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
directors, other than those who may be elected by the holders of any series of
Undesignated Preferred Stock of the Corporation, shall be classified, with
respect to the term for which they severally hold office, into three classes,
as nearly equal in number as possible. The initial Class I Directors of the
Corporation shall be ________________________; the initial Class II Directors
of the Corporation shall be ________________________________; and the initial
Class III Directors of the Corporation shall be
_________________________________. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1997;
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1998; and the initial Class III Directors
shall serve for a term expiring at the annual meeting of stockholders to be
held in 1999. At each annual meeting of stockholders,
Intensiva HealthCare Corporation - Third Amended and Restated Page 5
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 6
the successor or successors of the class of directors whose term expires at
that meeting shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at such meeting and entitled to vote on the
election of directors, and shall hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. The directors elected to each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation or
removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Third Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have
the right, voting separately as a series or together with holders of other such
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Third Amended and Restated
Certificate of Incorporation and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section 3.
During any period when the holders of any series of Undesignated
Preferred Stock have the right to elect additional directors as provided for or
fixed pursuant to the provisions of Article IV hereof, then upon commencement
and for the duration of the period during which such right continues: (a) the
then otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional directors so provided for or fixed pursuant to said provisions, and
(b) each such additional director shall serve until such director's successor
shall have been duly elected and qualified, or until such director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such director's earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of any
series of Undesignated Preferred Stock having such right to elect additional
directors are divested of such right pursuant to the provisions of such stock,
the terms of office of all such additional directors elected by the holders of
such stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional directors, shall
forthwith terminate and the total and authorized number of directors of the
Corporation shall be reduced accordingly.
Section 4. Vacancies.
Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor
Intensiva HealthCare Corporation - Third Amended and Restated Page 6
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 7
shall have been duly elected and qualified or until his or her earlier
resignation or removal. Subject to the rights, if any, of the holders of any
series of Undesignated Preferred Stock to elect directors, when the number of
directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of directors shall
be apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board of Directors until the
vacancy is filled.
Section 5. Removal.
Subject to the rights, if any, of any series of Undesignated Preferred
Stock to elect directors and to remove any director whom the holders of any
such stock have the right to elect, any director (including persons elected by
directors to fill vacancies in the Board of Directors) may be removed from
office (a) only with cause and (b) only by the affirmative vote of the holders
of two-thirds of the shares then entitled to vote at an election of directors.
At least 30 days prior to any meeting of stockholders at which it is proposed
that any director be removed from office, written notice of such proposed
removal shall be sent to the director whose removal will be considered at the
meeting. For purposes of this Third Amended and Restated Certificate of
Incorporation, "cause," with respect to the removal of any director shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of
court, (iii) gross dereliction of duty, (iv) commission of any action involving
moral turpitude, or (v) commission of an action which constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
Corporation.
Section 6. Changes to Number of Directors.
Any amendment to the By-Laws by the Board of Directors which changes
the number of Directors shall be permitted only upon the affirmative vote of at
least a majority of the full Board of Directors. When the number of directors
is so changed by action of the Board of Directors, any newly created
directorships or any decrease in directorships shall be so apportioned among
the classes of directors so as to make all classes as nearly equal in number as
possible. When the number of directors is reduced in the By-Laws, such
reduction in the number of persons actually holding the office of director
shall be accomplished only through the death, resignation, removal for cause,
or expiration of the term of a director. No director shall be removed from
office for the purpose of reducing the number of directors holding office to
that number of directors authorized in the By-Laws. Newly created
directorships shall be filled by a majority vote of the then sitting members of
the Board of Directors, and the term of each such newly created directorship
shall expire at the next expiration of terms of directors of the class to which
such newly created directorship is designated.
Intensiva HealthCare Corporation - Third Amended and Restated Page 7
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 8
ARTICLE VII
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Third Amended and Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 1. Amendment by Directors .
Except as otherwise provided by law, the By-laws of the Corporation
may be amended or repealed by the Board of Directors by the affirmative vote of
a majority of the directors then in office.
Section 2. Amendment by Stockholders .
The By-laws of the Corporation may be amended or repealed at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Intensiva HealthCare Corporation - Third Amended and Restated Page 8
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 9
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Third
Amended and Restated Certificate of Incorporation in the manner now or
hereafter prescribed by statute and this Third Amended and Restated Certificate
of Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Third Amended and
Restated Certificate of Incorporation shall be made unless the same is first
approved by the Board of Directors pursuant to a resolution adopted by the
Board of Directors in accordance with Section 242 of the DGCL, and, except as
otherwise provided by law, thereafter approved by the stockholders. Whenever
any vote of the holders of voting stock is required to amend or repeal any
provision of this Third Amended and Restated Certificate of Incorporation, and
in addition to any other vote of the holders of voting stock that is required
by this Third Amended and Restated Certificate of Incorporation or by law, the
affirmative vote of a majority of the outstanding shares entitled to vote on
such amendment or repeal, and the affirmative vote of a majority of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of this Third Amended and Restated
Certificate of Incorporation; provided, however, that the affirmative vote of
not less than two-thirds of the outstanding shares entitled to vote on such
amendment or repeal, and the affirmative vote of not less than two-thirds of
the outstanding shares of each class entitled to vote thereon as a class, shall
be required to amend or repeal any of the provisions of Article V, Article VI,
Article VII, Article VIII, or this Article IX of this Third Amended and
Restated Certificate of Incorporation.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by David W. Cross, its President, this ______ day of ______________,
1996.
By:
_____________________________________
David W. Cross, President
Intensiva HealthCare Corporation - Third Amended and Restated Page 9
Certificate of Incorporation Adopted July 15, 1996
<PAGE> 1
EXHIBIT 3 (ii).1
BY-LAWS
OF
TRANSITIONAL CARE OF AMERICA, INC.
(A Delaware corporation)
ARTICLE I Offices and Records
ARTICLE II Corporate Seal
ARTICLE III Stockholders
ARTICLE IV Directors
ARTICLE V Officers
ARTICLE VI Shares of Stock
ARTICLE VII Indemnification
ARTICLE VIII General Provisions
<PAGE> 2
ARTICLE I
OFFICES AND RECORDS
Section 1. Registered Office and Registered Agent. The location of
the registered office and the name of the registered agent of the corporation
in the State of Delaware shall be determined from time to time by the Board of
Directors and shall be on file in the appropriate office of the State of
Delaware pursuant to applicable provisions of law.
Section 2. Corporate Offices. The corporation may have such corporate
offices, anywhere within and without the State of Delaware as the Board of
Directors from time to time may appoint, or the business of the corporation may
require. The "principal place of business" or "principal business" or
"executive office or offices" of the corporation may be fixed and so designated
from time to time by the Board of Directors, but the location or residence of
the corporation in Delaware shall be deemed for all purposes to be in the
county in which its registered office in Delaware is maintained.
Section 3. Records. The corporation shall keep at its registered
office in Delaware, at its principal place of business, or at the office of its
transfer agent in Delaware, original or duplicate books in which shall be
recorded the number of its shares subscribed, the names of the owners of its
shares, the numbers owned of record by them respectively, the amount of shares
paid, and by whom, the transfer of said shares with the date of transfer, the
amount of its assets and liabilities, and the names and places of residence of
its officers, and from time to time such other or additional records,
statements, lists, and information as may be required by law, including the
stockholder lists mentioned in these By-laws.
Section 4. Inspection of Records. A stockholder, if he is entitled
and demands to inspect the records of the corporation pursuant to any statutory
or other legal right, shall be privileged to inspect such records only during
the usual and customary hours of business and in such manner as will not unduly
interfere with the regular conduct of the business of the corporation. In
order to exercise this right of examination, a stockholder must make written
demand upon the corporation, stating with particularity the records sought to
be examined and a proper purpose therefor. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. A
stockholder may delegate his right of inspection to his representative on the
condition that, if the representative is not an attorney, the stockholder and
representative agree with the corporation to furnish to the corporation,
promptly as completed or made, a true and correct copy of each report with
respect to such inspection made by such representative. No stockholder shall
use or permit to be used or acquiesce in the use by others of any information
so obtained, to the detriment competitively of the corporation, nor shall he
furnish or permit to be furnished any information so obtained to any competitor
or prospective competitor of the corporation.
The corporation may, as a condition precedent to any stockholder's
inspection of the records of the corporation, require the stockholder to
indemnify the corporation against any loss or damage which may be suffered by
it arising out of or resulting from any unauthorized disclosure made or
permitted to be made by such stockholder or any representative or financial
By-Laws of Transitional Care of America, Inc. Page 1
<PAGE> 3
advisor of the stockholder of information obtained in the course of such
inspection. The corporation may, as a further condition precedent to any
stockholder's inspection of the records of the corporation, also require the
stockholder to execute and deliver to the corporation a confidentiality
agreement in which the stockholder: (i) acknowledges that the corporation is
engaged in a highly competitive economic environment, that the nonpublic
records of the corporation are secret and confidential, and that the
corporation would suffer material adverse financial consequences if competitors
or other entities with which the corporation does business should gain access
to nonpublic information contained in the records of the corporation; (ii)
agrees that he will not, directly or indirectly, without the corporation's
prior written consent, disclose any nonpublic information obtained from the
records of the corporation to any party other than the stockholder's
representative or personal financial advisor; and (iii) agrees to instruct his
representative and any personal financial advisor not to disclose, directly or
indirectly, without the corporation's prior written consent, any such nonpublic
information received and that no applicable professional-client privileges
shall be waived. The corporation may also require any representative or
personal financial advisor of a stockholder to sign a confidentiality agreement
containing substantially the provisions described above as a condition
precedent to inspection of the records of the corporation. As used herein,
"nonpublic" information is all information other than: (a) what the
corporation has filed with a governmental agency and which (i) was not
designated as confidential, secret, proprietary, or the like and (ii) is
generally open to public inspection in accordance with applicable laws, rules,
and regulations; and (b) what the corporation has released to the press or
other media for general publication.
ARTICLE II
CORPORATE SEAL
Section 1. Corporate Seal. The corporate seal, if any, shall have
inscribed thereon the name of the corporation and the words: Corporate
Seal--Delaware. Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any manner reproduced.
ARTICLE III
STOCKHOLDERS
Section 2. Place of Meetings. All meetings of the stockholders shall
be held at the principal business office of the corporation, except such
meetings as the Board of Directors to the extent permissible by law expressly
determines shall be held elsewhere, in which case such meetings may be held,
upon notice thereof as herein provided, at such other place or places, within
or without the State of Delaware, as said Board of Directors shall determine
and as shall be stated in such notice; and, unless specifically prohibited by
law, any meeting may be held at any place and time, and for any purpose if
consented to in writing by all of the stockholders entitled to vote thereat.
Section 3. Annual Meeting. An annual meeting of stockholders shall
be held on such date and at such time as the Board of Directors by resolution
shall determine, if not a legal holiday, and if a legal holiday then on the
next business day following when the stockholders shall elect
By-Laws of Transitional Care of America, Inc. Page 2
<PAGE> 4
directors to succeed those whose terms expire and transact such other business
as may properly be brought before the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may
be called by the Chairman of the Board (if any), the President, or by a
majority of the Board of Directors, and shall be held on such date and at such
time as he or they shall fix.
The holders of not less than a majority of the issued and outstanding
shares of the corporation entitled to vote for the election of directors may
also call a special meeting of the stockholders by affixing their signatures to
a written notice given as otherwise provided herein, which notice shall fix the
date and time of such meeting.
Section 5. Action in Lieu of Meeting. Any action required to be taken
at a meeting of the stockholders or any other action which may be taken at a
meeting of the stockholders may be taken without a meeting if consents in
writing setting forth the action so taken shall be signed by holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation. Prompt notice of the taking of the corporation action without a
meeting by less than unanimous consent shall be given to those stockholders who
have not consented in writing.
Section 6. Notice of Meetings. Written or printed notice stating the
place, day, and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Board of Directors,
the Chairman of the Board (if any), the President, or the Secretary, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail in a
sealed envelope addressed to the stockholder at his address as it appears on
the records of the corporation, with postage thereon prepaid.
Section 7. Presiding Officials. Every meeting of the stockholders for
whatever object, shall be convened (in the order shown, unless otherwise
determined by resolution of the Board of Directors) by the Chairman of the
Board (if any), or by the President, or by the officer who called the meeting
by notice as above provided; but it shall be presided over by the officers
specified elsewhere in these By-laws.
Section 8. Waiver of Notice. Whenever any notice is required to be
given under the provisions of these By-laws, the Certificate of Incorporation
of the corporation, or any law, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before, at, or after the
time stated therein, shall be deemed the equivalent of the giving of such
notice. To the extent provided by law, attendance at any meeting shall
constitute a waiver of notice of such meeting.
Section 9. Business Transacted at Annual Meetings. At each annual
meeting of the stockholders, the stockholders shall elect a Board of Directors
to hold office until the next
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succeeding annual meeting, or, in the case of a classified Board of Directors,
the stockholders shall elect Directors to fill those director positions the
terms of which are set to expire at that annual meeting of stockholders; and
they may transact such other business as may be desired, whether or not the
same was specified in the notice of the meeting, unless the consideration of
such other business without its having been specified in the notice of the
meeting as one of the purposes thereof is prohibited by law.
Section 10. Business Transacted at Special Meetings. Business
transacted at all special meetings of the stockholders shall be confined to the
purposes stated in the notice of such meetings, unless the transaction of
other business is consented to by the holders of all of the outstanding shares
of stock of the corporation entitled to vote thereat.
Section 11. Quorum. Except as may be otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the voting
shares issued and outstanding and entitled to vote for the election of
directors, whether present in person or by proxy, shall constitute a quorum for
the transaction of business at all meetings of the stockholders. Every
decision of a majority in amount of shares of such quorum shall be valid as a
corporate act, except in those specific instances in which a larger vote is
required by law, by these By-laws, or by the Certificate of Incorporation. If,
however, such quorum should not be present at any meeting, the stockholders
present and entitled to vote shall have the power successively to adjourn the
meeting, without notice other than announcement at the meeting, to a specified
date not longer than ninety days after such adjournment. At any such adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the meeting of which the stockholders were originally
notified. However, if the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given in the manner otherwise provided
herein to each stockholder of record entitled to vote at such adjourned
meeting. Withdrawal of stockholders from any meeting shall not cause the
failure of a duly constituted quorum at such meeting.
Section 12. Proxies. At any meeting of the stockholders every
stockholder having the right to vote shall be entitled to vote in person, or by
vesting another person with authority to exercise the voting power of any or
all of his stock by executing in writing any voting trust agreement, proxy, or
any other type of appointment form or agreement, except as may be expressly
limited by law or by the Certificate of Incorporation. Any copy, facsimile
telecommunication, or other reliable reproduction of any writing referred to in
this Section may be used in lieu of the original writing for any and all
purposes for which the original writing could be used, provided that such copy,
facsimile telecommunication, or other reproduction shall be a complete
reproduction of the entire original writing. No proxy shall be valid after
three (3) years from the date of its execution, unless otherwise provided in
the proxy.
Section 13. Voting. Each stockholder shall have one vote (or such
other number of votes as may be specifically provided) for each share of stock
entitled to vote under the provisions of the Certificate of Incorporation which
is registered in his name on the books of the corporation; in all elections of
directors of the corporation, each share of stock entitled to vote shall be
entitled to one vote as to each director to be elected by the holders thereof
and no stockholder shall have
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the right to cast votes in the aggregate or to cumulate his votes for the
election of any director, and cumulative voting of shares in elections of
directors is hereby specifically negated. All elections for directors shall be
determined by a plurality of the votes cast. All other matters, except as
required by law or the Certificate of Incorporation, shall be determined by a
majority of the votes cast. Any stockholder who is in attendance at a meeting
of the stockholders either in person or by proxy, but who abstains from voting
on any matter, shall not be deemed present or represented at such meeting for
purposes of the preceding sentence with respect to such vote, but shall be
deemed present or represented for all other purposes.
The rights and powers of the holders of any class or series of
preferred stock with respect to the election of directors shall be only as may
be duly designated with respect to such class or series and as is consistent
with the provisions of the Certificate of Incorporation.
No person shall be permitted to vote any shares belonging to the
corporation.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the by-laws of such
corporation may prescribe, or, in the absence of such provision, as the board
of directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his
administrator or personal representative either in person or by proxy. Shares
standing in the name of a conservator, guardian, curator or trustee may be
voted by such fiduciary, either in person or by proxy, but no conservator,
guardian, curator or trustee shall be entitled as such fiduciary to vote shares
held by him without transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares transferred.
Shares standing in the names of two or more persons shall be voted or
represented in accordance with the vote or consent of a majority of the persons
in whose names the shares are registered. If only one such person is present
in person or by proxy, he may vote all of the shares, and all of the shares
standing in the names of such persons shall be deemed represented for purposes
of determining a quorum. The foregoing provisions shall also apply to shares
held by two or more personal representatives, trustees, or other fiduciaries
unless the instrument or order appointing them otherwise directs.
Section 14. Registered Stockholders. The corporation shall be
entitled to treat the holder of any share or shares of stock of the
corporation, as recorded on the stock record or transfer books of the
corporation, as the holder of record and as the holder and owner in fact
thereof and,
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accordingly, shall not be required to recognize any equitable or other claim to
or interest in such share(s) on the part of any other person, firm,
partnership, corporation or association, whether or not the corporation shall
have express or other notice thereof, save as is otherwise expressly required
by law, and the term "stockholder" as used in these By-laws means one who is a
holder of record of shares of the corporation.
Section 15. Stockholders Lists. A complete list of the stockholders
entitled to vote at each meeting of the stockholders, arranged in alphabetical
order, with the address of, and the number of voting shares held by each, shall
be prepared by the officer of the corporation having charge of the stock
transfer books of the corporation, and shall for a period of ten days prior to
the meeting be kept on file either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held, and shall at
any time during the usual hours for business be subject to inspection by any
stockholder. A similar or duplicate list shall also be produced and kept open
for the inspection of any stockholder during the whole time of the meeting.
The original share ledger or transfer book, or a duplicate thereof kept in the
State of Delaware, shall be prima facie evidence as to who are stockholders
entitled to examine such list, ledger, or transfer book or to vote at any
meeting of stockholders. Failure to comply with the foregoing shall not affect
the validity of any action taken at any such meeting.
Section 16. Removal of Directors. Except as otherwise provided in
the Certificate of Incorporation or by law, the stockholders shall have the
power by an affirmative vote of a majority of the outstanding shares then
entitled to vote for the election of directors at any regular meeting or
special meeting expressly called for that purpose, to remove any director from
office with or without cause. Such meeting shall be held at any place
prescribed by law or at any other place which may, under law, permissibly be,
and which is, designated in the notice of the special meeting. If cumulative
voting applies to the election of directors and if less than the entire Board
is to be removed, no one of the directors may be removed if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors.
ARTICLE IV
DIRECTORS
Section 1. Qualifications and Number. Each director shall be a
natural person who is at least eighteen years of age. A director need not be
a stockholder, a citizen of the United States, or a resident of the State of
Delaware unless required by law or the Certificate of Incorporation.
Unless and until changed, the number of directors to constitute the
full Board of Directors shall be seven (7). The Board of Directors, if, to the
extent, and in such manner as may be permitted by the Certificate of
Incorporation and by law, shall have the power to change the number of
directors, in which case any notice required by law of any such change shall be
duly given. If the power to change these by-law provisions concerning the
number of directors is not granted to the Board of Directors, such power shall
be exercised by such vote of the stockholders
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entitled to vote as may be required in the Certificate of Incorporation; and if
no specific vote of the stockholders is required, then by a majority of the
stockholders then entitled to vote.
Section 3. Powers of the Board. The property and business of the
Corporation shall be managed by the directors, acting as a Board. The Board
shall have and is vested with all and unlimited powers and authorities, except
as may be expressly limited by law, the Certificate of Incorporation, or by
these By-laws, to do or cause to be done any and all lawful things for and on
behalf of the corporation (including, without limitation, the declaration of
dividends on the outstanding shares of the corporation and the payment thereof
in cash, property or shares), and to exercise or cause to be exercised any or
all of its powers, privileges and franchises, and to seek the effectuation of
its objects and purposes.
Section 4. Annual Meeting of the Board, Notice. Any continuing
members and the newly elected members of the Board shall meet: (i) immediately
following the conclusion of the annual meeting of the stockholders for the
purpose of electing officers and for such other purposes as may come before the
meeting, and the time and place of such meeting shall be announced at the
annual meeting of the stockholders by the chairman of such meeting, and no
other notice to any continuing or the newly elected directors shall be
necessary in order to legally constitute the meeting, provided a quorum of the
directors shall be present; or (ii) if no meeting immediately following the
annual meeting of stockholders is announced, at such time and place, either
within or without the State of Delaware, as may be suggested or provided for by
resolution of the stockholders at their annual meeting and no other notice of
such meeting shall be necessary to the newly elected directors in order to
legally constitute the meeting, provided a quorum of the directors shall be
present; or (iii) if not so suggested or provided for by resolution of the
stockholders or if a quorum of the directors shall not be present, at such time
and place as may be consented to in writing by a majority of any continuing and
the newly elected directors, provided that written or printed notice of such
meeting shall be given to each of any continuing and the newly elected
directors in the same manner as provided in these By-laws with respect to the
notice for special meetings of the Board, except that it shall not be necessary
to state the purpose of the meeting in such notice; or (iv) regardless of
whether or not the time and place of such meeting shall be suggested or
provided for by resolution of the stockholders at the annual meeting, at such
time and place as may be consented to in writing by all of any continuing and
the newly elected directors. Each director, upon his election, shall qualify
by accepting the office of director, and his attendance at, or his written
approval of the minutes of, any meeting of the newly elected directors shall
constitute his acceptance of such office; or he may execute such acceptance by
a separate writing, which shall be placed in the minute book.
Section 5. Regular Meetings, Notice. Regular meetings of the Board
may be held at such times and places either within or without the State of
Delaware as shall from time to time be fixed by resolution adopted by a
majority of the full Board of Directors. No notice of any regular meeting need
be given other than by announcement at the immediately preceding regular
meeting and communicated in writing to all absent directors; provided, however,
that written notice of any regular meeting of the Board of Directors stating
the place, day, and hour of such meeting shall be given if required by
resolution adopted by the Board of Directors. Any business may be
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transacted at a regular meeting. Neither the business to be transacted at nor
the purpose need be specified in any notice or waiver of notice of any regular
meeting of the Board of Directors.
Section 6. Special Meetings, Notice. Special meetings of the Board
may be called at any time by the Chairman of the Board (if any), the President,
or by one-third of the directors (rounded up to the nearest whole number). The
place may be within or without the State of Delaware as designated in the
notice.
Written notice of each special meeting of the Board, stating the
place, day, and hour of the meeting shall be given to each director at least
two days before the date on which the meeting is to be held. The notice shall
be given (i) in the manner provided for in these By-laws or (ii) may be given
telephonically, if confirmed promptly in writing, in which case the notice
shall be deemed to have been given at the time of telephonic communication.
The notice may be given by any officer directed to do so by any officer having
authority to call the meeting or by the director(s) who have called the
meeting.
Neither the business to be transacted at nor the purpose need be
specified in the notice or any waiver of notice of any special meeting of the
Board of Directors.
Section 7. Action in Lieu of Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws or by law, any action
required to be taken at a meeting of the Board of Directors or any other action
which may be taken at a meeting of the Board of Directors may be taken without
a meeting if a consent in writing setting forth the action so taken shall be
signed by all the directors entitled to vote with respect to the subject matter
thereof. Any such consent signed by all the directors shall have the same
effect as a unanimous vote and may be stated as such in any document describing
the action taken by the Board of Directors.
Section 8. Meeting by Conference Telephone or Similar Communications
Equipment. Unless otherwise restricted by the Certificate of Incorporation or
these By-laws or by law, members of the Board of Directors of the
corporation, or any committee designated by such Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other, and participation in a meeting in such manner shall constitute
presence in person at such meeting.
Section 9. Quorum. At all meetings of the Board a majority of the full
Board of Directors shall, unless a greater number as to any particular matter
is required by the Certificate of Incorporation or these By-laws, constitute a
quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum, except as may be otherwise
specifically provided by law, by the Certificate of Incorporation, or by these
By-laws, shall be the act of the Board of Directors. A director who is in
attendance at a meeting of the Board of Directors but who abstains from voting
on a matter shall not be deemed present at such meeting for purposes of the
preceding sentence with respect to such vote, but shall be deemed present at
such meeting for all other purposes. Withdrawal by a director from any meeting
at which a duly constituted quorum is present shall not cause the failure of
the quorum.
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Less than a quorum may adjourn a meeting successively until a quorum
is present, and no notice of adjournment shall be required.
Section 10. Waiver of Notice; Attendance at Meeting. Any notice
provided or required to be given to the directors may be waived in writing by
any of them, whether before, at, or after the time stated therein.
Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting except where the director attends for the express
purpose, and so states at the opening of the meeting, of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 11. Vacancies. If the office of any director is or becomes
vacant by reason of death, resignation, or due to an increase in the number of
directors, a majority of the survivors or remaining directors, though less than
a quorum, may appoint a director to fill the vacancy until a successor shall
have been duly elected at a stockholders' meeting.
Section 12. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the full Board, designate an executive
committee, such committee to consist of two or more directors of the
corporation. Such committee, except to the extent limited in said resolution,
shall have and may exercise all of the powers of the Board of Directors in the
management of the corporation. The members constituting the executive
committee shall be determined from time to time by resolution adopted by a
majority of the full Board; and any director may vote for himself as a member
of the executive committee. In no event, however, shall the executive
committee have any authority to amend the Certificate of Incorporation, to
adopt any plan of merger or consolidation with another corporation or
corporations, to recommend to the stockholders the sale, lease, exchange,
mortgage, pledge, or other disposition of all or substantially all of the
property and assets of the corporation if not made in the usual and regular
course of its business, to recommend to the stockholders a voluntary
dissolution of the corporation or a revocation thereof, to amend, alter or
repeal the By-laws of the corporation, to elect or remove officers of the
corporation or members of the executive committee, to fix the compensation of
any member of the executive committee, to declare any dividend, or to amend,
alter or repeal any resolution of the Board of Directors which by its terms
provides that it shall not be amended, altered or repealed by the executive
committee.
The executive committee shall keep regular minutes of its proceedings
and the same shall be recorded in the minute book of the corporation. The
Secretary or an Assistant Secretary of the corporation may act as secretary for
the executive committee if the executive committee so requests.
Section 13. Other Committees. The Board of Directors may, by
resolution passed by a majority of the full Board, designate one or more
standing or ad hoc committees, each committee to consist of two or more of the
directors of the corporation and such other person(s) as may be appointed as
advisory members under authority provided in the resolution. Each such
committee, to the extent provided in the resolution and permitted by law, shall
have and may exercise the
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power of the Board of Directors. The members constituting each such committee
shall be determined from time to time by resolution adopted by a majority of
the full Board; and any director may vote for himself as a member of any such
committee.
Each such committee shall, to the extent required by resolution of the
Board of Directors (or, in the absence of any such resolution, to the extent a
majority of its members determines is appropriate) keep minutes of its
proceedings and the same shall be recorded in the minute book of the
corporation. The Secretary or Assistant Secretary of the corporation may act
as secretary for any such committee if the committee so requests.
Section 14. Compensation of Directors and Committee Members.
Directors and members of all committees shall receive such compensation for
their services as may be determined from time to time by resolution adopted
from time to time by the Board, as well as such expenses, if any, as may be
allowed pursuant to resolution adopted from time to time by the Board. No such
resolution shall be deemed voidable or invalid by reason of the personal or
pecuniary interest of the directors or any director in adopting it. Nothing
herein contained shall be construed to preclude any director or committee
member from serving the corporation in any other capacity and receiving
compensation therefor.
Section 15. Protection of Director for Reliance on Corporate Records.
No director shall be liable for dividends legally declared, distributions
legally made to stockholders, or any other action taken in reliance in good
faith upon financial statements of the corporation represented to him to be
correct by the Chairman of the Board (if any), the President or the officer of
the corporation having charge of the books of account, or certified by an
accountant to fairly represent the financial condition of the corporation; nor
shall any such director be liable for determining in good faith the amount
available for dividends or distributions by considering the assets to be of
their book values.
ARTICLE V
OFFICERS
Section 1. Officers--Who Shall Constitute. The officers of the
corporation shall be a President, one or more Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries, and one or more Assistant
Treasurers. The Board shall elect or appoint a Chairman of the Board,
President and Secretary at its first meeting and at each annual meeting of the
Board of Directors which shall follow the annual meeting of the stockholders.
The Board then, or from time to time, may also elect or appoint one or more of
the other prescribed officers as it shall deem advisable, but need not elect or
appoint any officers other than a President and a Secretary. The Board may, if
it desires, further identify or describe any one or more of such officers.
An officer need not be a stockholder unless required by law or the
Certificate of Incorporation. Any two or more of such offices may be held by
the same person.
An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the Board; but the Board may
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also require of such person his written acceptance and promise faithfully to
discharge the duties of such office.
Section 2. Term of Office. Each officer of the corporation shall
hold his office for the term for which he was elected, or until he resigns or
is removed by the Board, whichever first occurs.
Section 3. Appointment of Officers and Agents--Terms of Office.
The Board from time to time may also appoint such other officers and agents for
the corporation as it shall deem necessary or advisable. All appointed
officers and agents shall hold their respective positions at the pleasure of
the Board or for such terms as the Board may specify, and they shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board, or by an elected officer empowered by the Board to make such
determination.
Section 4. Removal. Any officer or agent elected or appointed by the
Board of Directors, and any employee, may be removed or discharged by the Board
whenever in its judgment the best interests of the corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 5. Salaries and Compensation. Salaries and compensation of
all elected officers of the corporation shall be fixed, increased or decreased
by the Board of Directors, but this power may, unless prohibited by law, be
delegated by the Board to the Chairman of the Board (if any) or to the
President (except as to their own compensation), or to a committee. Salaries
and compensation of all other appointed officers and agents, and employees of
the corporation, may be fixed, increased or decreased by the Board of Directors
or a committee thereof, but until action is taken with respect thereto by the
Board of Directors or a committee thereof, the same may be fixed, increased or
decreased by the Chairman of the Board (if any), the President, or by such
other officer or officers as may be empowered by the Board of Directors or a
committee thereof to do so.
Section 6. Delegation of Authority to Hire, Discharge, Etc. The
Board, from time to time, may delegate to the Chairman of the Board (if any),
the President, or any other officer or executive employee of the
corporation, authority to hire, discharge, and fix and modify the duties,
salary, or other compensation of employees of the corporation under their
jurisdiction; and the Board may delegate to such officer or executive employee
similar authority with respect to obtaining and retaining for the corporation
the services of attorneys, accountants, and other experts.
Section 7. The President. The President shall be the chief executive
officer of the corporation. Except as otherwise provided for in these By-laws,
the President shall preside at all meetings of the stockholders and Directors.
The President shall have general and active management of the business of the
corporation and shall carry into effect all directions and resolutions of the
Board.
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The President may execute all bonds, notes, debentures, mortgages and
other contracts requiring a seal to be affixed thereto, and all other
instruments for and in the name of the corporation.
The President, when authorized to do so by the Board, may execute
powers of attorney from, for, and in the name of the corporation, to such
proper person or persons as he may deem fit, in order that thereby the business
of the corporation may be furthered or action taken as may be deemed by him
necessary or advisable in furtherance of the interests of the corporation.
The President, except as may be otherwise directed by the Board, shall
be authorized to attend meetings of stockholders of other corporations to
represent this corporation thereat and to vote or take action with respect to
the shares of any such corporation owned by this corporation in such manner as
he shall deem to be for the interest of the corporation or as may be directed
by the Board.
The President shall, unless the Board otherwise provides, be ex
officio a member of all standing committees. The President shall have such
general (and concurrent) executive powers and duties of supervision and
management as are usually vested in the office of the chief executive of a
corporation.
The President shall have such other or further duties and authority as
may be prescribed elsewhere in these By-laws or from time to time by the Board
of Directors, and the Board may from time to time divide the responsibilities,
duties, and authority between them to such extent as it may deem advisable.
Section 8. Vice Presidents. The Vice Presidents, in the order of
their seniority as determined by the Board, shall, in the absence, disability or
inability to act of the President, perform the duties and exercise the powers
of the President, and shall perform such other duties as the Board of Directors
shall from time to time prescribe.
Section 9. The Secretary and Assistant Secretaries. The Secretary
shall attend all sessions of the Board and except as otherwise provided for in
these By-laws, all meetings of the stockholders, and shall record or cause
to be recorded all votes taken and the minutes of all proceedings in a minute
book of the corporation to be kept for that purpose. The Secretary shall
perform like duties for the executive and other standing committees when
requested by the Board or such committee to do so.
The Secretary shall have the principal responsibility to give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors, but this shall not lessen the authority of others to give such
notice as is authorized elsewhere in these By-laws.
The Secretary shall see that all books, records, lists and
information, or duplicates, required to be maintained at the registered office
or at some office of the corporation in Delaware, or elsewhere, are so
maintained.
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The Secretary shall keep in safe custody the seal of the corporation,
and when duly authorized to do so, shall affix the same to any instrument
requiring it, and when so affixed, shall attest the same by his signature.
The Secretary shall perform such other duties and have such other
authority as may be prescribed elsewhere in these By-laws or from time to time
by the Board of Directors or the President, under whose direct supervision the
Secretary shall be.
The Secretary shall have the general duties, powers and
responsibilities of a Secretary of a corporation.
The Assistant Secretaries, in the order of their seniority, in the
absence, disability, or inability to act of the Secretary, shall perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Board may from time to time prescribe.
Section 10. The Treasurer and Assistant Treasurers. The Treasurer
shall have responsibility for the safekeeping of the funds and securities of
the corporation, and shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the corporation.
The Treasurer shall keep, or cause to be kept, all other books of account and
accounting records of the corporation, and shall deposit or cause to be
deposited all moneys and other valuable effects in the name and to the credit
of the corporation in such depositories as may be designated by the Board of
Directors.
The Treasurer shall disburse, or permit to be disbursed, the funds of
the corporation as may be ordered, or authorized generally, by the Board and
shall render to the chief executive officer of the corporation and the
directors, whenever they may require it, an account of all his transactions as
Treasurer and of those under his jurisdiction, and of the financial condition
of the corporation.
The Treasurer shall perform such other duties and shall have such
other responsibility and authority as may be prescribed elsewhere in these
By-laws or from time to time by the Board of Directors.
The Treasurer shall have the general duties, powers and responsibility
of a Treasurer of a corporation, and shall be the chief financial and
accounting officer of the corporation.
If required by the Board, the Treasurer shall give the corporation a
bond in a sum and with one or more sureties satisfactory to the Board for the
faithful performance of the duties of his office, and for the restoration to
the corporation, in the case of his death, resignation, retirement, or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control which belong to the
corporation.
The Assistant Treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the Treasurer, perform the duties
and exercise the powers of the Treasurer, and shall perform such other duties
as the Board of Directors shall from time to time prescribe.
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Section 11. Bond. At the option of the Board of Directors, any
officer may be required to give bond for the faithful performance of his
duties.
Section 12. Checks and Other Instruments. All checks, drafts, notes,
acceptances, bills of exchange and other negotiable and non-negotiable
instruments and obligations for the payment of money, and all contracts, deeds,
mortgages and all other papers and documents whatsoever, unless otherwise
provided for by these By-laws, shall be signed by such officer or officers or
such other person or persons and in such manner as the Board of Directors from
time to time shall designate. If no such designation is made, and unless and
until the Board otherwise provides, the Chairman of the Board (if any) or the
President and the Secretary, or the Chairman of the Board (if any) or the
President and the Treasurer, shall have power to sign all such instruments for,
and on behalf of and in the name of the corporation, which are executed or made
in the ordinary course of the corporation's business.
Section 13. Duties of Officers May be Delegated. If any officer of
the corporation shall be absent or unable to act, or for any other reason the
Board may deem sufficient, the Board may delegate, for the time being, some or
all of the functions, duties, powers and responsibilities of any officer to any
other officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the then sitting Board concurs
therein.
ARTICLE VI
SHARES OF STOCK
Section 1. Payment for Shares of Stock. The corporation shall issue
shares of stock which shall be deemed to be fully paid and nonassessable stock;
if (1) the entire amount of such consideration has been received by the
Corporation in the form of cash, services rendered, personal property, real
property, leases of real property, or a combination thereof; or (2) not less
than the amount of the consideration determined to be capital pursuant to law
has been received by the corporation in such form and the corporation has
received a binding obligation of the subscription or purchase price; provided,
however, nothing contained herein shall prevent the Board of Directors from
issuing partly paid shares pursuant to applicable law.
Section 2. Certificates for Shares of Stock. The certificates for
shares of stock of the corporation shall be numbered, shall be in such form as
may be prescribed by the Board of Directors in conformity with law, and
shall be entered in the stock books of the corporation as they are issued, and
such entries shall show the name and address of the person, firm, partnership,
corporation or association to whom each certificate is issued. Each
certificate shall have printed, typed or written thereon the name of the
person, firm, partnership, corporation, or association to whom it is issued,
and number of shares represented thereby and shall be signed by the Chairman of
the Board (if any) or the President or a Vice President, and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation and sealed with the seal of the corporation, which seal may be
facsimile, engraved or printed. If the corporation has a registrar, a transfer
agent, or a transfer clerk who actually signs such certificates, the signature
of any of the other officers above mentioned may be facsimile, engraved, or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon any such certificate
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shall have ceased to be such officer before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if such officer were an officer at the date of its issue.
Section 3. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate for shares of stock of the corporation, upon due
proof of the registered owner thereof or his representative, by affidavit of
such loss or otherwise, the Chairman of the Board (if any) or the President and
Secretary may issue a duplicate certificate or replacement certificate in its
place, upon the corporation being fully indemnified therefor. Any such officer
may request the posting of an indemnity bond in favor of the corporation
whenever and to the extent that they deem appropriate as a precondition to the
issuance of any duplicate or replacement certificate.
Section 4. Transfers of Shares, Transfer Agent, Registrar. Transfers
of shares of stock shall be made on the stock record or transfer books of the
corporation only by the person named in the stock certificate, or by his
attorney lawfully constituted in writing, and upon surrender of the certificate
therefor. The stock record book and other transfer records shall be in the
possession of the Secretary (or other person appointed and empowered by the
Board to do so) or of a transfer agent or clerk for the corporation. The
corporation, by resolution of the Board, may from time to time appoint a
transfer agent, and, if desired, a registrar, under such arrangements and upon
such terms and conditions as the Board deems advisable; but until and unless
the Board appoints some other person, firm or corporation as its transfer agent
(and upon the revocation of any such appointment, thereafter until a new
appointment is similarly made) the Secretary of the corporation (or other
person appointed and empowered by the Board) shall be the transfer agent or
clerk of the corporation, without the necessity of any formal action of the
Board, and the Secretary or other person shall perform all of the duties
thereof.
Section 5. Closing of Transfer Books, Record Date. The Board of
Directors shall have the power to close the stock transfer books of the
corporation for a period not exceeding sixty (60) nor less than ten (10) days
preceding the date of any meeting of the stockholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares shall go into effect; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the
Board of Directors may fix in advance a date not exceeding sixty (60) days nor
less than ten (10) days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of shares shall go
into effect, as a record date for the determination of the stockholders entitled
to notice of, and to vote at, the meeting or any adjournment thereof, or
entitled to receive payment of the dividends, or entitled to the allotment of
rights, or entitled to exercise the rights in respect of the change, conversion,
or exchange of shares. In such case, only the stockholders who are stockholders
of record on the date of closing of the transfer books or on the record date so
fixed shall be entitled to such notice of, and to vote at, the meeting, and any
adjournment thereof, or to receive payment of the dividend, or to receive the
allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the date of closing of the transfer books or the record date fixed as aforesaid.
If the Board of Directors does not close the transfer books or set a record date
for the determination of the stockholders entitled to
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notice of, and to vote at, the meeting, and any adjournment of the meeting, the
record date shall be the date that is the day next preceding the day on which
notice is given; except that, if prior to the meeting written waivers of notice
of the meeting are signed and delivered to the corporation by all of the
stockholders of record at the time the meeting is convened, only the
stockholders who are stockholders of record at the time the meeting is convened
shall be entitled to vote at the meeting and at any adjournment of the meeting.
If the Board of Directors does not set a record date with respect to any
dividend, allotment of rights, or exercise of rights in respect of the change,
conversion, or exchange of shares, the record date for such purpose shall be the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 6. Fractional Share Interests or Scrip. The corporation may
issue fractions of a share and it may issue a certificate for a fractional
share, or by action of the Board of Directors, the corporation may issue in
lieu thereof scrip or other evidence of ownership which shall entitle the
holder to receive a certificate for a full share upon the surrender of such
scrip or other evidence of ownership aggregating a full share. A certificate
for a fractional share shall (but scrip or other evidence of ownership shall
not, unless otherwise provided by resolution of the Board of Directors) entitle
the holder to all of the rights of a stockholder, including without limitation
the right to exercise any voting right, or to receive dividends thereon or to
participate in any of the assets of the corporation in the event of
liquidation. The Board of Directors may cause such scrip or evidence of
ownership (other than a certificate for a fractional share) to be issued
subject to the condition that it shall become void if not exchanged for share
certificates before a specified date, or subject to the condition that the
shares for which such scrip or evidence of ownership is exchangeable may be
sold by the corporation and the proceeds thereof distributed to the holders of
such scrip or evidence of ownership, or subject to any other condition which
the Board of Directors may deem advisable.
ARTICLE VII
INDEMNIFICATION
Section 1. Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses, including attorney fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
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Section 2. Actions By or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation, as a
director or officer of another corporation, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees and amounts
paid in settlement, actually and reasonably incurred by him in connection with
the defense or settlement of the action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability and in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Indemnity if Successful. To the extent that a director,
officer, employee, or agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit, or proceeding
referred to in Sections 1 and 2 of this Article, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
action, suit, or proceeding.
Section 4. Standard of Conduct. Any indemnification under Sections 1
and 2 of this Article (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in this
Article. The determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit, or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders by
majority vote of the shares eligible to vote for directors and actually voted,
where shares held by the individual about whom such indemnification is at issue
shall not be eligible to vote.
Section 5. Expenses. Expenses (including attorneys' fees) incurred
in defending a civil or criminal action, suit, or proceeding may be paid by the
corporation in advance of the final disposition of the action, suit, or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, which the Board of Directors deems
appropriate.
Section 6. Nonexclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Certificate of Incorporation,
these By-laws, or any agreement, vote of the stockholders or
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disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, personal representatives, and
administrators of such a person.
Section 7. Further Indemnity Permissible. The corporation shall have
the power to give further indemnity, in addition to the indemnity authorized or
contemplated under the various sections of this Article, including Section 6
thereof, to any person who is or was a director, officer, employee, or agent,
or to any person who is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, provided such further indemnity is
either (i) authorized, directed, or provided for in the Certificate of
Incorporation of the corporation or a duly adopted amendment thereof or (ii)
authorized, directed, or provided for in these By-laws or in any agreement of
the corporation which has been adopted by the stockholders of the corporation,
and provided further that no such indemnity shall indemnify any person from or
on account of such person's conduct which has been finally adjudged to have
been knowingly fraudulent, deliberately dishonest, or willful misconduct.
Nothing in this Section 7 shall be deemed to limit the power of the corporation
under Section 6 of this Article to enact By-laws or to enter into agreements
without stockholder adoption of the same.
Section 8. Insurance. The corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
Section 9. Corporation. For the purpose of this Article, references
to "the corporation" include all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director or officer of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director or officer of another corporation, partnership, joint venture,
trust, or other enterprise shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
Section 10. Other Definitions. For purposes of this Article, the term
"other enterprise" shall include without limitation employee benefit plans; the
term "fines" shall include without limitation any excise taxes assessed on a
person with respect to an employee benefit plan; and the term "serving at the
request of the corporation" shall include without limitation any service as a
director, officer, employee, or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article.
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Section 11. Indemnity for Agents and Employees. The corporation may,
by resolution duly adopted by a majority of the disinterested members of the
Board of Directors, grant such indemnity rights and reimbursement for such
expenses as it determines to be appropriate to any person who was or is a
party to any threatened, pending, or completed action or suit, whether civil,
criminal, administrative, or investigative, including any action by or in the
right of the corporation, by reason of the fact that such person is or was an
agent or employee of the corporation, or is or was serving as an agent or
employee, at the request of the corporation, of another corporation,
partnership, joint venture, trust, or other enterprise. Any such grant of
indemnification shall be only to the extent so provided in the resolution
granting indemnification, but shall, in no event, be greater than the rights of
indemnification and reimbursement of expenses granted to directors and officers
of this corporation.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Fixing of Capital, Transfers of Surplus. Except as may be
specifically otherwise provided in the Certificate of Incorporation, the Board
of Directors is expressly empowered to exercise all authority conferred upon it
or the corporation by any law or statute, and in conformity therewith, relative
to:
The determination of what part of the consideration received
for shares of the corporation shall be capital;
Increasing capital;
Transferring surplus to capital;
The consideration to be received by the corporation for its
shares; and
All similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
stockholders required to be taken or given pursuant to law shall be duly taken
or given in connection therewith.
Section 2. Dividends. Ordinary dividends upon the shares of the
corporation, subject to the provisions of the Certificate of Incorporation and
applicable law, may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in property, or in shares of
its stock.
Liquidating dividends or dividends representing a distribution of
paid-in surplus or a return of capital shall be made only when and in the
manner permitted by law.
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Section 3. Creation of Reserves. Before the payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their
reasonable discretion, think proper as a reserve fund or funds, to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purposes as the Board of
Directors shall determine in the best interests of the corporation, and the
Board may abolish any such reserve in the manner in which it was created.
Section 4. Fiscal Year. The Board of Directors shall have the
paramount power to fix, and from time to time, to change, the fiscal year of
the corporation. In the absence of action by the Board of Directors,
however, the fiscal year of the corporation shall be determined and signified
by the filing of the Corporation's first federal income tax return, and shall
so continue until such time, if any, as the fiscal year shall be changed by the
Board of Directors.
Section 5. Notices. Except as otherwise specifically provided herein
with respect to notice to stockholders or otherwise, or as otherwise required
by law, all notices required to be given by any provision of these By-laws
shall be in writing and shall be deemed to have been given: (i) when received
if delivered in person; (ii) on the date of acknowledgment or confirmation of
receipt if sent by telex, facsimile, or other electronic transmission; (iii)
one day after delivery, properly addressed and fees prepaid, to a reputable
courier for same day or overnight delivery; or (iv) two days after being
deposited, properly addressed and postage prepaid, in the United States mail.
Section 6. Amendments to By-laws. The By-laws of the corporation may
from time to time be repealed, amended or altered, or new and/or restated
By-laws may be adopted, in either of the following ways:
By such vote of the stockholders entitled to vote at any
annual or special meeting thereof as may be required by the
Certificate of Incorporation, and if there is no such specific
requirement, then by the vote of a majority of said stockholders; or
By resolution adopted by the Board of Directors if such power
shall have been vested in the Board of Directors by the Certificate of
Incorporation; provided, however, that such power shall be exercisable
only by such number or percentage of the Directors as is required by
the Certificate of Incorporation, and if there is no such specific
requirement, then by a majority of the Board of Directors.
Notwithstanding the foregoing, the Board of Directors shall not have
the power to suspend, repeal, amend or otherwise alter the By-laws or
portion thereof enacted by the stockholders if at the time of such
enactment or thereafter the stockholders shall so expressly provide.
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<PAGE> 1
EXHIBIT 3(ii).2
Form of
AMENDED AND RESTATED
BY-LAWS
OF
INTENSIVA HEALTHCARE CORPORATION
(A Delaware corporation)
Effective [DATE]
ARTICLE I Offices and Records
ARTICLE II Corporate Seal
ARTICLE III Stockholders
ARTICLE IV Directors
ARTICLE V Officers
ARTICLE VI Shares of Stock
ARTICLE VII Indemnification
ARTICLE VIII General Provisions
<PAGE> 2
ARTICLE I
OFFICES AND RECORDS
Section 1. Registered Office and Registered Agent. The location of
the registered office and the name of the registered agent of the corporation
in the State of Delaware shall be determined from time to time by the Board of
Directors and shall be on file in the appropriate office of the State of
Delaware pursuant to applicable provisions of law.
Section 2. Corporate Offices. The corporation may have such corporate
offices, anywhere within and without the State of Delaware as the Board of
Directors from time to time may appoint, or the business of the corporation may
require. The "principal place of business" or "principal business" or
"executive office or offices" of the corporation may be fixed and so designated
from time to time by the Board of Directors, but the location or residence of
the corporation in Delaware shall be deemed for all purposes to be in the
county in which its registered office in Delaware is maintained.
Section 3. Records. The corporation shall keep at its registered
office in Delaware, at its principal place of business, or at the office of its
transfer agent in Delaware, original or duplicate books in which shall be
recorded the number of its shares subscribed, the names of the owners of its
shares, the numbers owned of record by them respectively, the amount of shares
paid, and by whom, the transfer of said shares with the date of transfer, the
amount of its assets and liabilities, and the names and places of residence of
its officers, and from time to time such other or additional records,
statements, lists, and information as may be required by law, including the
stockholder lists mentioned in these By-laws.
Section 4. Inspection of Records. A stockholder, if he is entitled
and demands to inspect the records of the corporation pursuant to any statutory
or other legal right, shall be privileged to inspect such records only during
the usual and customary hours of business and in such manner as will not unduly
interfere with the regular conduct of the business of the corporation. In
order to exercise this right of examination, a stockholder must make written
demand upon the corporation, stating with particularity the records sought to
be examined and a proper purpose therefor. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. A
stockholder may delegate his right of inspection to his representative on the
condition that, if the representative is not an attorney, the stockholder and
representative agree with the corporation to furnish to the corporation,
promptly as completed or made, a true and correct copy of each report with
respect to such inspection made by such representative. No stockholder shall
use or permit to be used or acquiesce in the use by others of any information
so obtained, to the detriment competitively of the corporation, nor shall he
furnish or permit to be furnished any information so obtained to any competitor
or prospective competitor of the corporation.
The corporation may, as a condition precedent to any stockholder's
inspection of the records of the corporation, require the stockholder to
indemnify the corporation against any loss or damage which may be suffered by
it arising out of or resulting from any unauthorized disclosure made or
By-Laws of Intensiva HealthCare Corporation Page 1
<PAGE> 3
permitted to be made by such stockholder or any representative or financial
advisor of the stockholder of information obtained in the course of such
inspection. The corporation may, as a further condition precedent to any
stockholder's inspection of the records of the corporation, also require the
stockholder to execute and deliver to the corporation a confidentiality
agreement in which the stockholder: (i) acknowledges that the corporation is
engaged in a highly competitive economic environment, that the nonpublic
records of the corporation are secret and confidential, and that the
corporation would suffer material adverse financial consequences if competitors
or other entities with which the corporation does business should gain access
to nonpublic information contained in the records of the corporation; (ii)
agrees that he will not, directly or indirectly, without the corporation's
prior written consent, disclose any nonpublic information obtained from the
records of the corporation to any party other than the stockholder's
representative or personal financial advisor; and (iii) agrees to instruct his
representative and any personal financial advisor not to disclose, directly or
indirectly, without the corporation's prior written consent, any such nonpublic
information received and that no applicable professional-client privileges
shall be waived. The corporation may also require any representative or
personal financial advisor of a stockholder to sign a confidentiality agreement
containing substantially the provisions described above as a condition
precedent to inspection of the records of the corporation. As used herein,
"nonpublic" information is all information other than: (a) what the
corporation has filed with a governmental agency and which (i) was not
designated as confidential, secret, proprietary, or the like and (ii) is
generally open to public inspection in accordance with applicable laws, rules,
and regulations; and (b) what the corporation has released to the press or
other media for general publication.
ARTICLE II
CORPORATE SEAL
Section 1. Corporate Seal. The corporate seal, if any, shall have
inscribed thereon the name of the corporation and the words: Corporate
Seal--Delaware. Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any manner reproduced.
ARTICLE III
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at the principal business office of the corporation, except such
meetings as the Board of Directors to the extent permissible by law expressly
determines shall be held elsewhere, in which case such meetings may be held,
upon notice thereof as herein provided, at such other place or places, within
or without the State of Delaware, as said Board of Directors shall determine
and as shall be stated in such notice; and, unless specifically prohibited by
law, any meeting may be held at any place and time, and for any purpose if
consented to in writing by all of the stockholders entitled to vote thereat.
Section 2. Annual Meeting. An annual meeting of stockholders shall
be held on such date and at such time as the Board of Directors by resolution
shall determine, if not a legal holiday, and if a legal holiday then on the
next business day following when the stockholders shall elect directors
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to succeed those whose terms expire and transact such other business as may
properly be brought before the meeting. If no annual meting has been held for
a period of thirteen months after the Corporation's last annual meeting of
stockholders, a special meting in lieu thereof may be held, and such special
meeting shall have, for the purposes of these By-Laws or otherwise, all the
force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
Section 3. Matters to be Considered at Annual Meetings. At any
annual meeting of stockholders or any special meeting in lieu of annual
meeting of stockholders (the "Annual Meeting"), only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before such Annual Meeting. To be considered as properly
brought before an Annual Meeting, business must be: (a) specified in the notice
of meeting, (b) otherwise properly brought before the meeting by, or at the
direction of, the Board of Directors, or (c) otherwise properly brought before
the meeting by any holder of record (both as of the time notice of such
proposal is given by the stockholder as set forth below and as of the record
date for the Annual Meeting in question) of any shares of capital stock of the
Corporation entitled to vote at such Annual Meeting who complies with the
requirements set forth in this Section.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section to the
Secretary of the Corporation, and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (x) the 60th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 60 days nor more than 90 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 60th day prior to the scheduled date of such Annual Meeting or (2) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-Laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service, (b) a report or other
document filed publicly with the Securities and Exchange Commission (including,
without limitation, a Form 8-K), or (c) a letter or report sent to stockholders
of record of the Corporation at the time of the mailing of such letter or
report.
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A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief
description of the business the stockholder desires to bring before such Annual
Meeting and the reasons for conducting such business at such Annual Meeting,
(ii) the name and address, as they appear on the Corporation's stock transfer
books, of the stockholder proposing such business, (iii) the class and number
of shares of the Corporation's capital stock beneficially owned by the
stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered
in such stockholder's name on such books, and the class and number of shares of
the Corporation's capital stock beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares the Corporation's capital stock beneficially owned by such stockholders,
and (vi) any material interest of the stockholder proposing to bring such
business before such meeting (or any other stockholders known to be supporting
such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 4 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee
thereof, or the presiding officer determines that a stockholder proposal was
made in accordance with the requirements of this Section, the presiding officer
shall so declare at the Annual Meeting and ballots shall be provided for use at
the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section, and nothing
in this Section shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 4. Special Meetings . Except as otherwise required by law
and subject to the rights, if any, of the holders of any series of
preferred stock, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the directors then in office.
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Section 5. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
Section 6. Notice of Meetings; Adjournments. A written notice of
each Annual Meeting stating the hour, date, and place of such Annual Meeting
shall be given by the Secretary or an Assistant Secretary (or other person
authorized by these By-Laws or by law) not less than 10 days nor more than 60
days before the Annual Meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Third Amended and Restated
Certificate of Incorporation of the Corporation (as the same may hereafter be
amended and/or restated, the "Certificate") or under these By-Laws, is entitled
to such notice, by delivering such notice to him or by mailing it, postage
prepaid, addressed to such stockholder at the address of such stockholder as it
appears on the Corporation's stock transfer books. Such notice shall be deemed
to be delivered when hand delivered to such address or deposited in the mail so
addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need
not be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereof, regardless of whether any notice or public disclosure
with respect to any such meeting has been sent or made pursuant to Section 3 of
this Article or Section 2 of Article IV hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement or rescheduling or any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 3 of this Article and Section 2
of Article IV of these By-Laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date, or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date, and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30
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days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-Laws, is entitled to such notice.
Section 7. Presiding Officials . Every meeting of the stockholders
for whatever object, shall be convened (in the order shown, unless otherwise
determined by resolution of the Board of Directors) by the Chairman of the
Board (if any), or by the President, or by the officer who called the meeting
by notice as above provided; but it shall be presided over by the officers
specified elsewhere in these By-laws.
Section 8. Waiver of Notice. Whenever any notice is required to be
given under the provisions of these By-laws, the Certificate of Incorporation
of the corporation, or any law, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before, at, or after the
time stated therein, shall be deemed the equivalent of the giving of such
notice. To the extent provided by law, attendance at any meeting shall
constitute a waiver of notice of such meeting.
Section 9. Quorum. Except as may be otherwise provided by law or
by the Certificate of Incorporation, the holders of a majority of the voting
shares issued and outstanding and entitled to vote for the election of
directors, whether present in person or by proxy, shall constitute a quorum for
the transaction of business at all meetings of the stockholders. Every
decision of a majority in amount of shares of such quorum shall be valid as a
corporate act, except in those specific instances in which a larger vote is
required by law, by these By-laws, or by the Certificate of Incorporation. If,
however, such quorum should not be present at any meeting, the stockholders
present and entitled to vote shall have the power successively to adjourn the
meeting, without notice other than announcement at the meeting, to a specified
date not longer than ninety days after such adjournment. At any such adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the meeting of which the stockholders were originally
notified. However, if the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given in the manner otherwise provided
herein to each stockholder of record entitled to vote at such adjourned
meeting. Withdrawal of stockholders from any meeting shall not cause the
failure of a duly constituted quorum at such meeting.
Section 10. Proxies. At any meeting of the stockholders every
stockholder having the right to vote shall be entitled to vote in person, or by
vesting another person with authority to exercise the voting power of any or
all of his stock by executing in writing any voting trust agreement, proxy, or
any other type of appointment form or agreement, except as may be expressly
limited by law or by the Certificate of Incorporation. Any copy, facsimile
telecommunication, or other reliable reproduction of any writing referred to in
this Section may be used in lieu of the original writing for any and all
purposes for which the original writing could be used, provided that such copy,
facsimile telecommunication, or other reproduction shall be a complete
reproduction of the entire original writing. No proxy shall be valid after
three (3) years from the date of its execution, unless otherwise provided in
the proxy.
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Section 11. Voting. Each stockholder shall have one vote (or such
other number of votes as may be specifically provided) for each share of stock
entitled to vote under the provisions of the Certificate of Incorporation which
is registered in his name on the books of the corporation; in all elections of
directors of the corporation, each share of stock entitled to vote shall be
entitled to one vote as to each director to be elected by the holders thereof
and no stockholder shall have the right to cast votes in the aggregate or to
cumulate his votes for the election of any director, and cumulative voting of
shares in elections of directors is hereby specifically negated. All elections
for directors shall be determined by a plurality of the votes cast. All other
matters, except as required by law or the Certificate of Incorporation, shall
be determined by a majority of the votes cast. Any stockholder who is in
attendance at a meeting of the stockholders either in person or by proxy, but
who abstains from voting on any matter, shall not be deemed present or
represented at such meeting for purposes of the preceding sentence with respect
to such vote, but shall be deemed present or represented for all other
purposes.
The rights and powers of the holders of any class or series of
preferred stock with respect to the election of directors shall be only as may
be duly designated with respect to such class or series and as is consistent
with the provisions of the Certificate of Incorporation.
No person shall be permitted to vote any shares belonging to the
corporation.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the by-laws of such
corporation may prescribe, or, in the absence of such provision, as the board
of directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his
administrator or personal representative either in person or by proxy. Shares
standing in the name of a conservator, guardian, curator or trustee may be
voted by such fiduciary, either in person or by proxy, but no conservator,
guardian, curator or trustee shall be entitled as such fiduciary to vote shares
held by him without transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares transferred.
Shares standing in the names of two or more persons shall be voted or
represented in accordance with the vote or consent of a majority of the persons
in whose names the shares are registered. If only one such person is present
in person or by proxy, he may vote all of the shares, and all of the shares
standing in the names of such persons shall be deemed represented for purposes
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of determining a quorum. The foregoing provisions shall also apply to shares
held by two or more personal representatives, trustees, or other fiduciaries
unless the instrument or order appointing them otherwise directs.
Section 12. Registered Stockholders. The corporation shall be
entitled to treat the holder of any share or shares of stock of the
corporation, as recorded on the stock record or transfer books of the
corporation, as the holder of record and as the holder and owner in fact
thereof and, accordingly, shall not be required to recognize any equitable or
other claim to or interest in such share(s) on the part of any other person,
firm, partnership, corporation or association, whether or not the corporation
shall have express or other notice thereof, save as is otherwise expressly
required by law, and the term "stockholder" as used in these By-laws means one
who is a holder of record of shares of the corporation.
Section 13. Stockholders Lists. A complete list of the
stockholders entitled to vote at each meeting of the stockholders, arranged
in alphabetical order, with the address of, and the number of voting shares
held by each, shall be prepared by the officer of the corporation having charge
of the stock transfer books of the corporation, and shall for a period of ten
days prior to the meeting be kept on file either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to be
held, and shall at any time during the usual hours for business be subject to
inspection by any stockholder. A similar or duplicate list shall also be
produced and kept open for the inspection of any stockholder during the whole
time of the meeting. The original share ledger or transfer book, or a
duplicate thereof kept in the State of Delaware, shall be prima facie evidence
as to who are stockholders entitled to examine such list, ledger, or transfer
book or to vote at any meeting of stockholders. Failure to comply with the
foregoing shall not affect the validity of any action taken at any such
meeting.
ARTICLE IV
DIRECTORS
Section 1. Qualifications and Number. Each director shall be a
natural person who is at least eighteen years of age. A director need
not be a stockholder, a citizen of the United States, or a resident of the
State of Delaware unless required by law or the Certificate of Incorporation.
Unless and until changed, the number of directors to constitute the
full Board of Directors shall be seven (7). The Board of Directors, if, to the
extent, and in such manner as may be permitted by the Certificate of
Incorporation and by law, shall have the power to change the number of
directors, in which case any notice required by law of any such change shall be
duly given. If the power to change these by-law provisions concerning the
number of directors is not granted to the Board of Directors, such power shall
be exercised by such vote of the stockholders entitled to vote as may be
required in the Certificate of Incorporation; and if no specific vote of the
stockholders is required, then by a majority of the stockholders then entitled
to vote.
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Section 2. Director Nominations . Nominations of candidates for
election as directors of the Corporation at any Annual Meeting may be made
only (a) by, or at the direction of, a majority of the Board of Directors or
(b) by any holder of record (both as of the time notice of such nomination is
given by the stockholder as set forth below and as of the record date for the
Annual Meeting in question) of any shares of the capital stock of the
Corporation entitled to vote at such Annual Meeting who complies with the
timing, informational, and other requirements set forth in this Section. Any
stockholder who has complied with the timing, informational, and other
requirements set forth in this Section and who seeks to make such a nomination,
or his, her, or its representative, must be present in person at the Annual
Meeting. Only persons nominated in accordance with the procedures set forth in
this Section shall be eligible for election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (i) the 60th day prior to the
scheduled date of such Annual Meeting or (ii) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 60 days nor more than 90 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (x) the 60th day prior to the scheduled date of
such Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election
as a director: (1) the name, age, business address, and residence address of
such person, (2) the principal occupation or employment of such person, (3) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(4) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (a) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (b) the class and number of
shares of the Corporation's capital stock which are held of record,
beneficially owned, or represented by proxy by such stockholder and by any
other stockholders known by such stockholder to be supporting such nominee(s)
on the record date for the Annual Meeting in question (if such date shall then
have been made publicly available) and on the date of such stockholder's
notice, and (c) a description of all arrangements or understandings between
such stockholder and each nominee and any other person
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or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made
in accordance with the terms of this Section or that the information provided
in a stockholder's notice does not satisfy the informational requirements of
this Section in any material respect, then such nomination shall not be
considered at the Annual Meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
nomination was made in accordance with the terms of this Section, the presiding
officer shall so declare at the Annual Meeting and ballots shall be provided
for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of
this Section, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 60 days prior
to the Anniversary Date, a stockholder's notice required by this Section shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office
not later than the close of business on the 15th day following the day on which
such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding
officer at such Annual Meeting. If written ballots are to be used, ballots
bearing the names of all the persons who have been nominated for election as
directors at the Annual Meeting in accordance with the procedures set forth in
this Section shall be provided for use at the Annual Meeting.
Section 4. Qualification. No director need be a stockholder of the
Corporation.
Section 5. Vacancies. Subject to the rights, if any, of the holders
of any series of preferred stock to elect directors and to fill vacancies in
the Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification, or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors
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then in office, even if less than a quorum of the Board of Directors. Any
director appointed in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been duly elected and qualified or until his or her
earlier resignation or removal. Subject to the rights, if any, of the holders
of any series of preferred stock to elect directors, when the number of
directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of directors shall
be apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board of Directors until the
vacancy is filled.
Section 6. Removal . Directors may be removed from office only in
the manner provided in the Certificate.
Section 7. Resignation. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President,
or the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
Section 8. Powers of the Board. The property and business of the
Corporation shall be managed by the directors, acting as a Board. The Board
shall have and is vested with all and unlimited powers and authorities, except
as may be expressly limited by law, the Certificate of Incorporation, or by
these By-laws, to do or cause to be done any and all lawful things for and on
behalf of the corporation (including, without limitation, the declaration of
dividends on the outstanding shares of the corporation and the payment thereof
in cash, property or shares), and to exercise or cause to be exercised any or
all of its powers, privileges and franchises, and to seek the effectuation of
its objects and purposes.
Section 9. Annual Meeting of the Board, Notice. Any continuing
members and the newly elected members of the Board shall meet: (i) immediately
following the conclusion of the annual meeting of the stockholders for the
purpose of electing officers and for such other purposes as may come before the
meeting, and the time and place of such meeting shall be announced at the
annual meeting of the stockholders by the chairman of such meeting, and no
other notice to any continuing or the newly elected directors shall be
necessary in order to legally constitute the meeting, provided a quorum of the
directors shall be present; or (ii) if no meeting immediately following the
annual meeting of stockholders is announced, at such time and place, either
within or without the State of Delaware, as may be suggested or provided for by
resolution of the stockholders at their annual meeting and no other notice of
such meeting shall be necessary to the newly elected directors in order to
legally constitute the meeting, provided a quorum of the directors shall be
present; or (iii) if not so suggested or provided for by resolution of the
stockholders or if a quorum of the directors shall not be present, at such time
and place as may be consented to in writing by a majority of any continuing and
the newly elected directors, provided that written or printed notice of such
meeting shall be given to each of any continuing and the newly elected
directors in the same manner as
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provided in these By-laws with respect to the notice for special meetings of
the Board, except that it shall not be necessary to state the purpose of the
meeting in such notice; or (iv) regardless of whether or not the time and place
of such meeting shall be suggested or provided for by resolution of the
stockholders at the annual meeting, at such time and place as may be consented
to in writing by all of any continuing and the newly elected directors. Each
director, upon his election, shall qualify by accepting the office of director,
and his attendance at, or his written approval of the minutes of, any meeting
of the newly elected directors shall constitute his acceptance of such office;
or he may execute such acceptance by a separate writing, which shall be placed
in the minute book.
Section 10. Regular Meetings, Notice. Regular meetings of the
Board may be held at such times and places either within or without the State
of Delaware as shall from time to time be fixed by resolution adopted by a
majority of the full Board of Directors. No notice of any regular meeting need
be given other than by announcement at the immediately preceding regular
meeting and communicated in writing to all absent directors; provided, however,
that written notice of any regular meeting of the Board of Directors stating
the place, day, and hour of such meeting shall be given if required by
resolution adopted by the Board of Directors. Any business may be transacted
at a regular meeting. Neither the business to be transacted at nor the purpose
need be specified in any notice or waiver of notice of any regular meeting of
the Board of Directors.
Section 11. Special Meetings, Notice. Special meetings of the
Board may be called at any time by the Chairman of the Board (if any),
the President, or by one-third of the directors (rounded up to the nearest
whole number). The place may be within or without the State of Delaware as
designated in the notice.
Written notice of each special meeting of the Board, stating the
place, day, and hour of the meeting shall be given to each director at least
two days before the date on which the meeting is to be held. The notice shall
be given (i) in the manner provided for in these By-laws or (ii) may be given
telephonically, if confirmed promptly in writing, in which case the notice
shall be deemed to have been given at the time of telephonic communication.
The notice may be given by any officer directed to do so by any officer having
authority to call the meeting or by the director(s) who have called the
meeting.
Neither the business to be transacted at nor the purpose need be
specified in the notice or any waiver of notice of any special meeting of the
Board of Directors.
Section 12. Action in Lieu of Meetings. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws or by law, any
action required to be taken at a meeting of the Board of Directors or any other
action which may be taken at a meeting of the Board of Directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all the directors entitled to vote with respect to the
subject matter thereof. Any such consent signed by all the directors shall have
the same effect as a unanimous vote and may be stated as such in any document
describing the action taken by the Board of Directors.
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Section 13. Meeting by Conference Telephone or Similar Communications
Equipment. Unless otherwise restricted by the Certificate of Incorporation or
these By-laws or by law, members of the Board of Directors of the corporation,
or any committee designated by such Board, may participate in a meeting of such
Board or committee by means of conference telephone or similar communications
equipment whereby all persons participating in the meeting can hear each other,
and participation in a meeting in such manner shall constitute presence in
person at such meeting.
Section 14. Quorum. At all meetings of the Board a majority of the
full Board of Directors shall, unless a greater number as to any particular
matter is required by the Certificate of Incorporation or these By-laws,
constitute a quorum for the transaction of business. The act of a majority of
the directors present at any meeting at which there is a quorum, except as may
be otherwise specifically provided by law, by the Certificate of Incorporation,
or by these By-laws, shall be the act of the Board of Directors. A director
who is in attendance at a meeting of the Board of Directors but who abstains
from voting on a matter shall not be deemed present at such meeting for
purposes of the preceding sentence with respect to such vote, but shall be
deemed present at such meeting for all other purposes. Withdrawal by a
director from any meeting at which a duly constituted quorum is present shall
not cause the failure of the quorum.
Less than a quorum may adjourn a meeting successively until a quorum
is present, and no notice of adjournment shall be required.
Section 15. Waiver of Notice; Attendance at Meeting. Any notice
provided or required to be given to the directors may be waived in writing
by any of them, whether before, at, or after the time stated therein.
Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting except where the director attends for the express
purpose, and so states at the opening of the meeting, of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 16. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the full Board, designate an executive
committee, such committee to consist of two or more directors of the
corporation. Such committee, except to the extent limited in said resolution,
shall have and may exercise all of the powers of the Board of Directors in the
management of the corporation. The members constituting the executive
committee shall be determined from time to time by resolution adopted by a
majority of the full Board; and any director may vote for himself as a member
of the executive committee. In no event, however, shall the executive
committee have any authority to amend the Certificate of Incorporation, to
adopt any plan of merger or consolidation with another corporation or
corporations, to recommend to the stockholders the sale, lease, exchange,
mortgage, pledge, or other disposition of all or substantially all of the
property and assets of the corporation if not made in the usual and regular
course of its business, to recommend to the stockholders a voluntary
dissolution of the corporation or a revocation thereof, to amend, alter or
repeal the By-laws of the corporation, to elect or remove officers of the
corporation or members of
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the executive committee, to fix the compensation of any member of the executive
committee, to declare any dividend, or to amend, alter or repeal any resolution
of the Board of Directors which by its terms provides that it shall not be
amended, altered or repealed by the executive committee.
The executive committee shall keep regular minutes of its proceedings
and the same shall be recorded in the minute book of the corporation. The
Secretary or an Assistant Secretary of the corporation may act as secretary for
the executive committee if the executive committee so requests.
Section 17. Other Committees. The Board of Directors may, by
resolution passed by a majority of the full Board, designate one or more
standing or ad hoc committees, each committee to consist of two or more of the
directors of the corporation and such other person(s) as may be appointed as
advisory members under authority provided in the resolution. Each such
committee, to the extent provided in the resolution and permitted by law, shall
have and may exercise the power of the Board of Directors. The members
constituting each such committee shall be determined from time to time by
resolution adopted by a majority of the full Board; and any director may vote
for himself as a member of any such committee.
Each such committee shall, to the extent required by resolution of the
Board of Directors (or, in the absence of any such resolution, to the extent a
majority of its members determines is appropriate) keep minutes of its
proceedings and the same shall be recorded in the minute book of the
corporation. The Secretary or Assistant Secretary of the corporation may act
as secretary for any such committee if the committee so requests.
Section 18. Compensation of Directors and Committee Members.
Directors and members of all committees shall receive such compensation for
their services as may be determined from time to time by resolution adopted
from time to time by the Board, as well as such expenses, if any, as may be
allowed pursuant to resolution adopted from time to time by the Board. No such
resolution shall be deemed voidable or invalid by reason of the personal or
pecuniary interest of the directors or any director in adopting it. Nothing
herein contained shall be construed to preclude any director or committee
member from serving the corporation in any other capacity and receiving
compensation therefor.
Section 19. Protection of Director for Reliance on Corporate Records.
No director shall be liable for dividends legally declared, distributions
legally made to stockholders, or any other action taken in reliance in good
faith upon financial statements of the corporation represented to him to be
correct by the Chairman of the Board (if any), the President or the officer of
the corporation having charge of the books of account, or certified by an
accountant to fairly represent the financial condition of the corporation; nor
shall any such director be liable for determining in good faith the amount
available for dividends or distributions by considering the assets to be of
their book values.
ARTICLE V
OFFICERS
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Section 1. Officers--Who Shall Constitute. The officers of the
corporation shall be a President, one or more Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries, and one or more Assistant
Treasurers. The Board shall elect or appoint a Chairman of the Board,
President and Secretary at its first meeting and at each annual meeting of the
Board of Directors which shall follow the annual meeting of the stockholders.
The Board then, or from time to time, may also elect or appoint one or more of
the other prescribed officers as it shall deem advisable, but need not elect or
appoint any officers other than a President and a Secretary. The Board may, if
it desires, further identify or describe any one or more of such officers.
An officer need not be a stockholder unless required by law or the
Certificate of Incorporation. Any two or more of such offices may be held by
the same person.
An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the Board; but the Board may also require of such person his
written acceptance and promise faithfully to discharge the duties of such
office.
Section 2. Term of Office. Each officer of the corporation shall
hold his office for the term for which he was elected, or until he resigns or
is removed by the Board, whichever first occurs.
Section 3. Appointment of Officers and Agents--Terms of Office.
The Board from time to time may also appoint such other officers and agents for
the corporation as it shall deem necessary or advisable. All appointed
officers and agents shall hold their respective positions at the pleasure of
the Board or for such terms as the Board may specify, and they shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board, or by an elected officer empowered by the Board to make such
determination.
Section 4. Removal. Any officer or agent elected or appointed by the
Board of Directors, and any employee, may be removed or discharged by the Board
whenever in its judgment the best interests of the corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 5. Salaries and Compensation. Salaries and compensation of
all elected officers of the corporation shall be fixed, increased or decreased
by the Board of Directors, but this power may, unless prohibited by law, be
delegated by the Board to the Chairman of the Board (if any) or to the
President (except as to their own compensation), or to a committee. Salaries
and compensation of all other appointed officers and agents, and employees of
the corporation, may be fixed, increased or decreased by the Board of Directors
or a committee thereof, but until action is taken with respect thereto by the
Board of Directors or a committee thereof, the same may be fixed, increased or
decreased by the Chairman of the Board (if any), the President, or by such
other officer or officers as may be empowered by the Board of Directors or a
committee thereof to do so.
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Section 6. Delegation of Authority to Hire, Discharge, Etc. The
Board, from time to time, may delegate to the Chairman of the Board (if any),
the President, or any other officer or executive employee of the corporation,
authority to hire, discharge, and fix and modify the duties, salary, or other
compensation of employees of the corporation under their jurisdiction; and the
Board may delegate to such officer or executive employee similar authority with
respect to obtaining and retaining for the corporation the services of
attorneys, accountants, and other experts.
Section 7. The President. The President shall be the chief
executive officer of the corporation. Except as otherwise provided for in
these By-laws, the President shall preside at all meetings of the stockholders
and Directors. The President shall have general and active management of the
business of the corporation and shall carry into effect all directions and
resolutions of the Board.
The President may execute all bonds, notes, debentures, mortgages and
other contracts requiring a seal to be affixed thereto, and all other
instruments for and in the name of the corporation.
The President, when authorized to do so by the Board, may execute
powers of attorney from, for, and in the name of the corporation, to such
proper person or persons as he may deem fit, in order that thereby the business
of the corporation may be furthered or action taken as may be deemed by him
necessary or advisable in furtherance of the interests of the corporation.
The President, except as may be otherwise directed by the Board, shall
be authorized to attend meetings of stockholders of other corporations to
represent this corporation thereat and to vote or take action with respect to
the shares of any such corporation owned by this corporation in such manner as
he shall deem to be for the interest of the corporation or as may be directed
by the Board.
The President shall, unless the Board otherwise provides, be ex
officio a member of all standing committees. The President shall have such
general (and concurrent) executive powers and duties of supervision and
management as are usually vested in the office of the chief executive of a
corporation.
The President shall have such other or further duties and authority as
may be prescribed elsewhere in these By-laws or from time to time by the Board
of Directors, and the Board may from time to time divide the responsibilities,
duties, and authority between them to such extent as it may deem advisable.
Section 8. Vice Presidents. The Vice Presidents, in the order of
their seniority as determined by the Board, shall, in the absence, disability
or inability to act of the President, perform the duties and exercise the
powers of the President, and shall perform such other duties as the Board of
Directors shall from time to time prescribe.
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Section 9. The Secretary and Assistant Secretaries. The Secretary
shall attend all sessions of the Board and except as otherwise provided for
in these By-laws, all meetings of the stockholders, and shall record or cause
to be recorded all votes taken and the minutes of all proceedings in a minute
book of the corporation to be kept for that purpose. The Secretary shall
perform like duties for the executive and other standing committees when
requested by the Board or such committee to do so.
The Secretary shall have the principal responsibility to give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors, but this shall not lessen the authority of others to give such
notice as is authorized elsewhere in these By-laws.
The Secretary shall see that all books, records, lists and
information, or duplicates, required to be maintained at the registered office
or at some office of the corporation in Delaware, or elsewhere, are so
maintained.
The Secretary shall keep in safe custody the seal of the corporation,
and when duly authorized to do so, shall affix the same to any instrument
requiring it, and when so affixed, shall attest the same by his signature.
The Secretary shall perform such other duties and have such other
authority as may be prescribed elsewhere in these By-laws or from time to time
by the Board of Directors or the President, under whose direct supervision the
Secretary shall be.
The Secretary shall have the general duties, powers and
responsibilities of a Secretary of a corporation.
The Assistant Secretaries, in the order of their seniority, in the
absence, disability, or inability to act of the Secretary, shall perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Board may from time to time prescribe.
Section 10. The Treasurer and Assistant Treasurers. The Treasurer
shall have responsibility for the safekeeping of the funds and securities
of the corporation, and shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the corporation.
The Treasurer shall keep, or cause to be kept, all other books of account and
accounting records of the corporation, and shall deposit or cause to be
deposited all moneys and other valuable effects in the name and to the credit
of the corporation in such depositories as may be designated by the Board of
Directors.
The Treasurer shall disburse, or permit to be disbursed, the funds of
the corporation as may be ordered, or authorized generally, by the Board and
shall render to the chief executive officer of the corporation and the
directors, whenever they may require it, an account of all his transactions as
Treasurer and of those under his jurisdiction, and of the financial condition
of the corporation.
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The Treasurer shall perform such other duties and shall have such
other responsibility and authority as may be prescribed elsewhere in these
By-laws or from time to time by the Board of Directors.
The Treasurer shall have the general duties, powers and responsibility
of a Treasurer of a corporation, and shall be the chief financial and
accounting officer of the corporation.
If required by the Board, the Treasurer shall give the corporation a
bond in a sum and with one or more sureties satisfactory to the Board for the
faithful performance of the duties of his office, and for the restoration to
the corporation, in the case of his death, resignation, retirement, or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control which belong to the
corporation.
The Assistant Treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the Treasurer, perform the duties
and exercise the powers of the Treasurer, and shall perform such other duties
as the Board of Directors shall from time to time prescribe.
Section 11. Bond. At the option of the Board of Directors, any
officer may be required to give bond for the faithful performance of his
duties.
Section 12. Checks and Other Instruments. All checks, drafts, notes,
acceptances, bills of exchange and other negotiable and non-negotiable
instruments and obligations for the payment of money, and all contracts, deeds,
mortgages and all other papers and documents whatsoever, unless otherwise
provided for by these By-laws, shall be signed by such officer or officers or
such other person or persons and in such manner as the Board of Directors from
time to time shall designate. If no such designation is made, and unless and
until the Board otherwise provides, the Chairman of the Board (if any) or the
President and the Secretary, or the Chairman of the Board (if any) or the
President and the Treasurer, shall have power to sign all such instruments for,
and on behalf of and in the name of the corporation, which are executed or made
in the ordinary course of the corporation's business.
Section 13. Duties of Officers May be Delegated. If any officer of
the corporation shall be absent or unable to act, or for any other reason the
Board may deem sufficient, the Board may delegate, for the time being, some or
all of the functions, duties, powers and responsibilities of any officer to any
other officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the then sitting Board concurs
therein.
ARTICLE VI
SHARES OF STOCK
Section 1. Payment for Shares of Stock. The corporation shall
issue shares of stock which shall be deemed to be fully paid and nonassessable
stock; if (1) the entire amount of such consideration has been received by the
Corporation in the form of cash, services rendered, personal
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property, real property, leases of real property, or a combination thereof; or
(2) not less than the amount of the consideration determined to be capital
pursuant to law has been received by the corporation in such form and the
corporation has received a binding obligation of the subscription or purchase
price; provided, however, nothing contained herein shall prevent the Board of
Directors from issuing partly paid shares pursuant to applicable law.
Section 2. Certificates for Shares of Stock. The certificates for
shares of stock of the corporation shall be numbered, shall be in such form
as may be prescribed by the Board of Directors in conformity with law, and
shall be entered in the stock books of the corporation as they are issued, and
such entries shall show the name and address of the person, firm, partnership,
corporation or association to whom each certificate is issued. Each
certificate shall have printed, typed or written thereon the name of the
person, firm, partnership, corporation, or association to whom it is issued,
and number of shares represented thereby and shall be signed by the Chairman of
the Board (if any) or the President or a Vice President, and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation and sealed with the seal of the corporation, which seal may be
facsimile, engraved or printed. If the corporation has a registrar, a transfer
agent, or a transfer clerk who actually signs such certificates, the signature
of any of the other officers above mentioned may be facsimile, engraved, or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon any such certificate shall have ceased to be such officer
before such certificate is issued, such certificate may nevertheless be issued
by the corporation with the same effect as if such officer were an officer at
the date of its issue.
Section 3. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate for shares of stock of the corporation, upon due
proof of the registered owner thereof or his representative, by affidavit of
such loss or otherwise, the Chairman of the Board (if any) or the President and
Secretary may issue a duplicate certificate or replacement certificate in its
place, upon the corporation being fully indemnified therefor. Any such officer
may request the posting of an indemnity bond in favor of the corporation
whenever and to the extent that they deem appropriate as a precondition to the
issuance of any duplicate or replacement certificate.
Section 4. Transfers of Shares, Transfer Agent, Registrar. Transfers
of shares of stock shall be made on the stock record or transfer books of the
corporation only by the person named in the stock certificate, or by his
attorney lawfully constituted in writing, and upon surrender of the certificate
therefor. The stock record book and other transfer records shall be in the
possession of the Secretary (or other person appointed and empowered by the
Board to do so) or of a transfer agent or clerk for the corporation. The
corporation, by resolution of the Board, may from time to time appoint a
transfer agent, and, if desired, a registrar, under such arrangements and upon
such terms and conditions as the Board deems advisable; but until and unless
the Board appoints some other person, firm or corporation as its transfer agent
(and upon the revocation of any such appointment, thereafter until a new
appointment is similarly made) the Secretary of the corporation (or other
person appointed and empowered by the Board) shall be the transfer agent or
clerk of the corporation, without the necessity of any formal action of the
Board, and the Secretary or other person shall perform all of the duties
thereof.
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Section 5. Closing of Transfer Books, Record Date. The Board of
Directors shall have the power to close the stock transfer books of the
corporation for a period not exceeding sixty (60) nor less than ten (10) days
preceding the date of any meeting of the stockholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares shall go into effect; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the
Board of Directors may fix in advance a date not exceeding sixty (60) days nor
less than ten (10) days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of shares shall
go into effect, as a record date for the determination of the stockholders
entitled to notice of, and to vote at, the meeting or any adjournment thereof,
or entitled to receive payment of the dividends, or entitled to the allotment
of rights, or entitled to exercise the rights in respect of the change,
conversion, or exchange of shares. In such case, only the stockholders who are
stockholders of record on the date of closing of the transfer books or on the
record date so fixed shall be entitled to such notice of, and to vote at, the
meeting, and any adjournment thereof, or to receive payment of the dividend, or
to receive the allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the date of closing of the transfer books or the record date fixed as
aforesaid. If the Board of Directors does not close the transfer books or set
a record date for the determination of the stockholders entitled to notice of,
and to vote at, the meeting, and any adjournment of the meeting, the record
date shall be the date that is the day next preceding the day on which notice
is given; except that, if prior to the meeting written waivers of notice of the
meeting are signed and delivered to the corporation by all of the stockholders
of record at the time the meeting is convened, only the stockholders who are
stockholders of record at the time the meeting is convened shall be entitled to
vote at the meeting and at any adjournment of the meeting. If the Board of
Directors does not set a record date with respect to any dividend, allotment of
rights, or exercise of rights in respect of the change, conversion, or exchange
of shares, the record date for such purpose shall be the close of business on
the day on which the Board of Directors adopts the resolution relating thereto.
Section 6. Fractional Share Interests or Scrip. The corporation
may issue fractions of a share and it may issue a certificate for a
fractional share, or by action of the Board of Directors, the corporation may
issue in lieu thereof scrip or other evidence of ownership which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip or other evidence of ownership aggregating a full share. A certificate
for a fractional share shall (but scrip or other evidence of ownership shall
not, unless otherwise provided by resolution of the Board of Directors) entitle
the holder to all of the rights of a stockholder, including without limitation
the right to exercise any voting right, or to receive dividends thereon or to
participate in any of the assets of the corporation in the event of
liquidation. The Board of Directors may cause such scrip or evidence of
ownership (other than a certificate for a fractional share) to be issued
subject to the condition that it shall become void if not exchanged for share
certificates before a specified date, or subject to the condition that the
shares for which such scrip or evidence of ownership is exchangeable may be
sold by the corporation and the proceeds thereof distributed to the holders of
such scrip or evidence of ownership, or subject to any other condition which
the Board of Directors may deem advisable.
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ARTICLE VII
INDEMNIFICATION
Section 1. Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses, including attorney fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Actions By or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director or officer of the corporation, or is
or was serving at the request of the corporation, as a director or officer of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses, including attorneys' fees and amounts paid in settlement,
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application
that, despite the adjudication of liability and in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Indemnity if Successful. To the extent that a director,
officer, employee, or agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred to
in Sections 1 and 2 of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the action,
suit, or proceeding.
Section 4. Standard of Conduct. Any indemnification under Sections 1
and 2 of this Article (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case
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upon a determination that indemnification of the director or officer is proper
in the circumstances because he has met the applicable standard of conduct set
forth in this Article. The determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders by majority vote of the shares eligible to vote for directors and
actually voted, where shares held by the individual about whom such
indemnification is at issue shall not be eligible to vote.
Section 5. Expenses. Expenses (including attorneys' fees) incurred
in defending a civil or criminal action, suit, or proceeding may be paid by the
corporation in advance of the final disposition of the action, suit, or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, which the Board of Directors deems
appropriate.
Section 6. Nonexclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Certificate of Incorporation,
these By-laws, or any agreement, vote of the stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, personal representatives, and administrators of such a
person.
Section 7. Further Indemnity Permissible. The corporation shall have
the power to give further indemnity, in addition to the indemnity authorized or
contemplated under the various sections of this Article, including Section 6
thereof, to any person who is or was a director, officer, employee, or agent,
or to any person who is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, provided such further indemnity is
either (i) authorized, directed, or provided for in the Certificate of
Incorporation of the corporation or a duly adopted amendment thereof or (ii)
authorized, directed, or provided for in these By-laws or in any agreement of
the corporation which has been adopted by the stockholders of the corporation,
and provided further that no such indemnity shall indemnify any person from or
on account of such person's conduct which has been finally adjudged to have
been knowingly fraudulent, deliberately dishonest, or willful misconduct.
Nothing in this Section 7 shall be deemed to limit the power of the corporation
under Section 6 of this Article to enact By-laws or to enter into agreements
without stockholder adoption of the same.
Section 8. Insurance. The corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another
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corporation, partnership, joint venture, trust, or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article.
Section 9. Corporation. For the purpose of this Article,
references to "the corporation" include all constituent corporations absorbed
in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director or officer of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director or officer of another corporation, partnership, joint
venture, trust, or other enterprise shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
Section 10. Other Definitions. For purposes of this Article, the
term "other enterprise" shall include without limitation employee benefit
plans; the term "fines" shall include without limitation any excise taxes
assessed on a person with respect to an employee benefit plan; and the term
"serving at the request of the corporation" shall include without limitation
any service as a director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article.
Section 11. Indemnity for Agents and Employees. The corporation
may, by resolution duly adopted by a majority of the disinterested members
of the Board of Directors, grant such indemnity rights and reimbursement for
such expenses as it determines to be appropriate to any person who was or is a
party to any threatened, pending, or completed action or suit, whether civil,
criminal, administrative, or investigative, including any action by or in the
right of the corporation, by reason of the fact that such person is or was an
agent or employee of the corporation, or is or was serving as an agent or
employee, at the request of the corporation, of another corporation,
partnership, joint venture, trust, or other enterprise. Any such grant of
indemnification shall be only to the extent so provided in the resolution
granting indemnification, but shall, in no event, be greater than the rights of
indemnification and reimbursement of expenses granted to directors and officers
of this corporation.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Fixing of Capital, Transfers of Surplus. Except as may be
specifically otherwise provided in the Certificate of Incorporation, the Board
of Directors is expressly empowered to exercise all authority conferred upon it
or the corporation by any law or statute, and in conformity therewith, relative
to:
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The determination of what part of the consideration received
for shares of the corporation shall be capital;
Increasing capital;
Transferring surplus to capital;
The consideration to be received by the corporation for its
shares; and
All similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
stockholders required to be taken or given pursuant to law shall be duly taken
or given in connection therewith.
Section 2. Dividends. Ordinary dividends upon the shares of the
corporation, subject to the provisions of the Certificate of Incorporation and
applicable law, may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in property, or in shares of
its stock.
Liquidating dividends or dividends representing a distribution of
paid-in surplus or a return of capital shall be made only when and in the
manner permitted by law.
Section 3. Creation of Reserves. Before the payment of any
dividend, there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their reasonable discretion, think proper as a reserve fund or funds, to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purposes as the Board of
Directors shall determine in the best interests of the corporation, and the
Board may abolish any such reserve in the manner in which it was created.
Section 4. Fiscal Year. The Board of Directors shall have the
paramount power to fix, and from time to time, to change, the fiscal year of
the corporation. In the absence of action by the Board of Directors,
however, the fiscal year of the corporation shall be determined and signified
by the filing of the Corporation's first federal income tax return, and shall
so continue until such time, if any, as the fiscal year shall be changed by the
Board of Directors.
Section 5. Notices. Except as otherwise specifically provided herein
with respect to notice to stockholders or otherwise, or as otherwise required
by law, all notices required to be given by any provision of these By-laws
shall be in writing and shall be deemed to have been given: (i) when received
if delivered in person; (ii) on the date of acknowledgment or confirmation of
receipt if sent by telex, facsimile, or other electronic transmission; (iii)
one day after delivery, properly addressed and fees prepaid, to a reputable
courier for same day or overnight delivery; or (iv) two days after being
deposited, properly addressed and postage prepaid, in the United States mail.
By-Laws of Intensiva HealthCare Corporation Page 24
<PAGE> 26
Section 6. Amendments to By-laws.
(a) Amendment by Directors. Except as provided otherwise by law,
these By-laws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or
repealed at any Annual Meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of the
majority of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class.
By-Laws of Intensiva HealthCare Corporation Page 25
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT ("AGREEMENT") made
as of the date last below written, by and among Transitional Care of America,
Inc., a Delaware corporation (the "COMPANY"), those persons whose names are set
forth on Schedule I hereto (hereinafter sometimes referred to collectively as
the "FOUNDERS" and singularly as a "FOUNDER") and those persons whose names are
set forth on Schedule II hereto (hereinafter sometimes referred to collectively
as the "INVESTORS" and singularly as an "INVESTOR") (the Investors and the
Founders being sometimes referred to herein collectively as the "PARTIES" and
singularly as a "PARTY").
WHEREAS, the Founders are the holders of an aggregate of 242,200
shares of common stock, $0.001 par value, of the Company (the "COMMON STOCK");
WHEREAS, certain of the Investors acquired an aggregate of 630,000
shares of Series A Convertible Preferred Stock (the "SERIES A PREFERRED
SHARES")of the Company pursuant to the terms of a Series A Convertible
Preferred Stock Purchase Agreement dated as of December 30, 1994 between the
Company and certain of the Investors (the "SERIES A PURCHASE AGREEMENT"); and
WHEREAS, the Investors are acquiring an aggregate of 405,994 shares
of Series B Convertible Preferred Stock of the Company (the "SERIES B PREFERRED
SHARES" and collectively with the Series A Preferred Shares the "PREFERRED
SHARES") pursuant to the terms of a Series B Convertible Preferred Stock
Purchase Agreement dated the date hereof between the Company and the Investors
(the "SERIES B PURCHASE AGREEMENT"); and
WHEREAS, it is a condition to the obligations of the Investors under
the Series B Purchase Agreement that this Agreement be executed by the parties
hereto, and the parties are willing to execute this Agreement and to be bound
by the provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company and the Parties hereby agree with
each other as follows:
1. PROHIBITED TRANSFERS. None of the Founders shall sell,
assign, transfer, pledge, hypothecate, mortgage or dispose of, by gift or
otherwise, or in any way encumber, all or any part of the Founders Shares (as
hereinafter defined) owned by him or it except in compliance with the terms of
this Agreement and, in the case of David W. Cross ("CROSS") and John R. Lewis
("LEWIS"), a Stock Repurchase Agreement by and between the Company and each of
Cross and Lewis, dated December 30, 1994. For purposes of this Agreement, the
term "FOUNDERS SHARES" shall mean and include all shares of capital stock of
the Company, now owned or hereafter acquired by a Founder,
Amended and Restated Stockholders' Agreement Page 1
<PAGE> 2
provided however, with respect to Three Arch Partners, L.P. and Three Arch
Associates, L.P. it shall include only those shares of Common Stock acquired by
them as of December 30, 1994.
2. RIGHT OF FIRST REFUSAL. The Company shall, prior to any
issuance by the Company of any of its securities (other than debt securities
with no equity feature), offer to each Investor by written notice the right,
for a period of fifteen (15) days, to purchase for cash at an amount equal to
the price or other consideration and on the material terms for which such
securities are to be issued, a number of such securities so that, after giving
effect to such issuance (and the conversion, exercise and exchange into or for
(whether directly or indirectly) shares of Common Stock of all such securities
that are so convertible, exercisable or exchangeable), such Investor will
continue to maintain its same proportionate equity ownership in the Company as
of the date of such notice (treating each Investor, for the purpose of such
computation, as the holder of the number of shares of Common Stock which would
be issuable to such Investor on the date such offer is made, upon conversion,
exercise or exchange of other securities of the Company held by such Investor
into or for (whether directly or indirectly) shares of Common Stock and
assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the first refusal
rights of the Investors pursuant to this Section 2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule II, Section 2.04 to the Series B Purchase Agreement as being
outstanding on the Closing Date (as that term is defined in the Series B
Purchase Agreement), (D) solely in consideration for the acquisition (whether
by merger or otherwise) by the Company or any of its subsidiaries of all or
substantially all of the stock or assets of any other entity, (E) pursuant to a
firm commitment public offering, (F) pursuant to the exercise of options to
purchase Common Stock granted to directors, officers, employees or consultants
of the Company pursuant to a plan approved by a majority of the members of the
Board of Directors, not to exceed in the aggregate 142,800 shares (in each case
appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Common Stock) less the number of
shares (as so adjusted) issued pursuant to options outstanding on the Closing
Date and listed on Schedule II, Section 2.04 to the Series B Purchase Agreement
pursuant to clause (C) above (the shares exempted by this clause (F) being
hereinafter referred to as the "RESERVED EMPLOYEE SHARES"), (G) options,
warrants, convertible securities or other rights to purchase Common Stock
issued with the approval of a majority of the Board of Directors and the
approval of the Company's Chief Executive Officer in transactions with
directors, officers, employees, vendors, suppliers, customers, lessors or
consultants, the primary purpose of which is not to raise additional equity
capital for the Company, and (H) upon the exercise of any right which was not
itself in violation of the terms of this Section 2. The amount of securities
to be issued by the Company that each Investor is entitled to purchase under
this Section 2 shall be referred to as that Party's "PRO RATA PORTION." The
Company's written notice to the Investors shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. The Investors shall
Amended and Restated Stockholders' Agreement Page 2
<PAGE> 3
have a right of oversubscription such that if any Investor fails to accept the
offer as to its Pro Rata Portion, the other Investors shall, among them, have
the right to purchase up to the balance of the offered securities not so
purchased. Such right of oversubscription may be exercised by an Investor by
accepting the offer as to more than its Pro Rata Portion. If, as a result
thereof, such oversubscriptions exceed the total number of offered securities
available in respect of such oversubscription privilege, the oversubscribing
Investors shall be cut back with respect to their oversubscriptions on a pro
rata basis in accordance with their respective Pro Rata Portions or as they may
otherwise agree among themselves. Each Investor may accept the Company's offer
as to the full number of securities offered to all the Parties or any lesser
number, by written notice thereof given by it to the Company prior to the
expiration of the aforesaid fifteen (15) day period, in which event the
Company shall sell within thirty (30) days and such Party shall buy, upon the
terms specified, the number of securities agreed to be purchased by such
Investor. The Company shall be free at any time prior to ninety (90) days
after the date of its notice of offer to the Investors, to offer and sell to
any third party or parties the number of such securities not agreed by the
Investors to be purchased by them, at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Investors. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying
with this Section 2. In the event that any securities are offered to the
Investors pursuant to this Section 2 and the per share offering price is $10.00
or less (subject to adjustment for stock splits, stock dividends, combinations
of shares, recapitalizations and the like), then the Founders shall have the
right to participate on a pro-rata converted basis along with the Investors
with respect to such offering on the same terms and conditions as the
Investors.
3. RIGHT OF FIRST OFFER ON DISPOSITIONS.
(a) If at any time any Founder desires to sell all or any
part of his or its Founder Shares such Founder (the "OFFEROR") shall submit a
written offer (the "OFFER") to sell such Founders Shares (the "OFFERED SHARES")
to the Company. The Offer shall disclose the Offered Shares proposed to be
sold, the total number of Founders Shares owned by the Offeror, the terms and
conditions, including price, of the proposed sale, and any other material facts
relating to the proposed sale. The Offer shall further state that the Company
may acquire, in accordance with the provisions of this Agreement, all of the
Offered Shares for the price and upon the other terms and conditions, including
deferred payment (if applicable), set forth therein.
(b) The Company shall have the absolute right to purchase
all but not less than all of the Offered Shares. If the Company elects to
exercise its right of purchase, the Company shall give notice of such exercise
to the Offeror no later than fifteen (15) days after receipt of the Offer.
(c) Sales of the Offered Shares to be sold to the Company
pursuant to this Section 3 shall be made at the offices of the Company, unless
otherwise arranged by the respective parties,
Amended and Restated Stockholders' Agreement Page 3
<PAGE> 4
on the 30th day following the date the Offer is made (or if such 30th day is
not a business day, then on the next succeeding business day). Such sales
shall be effected by the selling Founder's delivery to the Company of a
certificate or certificates evidencing the Offered Shares to be purchased by
the Company, duly endorsed for transfer to the Company, against payment to the
selling Founder of the purchase price therefor.
(D) If the Company does not communicate its desire to
purchase all of the Offered Shares, within fifteen (15) days of the date of the
Initial Notice, the Offered Shares may be sold by the selling Founder at any
time within 180 days after the date the Offer is made, subject to the
provisions of paragraph (e) of this Section 3 and of Section 5. Any such sale
shall be to any one or more of the Proposed Offerees (as defined below), at not
less than ninety percent (90%) of the price and upon other terms and
conditions, if any, not more favorable to the Proposed Offerees than those
specified in the Offer. Any such Offered Shares not sold within such 180-day
period shall continue to be subject to the requirements of a prior offer
pursuant to this Section 3.
(E) The Offeror must give written notice to the Company
of the identities of the proposed purchaser(s) ("Proposed Offerees") of the
Offered Shares. The Company may withhold its consent to the sale of the
Offered Shares to the Proposed Offeree(s) within five (5) business days after
receipt of Offeror's notice respecting such Proposed Offerees, provided that
the Board of Directors of the Company, in good faith, articulates reasons why
the proposed sale of any or all of the Offered Shares to the Proposed Offerees
would materially adversely affect the Company. Any such withholding of consent
shall be based upon written documentation, which documentation shall be
furnished to the Offeror concurrently with the Company's notice of withholding
consent. If the Company does not withhold its consent to the sale of the
Offered Shares to the Proposed Offeree(s) within said five (5) business days,
the Offeror may sell the Offered Shares to the Proposed Offerees pursuant to
the terms and conditions of Section (d) of this Section 3.
4. LIMITED WAIVER OF PRE-EMPTIVE RIGHTS. Each of the Parties
waives any pre-emptive rights such Party may have to purchase any additional
equity securities arising out of or in connection with the issuance of the
405,994 shares of Series B Convertible Preferred Stock to the Investors
pursuant to the Series B Purchase Agreement. Said waiver is limited to the
issuance of the aforementioned shares.
5. PERMITTED TRANSFERS. Anything herein to the contrary
notwithstanding, the provisions of Sections 1 and 3 shall not apply to: (i) any
transfer of Founders Shares by a Founder by gift or bequest or through
inheritance to, or for the benefit of, any member or members of such Founder's
immediate family; (ii) any transfer of Founders Shares by a Founder to a trust
in respect of which such Founder serves as trustee, provided that the trust
instrument governing said trust shall provide that such Founder, as trustee,
shall retain sole and exclusive control over the voting and disposition of said
Founders Shares until the termination of this Agreement; (iii) any sale or
transfer of Founders Shares to the Company; (iv) any sale of Founders Shares
pursuant to the Company's initial underwritten
Amended and Restated Stockholders' Agreement Page 4
<PAGE> 5
public offering; and (v) any sale or transfer of Founders Shares by a Founder
to an affiliate, partner or shareholder of such Founder. In the event of any
such transfer, other than pursuant to clauses (iii) or (iv) of this Section 5,
or a transfer pursuant to clause (v) of this Section 5 where such affiliate,
partner, or shareholder acquires less than twenty-five percent (25%) of such
Founder's total number of Founders Shares, the transferee of the Founders
Shares shall hold the Founders Shares so acquired with all the rights conferred
by, and subject to all the restrictions imposed by, this Agreement and shall be
deemed a Founder for all purposes hereof.
6. ELECTION OF DIRECTORS. Each Party agrees to vote all of his
or its shares (including all shares of capital stock of the Company, whether
now owned or hereafter acquired and whether or not owned by a Party, (the
"SHARES")) at all elections of directors of the Company so that the Board of
Directors of the Company shall consist of seven members. Pursuant to the
foregoing, each Party agrees to vote his or its Shares to cause and maintain
the election to the Board of Directors of the Company of three persons
designated by the Founders, and three persons designated by the Investors. On
the date hereof, the three persons designated by the Founders shall be David W.
Cross, David L. Steffy and James M. Usdan, and the three persons initially
designated by the Investors shall be Jeffrey J. Collinson, Wilfred E. Jaeger
and James B. Tananbaum, and there shall be one vacancy to be designated by the
Investors. So long as David W. Cross is the President of the Company, he shall
be one of the three persons designated by the Founders to sit on the Board of
Directors. Each Party further agrees to vote his or its Shares to remove any
director whose removal is requested by the Parties who designated the election
of such director. Any action required to be taken by the Founders under this
Section 6 shall be by vote of the Founders holding a majority of the shares
then held by all Founders. Any action required to be taken by the Investors
under this Section 6 shall be by vote of the Investors holding a majority of
the Shares then held by all Investors.
7. FINANCIAL STATEMENTS, REPORTS, ETC.. The Company shall
furnish to each Investor:
(A) within one hundred twenty (120) days after the end of
each fiscal year of the Company a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity, and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company, or, if the Company shall then be subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "34 ACT"), a copy of
the Form 10-K as such is filed with the Commission;
(B) within forty-five (45) days after the end of each
fiscal quarter in each fiscal year (other than the last fiscal quarter in each
fiscal year) a consolidated balance sheet of the Company and its subsidiaries,
if any, and the related consolidated statements of income, stockholders'
equity, and cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial Officer of
the Company, such consolidated balance sheet to be as of
Amended and Restated Stockholders' Agreement Page 5
<PAGE> 6
the end of such fiscal quarter and such consolidated statements of income,
stockholders' equity, and cash flows to be for such fiscal quarter and for the
period from the beginning of the fiscal year to the end of such fiscal quarter,
in each case with comparative statements for the corresponding period in the
prior fiscal year, or, if the Company shall then be subject to the reporting
requirements of the 34 Act, a copy of the Form 10-Q as such is filed with the
Commission;
(C) within thirty (30) days after the end of each month
in each fiscal year (other than the last month in each fiscal year) a
consolidated balance sheet of the Company and its subsidiaries, if any, and the
related consolidated statements of income, stockholders' equity, and cash
flows, unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such month and such
consolidated statements of income, stockholders' equity, and cash flows to be
for such month and for the period from the beginning of the fiscal year to the
end of such month, in each case with comparative statements for the prior
fiscal year, provided that the Company's obligations under this Section 7(c)
shall terminate upon the earlier of: (i) a firm commitment underwritten public
offering of shares of Common Stock of the Company in which the aggregate price
paid for such shares is equal to or greater than $10,000,000 at a per share
price of at least $82.76 or (ii) the Company becoming subject to the periodic
reporting requirements of the Exchange Act.
(D) at the time of delivery of each annual financial
statement pursuant to Section 7(a), a certificate executed by the Chief
Financial Officer of the Company stating that such officer has caused this
Agreement and the terms of the Preferred Shares to be reviewed and has no
knowledge of any default by the Company in the performance or observance of any
of the provisions of this Agreement or the Preferred Shares or, if such officer
has such knowledge, specifying such default and the nature thereof;
(E) at the time of delivery of each monthly statement
pursuant to Section 7(c), a management narrative report explaining all
significant variances from forecasts and all significant current developments
in staffing, marketing, sales and operations;
(F) in draft form within thirty (30) days prior to the
start of each fiscal year, and in final form as soon as is practicable before
the start of the fiscal year but in no event later than thirty (30) days after
the start of each fiscal year, consolidated capital and operating expense
budgets,cash flow projections, and income and loss projections for the Company
and its subsidiaries in respect of such fiscal year, all itemized in reasonable
detail and prepared on a monthly basis, and, promptly after preparation, any
material revisions to any of the foregoing;
(G) promptly following receipt by the Company, each audit
response letter, accountant's management letter, and other written report
submitted to the Company by its
Amended and Restated Stockholders' Agreement Page 6
<PAGE> 7
independent public accountants in connection with an annual or interim audit of
the books of the Company or any of its subsidiaries;
(H) promptly after the commencement thereof, notice of
all actions, suits, claims, proceedings, investigations, and inquiries that
could materially adversely affect the Company or any of its subsidiaries;
(I) promptly upon sending, making available, or filing
the same, all press releases, reports and financial statements that the Company
sends or makes available to its stockholders or directors or files with the
Commission; and
(J) promptly, from time to time, such other information
regarding the business, prospects, financial conditions, operations, property,
or affairs of the Company and its subsidiaries as such Investor reasonably may
request.
Notwithstanding the foregoing, the Company shall be obligated to
provide the financial statements, reports, etc. described in this Section 7 to
a transferee of an Investor only if (i) there is transferred to such transferee
at least 100% of the total number of Preferred Shares originally issued
pursuant to the Purchase Agreement to the direct or indirect transferor of such
transferee, or (ii) such transferee is a partner, shareholder, or affiliate of
a party hereto; provided, however, that in the event the number of transferees
becomes excessive, as reasonably determined by the Company, the Company may
request that the transferees appoint a single representative to act on their
behalf and to receive all notices which any or all of them are entitled to
receive pursuant to this Agreement.
8. PROPERTIES, BUSINESS, INSURANCE. The Company shall maintain
and cause each of its subsidiaries, if any, to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect "key person" life insurance policies, payable to the
Company, on the lives of David W. Cross and John R. Lewis (so long as they
remain employees of the Company), each in the amount of $1,000,000. The
Company shall not cause or permit any assignment or change in beneficiary and
shall not borrow against any such policy. If requested by Investors holding at
least a majority of the outstanding Preferred Shares, the Company will add one
designee of such Investors as a notice party for each such policy and shall
request that the issuer of each policy provide such designee with ten (10)
days' notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
9. INSPECTION, CONSULTATION, AND ADVICE. The Company shall
permit and cause each of its subsidiaries, if any, to permit each Investor and
such persons as it may designate, at such Investor's expense, to visit and
inspect any of the properties of the Company and its subsidiaries,
Amended and Restated Stockholders' Agreement Page 7
<PAGE> 8
examine their books, discuss the affairs, finances, and accounts of the Company
and its subsidiaries with their officers, employees, and public accountants
(and the Company hereby authorizes said accountants to discuss with such
Investor and such designees such affairs, finances, and accounts), and consult
with and advise the management of the Company and its subsidiaries as to their
affairs, finances, and accounts, all at reasonable times and upon reasonable
notice; provided; however, that inspection and other rights conferred herein on
the Investor shall inure to the benefit of a transferee of Preferred Shares
only if (i) there is transferred to such transferee at least 100% of the total
number of Preferred Shares issued pursuant to the Purchase Agreement to the
direct or indirect transferor of such transferee or (ii) such transferee is a
partner, shareholder or affiliate of a party hereto; and further provided,
however, that in the event the number of transferees becomes excessive, as
reasonably determined by the Company, the Company may request that the
transferees appoint a single representative to act on their behalf and to
receive all notices which any or all of them are entitled to receive pursuant
to this Agreement.
10. RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company not
any of its subsidiaries, if any, shall become a party to any agreement which by
its terms restricts the Company's performance of the Series A Purchase
Agreement, the Series B Purchase Agreement, the Amended and Restated
Registration Rights Agreement, this Agreement, the Stock Repurchase Agreements
or the Charter.
11. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries, if any, shall enter
into any transaction with any director, officer, employee or holder of more
than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any of its subsidiaries, member of the family of any
such person, or any corporation, partnership, trust, or other entity in which
any such person, or member of the family of any such person, is a director,
officer, trustee, partner, or holder of more than 5% of the outstanding capital
stock thereof, except for transactions on customary terms related to such
person's employment.
12. EXPENSES OF DIRECTORS. The Company shall promptly reimburse
in full each director of the Company who is not an employee of the Company or a
representative of a shareholder of the Company for all of his reasonable
out-of-pocket expenses incurred in attending each meeting of the Board of
Directors of the Company or any Committee thereof. The Company shall not
reimburse any director who is a representative of the Investors for such
expense.
13. BOARD OF DIRECTORS MEETINGS. The Company shall use its best
efforts to ensure that meetings of its Board of Directors are held at least
four times each year and at least once each quarter.
14. COMPENSATION. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar
Amended and Restated Stockholders' Agreement Page 8
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maturity, and in similar businesses and shall not, in any event, exceed the
compensation levels presented in the Business Plan without the approval of a
majority of the Board of Directors.
15. BY-LAWS. The Company shall at all times cause its By-laws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) the Chairman of the Board of Directors, (ii) the President of the
Company, (iii) a majority of the directors, or (iv) the holders of a majority
of the issued and outstanding shares of the Company entitled to vote for the
election of directors shall have the right to call a meeting of the
stockholders, (b)(i) the Chairman of the Board of Directors, (ii) the
President of the Company, or (iii) one-third of the directors (rounded up to
the nearest whole number) shall have the right to call a meeting of the Board
of Directors, and (c) the number of directors fixed in accordance therewith
shall in no event conflict with any of the terms or provisions of the Charter.
The Company shall at all times maintain provisions in its By-laws and/or
Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
16. PERFORMANCE OF CONTRACTS. The Company shall not amend,
modify, terminate, waive, or otherwise alter, in whole or in part, any of the
Employee Nondisclosure Agreements or the employment agreements without the
approval of a majority of the Company's Board of Directors.
17. VESTING OF RESERVED EMPLOYEE SHARES. Except as set forth on
schedules to the Series A Purchase Agreement or the Series B Purchase
Agreement, the Company shall not grant to any of its employees options to
purchase shares of Common Stock pursuant to a stock option plan which will
become exercisable at a rate in excess of 20% per annum from the date of such
grant with the first vesting occurring after the first year of employment
(except in the case of merger, consolidation, sale of all (or substantially
all) of the assets of the Company, or other business combination involving the
sale or transfer of all (or substantially all) of the capital stock of the
Company in which the Company is not the surviving entity, or, if it is the
surviving entity, either (i) does not survive as an operating ongoing concern
in substantially the same line of business, or (ii) is controlled by persons or
entities previously unaffiliated with the Company, in which case such shares
may vest immediately), without the approval of a majority of the Company's
Board ofDirectors. The Company shall reserve a right of first refusal to
purchase any shares of Common Stock issued to a optionee under a stock option
plan if such person wishes to transfer any of such shares at any time before
the closing of an underwritten public offering under the Securities Act, with
respect to the Company's Common Stock.
18. EMPLOYEE NONDISCLOSURE AND DEVELOPMENTS AGREEMENTS. The
Company shall obtain, and shall use its best efforts to cause its subsidiaries
to obtain, appropriate employee nondisclosure agreements or equivalent
agreements from all future officers, key employees and other employees, who
will have access to confidential information of the Company or any of its
subsidiaries, upon their employment by the Company or any of its subsidiaries.
Amended and Restated Stockholders' Agreement Page 9
<PAGE> 10
19. PURCHASES, DISTRIBUTIONS AND DIVIDENDS. The Company shall
not, without the consent of the holders of at least a majority of the then
outstanding Preferred Shares, purchase or set aside any sums for the purchase
of, or pay any dividend or make any distribution on, any shares of stock other
than the Preferred Shares, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Company who acquired such shares directly from the Company, if each such
purchase is made pursuant to contractual rights held by the Company relating to
the termination of employment of such former employee and the purchase price
does not exceed the original issue price paid by such former employee to the
Company for such shares.
20. U.S. REAL PROPERTY INTEREST STATEMENT. Upon a written request
by any Investor, the Company shall provide such Investor with a written
statement informing the Investor whether such Investor's interest in the
Company constitutes a U.S. real property interest. The Company's determination
shall comply with the requirements of Treasury Regulation section 1.897-2(h)(1)
or any successor regulation, and the Company shall provide timely notice to the
Internal Revenue Service, in accordance with and to the extent required by
Treasury Regulation section 1.897-2(h)(2) or any successor regulation, that
such statement has been made. The Company's written statement to any Investor
shall be delivered to such Investor within ten (10) days of such Investor's
written request therefor. The Company's obligation to furnish a written
statement pursuant to this Section 20 shall continue notwithstanding the fact
that a class of the Company's stock may be regularly traded on an established
securities market.
21. TERMINATION. This Agreement, and the respective rights and
obligations of the Parties, shall terminate on the sooner of (a) the fourth
anniversary of the date of this Agreement, or (b) the closing of a firm
commitment underwritten public offering, pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale by the Company of Common Stock approved by the Company's Board of
Directors. In addition, the rights of a Party to purchase securities pursuant
to Section 2 shall terminate on the date such Party shall own less than 20% of
the shares of Common Stock owned by such Party on the date hereof (treating
such Party, for the purposes of such computation, as the holder of the number
of shares of Common Stock which would be issuable to such Party, upon the
conversion, exercise or exchange of securities that are convertible,
exercisable or exchangeable into or for (whether directly or indirectly) shares
of Common Stock and assuming the like conversion, exercise and exchange of all
such securities held by other persons).
22. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered, telecopied
or mailed by first class, registered or certified mail, postage prepaid, to
each Party at its respective address set forth on Schedules I and II hereof, or
to such other address as the addressee shall have furnished to the other
Parties hereto in the manner prescribed by this Section 22.
Amended and Restated Stockholders' Agreement Page 10
<PAGE> 11
23. SPECIFIC PERFORMANCE. The rights of the Parties under this
Agreement are unique and, accordingly, the Parties shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder by actions for specific performance to
the extent permitted by law.
24. LEGEND. The certificates representing the Shares subject to
this Agreement shall bear on their face a legend substantially as follows:
"The shares represented by this certificate are subject to all the
terms and conditions of a certain Amended and Restated Stockholders'
Agreement dated as of December 20, 1995, a copy of which the Company
will furnish to the holder of this certificate upon request and
without charge."
25. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the Parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter, including but not limited to the Stockholders
Agreement dated December 30, 1994 and upon execution hereof said Stockholders
Agreement dated December 30, 1994, shall be terminated and of no further force
or effect.
26. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of this
Agreement may be waived with the written consent of (a) Founders owning a
majority of the Founders Shares then owned by all Founders which waiver shall
bind all of the Founders and (b) Investors owning a majority of the Shares then
owned by all Investors which waiver shall bind all of the Investors. The
foregoing sentence shall not apply to Sections 2 and 3. Any waiver by any
Party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of that provision or of any
other provision hereof. Each of the Parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
any other Party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
27. AMENDMENTS. Except as otherwise expressly provided herein,
this Agreement may not be amended except by an instrument in writing executed
by (a) Founders owning a majority of the Founders Shares then owned by all
Founders which amendment shall bind all of the Founders and (b) Investors
owning a majority of the Shares then owned by all Investors.
28. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the Parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
Amended and Restated Stockholders' Agreement Page 11
<PAGE> 12
29. ADDITIONAL SHARES OF STOCK. The Company shall not issue any
equity securities or subscriptions, warrants, options, convertible securities
or other rights (contingent or otherwise) to purchase or otherwise acquire
equity securities to any person who is not a Party unless the person to whom
such equity securities or subscriptions, warrants, options, convertible
securities or other rights (contingent or otherwise) to purchase or otherwise
acquire equity securities are issued agrees, in a writing delivered
simultaneously with such issuance, to become bound by the transfer restrictions
and rights of first refusal to the Company similar to those set forth herein.
30. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance is
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
31. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in two or more counterparts, and by the parties hereto in separate
counterparts each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
A facsimile transmission of a signature hereto shall be deemed for all purposes
to be an original signature.
32. SECTION HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
33. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall
create an obligation on the Company or the Parties to continue any person's
employment with the Company.
34. PRIOR STOCKHOLDERS AGREEMENT TERMINATED. The Company and the
Founders previously entered into that certain Stockholders Agreement dated as
of September 22, 1994 (the"PRIOR STOCKHOLDERS AGREEMENT"). The Company and
Founders agree that as of the date hereof the Prior Stockholders Agreement is
terminated and that all rights and obligations arising thereunder are null and
void, and each of the Company and the Founders release all the other parties to
the Prior Stockholders Agreement from any and all claims, liabilities, and
obligations arising out of or in connection with the Prior Stockholders
Agreement.
35. LIABILITY. None of the Founders or Investors shall be
personally liable to any party for a breach by the Company of its obligations
hereunder.
36. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Missouri, without reference to conflicts of law principals.
Amended and Restated Stockholders' Agreement Page 12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have set their hand as of this
20th day of December, 1995.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
--------------------------------------
David W. Cross
FOUNDERS: David W. Cross
-----------------------------------------
David W. Cross
John R. Lewis
-----------------------------------------
John R. Lewis
David L. Steffy
-----------------------------------------
David L. Steffy
REHABCARE GROUP, INC.
By: James M. Usdan
--------------------------------------
Authorized Officer
THREE ARCH PARTNERS
By: Wilfred E. Jaeger
--------------------------------------
Wilfred E. Jaeger, M.D.,
General Partner
THREE ARCH ASSOCIATES, L.P.
By: Wilfred E. Jaeger
--------------------------------------
Wilfred E. Jaeger, M.D.,
General Partner
Amended and Restated Stockholders' Agreement Page 13
<PAGE> 14
INVESTORS: SIERRA VENTURES IV, L.P.
By: James B. Tananbaum
-------------------------------------
James B. Tananbaum, Venture Partner
SIERRA VENTURES IV INTERNATIONAL, L.P.
By: James B. Tananbaum
-------------------------------------
James B. Tananbaum, Venture Partner
WPG ENTERPRISE FUND II, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
Its General Partner
By: Ellen M. Feeney
-------------------------------------
Ellen M. Feeney, General Partner
WEISS, PECK & GREER VENTURE ASSOCIATES
III, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
Its General Partner
By: Ellen M. Feeney
-------------------------------------
Ellen M. Feeney, General Partner
LIFE SCIENCE ENTREPRENEUR FUND
By: Brian C. Cunningham
-------------------------------------
Brian C. Cunningham,
Administrative Partner
Amended and Restated Stockholders' Agreement Page 14
<PAGE> 15
SCHRODER VENTURES LIMITED PARTNERSHIP
By: SCHRODER VENTURE MANAGEMENT, L.P.
Its General Partner
By: SCHRODER VENTURE MANAGERS, INC.
Its General Partner
By: Peter Everson
-------------------------------------
Peter Everson, Director &
Vice President
SCHRODERS INCORPORATED
By: Jeffrey J. Collinson
-------------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
SCHRODER VENTURES U.S. TRUST
By: SCHRODER INTERNATIONAL TRUST
COMPANY LIMITED, Trustee
By: Peter Everson
-------------------------------------
Peter Everson, Director
THREE ARCH PARTNERS, L.P.
By: Wilfred E. Jaeger, M.D.
-------------------------------------
Wilfred E. Jaeger, M.D.
THREE ARCH ASSOCIATES, L.P.
By: Wilfred E. Jaeger, M.D.
-------------------------------------
Wilfred E. Jaeger, M.D.
Amended and Restated Stockholders' Agreement Page 15
<PAGE> 16
ALTA V LIMITED PARTNERSHIP
By: ALTA V MANAGEMENT PARTNERS, L.P.
By: Guy P. Nohra
--------------------------------------
General Partner
CUSTOMS HOUSE PARTNERS
By: J. DeLeage
--------------------------------------
MAYFIELD VIII
By: Wende S. Hutton
--------------------------------------
Wende S. Hutton, General Partner
MAYFIELD ASSOCIATES FUND II
By: Wende S. Hutton
--------------------------------------
Wende S. Hutton, General Partner
Amended and Restated Stockholders' Agreement Page 16
<PAGE> 17
SCHEDULE I
<TABLE>
<S> <C>
David L. Steffy Three Arch Partners, L.P.
Mountain Pacific Equities 2800 Sand Hill Road
6 Cypress Point Suite 270
New Port beach, California 92660 Menlo Park, California 94025
David W. Cross Three Arch Associates, L.P.
10 Lindworth Drive 2800 Sand Hill Road
St. Louis, Missouri 63124 Suite 270
Menlo Park, California 94025
John R. Lewis RehabCare Group, Inc.
342 Woodcliffe Place Drive 7733 Forsyth Boulevard
Chesterfield, Missouri 63005 17th Floor
St. Louis, Missouri 63105
</TABLE>
Amended and Restated Stockholders' Agreement Page 17
<PAGE> 18
SCHEDULE II
<TABLE>
<S> <C>
Alta V. Limited Partnership Schroder Ventures Limited
c/o Burr, Egan, Deleage & Co. Partnership
One Embarcadero Center c/o Collinson Howe Venture Partners, Inc.
Suite 4050 1055 Washington Boulevard
San Francisco, California 94111 Stamford, California 06901
Customs House Partners Schroder Ventures U.S. Trust
c/o Burr, Egan, Deleage & Co. c/o Collinson Howe Venture Partners, Inc.
One Embarcadero Center 1055 Washington Boulevard
Suite 4050 Stamford, California 06901
San Francisco, California 94111
Sierra Ventures IV, L.P. Schroders Incorporated
3000 Sand Hill Road c/o Collinson Howe Venture Partners, Inc.
Building Four, Suite 210 1055 Washington Boulevard
Menlo Park, California 94025 Stamford, California 06901
Sierra Ventures IV International, L.P. Three Arch Partners, L.P.
3000 Sand Hill Road 2800 Sand Hill Road
Building Four, Suite 210 Suite 270
Menlo Park, California 94025 Menlo Park, California 94025
Weiss, Peck & Greer Venture Three Arch Associates, L.P.
Associates III, L.P. 2800 Sand Hill Road
555 California Street Menlo Park, California 94025
Suite 4760
San Francisco, California 94104
WPG Enterprise Fund II, L.P. Mayfield VIII
555 California Street 2800 Sand Hill Road
Suite 4760 Menlo Park, California 94025
San Francisco, California 94104
Life Science Entrepreneur Fund Mayfield Associates Fund II
c/o Weiss, Peck & Greer Associates 2800 Sand Hill Road
III, L.P. Menlo Park, California 94025
555 California Street
Suite 4760
San Francisco, California 94104
</TABLE>
Amended and Restated Stockholders' Agreement Page 18
<PAGE> 1
EXHIBIT 4.3
TRANSITIONAL CARE OF AMERICA, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ("AGREEMENT")
dated as of December 20, 1995 is made and entered into by and among
TRANSITIONAL CARE OF AMERICA, INC., a Delaware corporation (the "COMPANY"),
DAVID W. CROSS, JOHN R. LEWIS, DAVID L. STEFFY, REHABCARE GROUP, INC., THREE
ARCH PARTNERS, L.P. and THREE ARCH ASSOCIATES, L.P. (said three individuals
and said entities referred to individually as "FOUNDER" and collectively as
"FOUNDERS"), and the persons set forth on Schedule B hereto (such persons
referred to individually as "INVESTOR" and collectively as "INVESTORS").
RECITALS
WHEREAS, in conjunction with the issuance of 630,000 shares of the
Company's Series A Convertible Preferred Stock pursuant to a Series A
Convertible Preferred Stock Purchase Agreement (the "Series A Agreement") dated
December 30, 1994, the Company, the Founders, and certain of the Investors
entered into a Registration Rights Agreement dated December 30, 1994; and
WHEREAS, on the 20th day of December, 1995, the Company and the Investors
entered into a Series B Convertible Preferred Stock Purchase Agreement (the
"Series B Agreement") whereby the Company will issue 405,994 shares of Series B
Convertible Preferred Stock; and
WHEREAS, as a condition precedent to the parties entering into the Series
B Agreement, the parties have required that this Amended and Restated
Registration Rights Agreement be executed and delivered by the Company, the
Founders and the Investors.
NOW, THEREFORE, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities
Act.
"Common Stock" shall mean the Common Stock, $0.001 par value,
of the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued or
issuable upon conversion of the Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be
in effect at the time.
Amended and Restated Registration Rights Agreement - Page 1
Transitional Care of America, Inc.
<PAGE> 2
"Founder" or "Founders" shall have the meaning set forth in the
first paragraph of this Agreement.
"Founders' Stock" shall mean all shares of Common Stock held by
the Founders, except such shares which have been (a) registered
under the Securities Act pursuant to an effective registration
statement filed thereunder and disposed of in accordance with the
registration statement covering them, (b) publicly sold pursuant to
Rule 144 under the Securities Act, or (c) acquired by any person or
entity which, by virtue of Section 13(a), is not entitled to the
benefits of and rights conferred by this Agreement.
"Preferred Shares" shall mean all shares of Series A and Series
B Convertible Preferred Stock, $0.001, par value of Company issued
to the Investors.
"Investors" shall mean the persons set forth on Schedule B
hereto.
"Registrable Stock" shall mean all shares of Restricted Stock
and all shares of Founders Stock (and all shares of Common Stock
issued by the Company in respect of such shares).
"Registration Expenses" shall have the meaning set forth in
Section 8 hereof.
"Restricted Stock" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the
Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration
statement covering them, (b) publicly sold pursuant to Rule 144
under the Securities Act, or (c) acquired by any person or entity
which, by virtue of Section 11(a), is not entitled to the benefits
of and rights conferred by this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be
in effect at the time.
"Selling Expenses" shall have the meaning set forth in Section
8 hereof.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred Shares,
Conversion Shares or Founders' Stock shall, except as otherwise provided in
this Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (the "ACT"), OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS
BEEN REGISTERED UNDER THE ACT OR SUCH STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
Amended and Restated Registration Rights Agreement - Page 2
Transitional Care of America, Inc.
<PAGE> 3
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Suelthaus & Walsh, P.C. shall
be satisfactory) the securities being sold thereby may be publicly sold without
registration under the Securities Act.
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of any
Registrable Stock (other than under the circumstances of described in Sections
4, 5 or 6 hereof) the holder thereof shall give written notice to the Company
of its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accomplished by an opinion of counsel reasonably satisfactory to the Company
(it being agreed that Suelthaus & Walsh, P.C. shall be satisfactory) to the
effect that the proposed transfer may be effected without registration under
the Securities Act, whereupon the holder of such stock shall be entitled to
transfer such stock in accordance with the terms of its notice; provided,
however, that no such opinion of counsel shall be required for a transfer to
one or more partners of the transferor (in the case of a transferor that is a
partnership) or to an affiliated corporation or partnership (in the case of a
transferor that is a corporation or partnership). Each certificate for
Registrable Stock transferred as above provided shall bear the legend set forth
in Section 2 hereof, except that such certificate shall not bear such legend if
(i) such transfer is in accordance with the provisions of Rule 144 (or any
other rule permitting public sale without registration under the Securities
Act) or (ii) the opinion of counsel referred to above is to the further effect
that the transferee and any subsequent transferee (other than an affiliate of
the Company) would be entitled to transfer such securities in a public sale
without registration under the Securities Act. The restrictions provided for
in this Section 3 shall not apply to securities which are not required to bear
the legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. REQUIRED REGISTRATION. (a) At any time after the earlier of (i) six
(6) months after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
and (ii) the third anniversary of the date of this Agreement, the holders of
Restricted Stock constituting at least forty percent (40%) of the total shares
of Restricted Stock then outstanding may request the Company to register under
the Securities Act all or any portion of the shares of Restricted Stock held by
such requesting holder or holders for sale in the manner specified in such
notice, provided that the minimum gross proceeds of such offering would be at
least $1,000,000. For purposes of this Section 4 and Section 5, 6, 11(a) and
11(d), the term "Restricted Stock" shall be deemed to include the number of
shares of Restricted Stock which would be issuable to a holder of Preferred
Shares upon conversion of all shares of Preferred Stock held by such holder at
such time, provided, however, that the only securities which the Company shall
be required to register pursuant to hereto shall be shares of Common Stock, and
provided, further, however, that, in any underwritten public offering
contemplated by this Section 4 or Sections 5 and 6, the holder of Preferred
Shares shall be entitled to sell such Preferred Shares to the Underwriters for
conversion and sale of the shares of Common Stock issued upon conversion
thereof. Notwithstanding anything to the contrary contained herein, no request
may be made under this Section 4 within one hundred eighty (180) days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted
Stock shall have been entitled to join pursuant to Sections 5 or 6 and in which
there shall have been effectively registered all shares of Restricted Stock as
to which registration shall have been requested.
Amended and Restated Registration Rights Agreement - Page 3
Transitional Care of America, Inc.
<PAGE> 4
(b) Following receipt of any notice under Section 4(a), the Company shall
immediately notify all holders of Restricted Stock from whom notice has not
been received and shall use its best efforts to register under the Securities
Act, for public sale in accordance with the method of disposition specified in
such notice from requesting holders, the number of shares of Restricted Stock
specified in such notice (and in all notices received by the Company from other
holders within thirty (30) days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be
sold in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed. The Company shall be obligated to register
Restricted Stock pursuant to this Section 4 on two occasions only, provided,
however, that such obligation shall be deemed satisfied only when a
registration statement covering all shares of Restricted Stock specified in
notices received as aforesaid, for sale in accordance with the method of
disposition specified by the requesting holders, shall have become effective
and, if such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto.
(c) The Founders shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, Founders' Stock to be sold
by the Founders for their own account, except as to the extent that, in the
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. In such event, the number of
shares of Founders' Stock to be registered on behalf of the Founders, if any,
shall be computed as set forth in Section 4(e) below. At the time the Company
shall give notice to the holders of Restricted Stock required by Section 4(b),
it shall also give the same notice to the Founders, whereupon the Founders
shall give written notice to the Company within thirty (30) days after receipt
of such notice if they propose to dispose of any shares of Founders' Stock held
by them pursuant to such registration, stating the number of shares of
Founders' Stock to be disposed of by such Founder or Founders.
(d) The Company shall also be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to
be sold by the Company for its own account, except as and to the extent that,
in the opinion of the managing underwriter (if such method of disposition shall
be an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. In such event, no shares of
Common Stock shall be registered on behalf of the Company, as set forth in
Section 4(e) below. Except for registration statements on Form S-4, S-8 or any
successor thereto, the Company will not file with the Commission any other
registration statement with respect to its Common Stock, whether for its own
account or that of other stockholders, from the date of receipt of a notice
from requesting holders pursuant to Section 4(a) until the completion of the
period of distribution of the registration contemplated thereby.
(e) Whenever a registration requested pursuant to this Section 4 is for an
underwritten public offering, only shares of Common Stock which are to be
included in the underwriting may be included in the registration.
Notwithstanding the provisions of Section 4(c) and 4(d), if the underwriter
determines that the marketing factors require a limitation of the total number
Amended and Restated Registration Rights Agreement - Page 4
Transitional Care of America, Inc.
<PAGE> 5
of shares of Common Stock to be underwritten, then the number of shares to be
included in the registration in the underwriting shall be allocated as follows:
Eighty-five percent (85%) among all holders who indicated to
the Company their decision to distribute any of their Restricted
Stock in accordance with the provisions of Sections 4(a) and 4(b)
hereof through such underwriting, in proportion, as nearly as
practicable, to the respective number of shares of Restricted Stock
owned by such holders at the time of filing the registration
statement. The remaining fifteen percent (15%) of shares of Common
Stock to be included shall be allocated among the holders of
Founders' Stock who have indicated to the Company their decision to
distribute any of the Founders' Stock in accordance with Section
4(b) hereof through such underwriting, in proportion, as nearly as
practicable, to the respective number of shares of Founders' Stock
owned by such holders at the time of filing the registration
statement.
No stock excluded from the underwriting by virtue of the underwriter's
marketing limitation shall be included in such registration. If any Founder
disapproves of any such underwriting, such person may elect to withdraw
therefrom by written notice to the holders of Restricted Stock and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration.
Notwithstanding the foregoing, in any case other than a firm commitment
underwritten initial public offering, the number of shares of Restricted Stock
shall not be reduced if any shares are to be included in such underwriting for
the account of any person other than the Company or requesting holders of
Restricted Stock and in no event may less than one-fourth (1/4th) of the total
number of shares of Common Stock to be included in such underwriting be made
available for shares of Restricted Stock. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 4 without thereby incurring any liability to holders of
Registrable Stock.
5. INCIDENTAL REGISTRATION. (a) If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or their respective successors or
another form not available for registering the Registrable Stock for sale to
the public), each such time it will give written notice to all holders of
outstanding Registrable Stock of its intention so to do. Upon the written
request of any such holder, received by the Company within thirty (30) days
after the giving of any such notice by the Company, to register any of its
Registrable Stock (which request shall state the intended method of disposition
thereof), the Company will use its best efforts to cause the Registrable Stock
as to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other
disposition by the holder (in accordance with its written request) of such
Registrable Stock so registered. In the event that any registration pursuant
to this Section 5 shall be, in whole or in part, an underwritten public
offering of Common Stock, the number of shares of Registrable Stock to be
included in such an underwriting may be reduced if and to the extent
Amended and Restated Registration Rights Agreement - Page 5
Transitional Care of America, Inc.
<PAGE> 6
that the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein, as provided for in Section 5(b).
(b) Whenever a proposed registration is for an underwritten public
offering pursuant to this Section 5, only shares which are to be included in
the underwriting may be included in the registration. Notwithstanding the
provisions of Section 5(a), if the underwriter determines that marketing
factors require a limitation of the total number of shares of Common Stock to
be underwritten or a limitation of the total number of shares of Registrable
Stock to be underwritten, then the number of shares of Registrable Stock to be
included in the registration in the underwriting shall be allocated as follows:
The Company shall be permitted to issue the maximum number of
shares recommended by the Underwriter. To the extent that the
Underwriter's limitation on shares to be included in the offering
permits additional shares to be offered, Founders' Stock and
Restricted Stock shall be allocated among the holders of Founders'
Stock and Restricted Stock who have indicated to the Company their
decision to distribute any of the Founders' Stock or Restricted
Stock through such underwriting, in proportion, as nearly as
practicable, to the respective number of shares of Founders' Stock
and Restricted Stock owned by such holders at the time of filing the
registration statement.
No stock excluded from the underwriting by virtue of the underwriter's
marketing limitation shall be included in such registration. If any holder of
Restricted Stock or Founders' Stock disapproves of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration.
6. REGISTRATION ON FORM S-3. If at any time (i) a holder or holders of at
least forty percent (40%) of the Preferred Shares or Restricted Stock request
that the Company file a registration statement on Form S-3 or any successor
thereto for a public offering of all or any portion of the shares of Restricted
Stock held by such requesting holder or holders, the reasonably anticipated
aggregate price to the public of which would exceed $1,000,000, and (ii) the
Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use its best efforts to register
under the Securities Act on Form S-3 or any successor thereto, for public sale
in accordance with the method of disposition specified in such notice, the
number of shares of restricted stock specified in such notice. Whenever the
Company is required by this Section 6 to use its best efforts to effect the
registration of Restricted Stock, each of the procedures and requirements of
Section 4 (including but not limited to the requirement that the Company notify
all holders of Restricted Stock from whom notice has not been received and all
Founders and provide them with the opportunity to participate in the offering)
shall apply to such registration, provided, however, that the requirements
contained in the first sentence of Section 4(a) shall not apply to any
registration on Form S-3 which may be requested and obtained under this Section
6. Notwithstanding anything to the contrary contained herein, no request may
be made under this Section 6 within one hundred eighty (180) days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted
Stock shall have been
Amended and Restated Registration Rights Agreement - Page 6
Transitional Care of America, Inc.
<PAGE> 7
entitled to join pursuant to Sections 4 or 5 in which there shall have been
effectively registered all shares of Restricted Stock as to which registration
shall have been requested.
7. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Registrable Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) Prepare and file with the Commission a registration statement (which,
in the case of an underwritten public offering pursuant to Section 4, shall be
on Form S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities and
use its best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby (determined
as hereinafter provided);
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the
period specified in Paragraph (a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Stock covered
by such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period;
(c) Furnish to each seller of Registrable Stock and to each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Registrable Stock covered by such registration statement;
(d) Use its best efforts to register or qualify the Registrable Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Registrable Stock, or in the case of an
underwritten public offering, the managing underwriter reasonably shall
request, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) Use its best efforts to list the Registrable Stock covered by such
registration statement with any securities exchange on which the Common Stock
of the Company is then listed;
(f) Immediately notify each seller of Registrable Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
include an untrue statement of a material fact required to be stated herein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) If the offering is underwritten and at the request of any seller of
Registrable Stock, use its best efforts to furnish on the date that Registrable
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the
Amended and Restated Registration Rights Agreement - Page 7
Transitional Care of America, Inc.
<PAGE> 8
Company for purposes of such registration, addressed to the underwriters and to
such seller, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form
in all material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial statements
contained therein) and (C) to such other effects as reasonably may be requested
by counsel for the underwriters or by such seller or its counsel and (ii) a
letter dated such date from the independent public accountants retained by the
Company, addressed to the underwriters and to such seller, stating that they
are independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five (5) business days prior
to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) Make available for inspection by each seller of Registrable Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Sections 4 and 5, but excluding Section 6, the period of
distribution of Registrable Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Registrable Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Registrable Stock covered thereby and one
hundred eighty (180) days after the effective date thereof.
In connection with each registration hereunder, the sellers of Registrable
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. EXPENSES. All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses
Amended and Restated Registration Rights Agreement - Page 8
Transitional Care of America, Inc.
<PAGE> 9
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fees and disbursements of one counsel for the sellers of
Registrable Stock (who shall be selected by the selling holders of Restricted
Stock), but excluding any Selling Expenses, are called "Registration Expenses."
All underwriting discounts and selling commissions applicable to the sale of
Registrable Stock are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with all registration statements under
Sections 4, 5 and 6.
Notwithstanding the foregoing, if a registration statement pursuant to
Sections 4 or 6 is withdrawn at the request of the stockholders requesting such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to such holders after
the date on which such registration was requested) and if such requesting
stockholders elect not to have such registration counted as a registration
requested under Section 4, the requesting stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of shares of Restricted Stock owned by them included in such
registration statement.
9. INDEMNIFICATION AND CONTRIBUTION. (a) To the extent permitted by law,
the Company will indemnify and hold harmless each holder of Registrable Stock
(a "Holder"), any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities Act, or the Exchange
Act or any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
Amended and Restated Registration Rights Agreement - Page 9
Transitional Care of America, Inc.
<PAGE> 10
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, or the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 9(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this Section 9(n) exceed the gross proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by that counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(d) If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
Amended and Restated Registration Rights Agreement - Page 10
Transitional Care of America, Inc.
<PAGE> 11
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
10. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock or the Preferred Stock as so changed.
11. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Stock to the public without registration, at all
times after ninety (90) days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have
become effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use it best effect to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) furnish to each holder of Registrable Stock forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Stock without
registration.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will
not violate any provision of the law, any order of any court or other agency of
government, the Certificate of Incorporation or By-Laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any of
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
Amended and Restated Registration Rights Agreement - Page 11
Transitional Care of America, Inc.
<PAGE> 12
13. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the Company and each of the Purchasers
(including without limitation transferees of any Preferred Shares or Restricted
Stock), whether so expressed or not, provided, however, that in the event the
number of transferees becomes excessive, as reasonably determined by the
Company, the Company may request that the transferees appoint a single
representative to act on their behalf and to receive all notices which any or
all of them are entitled to receive pursuant to this Agreement; and further
provided that registration rights conferred herein on the holders of Preferred
Shares or Restricted Stock shall only inure to the benefit of a transferee of
Preferred Shares or Restricted Stock if (i) there is transferred to such
transferee at least 25% of the sum of the total shares of Restricted Stock
originally issued pursuant to the Series A Agreement and Series B Agreement to
the direct or indirect transferor of such transferee or (ii) such transferee is
a partner, shareholder or affiliate of a party hereto. Successors, assignees
and transferees of Founders shall be bound by and entitled to benefit from this
Agreement only if such successor, assignee or transferee acquires shares of
Founders' Stock by (i) any transfer of Founders' Stock by a Founder by gift or
bequest or through inheritance to, or for the benefit of any member or members
of Founder's immediate family; (ii) any transfer of Founders' Stock by a
Founder to a trust in respect of which such Founder serves as trustee, provided
that the trust instrument governing said trust shall provide that such Founder,
as trustee, shall retain sole and exclusive control over the voting and
disposition of said Founders' Stock until the termination of this Agreement;
(iii) any sale or transfer of Founders' Stock to the Company; or (iv) any sale
or transfer of Founders' Stock by a Founder to an affiliate or partner of such
Founder.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed return receipt requested, postage
prepaid or telecopied in the case of non-U.S. residents addressed as follows:
If to the Company, a Founder or any Investor at the address of such party
as set forth on Schedule A or Schedule B to this Agreement;
If to any subsequent holder of Preferred Shares or Restricted Stock or
Founders' Stock to it at such address as may have been furnished to the Company
in writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (and in the case of a holder of Preferred
Shares, Restricted Stock or Founders' Stock,) or to the holders of Registrable
Stock (in the case of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Missouri.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and the holders of at
least a majority of the outstanding shares of Restricted Stock; provided,
however, that if and to the extent that any such amendment, modification of
waiver would disproportionately negatively affect or be
Amended and Restated Registration Rights Agreement - Page 12
Transitional Care of America, Inc.
<PAGE> 13
disproportionately detrimental to the interests or rights of the Founders, such
amendment, modification or waiver shall require the prior approval of a
majority of the holders of shares of Common Stock then held by the Founders.
Any amendment, modification or waiver by the holders of a majority of the
shares of Restricted Stock shall be effective with respect to all holders of
Restricted Stock. Any amendment, modification or waiver by a majority of the
holders of Common Stock then held by the Founders shall be effective with
respect to all Founders.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted Stock
and Founders' Stock under Section 4, 5 or 6 shall terminate on the earlier of:
(i) the seventh anniversary of the date of this Agreement or (ii) at such times
as the holders of Registrable Stock may sell such shares pursuant to Rule 144
without regard to Paragraph (k) thereof.
(g) Each holder of Registrable Stock who is a party to this Agreement
shall agree not to sell publicly any shares of Registrable Stock or other
shares of Common Stock (other than shares of Registrable Stock or other shares
of Common Stock being registered in such offering) without the consent of such
underwriters, until 180 days following the effective date of the registration
statement relating to the Company's initial underwritten public offering. All
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering and all executive officers and directors of the
Company shall also have agreed not to sell publicly their Common Stock under
the circumstances set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not
to exceed 90 days in any 24-month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed or if at the time of any request to
register Registrable Stock pursuant to Section 4 or Section 6 the Company is
engaged or has fixed plans to engage within 30 days of the time of the request
in a registered public offering as to which holders of Registrable Stock may
include Registrable Stock pursuant to Section 5.
(i) Each holder of Registrable Stock included in any registration shall
furnish to the Company such information regarding such holder and the
distribution proposed by such holder as the Company may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
(j) The Company shall not grant to any third party any registration rights
more favorable than any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect, without the consent
required by Section 13(d), and provided further, that no consent of the
Founders shall be required in such event notwithstanding Section 13(d) if such
registration rights are granted in connection with a bona fide financing of the
Company.
Amended and Restated Registration Rights Agreement - Page 13
Transitional Care of America, Inc.
<PAGE> 14
(k) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(l) This Agreement may be executed in two or more counterparts, and by the
parties hereto in separate counterparts each of which when so executed shall be
deemed an original and all of which taken together shall constitute one and the
same instrument. A facsimile transmission of a signature hereto shall be
deemed for all purposes to be an original signature.
(m) This Amended and Restated Registration Rights Agreement amends,
restates, and supersedes in its entirety the Registration Rights Agreement and
upon execution of this Amended and Restated Registration Rights Agreement, the
Registration Rights Agreement shall be terminated and of no further force or
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above-written.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By David W. Cross
-----------------------------------------
David W. Cross, President
FOUNDERS: David W. Cross
--------------------------------------------
David W. Cross
John R. Lewis
--------------------------------------------
John R. Lewis
David L. Steffy
--------------------------------------------
David L. Steffy
REHABCARE GROUP, INC.
By James M. Usdan
-----------------------------------------
Authorized Officer
THREE ARCH PARTNERS, L.P.
By Wilfred E. Jaeger
-----------------------------------------
Wilfred E. Jaeger, M.D., General Partner
Amended and Restated Registration Rights Agreement - Page 14
Transitional Care of America, Inc.
<PAGE> 15
THREE ARCH ASSOCIATES, L.P.
By Wilfred E. Jaeger
-----------------------------------------
Wilfred E. Jaeger, M.D., General Partner
INVESTORS: SIERRA VENTURES IV, L.P.
By James B. Tananbaum
-----------------------------------------
James B. Tananbaum, Venture Partner
SIERRA VENTURES IV INTERNATIONAL, L.P.
By James B. Tananbaum
-----------------------------------------
James B. Tananbaum, Venture Partner
WPG ENTERPRISE FUND II, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
Its General Partner
By Ellen M. Feeney
-----------------------------------------
Ellen M. Feeney, General Partner
WEISS, PECK & GREER VENTURE ASSOCIATES, III, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
Its General Partner
By Ellen M. Feeney,
-----------------------------------------
Ellen M. Feeney, General Partner
LIFE SCIENCE ENTREPRENEUR FUND
By Brian C. Cunningham
-----------------------------------------
Brian C. Cunningham, Administrative Partner
Amended and Restated Registration Rights Agreement - Page 15
Transitional Care of America, Inc.
<PAGE> 16
SCHRODER VENTURES LIMITED PARTNERSHIP
By: SCHRODER VENTURE MANAGEMENT, L.P.,
Its General Partner
By: SCHRODER VENTURE MANAGERS, INC.,
Its General Partner
By Peter Everson
-----------------------------------------
DIRECTOR & VICE-PRESIDENT
SCHRODERS INCORPORATED
By Jeffrey J. Collinson
-----------------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
SCHRODER VENTURES U.S. TRUST
By: SCHRODER INTERNATIONAL TRUST
COMPANY LIMITED, Trustee
By Peter Everson
-----------------------------------------
DIRECTOR
THREE ARCH PARTNERS, L.P.
By Wilfred E. Jaeger, M.D.
-----------------------------------------
Wilfred E. Jaeger, M.D.
THREE ARCH ASSOCIATES, L.P.
By Wilfred E. Jaeger, M.D.
-----------------------------------------
Wilfred E. Jaeger, M.D.
ALTA V LIMITED PARTNERSHIP
By: ALTA V MANAGEMENT PARTNERS, L.P.
By Guy P. Nohra
-----------------------------------------
Guy P. Nohra
General Partner
Amended and Restated Registration Rights Agreement - Page 16
Transitional Care of America, Inc.
<PAGE> 17
CUSTOMS HOUSE PARTNERS
By J. DeLeage
--------------------------------------------
GENERAL PARTNER
MAYFIELD VIII
By Wende S. Hutton
--------------------------------------------
Title General Partner
-----------------------------------------
MAYFIELD ASSOCIATES FUND II
By Wende S. Hutton
--------------------------------------------
Title General Partner
-----------------------------------------
Amended and Restated Registration Rights Agreement - Page 17
Transitional Care of America, Inc.
<PAGE> 18
SCHEDULE A
Transitional Care of America, Inc. Three Arch Partners, L.P.
7733 Forsyth Boulevard 2800 Sand Hill Road
Suite 1100 Suite 270
St. Louis, Missouri 63105 Menlo Park, California 94025
David L. Steffy Three Arch Associates, L.P.
Mountain Pacific Equities 2800 Sand Hill Road
6 Cypress Point Suite 270
Newport Beach, California 92660 Menlo Park, California 94025
David W. Cross John R. Lewis
10 Lindworth Drive 342 Woodcliffe Place Drive
St. Louis, Missouri 63124 Chesterfield, Missouri 63005
RehabCare Group, Inc.
7733 Forsyth Boulevard
17th Floor
St. Louis, Missouri 63105
Amended and Restated Registration Rights Agreement - Page 18
Transitional Care of America, Inc.
<PAGE> 19
SCHEDULE B
<TABLE>
<S> <C>
Alta V Limited Partnership Life Science Entrepreneur Fund
c/o Burr, Egan, Deleage & Co. c/o Weiss, Peck & Greer Venture
One Embarcadero Center Associates III, L.P.
Suite 4050 555 California Street, Suite 4760
San Francisco, California 94111 San Francisco, California 94104
Customs House Partners
c/o Burr, Egan, Deleage & Co. Schroder Ventures Limited Partnership
One Embarcadero Center c/o Collinson Howe Venture Partners, Inc.
Suite 4050 1055 Washington Boulevard
San Francisco, California 94111 Stamford, California 06901
Sierra Ventures IV, L.P. Schroder Ventures U.S. Trust
3000 Sand Hill Road c/o Collinson Howe Venture Partners, Inc.
Building Four, Suite 210 1055 Washington Boulevard
Menlo Park, California 94025 Stamford, California 06901
Sierra Ventures IV International, L.P. Schroders Incorporated
3000 Sand Hill Road c/o Collinson Howe Venture Partners, Inc.
Building Four, Suite 210 1055 Washington Boulevard
Menlo Park, California 94025 Stamford, California 06901
Weiss, Peck & Greer Venture
Associates III, L.P. Three Arch Partners, L.P.
555 California Street 2800 Sand Hill Road
Suite 4760 Suite 270
San Francisco, California 94104 Menlo Park, California 94025
WPG Enterprise Fund II, L.P. Three Arch Associates, L.P.
555 California Street 2800 Sand Hill Road
Suite 4760 Suite 270
San Francisco, California 94104 Menlo Park, California 94025
Mayfield Associates Fund II Mayfield VIII
2800 Sand Hill Road 2800 Sand Hill Road
Menlo Park, California 94025 Menlo Park, California 94025
</TABLE>
Amended and Restated Registration Rights Agreement - Page 19
Transitional Care of America, Inc.
<PAGE> 1
EXHIBIT 10.1
FORM OF LEASE AGREEMENT
THIS LEASE is made and entered into as of the _______ day of ____________,
19___, by and between ________________________________ ("Landlord"), and TCA OF
__________, INC., a Missouri corporation ("Tenant").
WITNESSETH, THAT:
WHEREAS, Landlord desires to lease to Tenant and Tenant desires to lease
from Landlord certain premises for the establishment and operation of a
long-term care hospital (the "Hospital"), subject to the terms and conditions
hereinafter set forth.
WHEREAS, Landlord owns that certain property described on Exhibit A, with
room for not less than thirty-six (36) licensed beds and space for related
support services and facilities as required for state licensure, which exhibit
is attached hereto and incorporated herein by this reference (the "Premises");
and
NOW, THEREFORE, in consideration of the rent and the conditions, covenants
and agreements contained herein, and for other good and valuable consideration,
the parties agree as follows:
1. PREMISES AND USE. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord upon and subject to the terms, provisions and conditions
of this Lease, the Premises. The Premises shall be used for the purpose of
operating a long-term care hospital and related facilities. In addition to the
property described on Exhibit A, Landlord shall provide (at no additional cost)
additional facilities as part of the Premises to accommodate six (6) offices,
one (1) conference room and related secretarial support area in buildings owned
by Landlord at Landlord's hospital campus (the term "Premises") shall include
such additional space.
2. TERM AND TERMINATION.
2.1. INITIAL TERM. This Lease shall be for a term of ______ years (the
"Initial Term") commencing on the date the Hospital becomes licensed and begins
accepting patients (the "Operational Date").
2.2. RENEWAL TERM. Tenant shall have the option to renew this Lease,
with Landlord's consent, for an additional ______ year term, commencing
on the date the Initial Term expires, such option to be exercised by written
notice to the Landlord six (6) months prior to the end of the Initial Term
("Renewal Term"). Landlord shall be deemed to have consented to such renewal
unless Landlord notifies Tenant that it does not so consent within thirty (30)
days after receipt of Tenant's notice to renew this Lease.
Lease Agreement Page 1
<PAGE> 2
2.3. TERMINATION. This Lease shall terminate upon expiration of the
Initial Term if Tenant does not give the notice to renew the Lease for
a Renewal Term as described in Section 2.2.
3. RENT. During the first six months of the Initial Term the Tenant shall
pay no rent and for the remainder of the Initial Term the Tenant shall pay rent
at the rate of $___________ per licensed bed per year (the "Rent"). The Rent
shall be payable in equal monthly installments, in arrears on the twentieth day
of the following month. After the first year, the Rent shall be increased each
year by a percentage amount equal to the lesser of (i) the percentage increase
in the Hospital Market Basket Index factor for the immediately preceding
calendar year for the metropolitan area that includes the Hospital, or (ii)
four percent (4%) (the "COST INCREASE FACTOR"). Additional Rent is provided
for in Section 4.12. hereof.
4. OBLIGATIONS OF TENANT.
4.1. COMPLIANCE WITH LAW. Tenant shall not use or permit the use of the
Premises or any part thereof for any purposes forbidden by law or ordinance now
in force or hereafter enacted in respect to the use of occupancy of the
Premises.
4.2. ACCESS. Tenant shall give access to Landlord or its
representatives, at all reasonable times to enter upon the Premises to examine
the condition thereof and make such repairs as may be required pursuant to this
Lease.
4.3. DILIGENCE. Tenant shall use reasonable diligence in the care and
protection of the Premises during the Initial Term and any Renewal Term of this
Lease.
4.4. CERTIFICATION AND ACCREDITATION. Tenant will actively pursue and
keep (i) accreditation of the Hospital by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") or an equivalent
organization reasonably acceptable to both parties (an "Equivalent
Organization"); (ii) certification as a long-term acute care hospital under the
Medicare program; and (iii) issuance of all necessary state licenses. Tenant
will pay all related application fees and associated costs in connection with
such accreditation, certification and state licensure. Tenant will perform all
of its obligations under this Agreement in accordance with applicable federal,
state and local laws and regulations. Tenant will perform all acts necessary to
maintain the Hospital as a long-term acute care hospital for purposes of
Medicare certification and state licensure. In the event that Tenant shall fail
to receive either state licensure or Medicare certification as a long-term care
hospital, then Tenant may terminate this Agreement without any liability on ten
(10) days written notice to Landlord. Additionally should Tenant ever lose such
licensure or certification under the Medicare program by reason of a change in
the laws or regulations applicable to long-term acute care hospitals, then
Tenant may immediately terminate this agreement without liability by written
notice to Landlord. In the event that Tenant should fail to obtain and maintain
accreditation by JCAHO or an Equivalent Organization, such failure shall be
deemed a material breach of this Lease if such failure is not cured within
ninety (90) days.
Lease Agreement Page 2
<PAGE> 3
4.5. NOTICE OF NECESSARY REPAIRS. Tenant shall, as soon as reasonably
practicable, notify Landlord of the necessity for any repairs or maintenance
known to Tenant.
4.6. PATIENT CARE. Tenant agrees to provide patient care to its
patients in accordance with the standard for long-term acute care hospitals in
the community in which the Hospital is located and consistent with the standard
of patient care provided by the Landlord.
4.7. EMPLOYMENT OF LANDLORD'S EMPLOYEES. During the Initial Term and any
Renewal Term of this Agreement, Tenant covenants not to solicit, attempt to
employ or employ any employee of Landlord or individual employed by Landlord
within the prior six (6) months without consent of Landlord, which consent
shall not be unreasonably withheld. However, at Landlord's request, Tenant
shall give Landlord notice of all staffing needs during the term of this
Agreement and shall interview all qualified candidates provided by Landlord for
needed staffing. All hiring decisions are solely within Tenant's discretion.
4.8. ALTERATIONS, IMPROVEMENTS OR ADDITIONS. Without the prior written
consent of the Landlord, which consent shall not be unreasonably withheld, the
Tenant shall not make, or permit anyone to make, any alterations, improvements
or additions in or to the Premises, or install any equipment of any kind that
will cause any alteration or addition to the water, heating, air conditioning or
electrical or other systems or equipment of the Facility.
4.9. TRADE FIXTURES. Subject to the Landlord's approval (which approval
should not be unreasonably withheld) Tenant may install such trade fixtures as
necessary in the conduct of its business provided that such trade fixtures do
not cause harm to the Premises either in their installation or removal. Tenant
may remove such trade fixtures upon the expiration or earlier termination of
this Lease if Tenant is able to remove such trade fixtures without causing
damage to the Premises; otherwise such trade fixtures shall become the property
of the Landlord.
4.10. SIGNAGE. The Tenant, at Tenant's sole cost and expense, may place
and maintain in and about the Premises, including on the exterior of the
building, in the Landlord's lobby areas and at elevators, neat and appropriate
signs clearly identifying the Tenant and its business therein as separate and
distinct from the business of the Landlord. Landlord shall have the right to
approve the placement, design and quantity of all such signs. With the prior
consent of Landlord, which consent shall not be unreasonably withheld, and
subject to the approval of any governmental authority having jurisdiction,
Tenant, at Tenant's cost and expense, may erect and maintain signage on or about
the Premises and appurtenant areas identifying the Tenant and its services.
Upon the expiration or earlier termination of this Lease, the Tenant shall
remove all signs and repair any damage to the Premises or appurtenant areas
caused by the erection, maintenance or removal of the signs. Any signs must be
consistent in design, size and construction with existing signs and buildings.
4.11. NON-COMPETITION COVENANT. Tenant, on behalf of itself and its
subsidiaries, covenants and agrees that, during the Initial Term and any
Renewal Term, it shall not, directly or indirectly, within a twenty (20) mile
radius of the Premises, own, manage, operate, control, participate in the
management or control of, or act as agent for, lend its name to or initiate or
Lease Agreement Page 3
<PAGE> 4
maintain or continue any interest whatsoever in a long-term care hospital
defined as hospitals or hospitals within hospitals formed and operated to be
exempt from the Medicare Prospective Payment System in accordance with the
Health Care Financing Administration provisions for long-term care hospitals,
as such provisions may be amended from time to time.
Tenant acknowledges that this non-competition covenant is essential to the
continued success of the Landlord and that the Landlord would sustain
irreparable harm and damage in the event that the Tenant violates the covenant
and that damages would not provide an adequate remedy to the Landlord. Tenant
further acknowledges that compliance with this non-competition covenant will
not constitute an unreasonable hardship or deprive it of the opportunity to
conduct its intended business.
4.12. LEASEHOLD IMPROVEMENTS. In addition to the amounts specified in
Section 3., Tenant shall pay to Landlord additional Rent in an amount up to the
first $_____________ of the cost of the leasehold improvements to the Premises
in accordance with the space plan as described in Exhibit B. Such additional
Rent shall be in addition to the amounts set forth in Article 3.
4.13. REAL PROPERTY TAXES. Tenant shall pay all real property taxes, if
any, assessed against the Premises. If Tenant is unable or refuses to pay any
such real property taxes assessed for a tax year, Tenant shall notify Landlord
within thirty (30) days of the due date of said real property taxes and
Landlord shall have the right but not the obligation to pay such real property
taxes and to add the amount of said real property taxes paid by Landlord
against future Rent to be paid to Landlord. Tenant shall have the right to
contest the assessment of such taxes and the assessed valuation, if any.
5. OBLIGATIONS OF LANDLORD.
5.1. LICENSED BEDS. Landlord will provide the space required to
operate not less than thirty-six (36) licensed beds and space for all
required related support services and facilities, which space shall comply with
all applicable federal, state and local laws.
5.2. LEASEHOLD IMPROVEMENTS. Landlord shall pay for the cost of all
leasehold improvements that exceed the $____________, provided, that if
Tenant, in its sole discretion, requests modifications to the specifications set
forth on Exhibit B, and such modifications increase the cost of the leasehold
improvements, then Tenant shall pay to the Landlord such additional cost as
additional Rent. In the event that any third party (i.e. a governmental or
regulatory entity), requires any changes to the specifications set forth on
Exhibit B, that increases the cost of the leasehold improvements then prior to
incurring any costs for leasehold improvements, Landlord and Tenant shall have
consented to share equally the increased costs or either party may terminate
this Lease without liability to the other party. Landlord shall be responsible
for coordinating and facilitating the completion of the leasehold improvements
to the Premises in accordance with the space plan as described in Exhibit B in
conformance with all applicable legal requirements to cause the Hospital to be
licensed as an acute care facility and certified as a long-term acute care
hospital under the Medicare program and in conformance with Tenant
specifications. Such improvements
Lease Agreement Page 4
<PAGE> 5
shall be completed at least two (2) weeks prior to the Operational Date which
date shall occur not later than July 1, 1996, unless otherwise agreed by
Landlord and Tenant.
5.3. SERVICES TO BE PROVIDED BY LANDLORD. Landlord shall provide or
arrange for the provision of the following to Tenant:
(a) HOUSEKEEPING AND JANITORIAL SERVICES. Landlord shall provide
all housekeeping and janitorial services necessary to ensure that the
Hospital is in good order and in compliance with all applicable federal and
state laws and regulations. These services shall include cleaning of needle
disposal systems and medical, biological and hazardous waste disposal.
(b) MAINTENANCE SERVICES. Landlord shall provide all maintenance
services necessary to ensure that the Premises and all the equipment located
therein (except equipment provided by Tenant) are in good working order
consistent with the normal and customary standard of maintenance in Landlord's
hospital and in compliance with all applicable federal, state and local laws and
regulations. Landlord shall keep the water pipes, sewer drains, heating and
cooling apparatus, elevator machinery and sprinkler system in good order and
make all repairs and alterations deemed necessary by Tenant at Landlord's cost
and expense and all repairs and alterations so made shall remain as a part of
the realty.
(c) SAFETY AND SECURITY SERVICES. Landlord shall provide all
safety and security services for the Hospital. Such services shall be
comparable to the safety and security services provided in the Landlord's
hospital.
(d) CENTRAL STERILE PROCESSING AND GENERAL STORES. Landlord shall
provide all central sterile processing services required by Tenant. In
addition, Landlord shall provide all non-purchasing-related general stores
functions, including, but not limited to, shipping, receiving, storage, and
distribution.
(e) LAUNDRY AND LINEN SERVICE. Landlord shall provide clean linens
and laundry services as necessary for the operation of the Hospital in
compliance with all applicable federal and state laws and regulations. Tenant
shall pay $_____ per hospital patient day for said linen and laundry services
during the first year of this Lease. Thereafter, said amount shall be increased
each year by a percentage equal to the Cost Increase Factor. Landlord shall
bill Tenant monthly for said services at the end of each month and Tenant will
pay said bill by the twentieth day of the following month.
(f) DIETARY SERVICES. Landlord shall provide all dietary and
nutritional services, including enterals, the provision of all food services
to Tenant's patients and a minimum of eight hours per month of dietary
consulting services. Tenant shall pay $_____ per hospital patient day for said
dietary and nutritional services during the first year of this Lease.
Thereafter, said amount shall be increased each year by a percentage equal to
the Cost Increase Factor. Landlord shall bill Tenant monthly for said services
at the end of each month and Tenant will pay said bill by the twentieth day of
the following month.
Lease Agreement Page 5
<PAGE> 6
(g) ADDITIONAL ANCILLARY SERVICES. To the extent expressly
permitted by law, in the event that Tenant determines to purchase any other
ancillary services from third party sources, Tenant shall negotiate first with
Landlord for the provision of such services. If Tenant and Landlord are unable
to reach a mutually acceptable agreement under which Landlord would provide the
services, then Tenant may purchase the services from a third party.
5.4. UTILITIES. Landlord shall be responsible for all costs for utility
services including all charges for gas, water and electricity used on the
Premises. If Landlord is unable or refuses to pay any such costs for
utilities, Landlord shall notify Tenant immediately and Tenant shall have the
right but not the obligation to pay such costs for utilities and to offset the
amount of any such costs so paid by Tenant against future Rent to be paid to
Landlord.
5.5. PERSONAL PROPERTY TO BE FURNISHED BY LANDLORD. Landlord shall
furnish patient rooms, nursing units, galley areas, staff offices,
conference rooms and other areas with appropriate furniture and equipment
(including provision of patient addressograph cards and patient identification
bands but excluding computers) and shall also provide the medical equipment
listed on Exhibit C. Each patient room shall contain a standard hospital bed and
a night stand and overbed table for each licensed bed, a nurse call system,
needle disposal system, medical gas and oxygen service, telephone, wardrobe,
television, and a blood pressure wall mount for each patient bed. Each nursing
unit shall include a refrigerator, pantry, microwave oven, chart rack, ice
machine and examination table.
5.6. INSURANCE REQUIREMENTS. During the Initial Term and any Renewal
Term of this Lease, Landlord shall maintain with an insurance carrier
at its sole cost and expense, professional liability insurance, personal
property insurance for personal property belonging to Landlord on the Premises,
and public liability, fire and casualty insurance for the Premises, naming
Tenant as an additional insured. Landlord shall provide to Tenant certificates
of insurance for the required coverage, which shall provide that Tenant receive
at least thirty (30) days prior written notification in the event of
cancellation, amendment or expiration of said insurance. If Landlord shall fail
to obtain any of the required insurance, or any renewal thereof, or to deliver
the certificate of the same to Tenant, Tenant shall have the right without
relieving Landlord of default, to obtain such insurance for the account of
Landlord, the premium and any other costs thereof shall be immediately payable
to Tenant by Landlord. Tenant shall maintain insurance with respect to its
personal property located on the Premises. Tenant shall also maintain, at its
expense, reasonable amounts of insurance for professional liability in the
amount of $2,000,000 per occurrence and $2,000,000 annual aggregate, naming
Landlord as an additional insured. Tenant shall provide Landlord with
certificates of such insurance for the required coverage, which shall provide
that Landlord receive at least thirty (30) days' prior written notification in
the event of cancellation, amendment or expiration of said insurance.
5.7. NON-COMPETITION COVENANT. Landlord, on behalf of itself and its
subsidiaries and affiliates covenants and agrees that, during the Initial Term
and any Renewal Term, it shall not, directly or indirectly, within a twenty
(20) mile radius of the Premises, own, manage, operate, control, participate in
the management or control of, or act as agent for, lend its name to or initiate
or maintain or continue any interest whatsoever in a long-term care hospital
defined as hospitals or
Lease Agreement Page 6
<PAGE> 7
hospitals-within-hospitals formed and operated to be exempt from the Medicare
Prospective Payment System in accordance with the Health Care Financing
Administration provisions for long-term care hospitals, as such provisions may
be amended from time to time.
Landlord acknowledges that this non-competition covenant is essential to
the continued success of the Tenant and that the Tenant would sustain
irreparable harm and damage in the event that the Landlord violates the
covenant and that damages would not provide an adequate remedy to the Tenant.
Landlord further acknowledges that compliance with this non-competition
covenant will not constitute an unreasonable hardship or deprive it of the
opportunity to conduct its intended business.
5.8. LICENSURE AND ACCREDITATION. Landlord has, and shall maintain in
good standing, all federal, state and local licenses and certificates
required by law and shall maintain accreditation by the JCAHO (or an Equivalent
Organization) and certification as a Medicare provider throughout the term of
this Agreement. Landlord shall assist Tenant in the preparation of materials
required so that the Hospital is able to obtain and maintain state licensing,
accreditation by the JCAHO, and certification as a long-term acute care hospital
under the Medicare program. Landlord's failure to maintain accreditation by
JCAHO or an Equivalent Organization shall constitute a material breach of this
Lease if not cured within ninety (90) days.
5.9. EMPLOYMENT OF TENANT'S EMPLOYEES. During the Initial Term and any
Renewal Term of this Agreement, Landlord covenants not to solicit, attempt to
employ or employ any employee of Tenant or individual employed within the prior
six (6) months by Tenant without written consent of the Tenant, which consent
shall not be unreasonably withheld.
6. DESTRUCTION OF PREMISES. The destruction of the Premises by fire, or the
elements, or any material injury to the Premises which renders the Premises
unquestionably untenantable for twenty (20) days shall, at the option of
Tenant, result in a termination of this Lease. If Tenant does not terminate
this Lease, Landlord shall reconstruct the Premises and replace Landlord's
equipment, furnishings and personal property to the same condition as existed
prior to the destruction at the earliest possible date, and Tenant's obligation
to pay Rent shall be suspended until Tenant is able to resume use of the
Premises for a hospital.
7. TENANT LIABILITY. Tenant shall not be liable to Landlord or any other
person or corporation, including employees, for any damage to their person or
property which occurs on the Premises and which may be caused by water, rain,
snow, frost, fire, storm and accidents, or by breakage, stoppage or leakage of
water, gas, heating and sewer pipes or plumbing, upon, about or adjacent to the
Premises, or any other reason.
8. INDEMNIFICATION.
8.1.INDEMNIFICATION: TENANT. The Tenant shall indemnify, pay, defend and
hold harmless the Landlord from and against any and all damages, liabilities,
losses, costs, judgments, expenses, claims and causes of action of any kind or
nature asserted against the Landlord foreseen or unforeseen, accrued or not yet
accrued, arising from or in connection with the Tenant's use of the
Lease Agreement Page 7
<PAGE> 8
Premises, or the services performed by the Tenant pursuant to this Lease or
from any omission or from any activity, work or things done, permitted or
suffered by the Tenant in or about the Premises. The Tenant shall further
indemnify, pay, defend and hold harmless the Landlord from and against any and
all damages, liabilities, losses, costs, judgments, expenses, claims and causes
of action arising from any breach or default in the performance of any
obligation on the Tenant's part to be performed under the terms of this Lease,
or arising from any negligence of the Tenant or any of the Tenant's employees,
agents, invitees, or patients and from and against any action or proceeding
brought thereon. In case of any such action or proceeding against the
Landlord, the Tenant, upon notice for the Landlord, shall defend the same at
the Tenant's sole cost and expense by counsel reasonably satisfactory to the
Landlord. Without limiting the generality of the foregoing, the Tenant's
obligations of indemnity hereunder shall extend to any hazardous material,
substances or wastes which the Tenant places, utilizes or suffers to exist on
or about the Premises. All of the Tenant's obligations of indemnity hereunder
shall survive the termination or expiration of the Initial Term and any Renewal
Term.
8.2. INDEMNIFICATION: LANDLORD. The Landlord shall indemnify, pay,
defend and hold harmless the Tenant from and against any and all damages,
liabilities, losses, costs, judgments, expenses, claims and causes of action of
any kind or nature asserted against the Tenant foreseen or unforeseen, accrued
or not yet accrued, arising from or in connection with the services performed
by the Landlord pursuant to this Lease or from any omission or from any
activity, work or things done, permitted or suffered by the Landlord in or
about the Premises in furtherance of this Lease. Landlord shall further
indemnify, pay, defend and hold harmless the Tenant from and against any and
all damages, liabilities, losses, costs, judgments, expenses, claims and causes
of action arising from any breach or default in the performance of any
obligation on the Landlord's part to be performed under the terms of this
Lease, or arising from any negligence of the Landlord or any of the Landlord's
employees, agents, invitees, or patients and from and against any action or
proceeding brought thereon. In case of any such action or proceeding against
the Tenant, the Landlord, upon notice from the Tenant, shall defend the same at
the Landlord's sole cost and expense by counsel reasonably satisfactory to the
Tenant. All of the Landlord's obligations of indemnity hereunder shall survive
the termination or expiration of the Initial Term and the Renewal Term.
9. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease nor sublet
the Premises in whole or in part without the consent of Landlord, which consent
shall not be unreasonably withheld. Any assignment or sublease of the Premises
or any part thereof by Tenant with the written consent of the Landlord shall
not operate to release the Tenant from Tenant's obligations hereunder or
authorize any subsequent assignment or sublease of the Premises or any part
thereof without the written consent of the Landlord. If Tenant becomes the
subject of a court proceeding in bankruptcy or liquidating receivership or
shall make an assignment for the benefit of creditors, this Lease may by such
fact or unauthorized act be canceled at the option of the Landlord. Landlord
shall have the right to assign its interest in this Lease to an entity that
purchases the real estate on which the Premises are located on the condition
that (I) the assignee operates Landlord's hospital facility as an acute care
medical surgical facility for the remainder of the term of this Lease; and (ii)
the assignee agrees in writing to be bound by and comply with all of Landlord's
obligations under this Lease.
Lease Agreement Page 8
<PAGE> 9
10. DEFAULT.
10.1. EVENTS OF DEFAULT. Failure of the Tenant to pay any installment of
Rent as and when the same becomes due and payable, or the failure of the
Tenant promptly and faithfully to keep and perform each and every covenant,
agreement and stipulation herein on the part of the Tenant to be kept and
performed shall, at the option of the Landlord, constitute a default of this
Lease. Failure of the Landlord to promptly and faithfully keep and perform each
and every covenant, agreement, and stipulation herein on the part of the
Landlord to be kept and performed shall, at the option of the Tenant,
constitute a default of this Lease.
10.2. CURE PERIOD. In the event that either party breaches this
Agreement, then the non-breaching party may provide written notice of its
intent to terminate this Agreement. Such notice shall indicate the specific
term or terms of this Agreement which have been breached and describe, in
reasonable detail, the event or events that have caused the breach. If the
event causing such notice is the bankruptcy, insolvency, liquidation or
appointment of a receiver for the party receiving such notice, then this
Agreement shall terminate forthwith, unless it is with respect to an
involuntary proceeding in which case this Agreement shall terminate if such
proceeding is not dismissed within sixty (60) days. If the event causing such
notice is other than those listed above and if the party receiving notice of
breach fails to correct or remedy the condition within a thirty (30) day
period, then the other party may terminate this Agreement immediately upon
delivery of written notice to the breaching party.
10.3. REMEDIES. In the case of any breach or default of this Lease by
Tenant, Landlord shall have all of the remedies, rights and authority against
and with respect to Tenant provided by law. In the case of any breach or
default of this Lease by Landlord, Tenant shall have all of the remedies,
rights and authority against and with respect to Landlord provided by law, or
in equity specifically including the right to injunctive relief.
11. PARKING. During the Initial Term and any Renewal Term, the Landlord
shall, without charge to the Tenant, provide for the use of the Tenant, its
employees, agents, invitees, and patients, the non-exclusive use of any paved
unrestricted automobile parking areas located adjacent to the Premises. The
Tenant agrees to cooperate with the Landlord and to abide by any reasonable
rules and regulations the Landlord may make from time to time applicable to the
use of the parking areas that are consistent with Landlord's regulations for
parking by its staff, visitors, and patients. The Tenant acknowledges that it
has no rights in or to any specific parking areas and that the Landlord may
relocate parking lots or add parking decks to the areas surrounding the
Premises and may grant reserved parking spaces to such persons as the landlord
may so choose.
12. COMMON AREAS. Tenant shall have the right, during the hours such
facilities are normally maintained by Landlord, to use the common areas of the
Premises, such as entryways, hallways, waiting areas, lobby, restrooms,
cafeteria, chapel, and medical library. Provided, however, Tenant, its
employees, agents, invitees, and patients shall abide by all security rules,
regulations, directives and the like that the Landlord shall promulgate from
time to time.
Lease Agreement Page 9
<PAGE> 10
13. TRANSFER OF PATIENTS. It shall be the responsibility of Tenant to arrange
for the transfer of the Tenant's patients to another facility upon termination
of this Agreement for any cause. If under any circumstance (default,
termination, or non-renewal) it becomes necessary for the Landlord to assume
primary or significant responsibility for the care of the Tenant's patients,
then: (I) the Tenant agrees to reimburse the Landlord the actual cost of this
patient care, without regard to Medicare/Medicaid rates; and (ii) Landlord
shall immediately seek to transfer the patients to an appropriate facility with
Tenant to be responsible for reimbursing Landlord all costs associated with the
transfer, including ambulance fees.
14. NOTICE. All notices, demands, or communications to be given under this
Lease or by law shall be given in writing by delivery or by mail and shall be
deemed given when delivered or, if mailed, one day after deposit in the U.S.
mail, first class certified mail, postage prepaid, return receipt requested,
and addressed to the respective addresses set forth below or to such other
addresses as the addressee shall have furnished to the other party in the
manner set forth in this section:
To the Landlord at: ______________________
______________________
______________________
Attn: ________________
To the Tenant at: TCA OF _____________, INC.
______________________
______________________
Attn: ________________
with a copy to: Transitional Care of America, Inc.
7733 Forsyth Boulevard
Suite 1100
St. Louis, Missouri 63105
Attn: Chief Operating Officer
15. RELATIONSHIP OF THE PARTIES. Landlord and Tenant are independent entities
and nothing in this Agreement shall be construed or be deemed to create any
relationship other than that of independent parties contracting with each other
solely for the purposes of carrying out the terms and conditions of this
Agreement.
16. RECORDING. Upon request of either party, the other party shall execute
and deliver a memorandum of this Lease suitable for recording and containing
such terms hereof as the requesting party shall reasonably require; provided
that any provisions relating to the payment of Rent shall be excluded
therefrom.
17. CONFIDENTIALITY OF TERMS. Landlord agrees to keep the terms and
conditions of this Lease confidential, and to not disclose such items and
conditions to any other party other than its parent and affiliate organizations
without the written consent of Tenant, except as Landlord may
Lease Agreement Page 10
<PAGE> 11
be required by statute, regulation, or court order to disclose such matters.
Notwithstanding the foregoing, Landlord may disclose the existence of this
Lease and the identity of Tenant.
18. GOVERNING LAW. The validity of this Agreement, the interpretation of the
rights and duties of the parties hereunder and the construction of the terms
hereof shall be governed in accordance with the laws of Ohio.
19. SURVIVAL OF OBLIGATIONS. The provisions of Sections 4.7, 4.11, 4.13, 5.7,
5.9, 8, 9, 10, 13, 17, 18, 19, 20, and 21 shall survive and be binding on both
parties to this Agreement after termination of this Agreement.
20. SEVERABILITY. If any part of this Agreement should be held to be void or
unenforceable, such part will be treated as severable, leaving valid the
remainder of this Agreement notwithstanding the part or parts found void or
unenforceable.
21. ENTIRE AGREEMENT. All prior understandings and agreements between the
parties are merged into this Lease, which Lease sets forth the entire
understanding of the parties with respect to the subject matter hereof, and
this Lease may not be amended or modified in any manner except by a writing
signed by the party against which enforcement is sought. The covenants and
agreements herein contained shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
LANDLORD:
By: __________________________
Title: _______________________
TENANT: TCA OF ______________, INC.
By: __________________________
Title: _______________________
Lease Agreement Page 11
<PAGE> 12
EXHIBIT A
---------
FLOOR PLAN
Lease Agreement Page 12
<PAGE> 13
EXHIBIT B
SUMMARY OF PROPOSED MODIFICATIONS
The following modifications are proposed by TCA to provide for the creation of
an ACUTE Long-Term Care Hospital.
Upon completion of the proposed modifications, TCA anticipates that physical
area will yield thirty-six (36) beds for patient occupancy. The detail of bed
configurations would be as follows:
Lease Agreement Page 13
<PAGE> 14
EXHIBIT C
PERSONAL PROPERTY TO BE FURNISHED BY LANDLORD
Wheelchairs (5)
One Hoyer Lift
One Island Tub including a whirlpool
One Dual X-Ray Box
Lease Agreement Page 14
<PAGE> 1
EXHIBIT 10.2
THE SALE OF THESE SECURITIES HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase shares of the Series B Convertible Preferred Stock of
TRANSITIONAL CARE OF AMERICA, INC.
Dated as of February 15, 1996 (the "Effective Date")
WHEREAS, Transitional Care of America, Inc., a Delaware corporation (the
"Company") has entered into a Master Lease Agreement dated as of December 11,
1995, Equipment Schedule No. VL-1, and related Schedules (the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series B Convertible
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the term and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 2900 fully paid and non-assessable
shares of the Company's Series B Preferred Stock ("Preferred Stock") at a
purchase price of $20.69 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
seven (7) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and
<PAGE> 2
executed. Promptly upon receipt of the Notice of Exercise and the
payment of the purchase price in accordance with the terms set
forth below, and in no event later than twenty-one (21) days thereafter, the
Company shall issue to the Warrantholder a certificate for the number of shares
of Preferred Stock purchased and shall execute the Notice of Exercise
indicating the number of shares which remain subject to future purchases, if
any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash, certified check or other immediately available funds or check, or (ii)
by surrender of Warrants ("Net Issuance") as determined below. If the
Warrantholder elects the Net Issuance method, the Company will issue Preferred
Stock in accordance with the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock on
the date of exercise.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
initial public offering, and:
(a) if traded on a securities exchange or the NASDAQ National
Market (or any successor thereto), the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ Stock Market (or any successor thereto or any
similar system) over the twenty-one (21) day period ending three days
before the day the current fair market value of the securities is
being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ National Market or NASDAQ Stock Market or
the over-the-counter market, the current fair market value of Common Stock
shall be the highest price per share which the Company could
2
<PAGE> 3
obtain from a willing buyer (not a current employee or director) for shares
of Common Stock sold by the Company, from authorized but unissued shares,
as determined in good faith by its Board of Directors, unless the Company
shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the
fair market value of Common Stock shall be deemed to be the value received
by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
No shares of Preferred Stock shall be issued hereunder unless and until the
Warrantholder enters into and becomes a party to (I) that certain Amended and
Restated Stockholder Agreement, dated as of December 20, 1995, by and among the
Company and the Stockholders of the Company, and (II) the Amended Restated
Registration Rights Agreement dated as of December 20, 1995, by and among the
Company and the Stockholders of the Company (the "Amended and Restated
Registration Rights Agreement"), as such Amended and Restated Stockholder
Agreement and Amended and Restated Registration Rights Agreement may be further
amended from time to time.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon exercise, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company.
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<PAGE> 4
7. WARRANTHOLDER REGISTRY
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive anti-dilution rights in parity with any
shareholders of the Company in accordance with the Company's Amended and
Restated Articles of Incorporation. It is not the intent of this Section to
grant to the Warrantholder any additional, extra or double anti-dilution rights.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Preferred Stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution as per the Company's Amended and Restated
Certificate of Incorporation and at least in parity with any other shareholders
of the Company, The Warrantholder shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Preferred Stock (calculated to the nearest whole share) obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Preferred Stock issuable upon the exercise hereof immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
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<PAGE> 5
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit __ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall promptly
provide Warrantholder with written notice of any issuance of its stock or other
equity security after the Effective Date of this Warrant, which notice shall
include (a) the price at which such stock or security is to be sold, (b) the
number of shares to be issued, and (c) such other information as necessary for
Warrantholder to determine if a dilutive event has occurred.
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect Of such Merger
Event, dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event, dissolution, liquidation ox winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
Notwithstanding anything to the contrary contained in this Section, the Company
shall have no obligation to give Warrantholder any greater notice than the
Company gives to any shareholder.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, other than the
5
<PAGE> 6
Amended and Restated Stockholder Agreement dated December 20, 1995; provided,
however, that the Preferred Stock issuable pursuant to this Warrant Agreement
may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings from ______, 19__ through ______, 19__. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws., do not contravene any
law or governmental rule, regulation or order applicable to it, do not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taxing of any other action in respect of any
states, Federal or other governmental authority or agency is required with
respect to the execution delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and applicable state securities
laws. In addition:
(i) The authorized capital of the Company shares are consists of
(A) _________ shares of Common Stock, of which ________ shares are issued and
outstanding, and (B) _______ shares of preferred stock, of which _______ shares
are issued and outstanding and are convertible into _______ shares of Common
Stock at $________ per share.
(ii) The Company has reserved (A) _________ shares of Common Stock for
issuance under its Qualified Stock Option Plan, under which _______ options are
outstanding at an average price of $________ per share, and (B) ________ shares
of Common Stock for issuance under its Incentive Stock Option Plan, under
which _______ options are outstanding at an average price of $_______ per
share. There are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise
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<PAGE> 7
acquire any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock other than as stated in the Stockholders Agreement.
(e) Insurance. The company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
this Warrant Agreement and the Amended and Restated Registration Rights
Agreement, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of any applicable
state securities law.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such requests, a written statement confirming the
Company's compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) No Registration. The Warrantholder understands (i) that the
issuance of Preferred Stock issuable upon exercise of this Warrant is not
registered under the 1933 Act or qualified under applicable state securities
laws, and (ii) that the Company's reliance on the exemption from the
registration requirements of the 1933 Act and applicable state securities laws
are predicated an the representations set forth in this Section 10.
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<PAGE> 8
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available, Notwithstanding the foregoing the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock ox Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15 (d) of the
Securities Exchange Act of 1934 (the "1934 Act") or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the term and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
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<PAGE> 9
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer. Notwithstanding anything
to the contrary contained herein, the Warrantholder agrees that it will not
transfer this Warrant Agreement to any entity that is a competitor of the
Company, Upon receipt of a Transfer Notice from the Warrantholder, the Company
will immediately notify the Warrantholder if the proposed transferee is a
competitor of the Company with a reasonably acceptable offer of proof as to why
the proposed transferee is a competitor.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Missouri.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal
delivery, facsimile transmission (provided that the original is sent by
personal delivery or mail as hereinafter set forth) or seven (7) days after
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018,
attention: James Labe, Venture Leasing Director, cc: Legal Department, (and/or,
if by facsimile, (708) 518-5465 and (ii) to the Company at 7733 Forsyth Blvd.,
Suite 1100, St. Louis, (and/or if by facsimile, (314) 725-0443 or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the nondefaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
9
<PAGE> 10
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision,, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be Amended
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000 from the Company's counsel with respect to those same
representations,warranties and covenants. The Company shall also supply such
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: TRANSITIONAL CARE OF AMERICA, INC,
By: David W. Cross
----------------------------------
Title: President
-------------------------------
Warrantholder: COMDISCO, INC.
By: James P. Labe
-------------------------------------
JAMES P. LABE
Title: President Venture Lease Division
----------------------------------
10
<PAGE> 11
EXHIBIT I
NOTICE OF EXERCISE
To: __________________________
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
the Preferred Stock of ______________, pursuant to the terms of the
Warrant Agreement dated the _______ day of _____________, 19 ______
(the "Warrant Agreement") between ______________________________ and
the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes, if
any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________________, the undersigned hereby confirms
and acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as
is specified below.
________________________________
(Name)
________________________________
(Address)
Warrantholder: COMDISCO, INC.
BY: ____________________________
Title: _________________________
Date: __________________________
11
<PAGE> 12
ACKNOWLEDGEMENT OF EXERCISE
The undersigned______________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase____ shares of the
Preferred Stock of______________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:_______________________
Title:____________________
Date:_____________________
12
<PAGE> 13
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
______________________________________________________________
(Please Print)
whose address is _____________________________________________
______________________________________________________________
Dated __________________________________
Holder's Signature _____________________
Holder's Address _______________________
________________________________________
Signature Guaranteed: ________________________________________
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the
Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or
other representative capacity should file proper
evidence of authority to assign the foregoing
Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.3
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated December 11, 1995 by and
between COMDISCO, INC. ("Lessor") and TRANSITIONAL CARE OF AMERICA, INC.
("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule, in the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and
file in Lessee's name precautionary Uniform Commercial Code financing
statements showing the interest of the Owner, Lessor, and any Assignee or
Secured Party in the Equipment and to insert serial numbers in Summary Equipment
Schedules as appropriate. Lessee will, at its expense, keep the Equipment free
and clear from any liens or encumbrances of any kind (except any caused by
Lessor) and will indemnify and hold the Owner, Lessor, any Assignee and Secured
Party harmless from and against any loss caused by Lessee's failure to do so,
except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and
will not materially change Lessee's duties or materially increase the burdens
or risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or
the Equipment by any governmental authority (except only Federal, state, local
and franchise taxes on the capital or the net income of Lessor). Lessor will
file all personal property tax returns for the Equipment and pay all such
property taxes due. Lessee will reimburse Lessor for property taxes within
thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment,
or another party acceptable to Lessor, and will provide Lessor with a complete
copy of that contract. If Lessee has the Equipment maintained by a party other
than the manufacturer or self maintains, Lessee agrees to pay any
costs necessary for the manufacturer to bring the Equipment to then current
release, revision and engineering change levels, and to re-certify the
Equipment as eligible for manufacturer's maintenance at the expiration of the
lease term, provided re-certification is available and is required by Lessor.
The lease term will continue upon the same terms and conditions until
recertification has been obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for Inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of
property or the conduct of its business requires such qualification, except for
where such lack of qualification would not have a material adverse effect on
the Company's business; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into and perform
its obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound, and the Master Lease
and each Schedule constitute legal, valid and binding agreements of the Lessee,
enforceable in accordance with their terms, subject to the
- 1 - 4/95
<PAGE> 2
effect of applicable bankruptcy and other similar laws affecting the rights of
creditors generally and rules of law concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of other.
(g) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018, or at such other address within the continental
United States as directed by Lessor, provided, however, that Lessee's expense
shall be limited to the cost of returning the equipment to Lessor's address as
set forth herein. During the period subsequent to receipt of a notice under
Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee
will supply any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With respect to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from
and against any and all claims, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising out of the ownership (for strict
liability in tort only), selection, possession, leasing, operation, control,
use, maintenance, delivery, return or other disposition of the Equipment during
the term of this Master Lease or until Lessee's obligations under the Master
Lessee terminate. However, Lessee is not responsible to a party indemnified
hereunder for any claims, costs, expenses, damages and liabilities occasioned
by the negligent acts of such indemnified party. Lessee agrees to carry bodily
injury and property damage liability insurance during the term of the Master
Lease in amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance will
be credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or expiration, and will insure
Lessor's interests regardless of any breach or violation by Lessee of any
representation, warranty or condition contained in such policies and will be
primarily without right of contribution from any insurance effected by Lessor.
Upon the execution of any Schedule, the Lessee will furnish appropriate
evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the Lessee
in the Schedule or in any document or certificate furnished to the Lessor
hereunder if that failure or inaccuracy continues for ten (10) business days
after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Lessee as insolvent, the liquidation of
Lessee, or the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may;
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either;
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidation damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice
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will provide an agenda of the subject matter to be discussed at such board
meeting. Lessee will provide Lessor with a certified copy of the minutes of each
Board of Directors meeting within thirty (30) days following the date of such
meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement
of cash flows prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements"). As soon as
practicable at the end of each fiscal year, Lessee will provide to Lessor
audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within ninety (90)
days), and accompanied by an audit report and opinion of the independent
certified public accountants selected by Lessee. Lessee will promptly furnish to
Lessor any additional information (including, but not limited to, tax returns,
income statements, balance sheets and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations. After the effective date of the initial registration
statement covering a public offering of Lessee's securities, the term
"Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment
of any material indebtedness; (iii) there is a material adverse change
in Lessee's credit standing; or (iv) Lessor determines (in reasonable good
faith) that Lessee will be unable to perform its obligations under this Master
Lease or any Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE
AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate
or be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution,
delivery, expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, required or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "the Comdisco Venture Group") or
Lessee, at the address set out in the Schedule or, one day after it is sent by
courier or on the same day as sent via facsimile transmission, provided that
the original is sent by personal delivery or mail by the receiving party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THE MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants
a security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be
marked "Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the
Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGES WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonably attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and
any replacement for that property required or permitted by this Master Lease or
a Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing and buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
minimum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
4/95
-3-
<PAGE> 4
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of
the assets of the Lessee to any other person or entity or any stock acquisition
of the Lessee by any other person or entity in which Lessee is not the
surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee wil pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to
the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
TRANSITIONAL CARE OF AMERICA, INC. COMDISCO, INC.,
as Lessee as Lessor
By: David W. Cross By: James P. Labe
------------------------------- --------------------------------------
Title: President Title: President, Venture Lease Division
------------------------------- --------------------------------------
4/95
-4-
<PAGE> 5
ADDENDUM TO THE MASTER LEASE DATED AGREEMENT
DECEMBER 11, 1995 BETWEEN COMDISCO, INC. ("LESSOR")
AND TRANSITIONAL CARE OF AMERICA, INC. ("LESSEE")
The terms and conditions of the above Master Lease Agreement are hereby
modified and amended as follows:
1. Section 5.2 Assignment by Lessor. To the end of this section add the
following:
"Notwithstanding anything to the contrary contained herein, Lessor agrees
that it will not assign this Master Lease, or any Equipment Schedules
hereunder, to any entity that is a competitor of Lessee. Lessor will give
Lessee prior notice of any contemplated assignment at which time Lessee
shall immediately notify Lessor if the intended assignee is a competitor of
Lessee with a reasonably acceptable offer of proof as to why the proposed
assignee is a competitor of Lessee."
2. Section 13.3 Mitigation. To the end of this section add the following:
"Notwithstanding anything to the contrary contained in this section Lessor
will, in accordance with its normal business practices, attempt to mitigate
its damages by selling, leasing, or otherwise disposing of the Equipment at
a commercially reasonable rate."
3. Section 14.2 Financial Statements. In line 2 of this section, before
the word "information", insert the word "financial".
4. Section 14.4 Merger and Sale Provision. In line 2 of this section
delete the words "sixty (60)" and replace with the words "thirty
(30)". To the end of this section add the following:
"Notwithstanding anything to the contrary contained in this section in the
event Lessor elects to terminate the Master Lease and relevant Schedules,
and Lessee pays the present value of the remaining rent, Lessee shall not
have to return the Equipment until the end of the term(s) of the
Schedules."
5. Section 14.10 Applicable Law. In line 7 delete the word "Lessee" and
replace with the words "either party".
COMDISCO, INC. TRANSITIONAL CARE OF AMERICA, INC.
BY: James P. Labe BY: David W. Cross
---------------------------- -------------------------------
TITLE: President, Venture Lease
Division TITLE: President
------------------------- ----------------------------
DATE: DATE: 2-19-96
-------------------------- -----------------------------
<PAGE> 6
EQUIPMENT SCHEDULE VL-1
DATED AS OF DECEMBER 11, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 11, 1995 (THE "MASTER LEASE")
LESSEE: TRANSITIONAL CARE OF AMERICA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
John Keefe - Chief Financial Officer 6111 North River Road
(314) 725-0112 - phone Rosemont, Illinois 60018
(314) 725-0443 - fax Attn.: Venture Group
Address for Notices:
7733 Forsyth Blvd., Suite 1100
St. Louis, MO 63105
Attn.: John Keefe
Central Billing Location: Rent Interval: Monthly
SAME AS ABOVE
Attn.: Accounts Payable
Lessee Reference No.:_____________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 Months
(Number of Rent Intervals)
VARIOUS
Lease Rate Factor: 2.425%
Attn.:
EQUIPMENT (as defined below): Advance: $24,250.00
Equipment specifically approved by Lessor, which shall be delivered to
and accepted by Lessee during the period December 15, 1995 through
December 15, 1996 ("Equipment Delivery Period"), for which Lessor
receives vendor invoices approved for payment, up to an aggregate
purchase price of $1,000,000.00 ("Commitment Amount") with an option
for an additional $500,000.00 at rates to be negotiated; excluding
custom use equipment, leasehold improvements, installation costs and
delivery costs, rolling stock, special tooling, "stand-alone" software,
applications software bundled into computer hardware, hand held items,
molds and fungible items. In no event shall any furniture exceed ten
percent (10%) of Lessor's aggregate cost hereunder.
<PAGE> 7
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is
of category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgement
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under
this Lease ( the "Sale-Leaseback Transaction"). Any request
for a Sale-Leaseback Transaction must be submitted to Lessor
in writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than March 15, 1996*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 12/16/95 and 3/15/96 100%
Between 10/17/95 and 12/16/95 80%
Between 7/19/95 and 10/17/95 70%
Between 4/20/95 and 7/19/95 65%
Between 1/20/95 and 4/20/95 60%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply
new or used Equipment from its inventory at rates provided by
Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing
hereunder, and upon written no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right
<PAGE> 8
to extend the Initial Term of such Summary Equipment Schedule for a period of
one (1) year. In such event, the rent to be paid during said extended period
shall be mutually agreed upon and if the parties cannot mutually agree, then
the Summary Equipment Schedule shall continue in full force and effect pursuant
to the existing terms and conditions until terminated in accordance with its
terms. The Summary Equipment Schedule will continue in effect following said
extended period until terminated by either party upon not less than ninety (90)
days prior written notice, which notice shall be effective as of the date of
receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to
agree on the purchase price or the terms and conditions with respect to said
purchase, then the Summary Equipment Schedule with respect to this Equipment
shall remain in full force and effect. Notwithstanding the exercise by Lessee
of this option and payment of the purchase price, until all obligations under
the applicable Summary Equipment Schedule have been fulfilled, it is agreed and
understood that Lessor shall retain a purchase money security interest in the
Equipment listed therein and the Summary Equipment Schedule shall constitute a
Security Agreement under the Uniform Commercial Code of the state in which the
Equipment is located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
1. Subsection 14.1 "Board Attendance"
Delete this section in its entirety and replace with "Lessee agrees to
provide to Lessor on a monthly basis, the executive summary and minutes of
the board of directors meetings which are sent to all investors, including
all attachments so distributed. In addition, the following statement will
accompany the report on a monthly basis: profit & loss statement, balance
sheet, and cash flow statement."
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
TRANSITIONAL CARE OF AMERICA, INC. COMDISCO, INC.
as Lessee as Lessor
By: David W. Cross By: James P. Labe
------------------------ ------------------------
Title: President Title: President Venture Lease Division
--------------------- ---------------------
Date: 02-19-96 Date:
---------------------- ----------------------
<PAGE> 9
EXHIBIT I
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 1
EXHIBIT 10.4
AGREEMENT
AGREEMENT made as of the 29TH day of November, 1995, by and between
HEALTHCARE MANAGEMENT SYSTEMS, INC., a Tennessee corporation, whose
address is 3401 West End Avenue, Suite 290, Nashville, Tennessee 37203
("HMS") and TRANSITIONAL CARE OF AMERICA, INC. a Delaware corporation, whose
address is 7733 Forsyth Blvd, Suite 1100, St. Louis, MO 63105, ("Customer").
P R E M I S E S:
A. HMS develops and licenses proprietary computer software modules
designed for the management of Customer records and data and, in
addition, sells the computer hardware necessary to operate such software.
B. HMS agrees to license the use of its proprietary software listed
on Exhibit A, which is attached hereto and incorporated herein by
reference, and Customer agrees to accept such license.
C. HMS agrees to sell and Customer agrees to purchase the computer
hardware listed on Exhibit B, which is attached hereto and incorporated
herein by reference.
D. Customer agrees that the software and hardware will be installed at
the locations ("Installation Sites") described on Exhibit E attached hereto:
NOW THEREFORE, for and in consideration of the premises, the payment of
the license fee, installation cost and purchase price listed below and
the mutual promises and covenants contained herein, HMS and Customer agree as
follows:
1. PURCHASE PRICE AND PAYMENT TERMS. The parties agree to the following
price to be paid upon the terms set forth on Exhibit C which is attached hereto.
1
<PAGE> 2
It is acknowledged by Customer that the above estimated purchase
price shall be valid for a period of twenty four (24) months.
2. GENERAL TERMS AND CONDITIONS.
2.1. DEFINED TERMS.
2.1.1. The terms "Customer" and "HMS" are intended to describe
parties to the Agreement and are not used in their
ordinary context.
2.1.2. Specific words used in this Agreement shall have the
meaning assigned to them in the Agreement.
2.1.3. "Employee" means an individual on whose behalf Customer
withholds income taxes or makes contributions under the
Federal Insurance Contributions Act or similar statutes.
2.1.4. "Documentation" shall mean user/operator manuals and
appropriate record layouts.
2.1.5. "HMS Software" means all software modules listed on
Exhibit A and any modifications subsequently made
thereto.
2.1.6. "Hardware" shall mean the computer hardware listed and
identified on Exhibit B.
2.2. NOTICES. All notices given under this Agreement shall be in writing and
delivered by a national courier service or by certified mail, return
receipt requested, or hand delivered to the address of the
recipient shown above. All notices shall be deemed given when actually
received or three (3) days after deposit in the U.S. Mail as provided
above, all charges prepaid, whichever first occurs. Either party may
change its address by notice to the other party, given as provided
above.
2.3. MODIFICATION. This Agreement may not be modified except by written
amendment executed by both HMS and Customer. No
representative of HMS has any authority to bind HMS to
2
<PAGE> 3
any affirmation, representation or warranty other than the
express terms of this Agreement.
2.4. PARTIES BOUND. This Agreement binds and inures to the benefit of the
parties and their respective successors and permitted assigns.
2.5 ASSIGNMENT. Neither this Agreement nor the rights and obligations of
the parties hereto may be assigned without the prior express written
consent of the other party hereto. The parties agree that the requested
consent any such assignment shall not be unreasonably withheld, or
delayed. Any attempt by Customer to assign any portion of this
Agreement without the prior express written consent of HMS shall render
such assignment voidable at the election of HMS; provided, however,
that either party may assign this Agreement to a parent corporation,
subsidiary or affiliate or to an unrelated third party acquiring all
or substantially all of the assets of a party.
2.6. SEVERABILITY. If any provision of this Agreement is declared to be
invalid or unenforceable by a court of competent jurisdiction,
such provisions shall be severed herefrom and the remaining provisions
shall remain binding with the same effect as if such provisions were
deleted.
2.7. REMEDIES UPON BREACH.
2.7.1. Both parties agree that in the event that either should fail to
perform according to the terms of this Agreement, the party
failing to perform shall be liable to the other party for all
attorney fees, court costs and other reasonable expenses
incurred by the nondefaulting party in connection with
enforcing any part of this Agreement in addition to any other
right or remedy to which
3
<PAGE> 4
such party may be entitled.
2.7.2 If Customer attempts to use, copy, license or convey the HMS
Software in a manner contrary to the terms of this
Agreement or in competition with HMS or in derogation of HMS's
proprietary rights, whether these rights are explicitly stated
herein, determined by law or otherwise, HMS shall have, in
addition to any other remedies available to it under applicable
state or federal laws, the right to injunctive relief enjoining
such action, Customer hereby acknowledging that all other
remedies are inadequate.
2.8. LAW & JURISDICTION. The Agreement shall be construed and governed
under the laws of the United States of America and the State of
Tennessee applicable to agreements entered into and wholly performed
in such state. The parties further agree that any and all disputes
as to enforcement or construction of any of the terms and conditions
of this Agreement shall be brought to in the state or federal courts
in the City of St. Louis, St. Louis County, Missouri or Nashville,
Davidson County, Tennessee, which courts shall have exclusive
jurisdiction over all such matters.
2.9. NECESSARY DOCUMENTS. If additional documents are required or
desired to effectuate the terms and conditions of this Agreement
(e.g. a financing statement or other instrument necessary to perfect
a security interest under the Uniform Commercial Code), Customer
shall execute such documents immediately upon the request of HMS. In
the event that Customer fails to execute such documents, Customer
hereby grants HMS a power of attorney, irrevocable and coupled with
an interest, to execute such documents in Customer's name and on its
behalf.
2.10. NOTIFICATION OF INFRINGEMENT CLAIMS. In the event that suit (or
similar claim) is brought against Customer alleging that the
HMS Software infringes upon any copyright or similar interest,
Customer shall immediately
4
<PAGE> 5
notify HMS of the claim, shall give HMS complete information
pertinent to the claim, and shall permit HMS (at HMS's sole option)
to direct the defense of such claim.
2.11. INABILITY TO PERFORM. HMS shall not be liable for any delays in
performance under this Agreement if interruption of transportation,
government regulation, labor disputes, strikes, war, fire, flood,
accident, other cause beyond HMS's control.
2.12. TAXES AND RECORDATION FEES. Prices and fees set forth herein are
exclusive of all excise, sales, use, occupational, or like taxes
now in force or enacted in the future and, therefore, prices are.
subject to an increase equal to the amount of any tax HMS may be
required to collect or pay upon the sale or delivery of items
purchased or licensed hereunder. If a certificate of exemption or
similar document or proceeding is to be utilized in order to
exempt the sale or license from sales or use tax liability, Customer
will obtain and pursue such certificate, document or proceeding.
Customer shall pay all taxes (however designated, levied, or based on
the price or on the product sold or licensed or used under this
Agreement, other than taxes based on HMS's income) levied against
Customer or HMS immediately when due.
2.13. RISK OF LOSS. HMS bears risk of loss of any Hardware until such
Hardware is delivered to the installation site whereupon the
risk of loss passes to Customer.
2.14. REMOVAL OF COLLATERAL. No Hardware or HMS Software sold or licensed
hereunder may be used or transported in any manner outside of the
territory in which the installation is performed without the
advance written permission of HMS, which consent shall not be
unreasonably withheld or delayed. Customer agrees that in no event
shall the Hardware or HMS Software be used or transported in any
manner outside of the United States, its territories or possessions.
5
<PAGE> 6
2.15. SECURITY INTEREST RETAINED BY HMS. HMS reserves and retains a
security interest in the Hardware and HMS Software, and in the
proceeds of same to secure payment of the total purchase
price reflected in Section 1 hereof. A copy of this Agreement
may be filed at any time as a financing statement to perfect
HMS's security interest. If Customer rejects the Hardware or
after accepting, revokes acceptance, Customer shall have no
security interest or title in the Hardware or HMS Software and
shall immediately return same to HMS.
2.16 DEFAULT BY CUSTOMER. This Agreement shall terminate
immediately upon the occurrence of any of the
following events of "default" without liability of HMS to
Customer and/or any third parties:
2.16.1. Customer fails to pay any installment of the purchase price
when due after written notice of default and a
reasonable opportunity to cure;
2.16.2. Customer fails to comply with each and every other material
provision of this Agreement within thirty (30) days
after receipt of written notice of such failure;
2.16.3. Customer assigns this Agreement without written consent of HMS;
2.17. WAIVER. No provision of this Agreement shall be deemed waived unless
such waiver is contained in a written instrument signed by the party to
be charged therewith. Should either party waive any individual default
by the other party in writing, such waiver shall not be construed as a
waiver of such party's rights upon subsequent defaults, whether or not
similar.
2.18. FORFEITURE OF EARNEST MONEY. If Customer refuses to accept delivery of
the Hardware, or otherwise fails to perform in accordance with the terms
of this Agreement, HMS shall retain all sums, if any, paid as Earnest
Money. Retention of Earnest Money shall not be in lieu of any
6
<PAGE> 7
other remedies HMS may have in connection with Customer's default.
Should HMS fail to deliver and install the Hardware and HMS Software, or
fail to perform initial training sessions within the time established in
the Installation Schedule, Customer shall be entitled to full refund of
the Earnest Money. Return of Earnest Money shall not be in lieu of any
other remedies Customer may have in connection with HMS's default.
2.19. DELIVERY. All Hardware and HMS Software shall be delivered by HMS to
Customer at the Installation Site. In accordance with the Installation
Schedule, Exhibit D, Customer acknowledges that some of the Hardware may
be shipped directly from the manufacturer, and Customer agrees to store
same in a reasonable manner until the installation thereof. In no event
shall HMS be liable to customer or to any other party for any losses or
damages attributable to a delay in delivery of any Hardware to be
delivered hereunder provided by a third party.
2.20. CANCELLATION OF AGREEMENT.
2.20.1. Customer may, at its option, elect to cancel this Agreement, by
notice to HMS, at any time prior to the delivery of any
module of the HMS Software described in Exhibit A hereto. In
such event, Customer will pay to HMS the amount due with
respect to all HMS Software modules delivered prior to receipt
of such notice. HMS shall return to Customer the down-payment
on those HMS Software modules which have not been delivered, if
any.
2.20.2. HMS may, at its option, cancel this Agreement at any time should
it determine that Customer cannot provide appropriate
facilities at the Installation Site.
7
<PAGE> 8
3. HARDWARE PURCHASE PROVISIONS.
3.1. Customer hereby buys the Hardware subject to the terms of this
Agreement.
3.2. The purchase price for the Hardware is designated on the attached
Exhibit B and shall be paid prior to the installation of the
Hardware.
3.3. In the event that Hardware is purchased from HMS, title to the
Hardware shall remain with HMS until payment of the
full contract price provided herein. Failure to pay the full
contract price of the Hardware according to the terms of the
agreement, or any other term of default shall give HMS the right,
without liability, to peacefully repossess the Hardware, with or
without notice, and to avail itself of any other legal remedy.
3.4. Customer understands and agrees that the Hardware carries certain
manufacturer's warranties. Customer shall avail itself of all
such remedies available to Customer under such warranties
and shall make no claim upon HMS for any defects in same, pursuant
to the terms and conditions of the warranty limitations herein
contained.
4. INSTALLATION, IMPLEMENTATION AND TRAINING.
4.1. Upon execution of this Agreement, Customer shall designate an
appropriate senior member of its staff to serve as Customer's
project coordinator ("CPC").
4.2. Upon execution of this agreement, HMS shall designate an
appropriate client service representative ("CSR") to serve as
its installation and coordination contact and representative.
4.3. Upon execution of this agreement Customer and HMS shall prepare an
installation schedule (the "Installation Schedule") showing the
scheduled activities to be accomplished during and after the
installation of each module of the HMS Software to be provided
hereunder, and setting forth each party's responsibilities with
respect thereto. The Installation Schedule shall be marked
8
<PAGE> 9
Exhibit D attached hereto and become a part of this Agreement.
4.4. Coordination of services during the period in which a module is being
installed shall be the joint responsibility of the CPC and CSR.
Coordination of services after installation has been completed is to
be the responsibility of the CPC and HMS's Client Support Department.
4.5. Customer is responsible, at its expense, for making the
alterations to the Installation Sites that are required to
accommodate the installation of the Hardware, including the
acquisition, installation and termination of necessary cabling, and
the provision of adequate space and electrical sources as determined
necessary by HMS.
4.6. HMS will assist Customer in coordination of the installation of the
Hardware, however, installation of the Hardware at the
Installation Site is not, and shall not be construed to be, a
guarantee by HMS that the location is suitable for the proper
functioning of the Hardware.
4.7. A written manual for the operation of the Hardware shall be
furnished to Customer by IBM, as provided to HMS by the
manufacturer of each item of the Hardware. All written manuals and
instructions and documentation for the Software shall be provided by
HMS to Customer at the time the Software is installed.
4.8. Installation and implementation will proceed according to the
Installation Schedule. The Installation Schedule identifies
responsibilities for Customer and HMS. Where possible, discrete
responsibilities for tasks are identified. Performance milestones
will be monitored by both written and oral progress reports. The
report shall be submitted routinely throughout the duration of the
project on a schedule mutually agreeable to Customer and HMS. Review
of work completed to date by Customer shall be completed at these
progress meetings. Responsibility for project management is shared
by Customer and HMS.
9
<PAGE> 10
4.9. Customer accepts all responsibility for development and execution
of administrative procedures, including the performance of periodic
backups, to control and maintain the integrity of Customer's data.
5. INSTALLATION AND TRAINING CHARGES.
5.1. Installation and training will be billed monthly as incurred at
HMS's standard rates therefor which are currently $75 per hour plus
out-of-pocket expenses. After six (6) months from the date of this
Agreement, HMS reserves the right to change its standard installation
and training rates upon thirty (30) days notice to Customer.
5.2. All payments shall be made in U.S. Dollars within thirty (30)
days after the date of invoice. HMS reserves the right to add an
interest charge not exceeding 1% per month, or the maximum amount
allowed by applicable law, whichever is less, for failure to make
payment within thirty (30) days after the invoice date. Such invoices
will also include the appropriate taxes (sales, excise, occupation or
like taxes).
6. SOFTWARE LICENSE AGREEMENT.
6.1. MODULES LICENSED. HMS hereby grants Customer a perpetual,
non-transferable and nonexclusive license to use the HMS Software.
6.2. GUARANTEE OF TITLE. HMS represents, covenants, and warrants that
it has all rights to the HMS Software, including all necessary rights
in any software owned by others which is embodied in the HMS Software,
necessary to grant the license provided herein and that the HMS
Software will not infringe upon or violate any copyright or other
property right of any third party.
6.3. PROPRIETARY RIGHTS.
6.3.1. Customer recognizes and acknowledges that the HMS
Software, system documentation manuals and
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<PAGE> 11
other materials supplied by HMS to Customer are subject to the
proprietary right of HMS. Customer agrees with HMS that the HMS
Software, documentation and all information or data supplied by
HMS in machine-readable form or otherwise are the property of HMS,
are protected by civil and criminal laws including the copyright
laws of the United States, are valuable to HMS, and that their use
and disclosure must be carefully and continuously controlled.
Customer further understands that operator manuals, training aids
and other written materials, whether created by HMS or others are
also subject to the copyright laws of the United States.
6.3.2. HMS retains title to the HMS Software, documentation, information
or data furnished by HMS in machine-readable form, and the
training materials provided by HMS. HMS does not retain title to
operator manuals and other material bearing the HMS's copyright,
but these items shall not be copied except as provided herein.
6.3.3. Customer shall keep each and every item to which HMS retains title
free and clear of all claims, liens and encumbrances except
those of HMS, and any act of Customer purporting to create a claim,
lien or encumbrance on such item shall be void.
6.4. RESTRICTIONS OF USE. The HMS Software and other items supplied by HMS
hereunder are for the sole use of Customer, supporting only terminals
operated by Customer at the Installation Site unless otherwise agreed by
HMS in writing.
6.4.1. Customer. shall use the HMS Software only for the management of
records and data of the facility or facilities leased or
operated by Transitional Care of America or any of its wholly-owned
subsidiaries. Customer may permit line access to data and the
placing and reviewing
11
<PAGE> 12
of orders by physicians affiliated or associated with Customer;
provided that in no event shall the HMS Software be utilized as
a practice management program for such physicians without the
express written consent of HMS.
6.4.2. Customer agrees that while this license is in effect, or while it
has custody or possession of any property of HMS, it will not
(i) copy or duplicate, or permit anyone else to copy or
duplicate, any physical or magnetic version of the HMS Software
in machine-readable form except for Customer's own use; (ii)
create attempt to create, or permit others to create or attempt
to create by reverse engineering or otherwise, the source
programs or any part thereof from the object program or from
other information made available under this license or otherwise
(whether oral, written, tangible or intangible).
6.4.3 The HMS Software shall be used only on a single central
processing unit or mainframe (the "CPU"). Customer shall
advise HMS in advance of the location of the CPU. Use of the HMS
Software shall consist either of copying any portion of the HMS
Software from storage units or media into the CPU, or the
processing of data with the HMS Software, or both. All programs,
documentation, and materials in machine-readable form supplied
under this license shall be kept in a secure place, under access
and use restrictions satisfactory to HMS, and not less strict
than those applied to Customer's most valuable and sensitive
programs. The HMS Software may be temporarily transferred
to another CPU while the specified CPU is undergoing repairs.
6.4.4. The HMS Software may be copied in whole or in part for use by
Customer only for operations backup or archive purposes.
These copies of
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<PAGE> 13
all or any part of the original HMS Software shall be marked with the
copyright notice designated by HMS along with a notice that the HMS
Software is proprietary and the property of HMS, its agents or
licensors. Customer shall maintain records of the number and location
of all copies and shall make these records available to HMS.
6.5. INSPECTION. To assist HMS in the protection of its proprietary rights,
Customer shall permit representatives of HMS to inspect at any reasonable
time any location which items supplied by HMS hereunder are being used
kept by or under the authority of Customer. All inspections shall be
accomplished pursuant to applicable federal and state confidentiality and
privacy laws and the confidentiality provisions of this Agreement.
6.6. INDEMNIFICATION AGAINST INFRINGEMENT CLAIMS.
6.6.1. Should the HMS Software or any part thereof become, or in HMS's
opinion be likely to become, the subject of a claim of
infringement, HMS's sole obligation shall be, at HMS's option
and expense, either (i) to procure for Customer the right to
continue using it, (ii) to replace or modify it so that it
becomes non-infringing (providing that such modification or
replacement does not materially degrade the quality of
performance or materially affect the functionality,
capabilities, quality or reliability of the HMS Software) or
(iii) after reasonable attempts have been made with respect to
the foregoing alternatives, to refund the license fee paid to
HMS by Customer for such allegedly infringing HMS Software
module less reasonable allowance for use to such date, and terminate
this Agreement with respect to such allegedly infringing HMS
Software module only.
6.6.2. HMS shall have no liability or obligation with respect to any
infringement claim based upon
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<PAGE> 14
the combination of the HMS Software and any other software not
authorized by HMS in writing.
7. CONFIDENTIAL INFORMATION. HMS shall not divulge or disclose to any third
parties any information concerning the affairs of Customer which may be
communicated to HMS at any time, unless such information becomes publicly
available through no fault of HMS. HMS shall not exploit, divulge or
disclose to third parties any proprietary systems, application programs or
any business or economic information or methods of Customer of which HMS
may gain knowledge in connection with or in the course of performing
obligations under this Agreement. HMS shall execute such covenants
relating to non-disclosure of Customer's operations or authorized
modifications to the HMS Software as Customer may reasonably request.
8. WARRANTY AND LIMITATION OF LIABILITY.
8.1. SOFTWARE ADAPTION. HMS warrants that the HMS Software will
perform according to the specified current version of the
documentation. If Customer notifies HMS in writing of any errors in
the HMS Software, HMS will correct the errors at no charge so long as
Customer's Software Maintenance Program is in effect.
8.2. MODIFICATIONS OF SOFTWARE. Customer shall inform HMS in writing
of any modifications made to the HMS Software. HMS shall not be
responsible for maintaining Customer's modified portions of the HMS
Software. Corrections for difficulties or defects traceable to
Customer's errors or system changes will be billed at HMS's standard
time and materials rates then in effect.
8.3. LIMITATIONS. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR
ANY AMENDMENTS HERETO, HMS MAKES NO WARRANTY EXPRESS OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
8.3.1. HMS SHALL NOT BE LIABLE FOR PERSONAL INJURY OR PROPERTY
DAMAGE, EXCEPT PERSONAL INJURY OR PROPERTY DAMAGED
CAUSED BY HMS'S NEGLIGENCE. HMS SHALL IN NO EVENT HAVE
OBLIGATIONS OR
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<PAGE> 15
LIABILITIES FOR OTHER TRW ORDINARY DAMAGES. HMS SHALL NOT BE
LIABLE FOR ANY SPECIAL INCIDENTAL, OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR OTHER ECONOMIC
LOSS.
8.3.2. HMS MAKES NO WARRANTIES WITH RESPECT TO HARDWARE.
CUSTOMER ACKNOWLEDGES THAT THE MANUFACTURER'S WARRANTIES ON THE
HARDWARE ARE PROVIDED TO CUSTOMER AS PART OF THIS AGREEMENT, AND
CUSTOMER SHALL TAKE REASONABLE MEASURES TO CONFORM TO ALL
REQUIREMENTS EFFECT AND ENFORCE MANUFACTURER'S WARRANTIES WITH
RESPECT TO THE HARDWARE.
8.3.3. IN NO EVENT SHALL HMS BE LIABLE FOR ANY LOSS OF DATA
WHETHER CAUSED BY THE HARDWARE OR THE HMS SOFTWARE.
8.3.4. CUSTOMER ACKNOWLEDGES THAT IT HAS THE RIGHT SELECT
PERSONNEL FOR TRAINING BY HMS ON USE OF THE HARDWARE AND THE
HMS SOFTWARE THAT HMS IS NOT LIABLE FOR ANY DAMAGES ARISING OUT
OF ANY ALLEGATION BY CUSTOMER THAT HMS IMPROPERLY PERFORMED ITS
DUTIES UNDER ANY PORTION OF THIS AGREEMENT DEALING WITH TRAINING
OF PERSONNEL, EXCEPT FOR ALLEGATIONS THAT HMS FAILED TO CONDUCT
ANY SPECIFIC TRAINING SESSIONS PROVIDED FOR UNDER THIS
AGREEMENT.
9. SOFTWARE MAINTENANCE PROGRAM.
9.1. TERM. The term of the Software Maintenance Program shall commence on
the completion of the installation, conversion and training of
Customer personnel on each Software module when HMS gives written
notification to Customer that the applicable Hardware and HMS Software
module have been placed in good working order and are ready for use by
Customer and shall continue until terminated as provided herein.
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<PAGE> 16
9.2. FEE. Maintenance fees shall be payable monthly, in advance, in accordance
with Exhibit A. In the event that Customer fails to pay any maintenance
fee with thirty (30) days after such payment is due, HMS shall have the
right to terminate the Software Maintenance Program after written notice to
Customer and the expiration of a ten (10) day cure period.
9.3. COVERAGE. The Software Maintenance Program shall consist of the
following:
9.3.1. HMS will supply Customer with any improvements or modifications to
the HMS Software for which HMS does not charge separately as
options, including all federally required changes. Any
corrections or alterations to or new versions of the HMS Software
that HMS shall provide under this Agreement shall be limited to the
delivery of one (1) copy of such HMS Software and documentation to
Customer. Customer agree to install all HMS Software improvement
and modification releases no later than sixty (60) days after
Customer's receipt thereof.
9.3.2. HMS will correct or replace the HMS Software and/or provide
services necessary to remedy any programming error which is
attributable to HMS and which affects the use of the HMS
Software. Such correction, replacement or services will be promptly
accomplished after customer has identified and notified HMS in
writing of any such error. Customer agrees to provide HMS with
file data, as requested, and with sufficient support and test time
Customer's computer system to duplicate the problem, certify that
the problem has indeed been fixed.
9.3.3. The number of hours per month of software support by HMS staff,
including telephone, travel and on-site support is listed on
Exhibit A for each module of HMS Software. All Customer
requested support exceeding such
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<PAGE> 17
number of hours per month for such module will be
billed monthly at HMS's then-current standard hourly rate as
provided in Section 9.5 below.
9.4. OPERATING SYSTEM. As a condition to the continuation of the
Software Maintenance Program, Customer will maintain its
operating system at the level currently supported by HMS.
9.5. ADDITIONAL CHARGES. Corrections for difficulties or defects
traceable to Customer errors or system changes will be billed
at HMS's then-current standard time and material rates. HMS's
current standard hourly rate is $75 per hour. The rate for
Customer-requested modification, enhancement or other Customer
requested changes to the HMS Software will be the then-current
published programming rate. The current rate is $100 per hour.
9.6. OUT-OF-POCKET EXPENSES. Customer shall reimburse HMS for any
out-of-pocket expenses incurred at Customer's request,
including travel to and from the Installation Site, lodging, meals,
telephone and shipping as may be necessary in connection with duties
performed under this Agreement by HMS.
10. SURVIVAL. NOTWITHSTANDING any termination of this Agreement or the
license granted hereunder, the provisions set forth herein concerning the
nondisclosure of information - either of the confidential information of
Customer by HMS or the disclosure of the proprietary rights and
information concerning the HMS Software by Customer shall - survive any
such expiration or termination.
11. MISCELLANEOUS. This Agreement represents the entire, complete and
exclusive statement of the terms and the agreement between the parties,
superseding any and all understandings, prior representations and
agreements, whether oral or written, and all other communications relating
to the subject matter of this Agreement. Customer agrees that it has read
this Agreement, understands it, and agrees to be bound by its terms
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<PAGE> 18
and conditions. Additional terms and conditions of this Agreement are
provided in Exhibit F. Each party signing this Agreement has the full authority
to bind the principal.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first written
above.
TRANSITIONAL CARE OF HEALTHCARE MANAGEMENT SYSTEMS, INC.
AMERICA, INC.
By: David W. Cross By: John Doss
---------------------------- ----------------------------
Title: President & CEO Title: Ex V.P.
------------------------ -------------------------
Date: 11/29/95 Date: October 9, 1995
------------------------ -------------------------
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SCHEDULE OF EXHIBITS
Exhibit A -- Software Description
Exhibit B -- Hardware Description
Exhibit C -- Payment Terms
Exhibit D -- Installation Schedule
Exhibit E -- Installation Sites
Exhibit F -- Additional Terms and Conditions
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<PAGE> 20
EXHIBIT A
SOFTWARE LICENSE FEE
<TABLE>
<CAPTION>
MODULES PER FACILITY SW LICENSE FEE MTHLY SUPPORT TOTAL SUPP HRS
<S> <C> <C> <C>
PACKAGE PRICE $400,000.00 $3,500.00 30.00
Patient Accounting/Medical Records
Electronic Billing-UB92 Medicare/835 Remittance
Fixed Assets
Materials Management
Corporate Accounts Payable,
General Ledger and Payroll
EIS - 2 Users per facility/4 corporate users
TOTAL SOFTWARE INITIAL 11 FACILITIES $400,000.00 $3,500.00 30.00
</TABLE>
For the period of 36 months from the date of this agreement, TCA will have the
option to purchase additional facilities' licenses in either of the two methods
listed below:
1. Eleven facilities' package as above. Same software and payment terms.
2. Each facility individually. Each facility price will be $37,500.
Payments will be spread over the installation, e.g. 10% down, 30%
Software Load, 30% go-live, 30%-30 days after go-live.
Total Corporate Software Support will increase $325 per month for each new
facility.
After the initial 36 month period, HMS will offer TCA the ability to purchase
additional facility licenses at 50% discount of the standard published prices at
that time.
Software support will be subject to any annual increase HMS has, however it can
be no more than 7%.
These costs do not include installation and Training, and associated out-of-
pocket expenses, nor any associated communication costs for remote processing
from a central host system.
HEALTHCARE MANAGEMENT SYSTEMS, INC.
<PAGE> 21
EXHIBIT B
HARDWARE AND IBM SOFTWARE DESCRIPTION
<TABLE>
<CAPTION>
Hardware description Quantity Unit Cost Extended Extended
One-time Hardware
Costs Maint.
<S> <C> <C> <C> <C>
IBM AS/400 9402-200-2031 1 $36,018 $36,018 $85
4GB Disk of Mirrored Storage (8GB)
48 MB Memory
ASCII Workstation Controller
ASCII 12-Port Workstation Attach.
8-Port Twinaxial Expansion
Std. MFIOP Twinax 14 WS
Std. RS 232 One-line
Line-EIA 232/v.24 Two-line Adapter
Three (3)EIA 232/V.24 Enh. Cables
2.5GB Tape Cartridge
IBM 7857-01Z 19.2 KBPS Modem 1 $1,500 $1,500 $12
Exide Prestige EXT 650 UPS 1 $805 $805
Operating System Software 1 $15,245 $15,245
OS/400 V3
Client Access/400 V3
Application Dev. Toolset/400 V3
Query/400 V3
DB2/400 V3
RPG/400 V3
IBM 4232-302 Printers 600 cps 5 $2,595 $12,975 $170
Personal Computer* 5 $2,500 $12,500
Modems 10 $350 $3,500
PSI Software (for PCs) 5 $150 $750
TOTAL-Hardware $83,293 $267
</TABLE>
20
* To be supplied by Customer
<PAGE> 22
EXHIBIT C
PAYMENT TERMS
<TABLE>
<CAPTION>
1-11 FACILITIES
APPLICATIONS ONE-TIME COSTS MTHLY COST
<S> <C> <C> <C>
Initial Agreement 11 Facilities
Patient Accounting
Medical Records
General Ledger
Accounts Payable
Payroll
Electronic Billing-UB92 Medicare/835's
Fixed Assets
Materials Management
EIS- 2 Users per facility/4 corporate users
DUE WITH AGREEMENT $51,250.00
FIRST MONTHS PAYMENT DUE FEBRUARY 1 $20,625.00
2-24 Months MONTHLY INSTALLMENTS $20,627.00
SUPPORT BEGINS FEBRUARY 1 $3,500.00
</TABLE>
NOTES:
Hardware payments are due upon delivery.
Out-of-pocket expenses are billed as incurred.
HEALTHCARE MANAGEMENT SYSTEMS, INC.
<PAGE> 23
EXHIBIT D
INSTALLATION/TRAINING
INSTALLATION AND TRAINING - $112,500
The initial hospital installed will require more installation and training
hours than any other TCA hospital. Parameters, chart of accounts, table files,
etc. are setup specifically to TCA's requirements. Once this is complete,
other hospitals will utilize the same table files, chart of accounts, etc.
for consistent comparative reporting and consolidation of accounts. The
breakdown of hours is listed as follows:
<TABLE>
<CAPTION>
LOCATION PURPOSE TOTAL HOURS
<S> <C> <C>
Hospital # 1 Installing software and training personnel. 362
Hospital #2-#11 Training personnel.
Two weeks of on-site training for each hospital. 800
St. Louis Group Hospital Training Sessions.
Four weeks of group sessions for remote facilities. 160
Hospitals or Additional Training or Operational Assessments 178
St. Louis HMS provides training or recommendations for
enhanced usage of system. This will occur if
necessary after system is in operation.
TOTAL HOURS 1500
At $75/Hour $112,500
</TABLE>
Estimated Out-of-Pocket - $42,000
HMS will make approximately 28 one-week trips to TCA's corporate office
or the eleven hospital locations. The estimated cost per trip is $1,500 @ 28
trips = $42,000.
HEALTHCARE MANAGEMENT SYSTEMS, INC.
<PAGE> 24
EXHIBIT E
INSTALLATION SITES
(1) 7733 Forsyth Blvd., Suite 1100, St. Louis, Missouri 63105.
(2)
(3)
(4)
(5)
22
<PAGE> 25
EXHIBIT F
ADDITIONAL TERMS AND CONDITIONS
This document contains Additional Terms and Conditions to be included in and a
part of the Agreement between Healthcare Management Systems, Inc. and
Transitional Care of America, Inc. In the event there is any conflict between
the provisions of the Agreement and that portion of the Agreement set forth
below, then the Additional Terms and Conditions shall govern.
1. Definitions:
"Documentation" means user and technical documentation relating to the
Software including manuals and printed materials provided by HMS to the
Customer, and any supplements, revisions, and updates thereto which HMS
provides to the Customer or makes generally available to HMS customers to
facilitate use of the System during the term of this Agreement.
"Enhancement" means any modification to the Software made after the
execution of this Agreement.
"Software Support" means maintenance of the Software in order to keep
the Software in good working order.
"Source Code" means the non-compiled instructions written by HMS to
instruct the computer Hardware to perform some operation or group of
operations.
"System" means the Hardware and Software collectively.
2. Software Enhancements:
Customer will be entitled to routine Enhancements made by HMS to the
Software,MS will make available to Customer changes to the Software made
to respond to changes in federal regulations, as described in the
Federal Register, or as deemed appropriate by HMS. Any on-site assistance
required the Customer in the installation of any of these
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<PAGE> 26
enhancements shall be billable at HMS's then-current Support Rates.
3. Software Warranty:
HMS warrants to Customer that the Software will function substantially in
accordance with the HMS Documentation provided to Customer by HMS. This
warranty applies only to unaltered Software, and shall terminate immediately
without notice or other action by HMS, if Customer or any third party modifies
the Software in any way, or performs any unauthorized modifications of Data
Base Operations or changes to the System's operating Software environment.
The Software warranty shall be for the period of ninety (90) days from the date
of installation of an additional individual Software Component, whichever is
applicable; provided, however, if Customer has purchased Software Support from
HMS, the Software warranty shall remain in effect so long as Software Support
is maintained, charges for such support are paid, the Software is not altered,
and changes to the System's operating Software environment have not been
performed by Customer or any third party.
HMS's sole obligation under HMS's Software warranty shall be to repair
or replace and Software Component that fails to perform in accordance with
HMS's Documentation, provided HMS is notified of the failure prior to
expiration of the Software period.
4. Patent and Copyright Indemnify.
HMS shall defend or settle any proceedings brought against the Customer to
the extent that it is based on a claim alleging Software used within the
scope of the License granted herein constitutes an infringement of a U.S.
copyright or an existing U.S. Patent. Provided that HMS is notified
promptly in writing and is given complete authority and information
required for the defense of same, HMS shall pay all damages and costs
awarded therein against the Customer, but HMS shall not be responsible for
any cost, expense or compromise incurred or made by Customer without HMS's
prior written consent. If, at any time, HMS is of the opinion that the
Software, or any portion thereof, is likely
24
<PAGE> 27
to become the subject of any such action, HMS may, at HMS's sole option
and expense, obtain the right to continue use such Software, or replace or
modify such Software; provided, however, that no such replacement or
modification shall impair the performance of the System.
5. Dispute Resolution.
Any dispute between the parties herein which is not resolved in the
normal course of business or as otherwise provided herein, shall be
resolved as follows:
(a) within ten (10) working days from the sending of written notice by
either party, the HMS CSR and the Customer's CPC shall meet and
attempt to resolve the dispute.
(b) If the dispute is not resolved pursuant to the foregoing
procedures with thirty (30) days of the initial written notice,
the Customer CPC and the HMS CSR, the Customer Chief Executive
Officer (or equivalent corporate office) and HMS President or Chief
Operating officer shall meet to attempt to resolve the dispute.
6. Arbitration.
With the exception of disputes regarding HMS's proprietary rights in
the Software, all disputes arising under or related to this Agreement or
the transactions between Customer and HMS shall be submitted to binding
arbitration under the rules then prevailing of the American Arbitration
Association, and judgement upon the award rendered may be entered and
enforced in any court of competent jurisdiction. The arbitrator appointed
by the American Arbitration Association shall be knowledgeable in
and familiar with the health care data processing industry, shall have
jurisdiction to resolve disputes only in accordance with the provisions
and limitations of this Agreement, shall follow substantive rules of law
to the extent not inconsistent therewith, shall require the testimony to
be transcribed on the request of either party, and shall render a decision
in writing accompanied by finding of fact and a statement of
25
<PAGE> 28
reasons for the decision. The arbitrator will be required to maintain
confidential all property information of the parties disclosed during the
arbitration proceeding.
26
<PAGE> 1
EXHIBIT 10.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of November 29, 1995, is by and among
Transitional Care of America, Inc, a Delaware corporation (the "Purchaser"),
HEALTHCARE MANAGEMENT SYSTEMS, INC., a Tennessee corporation ("Seller")
(Purchaser and Seller are hereafter referred to collectively as the
Indemnifying Parties"), and WYATT, TARRANT & COMBS, a Kentucky general
partnership ("Escrow Agent").
WITNESSETH:
WHEREAS, Purchaser and the Indemnifying Parties have entered into that certain
Hardware and Software Licensing Agreement (the "Agreement" dated as of November
29, 1995;
WHEREAS, the parties to the Agreement have agreed that the "Source Code" will
be placed into escrow in accordance with the terms of the Agreement; and
WHEREAS, Escrow Agent is willing to accept such deposit and to act as escrow
agent hereunder;
NOW THEREFORE, in consideration of the covenants herein contained and subject
to the terms and conditions hereof, the parties hereto agree as follows:
1. Escrowed Source Code. Seller has tendered to Escrow Agent a computer
diskette or tape which Seller represents contains the Source Code (the "Disk").
The Code shall be held or controlled by Escrow Agent in accordance with the
terms of this Agreement. The parties hereto understand that Escrow Agent's
acknowledgement of receipt of the Disk is as of the day and date written above
and that the Escrow Agent has not verified and will not verify the information
contained on the Disk.
(a) Upon receipt by Escrow Agent of a letter or certificate
signed by both the Seller and Purchaser instructing the Escrow Agent to deliver
the Disk, Escrow Agent shall deliver the Disk in accordance with the
instructions contained in that letter.
(b) Upon receipt by Escrow Agent of a certificate signed by
Purchaser which states that the Seller has failed to perform its obligations
under the Agreement, Escrow Agent shall deliver to Seller a copy of such
certificate. If the Seller fail to notify the Escrow Agent within ten (10)
days of its receipt of the certificate that it disputes the Purchaser's
certificate, Escrow Agent shall deliver to Purchaser the Disk. If Seller does
notify the Escrow Agent that it disputes the Purchaser's certificate, the
disposition of the Disk shall be governed by Section 2 hereof.
1
<PAGE> 2
2. In the event of a dispute between the Purchaser and Seller hereto
sufficient in the sole discretion of the Escrow Agent, the Escrow Agent may, (i)
continue to hold the Disk or (ii) take affirmative steps as it may, at its
option, elect in order to terminate its duties as Escrow Agent, including, but
not limited to the deposit of the Disk held by it hereunder with a court of
competent jurisdiction and the commencement of an action for interpleader, the
costs of which shall be borne by whichever of the parties is the losing party.
3. Certain Covenants. Purchaser and Seller agree that:
(a) Escrow Agent shall not be responsible for the genuineness of any
signature and may rely conclusively upon and shall be protected in acting upon
any certificate, notice, request, consent, statement, instruction or other
instrument believed by it in good faith to be genuine or to be signed or
presented by the proper person, or duly authorized or properly made. Escrow
Agent shall not be responsible for any of the covenants or agreements
contained herein or in the Agreement or for the performance of any such
covenants or agreements, except the performance of its duties as expressly set
forth herein.
(b) Escrow Agent shall not be bound by any notice of, or demand with
respect to, any waiver, modification, amendment, termination, cancellation,
recision or supersession of this Escrow Agreement, unless in writing and signed
by Purchaser and Seller, and, if the duties of Escrow Agent herein are affected
thereby, unless it shall have given its prior written consent thereto. In the
event of any controversy or dispute hereunder, or with respect to any question
as to the construction of this Escrow Agreement, or any action to be taken by
Escrow Agent hereunder, Escrow Agent may advise with its counsel and shall incur
no liability for any action taken or suffered in good faith in accordance with
the advice or opinion of such counsel.
(c) The duties and obligations of Escrow Agent hereunder shall be
governed solely by the provisions of this Escrow Agreement and Escrow Agent
shall have no duties other than duties expressly imposed herein and shall not
be required to take any action other than in accordance with the terms hereof.
(d) Escrow Agent shall not be liable or responsible for anything done
or omitted to be done by it hereunder in good faith, it being understood that
its liability hereunder shall be limited solely to gross negligence or willful
misconduct on its part. Purchaser and Seller jointly and severally agree to
indemnify and hold harmless Escrow Agent against all loss, claim, expenses
(including reasonable counsel fees) and liability which may be imposed upon it
or incurred by it in connection with its acceptance of appointment as Escrow
Agreement hereunder or the performance of its
2
<PAGE> 3
duties hereunder including any litigation arising from the foregoing or
involving the subject matter hereof.
4. Binding Effect. This Escrow Agreement shall be binding and shall
inure to the benefit of the parties hereto.
5. Termination. This Escrow Agreement shall terminate upon the
delivery of the Disk hereunder and all interest accruing thereon either to
Purchaser or Seller as provided in Section 1 hereof, or the deposit of the Disk
in court and filing of an interpleader action as provided in Section 2 hereof.
6. Notices. All notices or communications required or permitted by
this Escrow Agreement shall be in writing and shall be sufficiently given if
mailed or delivered:
(a) If to Seller:
3401 West End Avenue, Suite 290
Nashville, Tennessee 37203
Attn: President
(615) 383-6093
(b) If to Purchaser:
Transitional Care of America, Inc.
7733 Forsyth Blvd, Ste 1100
St. Louis, MO 63101
Attention:_____________________________________
Fax: (___) ___________________________________
(c) if to Escrow Agent, addressed to it at:
Wyatt, Tarrant & Combs
511 Union Street, Suite 1500
Nashville, Tennessee 37219
Attention: Keith C. Dennen
Fax: (615) 256-1726
or to any other address or addresses which shall hereafter have been filed from
time to time by the respective parties with Escrow Agent for such purpose. A
copy of any notice or communication given by any party to any other party
hereto with reference to this Escrow Agreement shall be mailed at the same time
to every party to this Escrow Agreement.
7. Applicable Law. This Escrow Agreement shall be deemed to be a
contract made under the laws of Tennessee and for all purposes shall be
construed in accordance with and governed by the laws of such sate.
3
<PAGE> 4
8. Amendments. Neither this Escrow Agreement nor any term or provision
thereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which the enforcement of the
change, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, we have set out hands this the day and year first
above written.
SELLER:
HEALTHCARE MANAGEMENT SYSTEMS, INC.
a Tennessee Corporation
By: John Doss
-------------------------------
Title: Ex VP
----------------------------
PURCHASER:
Transitional Care of America, Inc.
----------------------------------
a Delaware Corporation
By: David W. Cross
-------------------------------
Title: PRESIDENT & CEO
----------------------------
ESCROW AGENT:
WYATT, TARRANT & COMBS
By: Keith C. Dennen
-------------------------------
Title: Partner
----------------------------
4
<PAGE> 1
EXHIBIT 10.6
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF DAVID W. CROSS
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered
into as of the date last written below, between TRANSITIONAL CARE OF AMERICA,
INC., a Delaware corporation ("EMPLOYER" or the "COMPANY"), and DAVID W. CROSS,
residing at 10 Lindworth Drive, St. Louis, Missouri 63124 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer and Employee entered into an Employment Agreement dated
as of September 22, 1994, and a First Amended and Restated Employment Agreement
dated as of December 22, 1994, and Employer and Employee desire to further
amend and restate said Employment Agreement;
WHEREAS, Employer desires to retain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to maintain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the President and Chief Executive Officer of the Company. Employee
shall have such authority and shall perform such duties as are specified by the
Bylaws of the Company for the offices to which he has been appointed hereunder
and shall so serve; subject, however, to such limitations, instructions,
directions, and control as the Board of Directors of the Company may specify
from time to time in its sole discretion. Employer further agrees to use its
best efforts to cause Employee to be appointed to the Board of Directors of
Employer and to the Executive Committee of that Board, if any, to serve until
the next annual meeting of the shareholders, and thereafter to nominate
Employee for election as a director during the Term of Employment. In
furtherance of the foregoing, Employee shall, subject to the direction and
instruction of Employer: (a) devote Employee's full and entire working time,
attention and energies to Employer, and will diligently and to the best of
employee's ability perform all duties incident to Employee's employment
hereunder; (b) use Employee's best efforts to promote the interests of
Employer; and (c) perform such other duties as Employer may from time to time
direct.
Employment Agreement - David W. Cross Page 1
<PAGE> 2
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth in Sections 4, 5 and 6 hereof, Employer shall pay Employee effective
as of January 1, 1996, a salary of One Hundred Seventy-Five Thousand Dollars
($175,000.00) per year, payable on a semi-monthly basis, subject to such
payroll and withholding deductions as may be required by law. Employee's
compensation arrangement will be reviewed annually by the Board of Directors.
Employee shall be reimbursed for all the actual costs and expenses
incurred by him in the performance of his duties. Employee shall be entitled
to an three (3) weeks paid vacation time each year (and in addition thereto,
three (3) weeks during the first year of this Employment Agreement), disability
insurance in an amount equal to sixty percent (60%) of Employee's base salary
so long as said insurance is available on commercially reasonably terms,
premiums for life insurance in the face amount of Five Hundred Thousand and
00/100 Dollars ($500,000.00) a cost of up to $2,500.00 per annum, an annual car
allowance in the amount of Seven Thousand Eight Hundred and 00/100 Dollars
($7,800.00) and other benefits (e.g., sick leave and health insurance) in
accordance with Employer's policies as from time to time established. Employee
shall also be eligible to participate in any other benefit plan adopted by
Employer.
3.2 Bonus. In addition to the salary payable to Employee, Employee shall
be entitled to an annual bonus as determined by the Compensation Committee of
the Board of Directors. The Compensation Committee shall develop an incentive
bonus plan for the Employee based upon goals and incentives established
mutually by the Compensation Committee and the Employee. All such annual
bonuses shall be payable on or before March 31 for the preceding year.
3.3 Supplemental Bonus. Employee, as of the execution of this Agreement,
will owe Employer $22,500 for stock purchased in Advanced Rehabilitation
Resources, Inc. and evidenced by a promissory note. As a supplemental bonus to
Employee, Employer will forgive the principal amount of and interest on the
note on September 22, 1997, assuming that the Employee is still employed by
Employer on such date.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists, books, records, files, or other documents (or
copies thereof) or other confidential information of any kind belonging to
Employer or an Affiliate pertaining to the business, sales, financial
condition, products or other activities thereof.
Employment Agreement - David W. Cross Page 2
<PAGE> 3
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, know-how, proprietary information,
trademarks, tradenames or other developments, or future improvements thereto
(collectively "ITEMS"), developed or conceived by Employee during the term of
this Agreement are the property of Employer and shall be promptly disclosed to
Employer. Employee shall further execute an assignment of such Items to
Employer and execute such other instruments as Employer shall request to
protect Employer's interest in such Items. Employee represents that his
performance of this Agreement does not and will not breach any agreement to
keep in confidence items acquired by him in confidence or in trust prior to his
employment with Employer. Employee agrees not to disclose to Employer or
induce Employer to use any Items belonging to any previous employer or others.
Employee further agrees not to enter into any agreement, either written or
oral, in conflict herewith. This covenant shall be perpetual and shall survive
the termination or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, Employee will not directly or
indirectly own, manage, operate, control, participate in the management or
control of, be employed by, lend Employee's name to or maintain or continue any
interest whatsoever in any enterprise (a) having to do with the provision,
distribution, marketing, promotion, or advertising of any type(s) of service(s)
or product(s) in direct competition to those offered by Employer within (i)
the fifty (50) states of the United States, (ii) United States territories and
possessions, and (iii) each foreign country, possession or territory in which
Employer may be engaged in business at the termination of Employee's employment
or at any time within twelve (12) months prior thereto; but only if Employee
was directly or indirectly responsible for such business while he was employed
by Employer or if Employee was directly or indirectly involved or exposed to
plans for such business at any time within twelve (12) months prior to
termination. Additionally, for a period of one (1) year after the end of the
Term of Employment or the earlier termination of this Agreement, Employee will
not directly or indirectly own, manage, operate, control, participate in the
management or control of, be employed by, lend Employee's name to or maintain
or continue any interest whatsoever in any enterprise in direct competition
with the business of the Company or any of its Affiliates within a 50-mile
radius of the location of any competing or substantially similar facility of
the Company or an Affiliate; but only if Employee was directly or indirectly
involved or exposed to plans for such business at any time within twelve (12)
months prior to the end of the Term of Employment. Employee further agrees
that if any restriction contained in this Section 6 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be severable
therefrom and be enforced in its place, and the remaining restrictions
contained herein shall be enforceable independently of each other.
Employment Agreement - David W. Cross Page 3
<PAGE> 4
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on September 22, 1994, and expiring at 12:00 A.M. CST on
the fifth (5th) anniversary of such date.
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness or resulting from a
diminution of Employee's duties following a Change of Control. For purposes of
this Agreement, a Change of Control shall mean and be deemed to have occurred
if: (a) there shall be consummated (x) any consolidation or merger of Employer
with another corporation or entity and, as a result of such consolidation or
merger, less than sixty percent (60%) of the outstanding voting securities of
the surviving or resulting corporation or entity shall be owned in the
aggregate by the stockholders of Employer, other than affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended) of any party to
such consolidation or merger, as the same shall have existed immediately prior
to such consolidation or merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of Employer, or (b) the stockholders of
Employer shall have approved any plan or approval for the liquidation or
dissolution of the company, or (c) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), shall have
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act), of twenty percent (20%) or more of Employer's outstanding common
stock, without the prior approval of Employer's Board of Directors, or (d) if
the majority of the Directors of Employer are replaced in a contested election.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise, or
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
In the event that Employee is terminated for cause, Employer shall pay
Employee's salary through the date of termination, and shall thereafter have no
further obligation to Employee, provided, however, that Employee's obligations
pursuant to Section 6 shall continue in full force and effect for a period
equal to the balance of the Term of Employment had this Agreement not been
terminated. For purposes of this section, no act, or failure to act, on the
part of the Employee shall
Employment Agreement - David W. Cross Page 4
<PAGE> 5
be deemed "willful" unless done, or omitted to be done, by the Employee without
good faith and without reasonable belief that the action or omission was in the
best interest of Employer.
(c) Long-Term Disability. Should Employee commence a Long-Term Disability
and such Long-Term Disability continues beyond six (6) months, Employee's
employment hereunder may, at the option of the Employer, terminate upon written
notice of such termination. Unless and until Employee's employment is so
terminated, Employer shall continue to compensate Employee as provided in
Section 3 hereof, offset by any payments to which Employee may be entitled
under any disability plan of Employer. Termination pursuant to this paragraph
shall not constitute termination for "cause." Employee shall have commenced a
"Long-Term Disability" if: (i) Employee cannot perform the essential functions
of his employment position, with or without a reasonable accommodation for his
disability; or (ii) Employee cannot perform the essential functions of his
employment position without an accommodation that would be an undue hardship
for Employer to provide. The foregoing definition of Long-Term Disability is
not intended to and shall not affect the definition of "disability" or any
similar term in any insurance policy Employer may provide.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time, effective upon sixty (60) days written notice of
termination; provided, however, if Employer shall terminate Employee's
employment hereunder without cause, then upon any such termination, and as a
condition to the effectiveness thereof, Employer shall be obligated to pay to
Employee as severance pay an amount equal to one (1) year salary, payable in
substantially equal bi-weekly installments at the level then being paid to
Employee. In such event, Employee will only be eligible for the accrued bonus
payable. Employer also shall continue Employee's medical and other benefits
until Employee is reemployed and eligible for medical and other benefits in
connection with such reemployment or for the Term of the Agreement, which ever
is the first to occur. In the event that Employee is reemployed, but the
benefits provided through such reemployment are less than the benefits provided
under this Agreement, the Employer shall pay to Employee, in monthly
installments, such difference in value. Should Employee die before receipt of
the severance payments, then such payments will be made to the executors or
administrators of Employee's estate.
In the event of a termination under Sections 7(c) or (d), Employee's
obligations under Section 6 shall remain in effect so long as Employer makes
severance or disability payments.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
4(d) above if (a) the Employer significantly alters Employee's employment as
set forth in Section 2 above to the detriment of Employee, or (b) significantly
alters Employee's reporting responsibilities as set forth in Section 2 above,
or (c) there is a Change of Control, or (d) Employee is required to move his
residence to a location which is not acceptable.
Employment Agreement - David W. Cross Page 5
<PAGE> 6
(ii) If Employee resigns without cause (a) all compensation and benefits
Employee is to receive pursuant to the terms of this Agreement shall cease as
of the effective date of such resignation ("Resignation Date") and (b)
Employee will be subject to the obligations of Section 6 for what would have
been the remaining term of the Agreement, or for a period of twelve (12) months
from the Resignation Date, whichever is longer.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employee Employer
-------- --------
Mr. David W. Cross Transitional Care of America, Inc.
10 Lindworth Drive 7733 Forsyth Boulevard
St. Louis, Missouri 63124 Suite 1100
St. Louis, Missouri 63105
Attention: Mr. David L. Steffy
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
Employment Agreement - David W. Cross Page 6
<PAGE> 7
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.10 Entire Agreement. This Second Amended and Restated Employment
Agreement supersedes all previous contracts, specifically including the
Employment Agreement dated as of September 22, 1994, and the First Amended and
Restated Employment Agreement dated as of December 30, 1994, and constitutes
the entire Agreement between parties. Employee shall be entitled to no other
benefits than those specified herein. No oral statements or prior written
material not specifically incorporated herein shall be of any force and effect,
and no changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to
become effective on the date stipulated therein. Employee specifically
acknowledges that in entering into and executing this Agreement, Employee
relies solely upon the representations and agreements contained in this
Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
12th day of June, 1996.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By John R. Lewis
---------------------------
Authorized Officer
EMPLOYEE: David W. Cross
-------------------------------
David W. Cross
Employment Agreement - David W. Cross Page 7
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF JOHN R. LEWIS
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered
into as of the date last written below, between TRANSITIONAL CARE OF AMERICA,
INC., a Delaware corporation ("EMPLOYER" or the "COMPANY"), and JOHN R. LEWIS,
342 Woodcliffe Place Drive, Chesterfield, Missouri 63005, ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer and Employee entered into an Employment Agreement dated
as of September 22, 1994, and a First Amended and Restated Employment Agreement
dated as of December 22, 1994, and Employer and Employee desire to further
amend and restate said Employment Agreement.
WHEREAS, Employer desires to retain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to maintain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the Executive Vice President and Chief Operating Officer of the
Company and shall report directly to the Company's Chief Executive Officer.
Employee shall be responsible for overseeing the day-to-day operations of
Company's patient units and for employees engaged in those efforts. Employee
shall have such authority and shall perform such duties as are specified by the
Bylaws of the Company for the offices to which he has been appointed hereunder
and shall so serve; subject, however, to such limitations, instructions,
directions, and control as the Chief Executive Officer of the Company may
specify from time to time in his sole discretion. In furtherance of the
foregoing, Employee shall, subject to the direction and instruction of
Employer: (a) devote Employee's full and entire working time, attention and
energies to Employer, and will diligently and to the best of employee's ability
perform all duties incident to Employee's employment hereunder; (b) use
Employee's best efforts to promote the interests of Employer; and (c) perform
such other duties as Employer may from time to time direct.
Employment Agreement - John R. Lewis Page 1
<PAGE> 2
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth in Sections 4, 5 and 6 hereof, Employer shall pay Employee effective
as of January 1, 1996, a salary of One Hundred Forty Thousand Dollars
($140,000.00) per year, payable on a semi-monthly basis, subject to such
payroll and withholding deductions as may be required by law. Employee's
compensation arrangement will be reviewed annually by the Board of Directors.
Employee shall be reimbursed for all the actual costs and expenses
incurred by him in the performance of his duties. Employee shall be entitled
to an three (3) weeks paid vacation time each year (and in addition thereto,
three (3) weeks during the first year of this Employment Agreement), disability
insurance in an amount equal to sixty percent (60%) of Employee's base salary
so long as said insurance is available on commercially reasonable terms,
premiums for life insurance in the face amount of Five Hundred Thousand and
00/100 Dollars ($500,000.00) at a cost of up to $2,500.00 per annum, an annual
car allowance in the amount of Seven Thousand Eight Hundred and 00/100 Dollars
($7,800.00) and other benefits (e.g., sick leave and health insurance) in
accordance with Employer's policies as from time to time established. Employee
shall also be eligible to participate in any other benefit plan adopted by
Employer.
3.2 Bonus. In addition to the salary payable to Employee, Employee shall
be entitled to an annual bonus as determined by the Compensation Committee of
the Board of Directors. The Compensation Committee shall develop an incentive
bonus plan for the Employee based upon goals and incentives established
mutually by the Compensation Committee and the Employee. All such annual
bonuses shall be payable on or before March 31 for the preceding year.
3.3 Supplemental Bonus. Employee, as of the execution of this Agreement,
will owe Employer $22,500 for stock purchased in Advanced Rehabilitation
Resources, Inc. and evidenced by a promissory note. As a supplemental bonus to
Employee, Employer will forgive the principal amount of and interest on the
note on September 22, 1997, of this Agreement, assuming that the Employee is
still employed by Employer on such date.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists, books, records, files, or other documents (or
copies thereof) or other confidential information of any kind belonging to
Employer or an Affiliate pertaining to the business, sales, financial
condition, products or other activities thereof.
Employment Agreement - John R. Lewis Page 2
<PAGE> 3
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, know-how, proprietary information,
trademarks, tradenames or other developments, or future improvements thereto
(collectively "ITEMS"), developed or conceived by Employee during the term of
this Agreement are the property of Employer and shall be promptly disclosed to
Employer. Employee shall further execute an assignment of such Items to
Employer and execute such other instruments as Employer shall request to
protect Employer's interest in such Items. Employee represents that his
performance of this Agreement does not and will not breach any agreement to
keep in confidence items acquired by him in confidence or in trust prior to his
employment with Employer. Employee agrees not to disclose to Employer or
induce Employer to use any Items belonging to any previous employer or others.
Employee further agrees not to enter into any agreement, either written or
oral, in conflict herewith. This covenant shall be perpetual and shall survive
the termination or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, Employee will not directly or
indirectly own, manage, operate, control, participate in the management or
control of, be employed by, lend Employee's name to or maintain or continue any
interest whatsoever in any enterprise (a) having to do with the provision,
distribution, marketing, promotion, or advertising of any type(s) of service(s)
or product(s) in direct competition to those offered by Employer within (i)
the fifty (50) states of the United States, (ii) United States territories and
possessions, and (iii) each foreign country, possession or territory in which
Employer may be engaged in business at the termination of Employee's employment
or at any time within twelve (12) months prior thereto; but only if Employee
was directly or indirectly responsible for such business while he was employed
by Employer or if Employee was directly or indirectly involved or exposed to
plans for such business at any time within twelve (12) months prior to
termination. Additionally, for a period of one (1) year after the end of the
Term of Employment or the earlier termination of this Agreement, Employee will
not directly or indirectly own, manage, operate, control, participate in the
management or control of, be employed by, lend Employee's name to or maintain
or continue any interest whatsoever in any enterprise in direct competition
with the business of the Company or any of its Affiliates within a 50-mile
radius of the location of any competing or substantially similar facility of
the Company or an Affiliate; but only if Employee was directly or indirectly
involved or exposed to plans for such business at any time within twelve (12)
months prior to the end of the Term of Employment. Employee further agrees
that if any restriction contained in this Section 6 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be severable
therefrom and be enforced in its place, and the remaining restrictions
contained herein shall be enforceable independently of each other.
Employment Agreement - John R. Lewis Page 3
<PAGE> 4
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on September 22, 1994, and expiring at 12:00 A.M. CST on
the fifth (5th) anniversary of such date.
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness or resulting from a
diminution of Employee's duties following a Change of Control. For purposes of
this Agreement, a Change of Control shall mean and be deemed to have occurred
if: (a) there shall be consummated (x) any consolidation or merger of Employer
with another corporation or entity and, as a result of such consolidation or
merger, less than sixty percent (60%) of the outstanding voting securities of
the surviving or resulting corporation or entity shall be owned in the
aggregate by the stockholders of Employer, other than affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended) of any party to
such consolidation or merger, as the same shall have existed immediately prior
to such consolidation or merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of Employer, or (b) the stockholders of
Employer shall have approved any plan or approval for the liquidation or
dissolution of the company, or (c) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), shall have
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act), of twenty percent (20%) or more of Employer's outstanding common
stock, without the prior approval of Employer's Board of Directors, or (d) if
the majority of the Directors of Employer are replaced in a contested election.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise, or
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
In the event that Employee is terminated for cause, Employer shall pay
Employee's salary through the date of termination, and shall thereafter have no
further obligation to Employee, provided, however, that Employee's obligations
pursuant to Section 6 shall continue in full force and effect for a period
equal to the balance of the Term of Employment had this Agreement not been
terminated. For purposes of this section, no act, or failure to act, on the
part of the Employee shall
Employment Agreement - John R. Lewis Page 4
<PAGE> 5
be deemed "willful" unless done, or omitted to be done, by the Employee without
good faith and without reasonable belief that the action or omission was in the
best interest of Employer.
(c) Long-Term Disability. Should Employee commence a Long-Term Disability
and such Long-Term Disability continues beyond six (6) months, Employee's
employment hereunder may, at the option of the Employer, terminate upon written
notice of such termination. Unless and until Employee's employment is so
terminated, Employer shall continue to compensate Employee as provided in
Section 3 hereof, offset by any payments to which Employee may be entitled
under any disability plan of Employer. Termination pursuant to this paragraph
shall not constitute termination for "cause." Employee shall have commenced a
"Long-Term Disability" if: (i) Employee cannot perform the essential functions
of his employment position, with or without a reasonable accommodation for his
disability; or (ii) Employee cannot perform the essential functions of his
employment position without an accommodation that would be an undue hardship
for Employer to provide. The foregoing definition of Long-Term Disability is
not intended to and shall not affect the definition of "disability" or any
similar term in any insurance policy Employer may provide.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time, effective upon sixty (60) days written notice of
termination; provided, however, if Employer shall terminate Employee's
employment hereunder without cause, then upon any such termination, and as a
condition to the effectiveness thereof, Employer shall be obligated to pay to
Employee as severance pay an amount equal to one (1) year salary, payable in
substantially equal bi-weekly installments at the level then being paid to
Employee. In such event, Employee will only be eligible for the accrued bonus
payable. Employer also shall continue Employee's medical and other benefits
until Employee is reemployed and eligible for medical and other benefits in
connection with such reemployment or for the Term of the Agreement, which ever
is the first to occur. In the event that Employee is reemployed, but the
benefits provided through such reemployment are less than the benefits provided
under this Agreement, the Employer shall pay to Employee, in monthly
installments, such difference in value. Should Employee die before receipt of
the severance payments, then such payments will be made to the executors or
administrators of Employee's estate.
In the event of a termination under Sections 7(c) or (d), Employee's
obligations under Section 6 shall remain in effect so long as Employer makes
severance or disability payments.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
4(d) above if (a) the Employer significantly alters Employee's employment as
set forth in Section 2 above to the detriment of Employee, or (b) significantly
alters Employee's reporting responsibilities as set forth in Section 2 above,
or (c) there is a Change of Control, or (d) Employee is required to move his
residence to a location which is not acceptable.
(ii) If Employee resigns without cause (a) all compensation and benefits
Employee is to receive pursuant to the terms of this Agreement shall cease as
of the effective date
Employment Agreement - John R. Lewis Page 5
<PAGE> 6
of such resignation ("Resignation Date") and (b) Employee will be subject to
the obligations of Section 6 for what would have been the remaining term of the
Agreement, or for a period of twelve (12) months from the Resignation Date,
whichever is longer.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
<TABLE>
<S> <C>
Employee Employer
---------------------------- ----------------------------------
Mr. John R. Lewis Transitional Care of America, Inc.
342 Woodcliffe Place Drive 7733 Forsyth Boulevard
Chesterfield, Missouri 63005 Suite 1100
St. Louis, Missouri 63105
Attention: Mr. David W. Cross
</TABLE>
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
Employment Agreement - John R. Lewis Page 6
<PAGE> 7
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.10 Entire Agreement. This Second Amended and Restated Employment
Agreement supersedes all previous contracts, specifically including the
Employment Agreement dated as of September 22, 1994, and the First Amended and
Restated Employment Agreement dated as of December 30, 1994, and constitutes
the entire Agreement between parties. Employee shall be entitled to no other
benefits than those specified herein. No oral statements or prior written
material not specifically incorporated herein shall be of any force and effect,
and no changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to
become effective on the date stipulated therein. Employee specifically
acknowledges that in entering into and executing this Agreement, Employee
relies solely upon the representations and agreements contained in this
Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
12th day of June, 1996.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By David W. Cross
----------------------------
David W. Cross, President
EMPLOYEE: John R. Lewis
--------------------------------------
John R. Lewis
Employment Agreement - John R. Lewis Page 7
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
JOHN P. KEEFE
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of
June, 1995, between TRANSITIONAL CARE OF AMERICA, INC., a Delaware corporation
("EMPLOYER" or the "COMPANY"), and JOHN P. KEEFE, 4017 230th Place, S.E.,
Issaquah, Washington 98021 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to obtain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the Chief Financial Officer of the Company and shall report
directly to the Company's Chief Executive Officer. Employee shall be
responsible for the Company's day-to-day financial operations. Employee shall
have such authority and shall perform such duties as are specified by the Chief
Executive Officer from time to time in his sole discretion. In furtherance of
the foregoing, Employee shall, subject to the direction and instruction of
Employer: (a) devote Employee's full and entire working time, attention and
energies to Employer, and will diligently and to the best of employee's ability
perform all duties incident to Employee's employment hereunder; (b) use
Employee's best efforts to promote the interests of Employer; and (c) perform
such other duties as Employer may from time to time direct.
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth herein. Employer shall pay Employee a base salary of One Hundred
Twenty Thousand Dollars ($120,000.00)
Employment Agreement - John P. Keefe Page 1
<PAGE> 2
per year during the term of this Agreement, payable on a semi-monthly basis,
subject to such payroll and withholding deductions as may be required by law.
This base salary is subject to annual review.
Employee shall be reimbursed for all the reasonable actual costs and
expenses incurred by him in the performance of his duties. Employee shall be
entitled to two (2) weeks paid vacation time each year and other benefits
(e.g., sick leave and health insurance) in accordance with Employer's policies
as from time to time established. Employee shall also be eligible to
participate in any other benefit plan adopted by Employer for similarly
situated employees. The Company has implemented a stock option plan for its
key employees. At the first meeting of the Company's Board of Directors
following execution of this Agreement, the Chief Executive Officer will
recommend to the Company's Board of Directors that Employee shall be entitled
to participate in such plan on such terms as shall be approved by the Company's
Board of Directors, which will include the grant of the right to purchase
stock in the Company equal to two percent (2%) of the issued and outstanding
capital stock of the Company on a fully diluted basis as of the date of this
Agreement, which options shall vest over a period of five (5) years.
3.2 Bonus Plan. Employer will establish an incentive bonus plan for
Employee based upon goals and incentives established mutually by the Employee
and the Chief Executive Officer. In each fiscal year Employee will be eligible
for a bonus up to forty percent (40%) of his base salary based upon
accomplishment of the goals and incentives.
3.3 Moving Expenses. The Company shall reimburse Employment for all
Qualified Moving Expenses (expenses that would be deductible moving expenses
under the Internal Revenue Code of 1986, as amended, if paid or incurred
directly by the Employee). Employee shall provide the Company with written
documentation substantiating said expenses and Employee agrees to return to the
Company any amounts in excess of the substantiated expenses.
3.4 Relocation Bonus. At such time as Employee has been reimbursed for
all Qualified Moving Expenses, the Company shall pay to the Employee a bonus
in amount equal to the difference between the sum of $54,000.00 and Employee's
reimbursed Qualified Moving Expenses.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists, books, records, files, or other documents (or
copies thereof) or other confidential information of any kind belonging to
Employer or an Affiliate pertaining to the business, sales, financial
condition, products or other activities thereof.
Employment Agreement - John P. Keefe Page 2
<PAGE> 3
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, proprietary information, trademarks,
tradenames or other developments, or future improvements thereto (collectively
"ITEMS"), developed or conceived by Employee during the term of this Agreement
are the property of Employer and shall be promptly disclosed to Employer.
Employee shall further execute an assignment of such Items to Employer and
execute such other instruments as Employer shall request to protect Employer's
interest in such Items. Employee represents that his performance of this
Agreement does not and will not breach any agreement to keep in confidence
items acquired by him in confidence or in trust prior to his employment with
Employer. Employee agrees not to disclose to Employer or induce Employer to
use any Items belonging to any previous employer or others. Employee further
agrees not to enter into any agreement, either written or oral, in conflict
herewith. This covenant shall be perpetual and shall survive the termination
or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, and for a period of one (1) year
thereafter Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
Employee's name to or maintain or continue any interest whatsoever in any
enterprise (a) having to do with the provision, distribution, marketing,
promotion, or advertising of any type(s) of service(s) or product(s) in direct
competition to those offered by Employer within (i) the fifty (50) states of
the United States, (ii) United States territories and possessions, and (iii)
each foreign country, possession or territory in which Employer may be engaged
in business at the termination of Employee's employment or at any time within
twelve (12) months prior thereto. For purposes of this Agreement, short-term
acute care hospitals shall not be considered to be in competition with the
Employer. Employee further agrees that if any restriction contained in this
Section 6 is held by any court to be unenforceable or unreasonable, a lesser
restriction shall be severable therefrom and be enforced in its place, and the
remaining restrictions contained herein shall be enforceable independently of
each other. Employee represents and covenants to Employer that his entering
into and performing his obligations under this Agreement shall not breach any
other agreement to which Employee is a party.
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on June 1, 1995 (the "Commencement Date") and shall
continue for two (2) years from the Commencement Date unless sooner terminated
as hereinafter provided (the "Initial Term") and any Renewal Term (as
hereinafter defined). Upon the conclusion of the Initial Term or any Renewal
Term this Agreement will automatically renew for one (1) year periods (each a
Renewal Term) unless either party gives notice of intent not to renew this
Agreement at least three (3) months prior to the commencement of any Renewal
Term. Prior to the Commencement Date, the Company
Employment Agreement - John P. Keefe Page 3
<PAGE> 4
may disclose confidential information to Employee which information shall be
kept confidential pursuant under the terms of this Agreement.
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise.
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
In the event that Employee is terminated for cause, Employer shall pay
Employee's base salary through the date of termination, and shall thereafter
have no further obligation to Employee, provided, however, that Employee's
obligations pursuant to Section 6 (Non-Competition) shall continue in full
force and effect for a period equal to the balance of the Term of Employment
had this Agreement not been terminated and for twelve (12) months thereafter.
For purposes of this section, no act, or failure to act, on the part of the
Employee shall be deemed "willful" unless done, or omitted to be done, by the
Employee without good faith and without reasonable belief that the action or
omission was in the best interest of Employer.
(c) Long-Term Disability. Should Employee commence a Long-Term
Disability, as hereinafter defined, Employee's base compensation shall be
continued during the first six (6) months of such disability. Should such
Long-Term Disability continue beyond six (6) months, Employee's employment
hereunder shall automatically terminate and Employer shall have no further
obligations to Employee. Employee shall have commenced a "Long-Term
Disability" if: (i) Employee cannot perform the essential functions of his
employment position, with or without a reasonable accommodation for his
disability; or (ii) Employee cannot perform the essential functions of his
employment position without an accommodation that would be an undue hardship
for Employer to provide. The foregoing definition of Long-Term Disability is
not intended to and shall not affect the definition of "disability" or any
similar term in any insurance policy Employer may provide.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time without cause, effective upon two (2) weeks written notice
of termination;
Employment Agreement - John P. Keefe Page 4
<PAGE> 5
provided, however, if Employer shall terminate Employee's employment hereunder
without cause during the initial two year term of this Agreement, then upon any
such termination, and as a condition to the effectiveness thereof, Employer
shall be obligated to pay to Employee as severance pay an amount equal to
Employee's salary for one (1) year, payable in substantially equal semi-weekly
installments at the level then being paid to Employee, and the Employee's
obligations pursuant to Section 6 (Non-Competition) shall continue in force for
a period of twelve (12) months. Should Employee's employment hereunder be
terminated by Employer without cause after the initial two year term, Employer
shall be obligated to pay to Employee as severance an amount equal to
Employee's base salary for six (6) months, payable in substantially equal
bi-weekly installments as the level then being paid to Employee, and Employee's
obligations pursuant to Section 6 (Non-Competition) shall continue in force for
a period of twelve (12) months.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
7(d) above if the Company breaches a material provision of this Agreement and
the Company has not cured such breach within two (2) weeks after receipt of
written notice of such breach.
(ii) If Employee resigns without cause then (a) all compensation and
benefits Employee is to receive pursuant to the terms of this Agreement shall
cease as of the date of such resignation and (b) Employee will be subject to
the obligations of Section 6 (Non-Competition Agreement) for what would have
been the remaining term of the Agreement and for twelve (12) months thereafter.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employee Employer
--------------------------- ----------------------------------
Mr. John P. Keefe Transitional Care of America, Inc.
4017 230th Place, S.E. 7733 Forsyth Boulevard
Issaquah, Washington 98027 Suite 110
St. Louis, Missouri 63105
Attention: Mr. David W. Cross
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
Employment Agreement - John P. Keefe Page 5
<PAGE> 6
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.10 Entire Agreement. This Agreement supersedes all previous contracts,
and constitutes the entire Agreement between the parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering
Employment Agreement - John P. Keefe Page 6
<PAGE> 7
into and executing this Agreement, Employee relies solely upon the
representations and agreements contained in this Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
-------------------------------
David W. Cross, President
EMPLOYEE: John P. Keefe
-------------------------------
John P. Keefe
Employment Agreement - John P. Keefe Page 7
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
SAMUEL A. MORSE
This EMPLOYMENT AGREEMENT is made and entered into as of the 2nd day of
December, 1994, between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation ("EMPLOYER" or the "COMPANY"), and SAMUEL A. MORSE, 3617
Candelaria, Plano, Texas 75023 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to obtain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the Executive Vice President and shall report directly to the
Company's Chief Operating Officer. Employee shall be responsible for
implementation and operation of the Company's long-term care hospitals within
hospitals as shall be assigned to Employee by the Company's Chief Operating
Officer. Employee shall have such authority and shall perform such duties as
are specified by the Chief Operating Officer from time to time in his sole
discretion. In furtherance of the foregoing, Employee shall, subject to the
direction and instruction of Employer: (a) devote Employee's full and entire
working time, attention and energies to Employer, and will diligently and to
the best of employee's ability perform all duties incident to Employee's
employment hereunder; (b) use Employee's best efforts to promote the interests
of Employer; and (c) perform such other duties as Employer may from time to
time direct.
Employee understands that he will be required to travel extensively in the
performance of his duties. In addition, should the Employer determine that it
is the Company's best interest for the Employee to move his residence to St.
Louis, then Employee shall move his residence to St. Louis and Employer shall
reimburse Employee for all reasonable moving expenses incurred by
Employment Agreement - Samuel A. Morse Page 1
<PAGE> 2
Employee in connection with such move. Employer shall not require any move
during the first twelve months of this Agreement.
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth herein. Employer shall pay Employee a base salary of One Hundred Ten
Thousand Dollars ($110,000.00) per year during the term of this Agreement,
payable on a semi-monthly basis, subject to such payroll and withholding
deductions as may be required by law. This base salary is subject to annual
review after the initial two year term of this Agreement.
Employee shall be reimbursed for all the reasonable actual costs and
expenses incurred by him in the performance of his duties. Employee shall be
entitled to two (2) weeks paid vacation time each year and other benefits
(e.g., sick leave and health insurance) in accordance with Employer's policies
as from time to time established. Employee shall also be eligible to
participate in any other benefit plan adopted by Employer for similarly
situated employees. The Company intends to implement a stock option plan for
its key employees. When such plan is implemented the Employee shall be
entitled to participate in such plan on such terms as shall be approved by the
Company's Board of Directors, which will include the right to purchase stock
options equal to two percent (2%) of the issued and outstanding capital stock
of the Employer after its first round of venture financing, which options shall
vest over a period of five (5) years.
3.2 Bonus Plan. Employer will establish an incentive bonus plan for
Employee based upon goals and incentives established mutually by the Employee
and the Chief Operating Officer. In each fiscal year Employee's bonus will be
up to forty percent (40%) of his base salary based upon accomplishment of the
goals and incentives.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists, books, records, files, or other documents (or
copies thereof) or other confidential information of any kind belonging to
Employer or an Affiliate pertaining to the business, sales, financial
condition, products or other activities thereof.
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, proprietary information, trademarks,
tradenames or other developments, or future
Employment Agreement - Samuel A. Morse Page 2
<PAGE> 3
improvements thereto (collectively "ITEMS"), developed or conceived by Employee
during the term of this Agreement are the property of Employer and shall be
promptly disclosed to Employer. Employee shall further execute an assignment
of such Items to Employer and execute such other instruments as Employer shall
request to protect Employer's interest in such Items. Employee represents that
his performance of this Agreement does not and will not breach any agreement to
keep in confidence items acquired by him in confidence or in trust prior to his
employment with Employer. Employee agrees not to disclose to Employer or
induce Employer to use any Items belonging to any previous employer or others.
Employee further agrees not to enter into any agreement, either written or
oral, in conflict herewith. This covenant shall be perpetual and shall survive
the termination or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, and for a period of one (1) year
thereafter Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
Employee's name to or maintain or continue any interest whatsoever in any
enterprise (a) having to do with the provision, distribution, marketing,
promotion, or advertising of any type(s) of service(s) or product(s) in direct
competition to those offered by Employer within (i) the fifty (50) states of
the United States, (ii) United States territories and possessions, and (iii)
each foreign country, possession or territory in which Employer may be engaged
in business at the termination of Employee's employment or at any time within
twelve (12) months prior thereto. Employee further agrees that if any
restriction contained in this Section 6 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be severable
therefrom and be enforced in its place, and the remaining restrictions
contained herein shall be enforceable independently of each other. Employee
represents and covenants to Employer that his entering into and performing his
obligations under this Agreement shall not breach any other agreement to which
Employee is a party. This paragraph will not preclude Employee from being
employed, after termination of this Agreement, as a hospital administrator of a
general acute care hospital.
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on ______________, 199___ (the "Commencement Date") and
shall continue for two (2) years from the Commencement Date unless sooner
terminated as hereinafter provided (the "Initial Term") and any Renewal Term
(as hereinafter defined). Upon the conclusion of the Initial Term or any
Renewal Term this Agreement will automatically renew for one (1) year periods
(each a Renewal Term) unless either party gives notice of intent not to renew
this Agreement at least three (3) months prior to the commencement of any
Renewal Term. Prior
Employment Agreement - Samuel A. Morse Page 3
<PAGE> 4
to the Commencement Date, the Company may disclose confidential information to
Employee which information shall be kept confidential pursuant under the terms
of this Agreement.
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise.
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
In the event that Employee is terminated for cause, Employer shall pay
Employee's base salary through the date of termination, and shall thereafter
have no further obligation to Employee, provided, however, that Employee's
obligations pursuant to Section 6 (Non-Competition) shall continue in full
force and effect for a period equal to the balance of the Term of Employment
had this Agreement not been terminated and for twelve (12) months thereafter.
For purposes of this section, no act, or failure to act, on the part of the
Employee shall be deemed "willful" unless done, or omitted to be done, by the
Employee without good faith and without reasonable belief that the action or
omission was in the best interest of Employer.
(c) Long-Term Disability. Should Employee commence a Long-Term
Disability, as hereinafter defined, Employee's base compensation shall be
continued during the first six (6) months of such disability. Should such
Long-Term Disability continue beyond six (6) months, Employee's employment
hereunder shall automatically terminate and Employer shall have no further
obligations to Employee. Employee shall have commenced a "Long-Term
Disability" if: (i) Employee cannot perform the essential functions of his
employment position, with or without a reasonable accommodation for his
disability; or (ii) Employee cannot perform the essential functions of his
employment position without an accommodation that would be an undue hardship
for Employer to provide. The foregoing definition of Long-Term Disability is
not
Employment Agreement - Samuel A. Morse Page 4
<PAGE> 5
intended to and shall not affect the definition of "disability" or any similar
term in any insurance policy Employer may provide.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time without cause, effective upon two (2) weeks written notice
of termination; provided, however, if Employer shall terminate Employee's
employment hereunder without cause during the initial two year term of this
Agreement, then upon any such termination, and as a condition to the
effectiveness thereof, Employer shall be obligated to pay to Employee as
severance pay an amount equal to Employee's salary for one (1) year, payable in
substantially equal bi-weekly installments at the level then being paid to
Employee, and the Employee's obligations pursuant to Section 6
(Non-Competition) shall continue in force for a period of twelve (12) months.
Should Employee's employment hereunder be terminated by Employer without cause
after the initial two year term, Employer shall be obligated to pay to Employee
as severance an amount equal to Employee's base salary for six (6) months,
payable in substantially equal bi-weekly installments as the level then being
paid to Employee, and Employee's obligations pursuant to Section 6
(Non-Competition) shall continue in force for a period of twelve (12) months.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
7(d) above if the Company breaches a material provision of this Agreement and
the Company has not cured such breach within two (2) weeks after receipt of
written notice of such breach.
(ii) If Employee resigns without cause then (a) all compensation and
benefits Employee is to receive pursuant to the terms of this Agreement shall
cease as of the date of such resignation and (b) Employee will be subject to
the obligations of Section 6 (Non-Competition Agreement) for what would have
been the remaining term of the Agreement and for twelve (12) months thereafter.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employee Employer
-------------------- ----------------------------------
Mr. Samuel A. Morse Transitional Care of America, Inc.
3617 Candelaria 7733 Forsyth Boulevard
Plano, Texas 75023 13th Floor
Employment Agreement - Samuel A. Morse Page 5
<PAGE> 6
St. Louis, Missouri 63105
Attention: Mr. David W. Cross
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
Employment Agreement - Samuel A. Morse Page 6
<PAGE> 7
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.10 Entire Agreement. This Agreement supersedes all previous contracts,
and constitutes the entire Agreement between the parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in
this Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President
EMPLOYEE: Samuel A. Morse
-------------------------------------
Samuel A. Morse
9. This Agreement is contingent upon full first round financing
of Transitional Care of America, Inc.
TCA
-------------------------
TCA Initials
SAM
------------------------
Samuel A. Morse Initials
Employment Agreement - Samuel A. Morse Page 7
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
TONY J. TORRENTE
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 8th day of
December, 1994, between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation ("EMPLOYER" or the "COMPANY"), and TONY J. TORRENTE, 16151 Wilson
Manor Drive, Chesterfield, Missouri 63005 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to obtain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the Vice President - Business Development and shall report directly
to the Company's Chief Executive Officer. Employee shall be responsible for
the Company's business development efforts for long term care hospitals within
hospitals in such states or areas as shall be assigned to Employee by the
Company's Chief Executive Officer. Employee shall have such authority and
shall perform such duties as are specified by the Chief Executive Officer from
time to time in his sole discretion. The Company and the Employee will develop
and agree upon a written job description. In furtherance of the foregoing,
Employee shall, subject to the direction and instruction of Employer: (a)
devote Employee's full and entire working time, attention and energies to
Employer, and will diligently and to the best of employee's ability perform all
duties incident to Employee's employment hereunder; (b) use Employee's best
efforts to promote the interests of Employer; and (c) perform such other duties
as Employer may from time to time direct.
The Company, in its sole discretion, shall establish development criteria
that define the hospitals for which Employee shall devote his development
efforts. During the first year of this Agreement, Employee shall procure
contracts with at least two (2) hospitals that meet the Company's development
criteria. During the second year of this Agreement Employee shall
Employment Agreement - Tony J. Torrente Page 1
<PAGE> 2
procure contracts with at least four (4) such hospitals. Employee understands
that he will be required to travel extensively in the performance of his
duties.
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth herein. Employer shall pay Employee a salary of Ninety Thousand
Dollars ($90,000.00) per year during the first year of this Agreement and a
salary of Eighty Thousand Dollars ($80,000.00) per year during the second year
of this Agreement, payable on a semi-monthly basis, subject to such payroll and
withholding deductions as may be required by law. This base salary is subject
to annual review.
Employee shall be reimbursed for all the reasonable actual costs and
expenses incurred by him in the performance of his duties. Employee shall be
entitled to an two (2) weeks paid vacation time each year and other benefits
(e.g., sick leave and health insurance) in accordance with Employer's policies
as from time to time established. Employee shall also be eligible to
participate in any other benefit plan adopted by Employer. The Company intends
to implement a stock option plan for its key employees. When such plan is
implemented the Employee shall be entitled to participate in such plan on such
terms as shall be approved by the Company's Board of Directors.
3.2 Commission. Employee shall be entitled to be paid a commission upon
the opening of a long term care hospital within a hospital in a hospital that
meets the development criteria established by the Company. The target
commission shall be in the amount of $35,000 for any hospital that meets the
average of the development criteria. For hospitals that do not meet such
average but do meet at least the minimum development criteria, the commission
shall be in an amount determined by the Company, in its sole discretion, to
represent the value of such contract to the Company but in no event shall the
commission be less than $25,000. For contracts with hospitals that exceed such
average the commission shall be in an amount determined by the Company, in its
sole discretion, to represent the value of such contract to the Company but in
no event shall such commission exceed $50,000. The Company reserves the right
to amend this commission plan at any time in its sole discretion and such
amendment shall not be a breach of this Agreement.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists,
Employment Agreement - Tony J. Torrente Page 2
<PAGE> 3
books, records, files, or other documents (or copies thereof) or other
confidential information of any kind belonging to Employer or an Affiliate
pertaining to the business, sales, financial condition, products or other
activities thereof.
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, know-how, proprietary information,
trademarks, tradenames or other developments, or future improvements thereto
(collectively "ITEMS"), developed or conceived by Employee during the term of
this Agreement are the property of Employer and shall be promptly disclosed to
Employer. Employee shall further execute an assignment of such Items to
Employer and execute such other instruments as Employer shall request to
protect Employer's interest in such Items. Employee represents that his
performance of this Agreement does not and will not breach any agreement to
keep in confidence items acquired by him in confidence or in trust prior to his
employment with Employer. Employee agrees not to disclose to Employer or
induce Employer to use any Items belonging to any previous employer or others.
Employee further agrees not to enter into any agreement, either written or
oral, in conflict herewith. This covenant shall be perpetual and shall survive
the termination or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, and for a period of six (6) months
thereafter Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
Employee's name to or maintain or continue any interest whatsoever in any
enterprise (a) having to do with the provision, distribution, marketing,
promotion, or advertising of any type(s) of service(s) or product(s) in direct
competition to those offered by Employer within (i) the fifty (50) states of
the United States, (ii) United States territories and possessions, and (iii)
each foreign country, possession or territory in which Employer may be engaged
in business at the termination of Employee's employment or at any time within
twelve (12) months prior thereto; but only if Employee was directly or
indirectly responsible for such business while he was employed by Employer or
if Employee was directly or indirectly involved or exposed to plans for such
business at any time within twelve (12) months prior to termination. Employee
further agrees that if any restriction contained in this Section 6 is held by
any court to be unenforceable or unreasonable, a lesser restriction shall be
severable therefrom and be enforced in its place, and the remaining
restrictions contained herein shall be enforceable independently of each other.
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on the date that Employee commences working for the
Company which the parties agree will take place on January 2, 1995, expiring at
12:00 A.M. CST on the second (2nd) anniversary of such date. Prior to the
commencement date, the Company may disclose
Employment Agreement - Tony J. Torrente Page 3
<PAGE> 4
confidential information to Employee which information shall be kept
confidential pursuant under the terms of this Agreement. In the event that the
Company has not completed its first round of financing by January 2, 1995, then
this Agreement shall terminate and Employee's only obligation shall be his
obligations under Section 4 (Confidentiality).
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise.
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
iv. Employee's failure to procure in any year the contracts set forth in
Section 2 (Duties of Employee).
In the event that Employee is terminated for cause, Employer shall pay
Employee's salary through the date of termination, and shall thereafter have no
further obligation to Employee, provided, however, that Employee's obligations
pursuant to Section 6 shall continue in full force and effect for a period
equal to the balance of the Term of Employment had this Agreement not been
terminated and for six months thereafter. For purposes of this section, no
act, or failure to act, on the part of the Employee shall be deemed "willful"
unless done, or omitted to be done, by the Employee without good faith and
without reasonable belief that the action or omission was in the best interest
of Employer.
(c) Long-Term Disability. Should Employee commence a Long-Term
Disability, as hereinafter defined, Employee's base compensation shall be
continued during the first six (6) months of such disability. Should such
Long-Term Disability continue beyond six (6) months, Employee's employment
hereunder shall automatically terminate and Employer shall have no further
obligations to Employee. Employee shall have commenced a "Long-Term
Disability" if: (i) Employee cannot perform the essential functions of his
employment position, with or without a reasonable accommodation for his
disability; or (ii) Employee cannot perform the
Employment Agreement - Tony J. Torrente Page 4
<PAGE> 5
essential functions of his employment position without an accommodation that
would be an undue hardship for Employer to provide. The foregoing definition
of Long-Term Disability is not intended to and shall not affect the definition
of "disability" or any similar term in any insurance policy Employer may
provide.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time, effective upon two (2) weeks written notice of
termination; provided, however, if Employer shall terminate Employee's
employment hereunder without cause, then upon any such termination, and as a
condition to the effectiveness thereof, Employer shall be obligated to pay to
Employee as severance pay an amount equal to Employee's salary for six months,
payable in substantially equal bi-weekly installments at the level then being
paid to Employee, and the Employee's obligations pursuant to Section 6
(Non-Competition) shall continue in force for a period of six (6) months.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
7(d) above if the Company breaches a material provision of this Agreement and
the Company has not cured such breach within thirty (30) days after receipt of
written notice of such breach.
(ii) If Employee resigns without cause (including any resignation or
repudiation of this Agreement after the date of its execution but before the
date that the Employee commences work) (a) all compensation and benefits
Employee is to receive pursuant to the terms of this Agreement shall cease as
of the effective date of such resignation and (b) Employee will be subject to
the obligations of Section 6 (Non-Competition Agreement) for what would have
been the remaining term of the Agreement and for six (6) months thereafter.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employee Employer
-------- --------
Tony J. Torrente Transitional Care of America, Inc.
16151 Wilson Manor Drive 7733 Forsyth Boulevard
Chesterfield, Missouri 63005 13th Floor
St. Louis, Missouri 63105
Attention: Mr. David W. Cross
Employment Agreement - Tony J. Torrente Page 5
<PAGE> 6
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Employment Agreement - Tony J. Torrente Page 6
<PAGE> 7
8.10 Entire Agreement. This Agreement supersedes all previous contracts,
and constitutes the entire Agreement between parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in
this Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President
EMPLOYEE: Tony J. Torrente
-------------------------------------
Tony J. Torrente
Employment Agreement - Tony J. Torrente Page 7
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
JAMES D. POMEROY
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 28th day of
December, 1994, between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation ("EMPLOYER" or the "COMPANY"), and JAMES D. POMEROY, 1629 Waterford
Lane, St. Charles, Missouri 63303 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to obtain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is hereby
employed as the Vice President - Business Development and shall report directly
to the Company's Chief Executive Officer. Employee shall initially be
responsible for the Company's business development efforts for long term care
hospitals within hospitals in the State of Texas and Oklahoma and such other
states as shall be assigned to Employee by the Company's Chief Executive
Officer. Employee shall have such authority and shall perform such duties as
are specified by the Chief Executive Officer from time to time in his sole
discretion. The Company and the Employee will develop and agree upon a written
job description. In furtherance of the foregoing, Employee shall, subject to
the direction and instruction of Employer: (a) devote Employee's full and
entire working time, attention and energies to Employer, and will diligently
and to the best of employee's ability perform all duties incident to Employee's
employment hereunder; (b) use Employee's best efforts to promote the interests
of Employer; and (c) perform such other duties as Employer may from time to
time direct.
The Company, in its sole discretion, shall establish development criteria
that define the hospitals for which Employee shall devote his development
efforts. During the first year of this Agreement, Employee shall procure
contracts with at least two (2) hospitals that meet the
Employment Agreement - James D. Pomeroy Page 1
<PAGE> 2
Company's development criteria. During the second year of this Agreement
Employee shall procure contracts with at least four (4) such hospitals.
Employee understands that he will be required to travel extensively in the
performance of his duties.
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services hereunder and
in consideration of Employee's covenant not to compete and other covenants as
set forth herein. Employer shall pay Employee a salary of Ninety Thousand
Dollars ($90,000.00) per year during the first year of this Agreement and a
salary of Eighty Thousand Dollars ($80,000.00) per year during the second year
of this Agreement, payable on a semi-monthly basis, subject to such payroll and
withholding deductions as may be required by law. This base salary is subject
to annual review.
Employee shall be reimbursed for all the reasonable actual costs and
expenses incurred by him in the performance of his duties. Employee shall be
entitled to an two (2) weeks paid vacation time each year and other benefits
(e.g., sick leave and health insurance) in accordance with Employer's policies
as from time to time established. Employee shall also be eligible to
participate in any other benefit plan adopted by Employer. The Company intends
to implement a stock option plan for its key employees. When such plan is
implemented the Employee shall be entitled to participate in such plan on such
terms as shall be approved by the Company's Board of Directors.
3.2 Commission. Employee shall be entitled to be paid a commission upon
the opening of a long term care hospital within a hospital in a hospital that
meets the development criteria established by the Company. The target
commission shall be in the amount of $35,000 for any hospital that meets the
average of the development criteria. For hospitals that do not meet such
average but do meet at least the minimum development criteria, the commission
shall be in an amount determined by the Company, in its sole discretion, to
represent the value of such contract to the Company but in no event shall the
commission be less than $25,000. For contracts with hospitals that exceed such
average the commission shall be in an amount determined by the Company, in its
sole discretion, to represent the value of such contract to the Company but in
no event shall such commission exceed $50,000. The Company reserves the right
to amend this commission plan at any time in its sole discretion and such
amendment shall not be a breach of this Agreement.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of
Employment Agreement - James D. Pomeroy Page 2
<PAGE> 3
Employer or an Affiliate. Employee further agrees that should Employee leave
the active service of Employer, Employee will neither take nor retain, without
prior written authorization from Employer, any papers, data, client lists,
books, records, files, or other documents (or copies thereof) or other
confidential information of any kind belonging to Employer or an Affiliate
pertaining to the business, sales, financial condition, products or other
activities thereof.
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, know-how, proprietary information,
trademarks, tradenames or other developments, or future improvements thereto
(collectively "ITEMS"), developed or conceived by Employee during the term of
this Agreement are the property of Employer and shall be promptly disclosed to
Employer. Employee shall further execute an assignment of such Items to
Employer and execute such other instruments as Employer shall request to
protect Employer's interest in such Items. Employee represents that his
performance of this Agreement does not and will not breach any agreement to
keep in confidence items acquired by him in confidence or in trust prior to his
employment with Employer. Employee agrees not to disclose to Employer or
induce Employer to use any Items belonging to any previous employer or others.
Employee further agrees not to enter into any agreement, either written or
oral, in conflict herewith. This covenant shall be perpetual and shall survive
the termination or expiration of this Agreement.
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, and for a period of six (6) months
thereafter Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
Employee's name to or maintain or continue any interest whatsoever in any
enterprise (a) having to do with the provision, distribution, marketing,
promotion, or advertising of any type(s) of service(s) or product(s) in direct
competition to those offered by Employer within (i) the fifty (50) states of
the United States, (ii) United States territories and possessions, and (iii)
each foreign country, possession or territory in which Employer may be engaged
in business at the termination of Employee's employment or at any time within
twelve (12) months prior thereto; but only if Employee was directly or
indirectly responsible for such business while he was employed by Employer or
if Employee was directly or indirectly involved or exposed to plans for such
business at any time within twelve (12) months prior to termination. Employee
further agrees that if any restriction contained in this Section 6 is held by
any court to be unenforceable or unreasonable, a lesser restriction shall be
severable therefrom and be enforced in its place, and the remaining
restrictions contained herein shall be enforceable independently of each other.
Employment Agreement - James D. Pomeroy Page 3
<PAGE> 4
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of Employment" shall mean
the period commencing on the date that Employee commences working for the
Company which the parties agree will take place between December 15, 1994, and
January 4, 1995, and expiring at 12:00 A.M. CST on the second (2nd) anniversary
of such date. Prior to the commencement date, the Company may disclose
confidential information to Employee which information shall be kept
confidential pursuant under the terms of this Agreement. In the event that the
Company has not completed its first round of financing by December 15, 1994,
then this Agreement shall terminate and Employee's only obligation shall be his
obligations under Section 4 (Confidentiality).
7.2 Termination.
(a) Death. Employee's employment hereunder shall terminate immediately
upon death.
(b) For Cause. Employer may terminate Employee's employment hereunder at
any time, effective immediately upon written notice, for cause. For the purpose
of this Agreement "cause" shall mean:
i. The willful and continued failure by Employee to substantially perform
Employee's duties hereunder other than any such failure resulting from
Employee's incapacity due to physical or mental illness.
ii. The willful engaging by Employee in conduct which is demonstrably and
materially injurious to Employer, monetarily or otherwise.
iii. Employee's conviction of, or plea of nolo contendere to a felony,
provided any right of appeal has been exercised or has lapsed.
iv. Employee's failure to procure in any year the contracts set forth in
Section 2 (Duties of Employee).
In the event that Employee is terminated for cause, Employer shall pay
Employee's salary through the date of termination, and shall thereafter have no
further obligation to Employee, provided, however, that Employee's obligations
pursuant to Section 6 shall continue in full force and effect for a period
equal to the balance of the Term of Employment had this Agreement not been
terminated and for six months thereafter. For purposes of this section, no
act, or failure to act, on the part of the Employee shall be deemed "willful"
unless done, or omitted to be done, by the Employee without good faith and
without reasonable belief that the action or omission was in the best interest
of Employer.
Employment Agreement - James D. Pomeroy Page 4
<PAGE> 5
(c) Disability. In the event that Employee shall be unable to perform the
services contemplated hereunder by reason of a disability such inability or
failure to so perform such duties shall not be grounds for terminating the
employment of Employee by Employer and Employee shall be compensated during
such period of disability provided, however, that Employer may terminate
Employee's employment hereunder should the period of such incapacity exceed six
(6) consecutive months. Any such termination shall not be for "cause",
however, compensation rights shall be limited to claims under any disability
plans maintained by Employer or Employee.
(d) Without Cause. Employee's employment hereunder may be terminated by
Employer at any time, effective upon two (2) weeks written notice of
termination; provided, however, if Employer shall terminate Employee's
employment hereunder without cause, then upon any such termination, and as a
condition to the effectiveness thereof, Employer shall be obligated to pay to
Employee as severance pay an amount equal to Employee's salary for six months,
payable in substantially equal bi-weekly installments at the level then being
paid to Employee, and the Employee's obligations pursuant to Section 6
(Non-Competition) shall continue in force for a period of six (6) months.
(e) By Employee.
(i) Employee may resign his employment for cause and receive the same
benefits as he would be entitled to and be bound by the same obligations as if
the Employer terminated his employment pursuant to the provisions of Section
7(d) above if the Company breaches a material provision of this Agreement and
the Company has not cured such breach within thirty (30) days after receipt of
written notice of such breach.
(ii) If Employee resigns without cause (including any resignation or
repudiation of this Agreement after the date of its execution but before the
date that the Employee commences work) (a) all compensation and benefits
Employee is to receive pursuant to the terms of this Agreement shall cease as
of the effective date of such resignation and (b) Employee will be subject to
the obligations of Section 6 (Non-Competition Agreement) for what would have
been the remaining term of the Agreement and for six (6) months thereafter.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand, or communication required, permitted, or
desired to be given hereunder, shall be deemed effectively given when
personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employment Agreement - James D. Pomeroy Page 5
<PAGE> 6
Employee Employer
-------- --------
Mr. James D. Pomeroy Transitional Care of America, Inc.
1629 Waterford 7733 Forsyth Boulevard
St. Charles, Missouri 63303 13th Floor
St. Louis, Missouri 63105
Attention: Mr. David W. Cross
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations hereunder
shall bind and inure to the benefit of any successor or successors of the
Company by way of reorganization, merger or consolidation, and any assignee of
all or substantially all of its business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
8.5 Enforcement. Without limiting other possible remedies to Employer for
the breach of this Agreement, Employee agrees that injunctive or other
equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained
in any such Section is held by any court to be unenforceable or unreasonable, a
lesser restriction shall be enforced in its place and all remaining
restrictions contained herein shall be enforced independently of each other.
8.6 Gender and Number. Whenever the context hereof requires, the gender
of all words shall include the masculine, feminine and neuter, and the number
of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
Employment Agreement - James D. Pomeroy Page 6
<PAGE> 7
8.8 Severability. In the event any provision of this Agreement is held to
be unenforceable for any reason, the unenforceability thereof shall not effect
the remainder of this Agreement, which shall remain in full force and effect
and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.10 Entire Agreement. This Agreement supersedes all previous contracts,
and constitutes the entire Agreement between parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in
this Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President
EMPLOYEE: James D. Pomeroy
-------------------------------------
James D. Pomeroy
Employment Agreement - James D. Pomeroy Page 7
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
KATHIE NOHRE
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 6th day of
November, 1995, between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation ("EMPLOYER" or the "COMPANY"), and KATHIE NOHRE, 11743 North 123rd
Street & Way, Scottsdale, Arizona 85259 ("EMPLOYEE").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth;
WHEREAS, as an ancillary and integral part of this Agreement, Employer
desires to obtain Employee's covenant not to compete and other covenants, and
Employee desires to make a covenant not to compete and such other covenants as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment by Employer, upon the terms and conditions specified
herein for the "Term of Employment" (as hereinafter defined).
2. DUTIES OF EMPLOYEE. During the Term of Employment, Employee is
hereby employed as the Vice President, Professional Services of the Company and
shall report directly to the Company's Chief Operating Officer. Employee shall
be responsible for the Company's delivery of professional services. Employee
shall have such authority and shall perform such duties as are specified by the
Chief Operating Officer from time to time in her sole discretion. In
furtherance of the foregoing, Employee shall, subject to the direction and
instruction of Employer: (a) devote Employee's full and entire working time,
attention and energies to Employer, and will diligently and to the best of
employee's ability perform all duties incident to Employee's employment
hereunder; (b) use Employee's best efforts to promote the interests of Employer;
and (c) perform such other duties as Employer may from time to time direct.
3. FINANCIAL ARRANGEMENTS.
3.1 Compensation. As compensation for Employee's services
hereunder and in consideration of Employee's covenant not to compete and other
covenants as set forth herein. Employer shall pay Employee a base salary of
Eighty Five Thousand Dollars ($85,000.00) per year during the term of this
Agreement, payable on a semi-monthly basis, subject to such payroll and
withholding deductions as may required by law. This base salary is subject to
annual review.
Employment Agreement - Kathie Nohre
Page 1
<PAGE> 2
Employee shall be reimbursed for all the reasonable actual costs and
expenses incurred by her in the performance of her duties. Employee shall be
entitled to two (2) weeks paid vacation time each year and other benefits (e.g.,
sick leave and health insurance) in accordance with Employer's policies as from
time to time established. Employee shall also be eligible to participate in any
other benefit plan adopted by Employer for similarly situated employees. The
Company has implemented a stock option plan for its key employees. At the first
meeting of the Company's Board of Directors following execution of this
Agreement, the Chief Executive Officer will recommend to the Company's Board of
Directors that Employee shall be entitled to participate in such plan on such
terms as shall be approved by the Company's Board of Directors, which will
include the grant of the right, after the first three (3) months of continuous
employment with the Company, to purchase Five Thousand (5,000) shares of common
stock in the Company, which options shall vest over a period of five (5) years,
retroactive to the first day of employment by the Company.
3.2 Bonus Plan. Employer will establish an incentive bonus plan for
Employee based upon goals and incentives mutually by the Employee and the Chief
Operating Officer. In each fiscal year Employee will be eligible for a bonus up
to twenty percent (20%) of her base salary based upon accomplishment of the
goals and incentives. Employee must be a current employee of the Company at the
time the bonus is awarded in order to be considered for a bonus.
4. CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by
Employer, or as required by law to be disclosed, any trade secrets or
confidential technology, proprietary information, customer lists, or knowledge
belonging to or relating to the affairs or Employer or any subsidiary or parent
of Employer (an "AFFILIATE"), or any matter or thing ascertained by Employee
through Employee's association with Employer or an Affiliate, the use or
disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of Employer or an Affiliate. Employee further
agrees that should Employee leave the active service of Employer, Employee will
neither take nor retain, without prior written authorization from Employer, any
papers, data, client lists, books, records, files, or other documents (or
copies thereof) or other confidential information of any kind belonging to
Employer or an Affiliate pertaining to the business, sales, financial
condition, products or other activities thereof.
5. ITEM OWNERSHIP. All patents, formulae, inventions, ideas of
inventions, processes, copyrights, proprietary information, trademarks,
tradenames or other developments, or future improvements thereto (collectively
"ITEMS"), developed or conceived by Employee during the term of this Agreement
are the property of Employer and shall be promptly disclosed to Employer.
Employee shall further execute an assignment of such Items to Employer and
execute such other instruments as Employer shall request to protect Employer's
interest in such Items. Employee represents that her performance of this
Agreement does not and will not breach any agreement to keep in confidence
items acquired by her in confidence or in trust prior to her employment with
Employer. Employee agrees not to disclose to Employer or induce Employer to use
any Items belonging to any previous employer or others. Employee further agrees
not to enter into any agreement, either written or oral, in conflict herewith.
This covenant shall be perpetual and shall survive the termination or
expiration of this Agreement.
Employment Agreement - Kathie Nohre Page 2
<PAGE> 3
6. NON-COMPETITION AGREEMENT. Employee recognizes that Employer's
entering into this Agreement is induced primarily because of the covenants and
assurances made by Employee, that Employee's covenant not to compete is
necessary to insure that continuation of the business of Employer and its
Affiliates, and that irreparable harm and damage will be done to Employer and
its Affiliates in the event that Employee competes with Employer or its
Affiliates within the geographic areas described below. Therefore, Employee
agrees that during the Term of Employment, and for a period of one (1) year
thereafter Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
Employee's name to or maintain or continue any interest whatsoever in any
enterprise (a) having to do with the provision, distribution, marketing,
promotion, or advertising of any type(s) of service(s) or product(s) in direct
competition to those offered by Employer within (i) the fifty (50) states of
the United States, (ii) United States territories and possessions, and (iii)
each foreign country, possession or territory in which Employer may be engaged
in business at the termination of Employee's employment or at any time within
twelve (12) months prior thereto. For purposes of this Agreement, short-term
acute care hospitals and sub-acute providers (including skilled nursing
facilities) shall not be considered to be in competition with the Employer.
Employee further agrees that if any restriction contained in this Section 6 is
held by any court to be unenforceable or unreasonable, a lesser restriction
shall be severable therefrom and be enforced in its place, and the remaining
restrictions contained herein shall be enforceable independently of each other.
Employee represents and covenants to Employer that her entering into and
performing her obligations under this Agreement shall not breach any other
agreement to which Employee is a party.
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term of Employment. As used herein, "Term of
Employment" shall mean the period commencing on November 6, 1995 (the
"Commencement Date") and shall continue for one (1) year from the Commencement
Date unless sooner terminated as hereinafter provided (the "Initial Term") and
any Renewal Term (as hereinafter defined). Upon the conclusion of the Initial
Term or any Renewal Term this Agreement will automatically renew for one (1)
year periods(each a Renewal Term) unless either party gives notice of intent
not to renew this Agreement at least three (3) months prior to the commencement
of any Renewal Term. Prior to the Commencement Date, the Company may disclose
confidential information to Employee which information shall be kept
confidential pursuant under the terms of this Agreement.
7.2 TERMINATION.
(a) DEATH. Employees's employment hereunder shall terminate
immediately upon death.
(b) FOR CAUSE. Employer may terminate Employee's employment
hereunder at any time, effective immediately upon written notice, for cause.
For the purpose of this Agreement "cause" shall mean:
Employment Agreement-Kathie Nohre
Page 3
<PAGE> 4
i. The willful and continued failure by Employee to
substantially perform Employee's duties hereunder other than any such failure
resulting from Employee's incapacity due to physical or mental illness.
ii. The willful engaging by Employee in conduct which is
demonstrably and materially injurious to Employer, monetarily or otherwise.
iii. Employee's conviction of, or plea of nolo contendere
to a felony, provided any right of appeal has been exercised or has lapsed.
In the event that Employee is terminated for cause, Employer shall pay
Employee's base salary through the date of termination, and shall thereafter
have no further obligation to Employee, provided, however, that Employee's
obligations pursuant to Section 6 (Non-Competition) shall continue in full force
and effect for a period equal to the balance of the Term of Employment had this
Agreement not been terminated and for twelve (12) months thereafter. For
purposes of this section, no act, or failure to act, on the part of the Employee
shall be deemed "willful" unless done, or omitted to be done, by the Employee
without good faith and without reasonable belief that the action or omission was
in the best interest of Employer.
(c) Long-Term Disability. Should Employee commence a
Long-Term Disability, as hereinafter defined, Employee's base compensation shall
be continued during the first six (6) months of such disability. Should such
Long-Term Disability continue beyond six (6) months, Employee's employment
hereunder shall automatically terminate and Employer shall have no further
obligations to Employee. Employee shall have commenced a "Long-Term
Disability" if: (i) Employee cannot perform the essential functions of her
employment position, with or without a reasonable accommodation for her
disability; or (ii) Employee cannot perform the essential functions of her
employment position without an accommodation that would be an undue hardship for
Employer to provide. The foregoing definition of Long-Term Disability is not
intended to and shall not affect the definition of "disability" or any similar
term in any insurance policy Employer may provide.
(d) Without Cause. Employee's employment hereunder may be
terminated by Employer at any time without cause, effective upon two (2) weeks
written notice of termination; provided, however, if Employer shall terminate
Employee's employment hereunder without cause, Employer shall be obligated to
pay to Employee as severance an amount equal to Employee's base salary for
three (3) months, payable in substantially equal bi-weekly installments as the
level then being paid to Employee, and Employee's obligations pursuant to
Section 6 (Non-Competition) shall continue in force for a period of twelve (12)
months.
(e) By Employee.
(i) Employee may resign her employment for cause and
receive the same benefits as she would be entitled to and be bound by the same
obligations as if the Employer terminated her employment pursuant to the
provisions of Section 7(d) above if the Company breaches a material
Employment Agreement - Kathie Nohre Page 4
<PAGE> 5
provision of this Agreement and the Company has not cured such breach within
two (2) weeks after receipt of written notice of such breach.
(ii) If Employee resigns without cause then (a) all compensation
and benefits Employee is to receive pursuant to the terms of this Agreement
shall cease as of the date of such resignation and (b) Employee will be subject
to the obligations of Section 6 (Non-Competition Agreement) for what would have
been the remaining term of the Agreement and for twelve (12) months thereafter.
8. ADDITIONAL PROVISIONS.
8.1 Notices. Any notice, demand or communication required,
permitted, or desired to be give hereunder, shall be deemed effectively given
when personally delivered or mailed by prepaid, certified mail, return receipt
requested, addressed as follows:
Employee Employer
-------- --------
Ms Kathie Nohre Transitional Care of America, Inc.
11743 North 123rd Street 7733 Forsyth Boulevard
& Way Suite 110
Scottsdale, Arizona 85259 St. Louis, Missouri 63105
Attention: Mr. David W. Cross
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
8.2 Governing Law. This Agreement has been executed and delivered
in, and shall be interpreted, construed, and enforced pursuant to and in
accordance with the laws of Missouri.
8.3 Assignment. This Agreement and the rights and obligations
hereunder shall bind and inure to the benefit of any successor or successors of
the Company by way of reorganization, merger or consolidation, and any assignee
of all or substantially all of it business and properties, but, except as to any
such successor or assignee of the Company, neither this Agreement nor any rights
or benefits hereunder may be assigned by either party.
8.4 Waiver of Breach. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or other
provision hereof.
8.5 Enforcement. Without limiting other possible remedies to
Employer for the breach of this Agreement, Employee agrees that injunctive or
other equitable relief shall be available to enforce the covenants set forth in
Sections 4, 5 and 6, such relief to be without the necessity of posting a bond,
cash or otherwise. Employee further agrees that if any restriction contained in
any
Employment Agreement - Kathie Nohre
Page 5
<PAGE> 6
such section is held by any court to be unenforceable or unreasonable, a lesser
restriction shall be enforced in its place and all remaining restrictions
contained herein shall be enforced independently of each other.
8.6 Gender and Number. Whenever the context hereof requires, the
gender of all words shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.
8.7 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of Employer, Employee shall execute such additional instruments and
take such additional acts as Employer may deem necessary to effectuate this
Agreement.
8.8 Severability. In the event any provision of this Agreement is
held to be unenforceable for any reason, the unenforceability thereof shall not
effect the remainder of this Agreement, which shall remain in full force and
effect and enforceable in accordance with its terms.
8.9 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.10 Entire Agreement. This Agreement supersedes all previous
contracts, and constitutes the entire Agreement between the parties. Employee
shall be entitled to no other benefits than those specified herein. No oral
statements or prior written material not specifically incorporated herein shall
be of any force and effect, and no changes in or additions to this Agreement
shall be recognized unless incorporated herein by amendment as provided herein,
such amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in
this Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.
EMPLOYER: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
----------------------------------
David W. Cross, President
EMPLOYEE: Kathie Nohre
--------------------------------------
Kathie Nohre
Employment Agreement - Kathie Nohre Page 6
<PAGE> 1
EXHIBIT 10.13
TRANSITIONAL CARE OF AMERICA, INC.
STOCK OPTION PLAN
1.0 PURPOSE. This Stock Option Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by certain key employees of
Transitional Care of America, Inc. (the "Company"). The purposes of the Plan
are to: (1) closely associate the interests of the management and certain other
key employees of the Company with the shareholders by reinforcing the
relationship between participants' rewards and shareholder gains; (2) provide
management and certain other key employees with an equity ownership in the
Company commensurate with Company performance, as reflected in increased
shareholder value; (3) maintain competitive compensation levels; and (4)
provide an incentive to management and certain other key employees for
continuous employment with the Company. It is further intended that, except as
noted below, options issued pursuant to this Plan shall constitute incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (hereinafter "Incentive Stock Options").
2.0 ADMINISTRATION. The Plan shall be administered by the Compensation
Committee, as named by the Board of Directors from time to time (hereinafter,
the "Committee"). However, the Board of Directors of the Company may, in its
sole discretion, determine that, in lieu of the Compensation Committee, the
Plan shall be administered by a separate committee of disinterested persons
appointed by the Board of Directors of the Company (the "Disinterested
Committee"), as constituted from time to time. The Disinterested Committee
shall consist of at least two (2) members of the Board of Directors. During
the period beginning one (1) year prior to commencement of service on the
Disinterested Committee, and while serving on the Disinterested Committee, no
Disinterested Committee member shall participate in, nor be eligible for
selection as a person to whom stock may be allocated or to whom stock options
or stock appreciation rights may be granted under this Plan or any other
discretionary plan of the Company under which participants are entitled to
acquire stock, stock options or stock appreciation rights of the Company. For
purposes of this Plan, the term "Committee" shall include the Disinterested
Committee, if one has been designated by the Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by
the Board of Directors. The Committee shall select one (1) of its members as
Chairman, and shall hold meetings at such times and places as it may determine.
A majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members shall
be fully as effective as if it had been made by a majority vote at a meeting
duly called and held. The Committee may appoint a secretary, shall keep
minutes of its meetings and shall make such rules and regulations for the
conduct of its business as it shall deem advisable.
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2.1 Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion and from time to time to:
(i) designate the employees or classes of employees eligible to
participate in the Plan;
(ii) grant options provided in the Plan in such form and amount as the
Committee shall determine;
(iii) impose such limitations, restrictions, and conditions upon any such
option as the Committee shall deem appropriate, provided any limitation,
restriction, or condition not expressly required by this Plan shall be approved
by the Board of Directors, as provided under Section 10; and
(iv) interpret the Plan, adopt, amend, and rescind rules and regulations
relating to the Plan, and make all other determinations and take all other
action necessary or advisable for the implementation and administration of the
Plan.
2.2 The Board of Directors of the Company shall have the authority, in its
sole discretion, to establish the exercise price of any option granted
hereunder, subject to such restrictions with respect to the exercise price as
are imposed by law.
2.3 The interpretation and construction by the Committee of any provisions
of the Plan, any prior or subsequent versions of the Plan, or of any option
granted thereunder shall be conclusive unless otherwise determined by the Board
of Directors. No member of the Board of Directors or the Committee shall be
liable for any action taken or decision made in good faith with respect to the
Plan or any option granted thereunder.
3.0 ELIGIBILITY FOR PARTICIPATION. Subject to the terms and provisions of
the Plan, participants in the Plan shall be selected by the Committee from the
executive officers (whether or not they are directors) and certain other key
employees of the Company (the "Participants"). In making this selection and in
determining the form and amount of options to be granted, the Committee shall
consider any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company, and past and potential
contributions to the Company's profitability and sound growth. Participants
selected by the Committee shall be employees of the Company. A Participant may
hold more than one option, but only on the terms and subject to the
restrictions hereafter set forth. No person shall be eligible to receive an
option for a larger number of shares than is recommended for him or her by the
Committee.
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<PAGE> 3
4.0 SHARES SUBJECT TO THE PLAN. The shares of stock which may be subject
to options under the Plan shall be shares of the Company's common stock, either
authorized and unissued shares or shares issued and held in its treasury. The
stock subject to the options shall be one hundred seven thousand eight hundred
(107,800) shares of Common Stock $.0010 par value, hereinafter sometimes
referred to as "Common Stock".
4.1 The aggregate fair market value (determined on the date the option is
granted) of shares of Common Stock, with respect to which Incentive Stock
Options may be granted to any individual under any and all options qualified
under Section 422 of the Internal Revenue Code of 1986, as amended, which are
exercisable for the first time by a Participant during any calendar year, shall
not exceed One Hundred Thousand Dollars ($100,000.00). The date an Incentive
Stock Option is granted shall mean the date selected by the Committee as of
which the Committee allots a specific number of shares to a Participant
pursuant to the Plan.
4.2 In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Common Stock allocable to the
unexercised portion of such option may again be subjected to an option under
the Plan.
5.0 TERMS AND CONDITIONS OF OPTIONS. The grant of an Incentive Stock
Option pursuant to the Plan shall be authorized by the Committee and shall be
evidenced by a written Incentive Stock Option Agreement in such form as the
Committee shall from time to time recommend and the Board of Directors shall
from time to time approve. Each Incentive Stock Option Agreement evidencing a
grant hereunder shall be executed by the Company and the holder of an Incentive
Stock Option (the "Optionee") and shall comply with and be subject to the
following terms and conditions:
(A) EFFECTIVE DATE OF OPTION: Each agreement shall state the date on
which the option was granted, which date must be no later than ten (10)
years following the date of adoption of this Plan or the date on which this
Plan is approved by the shareholders, whichever is earlier.
(B) TERM AND EXERCISE OF OPTION: Each agreement shall state the
length of the time period during which the option is exercisable. Each
Incentive Stock Option shall be exercisable at the time determined by the
Committee and specified in the agreement, which time shall be no earlier
than six (6) months after the date of its grant. Unless a shorter period is
provided by the Committee or another Section of this Plan, the option may be
exercised at any time during the period commencing at the time determined by
the Committee and specified in the Incentive Stock Option Agreement and
ending ten (10) years from the date of grant. No Incentive Stock Option
shall be exercisable after the expiration of ten (10) years after the date
of its grant.
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Notwithstanding the foregoing, the Committee may cancel an option at any
time during the time period in which it is exercisable if, in the opinion of
the Committee, the Participant has been found to engage in any activity
contrary to the interests of the Company.
(C) NUMBER AND CLASS OF SHARES: Each agreement shall state the number
and class of shares to which it pertains, which number when added to the
aggregate number of all option shares previously granted under this Plan or
outstanding on the effective date hereof shall not exceed the limits set
forth in Section 4.0 hereof.
(D) OPTION PRICE: Each agreement shall set forth the option price,
which shall not be less than one hundred percent (100%) of the fair market
value of the shares of stock subject to the option at the time such option
is granted, as such fair market value is determined by the Board of
Directors of the Company. Subject to restrictions on determining fair
market value imposed by law, the Board of Directors of the Company in fixing
the option price shall have full authority and discretion and shall be fully
protected in doing so.
(E) RESTRICTIONS ON TRANSFER OF OPTION: Each agreement shall state
that the option is not transferrable by the Optionee except by will or by
the laws of descent and distribution. Options may be exercised during the
lifetime of the Optionee only by the Optionee, and after the death of the
Optionee, only as provided in Section 7.0.
(F) RESTRICTIONS ON EXERCISE OF OPTION: Except as provided in Sections
6.0 and 7.0, each agreement shall state that in order for such option to be
valid and exercisable:
(1) The Optionee must be an employee of the Company at all times
during the period beginning on the date of the granting of such option
and ending three (3) months before the date of exercise of such
option; provided, however, that if the Optionee is employed at the
time of his or her disability (within the meaning of Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended) then the
aforementioned period shall be extended to one (1) year before the
date of exercise of such option; and
(2) So long as the Optionee remains an employee of the Company,
such option may be exercised in whole or in part; provided that the
Optionee shall not exercise part of an option for fewer than
twenty-five (25) shares at one time unless the total number of shares
subject to the option is fewer than twenty-five (25), in which case
the Optionee shall not exercise the option for fewer than all such
shares.
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(G) RESTRICTIONS ON DISPOSITION OF STOCK: In addition to any other
restrictions on the disposition of stock acquired by an option granted
hereunder, each agreement shall state that the transfer of the Common Stock
subject to the option shall have Qualified Incentive Stock Option tax
treatment under the Internal Revenue Code of 1986, as amended, only if the
Common Stock subject to such option shall be disposed of by the Optionee
after two (2) years from the date such option is granted or after one (1)
year from the date that the shares of such Common Stock were transferred to
the Optionee upon exercise, whichever is later.
The Incentive Stock Option Agreement may provide for such other terms and
conditions as the Committee and Board of Directors may determine, which need
not be the same for all options.
6.0 RETIREMENT OR DISABILITY. Notwithstanding anything contained herein
to the contrary, upon the termination of the Optionee's employment by reason of
permanent disability (as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended) or retirement (as determined by the Committee), the
Optionee may, within 36 months from the date of such termination of employment,
exercise any Incentive Stock Options to the extent such Incentive Stock Options
were exercisable at the date of such termination of employment; provided that
no option may be exercised more than ten (10) years from the date of the grant
thereof. The tax treatment available pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended, upon the exercise of an Incentive Stock
Option will not be available to an Optionee who exercises any Incentive Stock
Option more than (i) one (1) year after the date of termination of employment
due to permanent disability, or (ii) three (3) months after the date of
termination of employment due to retirement.
7.0 DEATH OF OPTIONEE. Notwithstanding anything contained herein to the
contrary, upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the executors or
administrators of the Optionee or by any person or persons who shall have
acquired the right to exercise such Incentive Stock Option by bequest,
inheritance, or by reason of the death of the Optionee, provided that such
exercise occurs not after ten (10) years from the date of the granting thereof
or after one (1) year of the Optionee's death. The provisions of this Section
shall apply notwithstanding that the Optionee's employment with the Company may
have terminated prior to death, but only to the extent of any Incentive Stock
Options exercisable on the date of death, and provided that any such
termination of employment occurred not more than three (3) months prior to
death.
8.0 RESTRICTIONS ON MAJOR SHAREHOLDERS. Notwithstanding anything set
forth herein to the contrary, no individual shall be granted an option
hereunder so long as he owns stock possessing more than ten percent (10%) of
the total combined voting power
Stock Option Plan Page 5
<PAGE> 6
of all classes of stock of the Company unless at the time that the option
hereunder is granted the option price is at least one hundred ten percent
(110%) of the fair market value of the Common Stock subject to the option and
such option is not exercisable after the expiration of five (5) years from the
date such option is granted. The option price and the restricted term of the
option as set forth herein shall be set forth in the option agreement.
9.0 GENERAL RESTRICTIONS. Each Incentive Stock Option granted under the
Plan shall be subject to the requirement that, if at any time the Committee
shall determine that (i) the listing, registration or qualification of the
shares of Common Stock subject or related thereto upon any securities exchange
or under any state or Federal law, or (ii) the consent or approval of any
government regulatory body, or (iii) an agreement by the Optionee of an option
with respect to the disposition of shares of Common Stock, is necessary or
desirable as a condition of, or in connection with, the granting of such option
or the issue or purchase of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent, approval, or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
10.0 DISCRETION OF THE COMMITTEE. The Committee may, subject to approval
of the Board of Directors, make the following additional provisions with regard
to any option granted hereunder:
(A) The Optionee may pay for the Common Stock subject to such option
with previously owned shares of Common Stock of the Company, or a
combination of previously owned shares of Common Stock and United States
dollars.
(B) The option is subject to any conditions not inconsistent with the
other provisions of this Plan. Any such discretionary conditions shall be
set forth in the option agreement.
11.0 MANNER OF PAYMENT. Subject to the provisions of Section 10.0(A)
hereof, the option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash or by certified check.
12.0 RECAPITALIZATION. Subject to any required action by the
shareholders, the number of shares of Common Stock covered by each outstanding
option, and the price per share thereof in each such option, shall be adjusted
proportionately for any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a subdivision or consolidation of
shares or the payment of a stock dividend (but only on the Common Stock) or any
other increase or decrease in the number of such shares effected without
receipt of consideration by the Company.
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<PAGE> 7
12.1 Subject to any required action by the shareholders, if the Company
shall consummate any merger or consolidation, whether or not the Company shall
be the surviving corporation, each outstanding option shall pertain to and
apply to the securities to which a holder of the number of shares of Common
Stock subject to the option would have been entitled.
12.2 In the event of a change in the Common Stock of the Company as
presently constituted the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of the Plan.
12.3 To the extent that the foregoing adjustments relate to shares of
stock or securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, subject to
review by the Board of Directors, provided that each Incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that causes the
option to fail to continue to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
12.4 Except as hereinbefore expressly provided in this Section 12, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation, and any issue by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to the
option.
12.5 The grant of an option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
13.0 RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an option
shall have no rights as a shareholder with respect to any shares covered by his
option until the date shares purchased pursuant to the exercise of an option
are transferred to him on the books of the Company. No adjustments shall be
made for dividends (ordinary or extraordinary, whether in cash, securities, or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 12 hereof. Thereafter the Optionee's rights as a shareholder shall be
subject to the restrictions set forth in Section 5.0(G).
Stock Option Plan Page 7
<PAGE> 8
14.0 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Committee may
modify, extend, or renew outstanding options granted under the Plan, or accept
the surrender of outstanding options (to the extent not theretofore exercised),
and authorize the granting of new options in substitution therefor (to the
extent not theretofore exercised). The Committee shall not, however, modify
any outstanding options so as to specify a lower price or accept the surrender
of outstanding options and authorize the granting of new options and the
substitution therefor specifying a lower price. Notwithstanding the foregoing,
however, no modification of an option shall, without the consent of the
Optionee, alter or impair any rights or obligations under any option
theretofore granted under the Plan, except as otherwise expressly provided
herein.
15.0 INVESTMENT PURPOSE. Each option under the Plan shall be granted on
the condition that the purchases of shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution except that
in the event the shares subject to such option are registered under the
Securities Act of 1933, as amended, or in the event a resale of such shares
without such registration would otherwise be permissible, such conditions shall
be inoperative if, in the opinion of counsel for the Company, such condition is
not required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
16.0 RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the employment of the Company or affect any right
which the Company may have to terminate the employment of such Participant.
Except as provided in Sections 5.0(F)(1), 6.0, and 7.0 or except as otherwise
determined by the Committee, all Incentive Stock Options shall terminate upon
the termination of the Participant's employment.
17.0 LEAVES OF ABSENCE. The Committee shall be entitled to make such
rules, regulations, and determinations as it deems appropriate under the Plan
in respect of any leave of absence taken by any Participant. Without limiting
the generality of the foregoing, the Committee shall be entitled to determine
(i) whether or not such leave of absence shall constitute a termination of
employment within the meaning of the Plan and (ii) the impact, if any, of any
such leave of absence on the options under the Plan theretofore made to any
Participant who takes such leave of absence.
18.0 INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit, or proceeding, or
in connection with any appeal therein, to which they
Stock Option Plan Page 8
<PAGE> 9
or any of them may be a party by reason of any action taken or failure to act
under or in connection with the Plan or any option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his duties; provided that within
sixty (60) days after institution of any such action, suit, or proceeding a
Committee member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
19.0 AMENDMENT OF THE PLAN. The Board of Directors of the Company may,
insofar as permitted by law, from time to time, with respect to any shares at
the time not subject to options, suspend or discontinue the Plan or revise or
amend it in any respect whatsoever except that, without approval of the
shareholders, no such revision or amendment shall change the number of shares
subject to the Plan, change the designation of the class of employees eligible
to receive options, decrease the price at which options may be granted, remove
the administration of the Plan from the Committee, or render any member of the
Committee eligible to receive an option under the Plan while serving thereon.
Furthermore, the Plan may not, without the approval of the shareholders, be
amended in any manner that will cause Incentive Stock Options issued under it
to fail to meet the requirements of Incentive Stock Options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended.
20.0 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares of Common Stock pursuant to options granted under this Plan will
be used for general corporate purposes.
21.0 NO OBLIGATION TO EXERCISE OPTION. The granting of an option
hereunder shall impose no obligation upon the Optionee to exercise such option.
22.0 WITHHOLDING TAXES. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Company shall have
the right to require the grantee to remit to the Company an amount sufficient
to satisfy any Federal, state, and/or local withholding tax requirements prior
to the delivery of any certificate or certificates for such shares.
Alternatively, the Company may issue or transfer such shares of Common Stock
net of the number of shares sufficient to satisfy any such withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall
be valued on the date the withholding obligation is incurred.
23.0 NON-UNIFORM DETERMINATIONS. The Committee's determinations under the
Plan (including without limitation determinations of the persons to receive
options,
Stock Option Plan Page 9
<PAGE> 10
the form, amount, and timing of any option, the terms and provisions of any
option, and the agreements evidencing same) need not be uniform and may be made
by it selectively among persons who have received, or are eligible to receive
options under the Plan, whether or not such persons are similarly situated.
24.0 APPROVAL OF SHAREHOLDERS. The Plan shall not take effect until
approved by the holders of a majority of the outstanding shares of stock of the
Company entitled by law to vote with respect to this matter, which approval
must occur within the period beginning twelve (12) months before and ending
twelve (12) months after the date the Plan is adopted by the Board of
Directors.
25.0 NONQUALIFIED STOCK OPTIONS. The Committee may, in its sole
discretion, grant options under this Plan which are not intended to be
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(hereinafter "Nonqualified Incentive Stock Options"). Any Nonqualified
Incentive Stock Options granted under the Plan shall be designated as such in
the option agreement between the Company and the Optionee. Except as otherwise
set forth below, Nonqualified Incentive Stock Options shall be subject to all
of the terms and conditions of this Plan as if such option was an Incentive
Stock Option.
25.1 The exercise price of any Nonqualified Incentive Stock Option granted
under this Plan shall be determined by the Board of Directors, in its sole
discretion, and need not be the fair market value of the shares which are the
subject of such option. The exercise price shall be specified in the option
agreement with the Optionee.
25.2 The provisions of Section 4.1 of this Plan shall not apply to
Nonqualified Incentive Stock Options and there shall be no restriction on the
aggregate fair market value of Nonqualified Incentive Stock Options granted to
any individual under this Plan.
25.3 The provisions of Section 5.0(G) of this Plan regarding certain
restrictions on the disposition of shares acquired pursuant to the exercise of
an option shall not apply to Nonqualified Incentive Stock Options.
25.4 The provisions of Section 8.0 shall not apply to Nonqualified
Incentive Stock Options granted under this Plan and there shall be no
restrictions on Nonqualified Incentive Stock Options granted to shareholders
owning stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company.
25.5 Notwithstanding anything contained in this Plan to the contrary, the
Committee, in its sole discretion, may grant Nonqualified Incentive Stock
Options to persons who are non-employee officers of the Company or non-employee
members of the Board of Directors of Company. Nothing contained in this
Section 25.5 shall be construed to permit the
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<PAGE> 11
Committee to grant Qualified Incentive Stock Options to such persons. Except
as otherwise provided in Sections 25.1 through 25.4 inclusive, all of the terms
and conditions of this Plan shall apply to Options granted pursuant to this
Section 25.5. The foregoing notwithstanding, a member of the Board of
Directors to whom a Nonqualified Incentive Stock Option is granted shall be
deemed to have "terminated employment" within the meaning of this Plan as of
the later of (i) the date such person ceases to be a member of the Board of
Directors or, (ii) if such person was an employee of the Company on the date
when he or she ceases to be a member of the Board of Directors, the date such
person terminates employment with the Company. Further, a non-employee officer
to whom a Nonqualified Incentive Stock Option is granted shall be deemed to
have "terminated employment" within the meaning of this Plan as of the later of
(i) the date such person ceases to be an officer of the Company or, (ii) if
such person was an employee of the Company on the date when he or she ceases to
be an officer of the Company, the date such person terminates employment with
the Company.
26.0 GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the internal laws of the State of Missouri.
27.0 EFFECTIVE DATE. The Plan shall become effective on January 26, 1995
and all options issued pursuant to this Plan shall be issued on or before
January 26, 2005; provided, however, that the Plan and all options made under
the Plan prior to such date remain in effect until such options have been
satisfied or terminated in accordance with the Plan and the terms of such
options.
The foregoing Plan was approved and adopted by the Board of Directors of
the Company on January 26, 1995.
Stock Option Plan Page 11
<PAGE> 1
EXHIBIT 10.14
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") is made and entered into
as of this 22nd day of September, 1994, by and among Transitional Care of
America, Inc., a Delaware corporation (the "Company"), and RehabCare
Corporation, a Delaware corporation ("RehabCare"), David L. Steffy, an
individual, David W. Cross, an individual ("Cross"), and John R. Lewis, an
individual ("Lewis") (RehabCare and the three individuals are referred to
herein individually as a "Purchaser" and collectively as the "Purchasers").
RECITALS
A. Each of the Purchasers desires to purchase, and the Company desires to
sell to each of the Purchasers, a twenty-five percent (25%) ownership
interest in the Company.
B. To effect said purchase and sale, the Company and the Purchasers desire
to enter into this Agreement pursuant to which each Purchaser will
purchase, and the Company will sell to each such Purchaser, 750 shares
of the Company's Common Stock, $.10 par value.
Now, therefore, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Employment Agreements" means the individual Employment Agreements of
even date herewith by and between TCA and each of Cross and Lewis.
1.2 "Non-Compete, Non-Hire, Non-Disclosure and Release Agreements" means
the individual Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement (or the Non-Development, Non-Hire and Release Agreement, in
the case of David L. Steffy) of even date herewith by and between
RehabCare and each of the Purchasers other than RehabCare and by and
between RehabCare and the Company and the Non-Compete, Non-Hire and
Non-Disclosure Agreement by and between TCA and David L. Steffy.
1.3 "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department,
agency or political subdivision thereof.
1.4 "Purchaser Stock" means all of the Shares of Common Stock acquired by
the Purchasers pursuant to this Agreement, which Common Stock shall
continue to be Purchaser Stock in the hands of any holder who is
subject to the Stockholders' Agreement other than the
<PAGE> 2
Purchasers (except for the Company), and except as otherwise provided
herein, each such other holder of Purchaser Stock shall succeed to all
rights and obligations attributable to each Purchaser as a holder of
Purchaser Stock hereunder. Purchaser Stock also shall include shares of
the Company's capital stock issued with respect to Purchaser Stock due to a
stock split, stock dividend or other recapitalization.
1.5 "SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
1.6 "STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement of even
date herewith by and among the Company and each of the Purchasers, as such
Agreement may be amended from time to time.
1.7 "SHARES" means the Common Stock, $.10 par value authorized to be issued by
the Company.
1.8 "TRANSITION AGREEMENT" means that certain Transition Agreement by and
between RehabCare, TCA, Cross and Lewis as of even date herewith which
outlines the transition of Cross and Lewis to TCA and the ongoing
arrangement between TCA and RehabCare after such transition.
ARTICLE II
AUTHORIZATION AND EXECUTION
2.1 AUTHORIZATION OF THE COMMON STOCK. The Company has authorized the
issuance and sale to the Purchasers of 3,000 Shares prior to the execution
of this Agreement.
2.2 PURCHASE AND SALE OF THE PURCHASER STOCK. As of the execution of this
Agreement, the Company hereby sells to each Purchaser and, subject to the
terms and conditions set forth herein, each Purchaser purchases from the
Company: (a) with respect to all Purchasers except RehabCare, 750 Shares
for a purchase price of Twenty-Five Thousand Dollars ($25,000), payable in
full by cashier's check or wire transfer simultaneously with the execution
of this Agreement, and (b) with respect to RehabCare, 750 Shares for a
purchase price of Twenty-Five Thousand Dollars ($25,000) payable in full by
cashier's check or wire transfer and the transfer of certain promissory
notes of David W. Cross and John R. Lewis representing the purchase price
for their stock in Advanced Rehabilitation Resources, Inc., simultaneously
with the execution of this Agreement.
2.3 SIMULTANEOUS EXECUTION. The execution of this Agreement and the purchase
and sale of the Purchaser Stock (the "Closing") shall take place
simultaneously with the execution of the Employment Agreements, the
Stockholders' Agreement, the Non-Compete, Non-Hire, Non-Disclosure and
Release Agreements and the Transition Agreement. Immediately after the
execution of this Agreement and the payment of the full purchase price by
the Purchasers, the Company shall deliver to each Purchaser stock
certificates evidencing the Purchaser Stock to be purchased by the
Purchaser, such stock certificates being registered in each Purchaser's
name.
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ARTICLE III
FINANCIAL STATEMENTS AND OTHER INFORMATION
3.1 PERIODIC FINANCIAL STATEMENTS. The Company shall, upon the request of any
Purchaser (so long as such Purchaser holds Purchaser Stock), deliver to
such Purchaser as soon as available but in any event within forty-five (45)
days after the end of each monthly accounting period and each quarterly
accounting period in each fiscal year, consolidated statements of income
and cash flows of the Company for each such accounting period, and a
consolidated balance sheet of the Company as of the end of such accounting
period, setting forth in each case comparisons to the annual budget and to
the corresponding period in the preceding fiscal year, if any, and all such
statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments.
3.2 ANNUAL FINANCIAL STATEMENTS. The Company shall, upon the request of any
Purchaser (so long as such Purchaser holds Purchaser Stock), deliver to
such Purchaser within ninety (90) days after the end of each fiscal year,
consolidated statements of income and cash flows of the Company for such
fiscal year, and a consolidated balance sheet of the Company as of the end
of such fiscal year, setting forth in each case comparisons to the annual
budget and to the preceding fiscal year, if any, all prepared in accordance
with generally accepted accounting principles, consistently applied.
3.3 OTHER REPORTS. The Company shall, upon the reasonable request of any
Purchaser (so long as such Purchaser holds Purchaser Stock), deliver to
such Purchaser promptly upon receipt, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs prepared internally (excluding
development reports) or delivered to the Company by its independent
accountants (and not otherwise contained in other materials provided
hereunder).
3.4 ANNUAL BUDGETS. The Company shall, upon the request of any Purchaser (so
long as such Purchaser holds any Purchaser Stock), deliver to such
Purchaser at least thirty (30) days prior to the end of each fiscal year,
an annual budget prepared on a monthly basis for the Company for the
following fiscal year (displaying anticipated statements of income and cash
flows and balance statements), and, following preparation thereof,
quarterly revisions of such budget and any other significant budgets
prepared by the Company.
3.5 OTHER FINANCIAL DATA. The Company shall, upon the request of any Purchaser
(so long as such Purchaser holds any Purchaser Stock), deliver to such
Purchaser with reasonable promptness, such other information and financial
data concerning the Company as any Purchaser may reasonably request.
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ARTICLE IV
ACKNOWLEDGEMENTS OF THE PURCHASERS
4.1 NO GUARANTEE OF EMPLOYMENT. Each Purchaser acknowledges and agrees that
neither the issuance of the Purchaser Stock to the Purchasers nor any
provision contained herein shall entitle any of the Purchasers to
remain in the employment of the Company, or affect the right of the
Company to terminate any such Purchaser's employment under any
employment agreements with the Company, the terms of which agreements
shall govern the ability to terminate employment.
4.2 HIGH DEGREE OF RISK. The Purchasers acknowledge that the Company has
been organized recently, that it has no financial or operating history,
that investment in the Shares involves a high degree of risk and that no
Person should invest in Shares who is not in a position to lose his or
its entire investment.
4.3 NO GOVERNMENTAL EXAMINATION. No agency of the United States or of any
state has passed upon the Shares or made any finding or determination
concerning the fairness or merits of this investment.
4.4 RESTRICTED TRANSFER RIGHTS. The Purchasers acknowledge that their right
to transfer the Purchaser Stock is significantly restricted pursuant to
the Stockholders' Agreement and Article VI herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
In connection with the purchase and sale of the Purchaser Stock
hereunder, each Purchaser severally (and not jointly) makes the following
representations and warranties to the Company.
5.1 ACQUISITION FOR PURCHASER'S OWN ACCOUNT. The Purchaser Stock to be
acquired by each Purchaser pursuant to this Agreement will be acquired
for such Purchaser's own account, as principal, for investment and not
as nominee or agent, and not with a view to, or the intention of,
distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Purchaser Stock will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws.
5.2 NO COMMISSION. No commission, fee or other remuneration is to be paid
or given, directly or indirectly, to any Person for soliciting any such
Purchaser to purchase the Purchaser Stock.
5.3 EVALUATION OF RISK. Each Purchaser is sophisticated in financial
matters and is able to evaluate the risks and benefits of the investment
in the Purchaser Stock and has determined that such investment is
suitable for such Purchaser, based on such Purchaser's financial
situation and needs, as well as Purchaser's other securities holdings.
Each
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<PAGE> 5
Purchaser has adequate means of providing for his or its current needs
in contingencies and has no need for liquidity in the investment.
5.4 ECONOMIC RISK. Each Purchaser is able to bear the economic risk of such
Purchaser's investment in the Purchaser Stock for an indefinite period
of time and such Purchaser understands that the Purchaser Stock has not
been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from
such registration is available.
5.5 ACCESS TO INFORMATION. Each Purchaser and his financial advisor, if
any, have been furnished all materials relating to the Company, its
proposed activities and the offering of Purchaser Stock which they have
requested and have been afforded the opportunity to obtain any
additional information necessary to verify the accuracy of any
representations or information furnished in connection with the
Purchaser's investments. The Purchaser has reviewed, or has had an
opportunity to review, a copy of the Employment Agreements,
Stockholders' Agreement, the Non-Compete, Non-Hire, Non-Disclosure and
Release Agreements and the Transition Agreement and such Purchaser is
familiar with the transactions contemplated thereby.
5.6 CORPORATE AUTHORIZATION. Each Purchaser, if a corporation, partnership,
trust or other form of business entity, is authorized and otherwise duly
qualified to purchase and hold Shares in the Company, has obtained such
tax advice that it has deemed necessary, has its principal place of
business at the address set forth on the last page hereof, has not been
formed for the specific purpose of acquiring Shares in the Company and
shall supply to the Company any additional written information that may
be required by the Company.
5.7 NONSOLICITATION. Each Purchaser represents that it was not offered the
Shares by any form of general solicitation or general advertising,
including but not limited to, any advertisement, article, notice or
other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or any seminar or meeting
whose attendees had been invited by any general solicitation or general
advertising.
5.8 BINDING OBLIGATION. This Agreement constitutes the legal, valid and
binding obligation of each Purchaser, enforceable in accordance with
its terms as against such Purchaser, and the execution, delivery and
performance of this Agreement by such Purchaser does not and will not
conflict with, violate or cause a breach of any agreement, contract or
instrument to which such Purchaser is party or any judgment, order or
decree to which such Purchaser is subject.
ARTICLE VI
RESTRICTIVE LEGEND
The certificates representing the Purchaser Stock shall bear the
following legend:
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<PAGE> 6
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN
A STOCKHOLDERS' AGREEMENT BETWEEN THE COMPANY AND THE SIGNATORIES
THERETO DATED AS OF SEPTEMBER 22, 1994. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF COMPANY
In connection with the purchase and sale of the Purchaser Stock
hereunder, the Company makes the following representations and warranties to
each Purchaser.
7.1 ORGANIZATION AND CORPORATE POWER. The Company hereby represents and
warrants to the Purchasers that the Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware
and is qualified to do business in every jurisdiction in which the
ownership of its respective properties or conduct of its business requires
it to qualify, except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Company. The
Company has all requisite corporate power and authority to carry out the
transactions contemplated by this Agreement.
7.2 AUTHORIZATION; NO BREACH. The execution, delivery and performance of this
Agreement have been duly authorized by the Company. This Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, and the execution and delivery by the Company of
this Agreement, the offering and issuance of the Purchaser Stock hereunder
and the fulfillment of, and compliance with, the respective terms hereof
and thereof by the Company, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of (ii)
constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock
or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of,
or (vi) require any authorization, consent, approval, exemption or other
action by or notice to any court or administrative or governmental body,
pursuant to, the Certificate of Incorporation or By-laws of the Company, or
any law, statute, rule or regulation to
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<PAGE> 7
which the Company is subject, or any agreement, instrument, order,
judgment or decree to which the Company is subject.
7.3 CAPITAL STOCK AND RELATED MATTERS. Immediately following the
consummation of the transactions contemplated hereby, the authorized
capital stock of the Company shall consist of 3,000 shares of Common
Stock, $.10 par value of which 3,000 shares shall be issued and
outstanding. Except as set forth above, as of immediately following the
consummation of the transactions contemplated hereby, the Company shall
not have outstanding any stock or securities convertible or exchangeable
for any shares of its capital stock or containing any profit
participation features, or have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or any
stock appreciation rights or phantom stock plans. As of immediately
following the consummation of the transactions contemplated hereby, all
of the outstanding shares of the Company's capital stock shall be
validly issued, fully paid and nonassessable. Except as specifically
provided in the Stockholders' Agreement, there are no statutory or
contractual stockholder's preemptive rights or rights of refusal with
respect to the issuance of the Purchaser Stock hereunder. To the best of
Company's knowledge, the Company has not violated any applicable Federal
or state securities laws in connection with the offer, sale or issuance
of any of its capital stock, and the offer, sale and issuance of the
Purchaser Stock hereunder does not require registration under the
Securities Act or any applicable state securities laws. Except as
specifically provided in the Stockholders' Agreement, there are no
agreements between the Company stockholders with respect to the voting
and transfer of the Company's capital stock or with respect to any other
aspect of the Company's affairs.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be
in writing and will be deemed to have been given when delivered
personally, mailed by certified or registered mail, return receipt
requested and postage prepaid, or sent via a nationally recognized
overnight courier, or sent via facsimile to the recipient. Such notices,
demands and other communications will be sent to the address indicated
below:
To the Company:
Transitional Care of America, Inc.
660 Newport Center Drive
Suite 470
Newport Beach, California 92660
Attention: David L. Steffy, Incorporator
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<PAGE> 8
With a copy to:
Suelthaus & Kaplan, P.C.
7733 Forsyth Boulevard
St. Louis, Missouri 63105
Attention: Thomas M. Walsh, Esq.
To the Purchasers:
RehabCare Corporation
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
Attention: James M. Usdan, President
and Chief Executive Officer
With a copy to:
Thompson & Mitchell
One Mercantile Center
Suite 3400
St. Louis, Missouri 63101
Attention: Robert M. LaRose, Esq.
Telecopy Number: (314) 342-1717
David W. Cross
10 Lindworth Drive
Ladue, Missouri 63124
David L. Steffy
660 Newport Center Drive
Suite 470
Newport Beach, California 92660
John R. Lewis
342 Woodcliffe Place Drive
Chesterfield, Missouri 63005
8.2 TRANSFERS IN VIOLATION OF THIS AGREEMENT. Any transfer or attempt to
transfer of any Purchaser Stock in violation of any provision of this
Agreement or the Stockholders' Agreement shall be null and void and the
Company shall not record such transfer on its books or treat any
purported transferee if such Purchaser Stock is the owner of such
stock for any purpose.
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<PAGE> 9
8.3 SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
8.4 COMPLETE AGREEMENT. This Agreement and the other documents of even date
herewith which have been executed by the Company and each Purchaser embody
the complete Agreement and understanding among the parties and supersede
and preempt any prior understandings, agreements or representations by or
among the parties, written or oral, which may have related to the subject
matter hereof in any way.
8.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one in the same agreement.
8.6 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
the Purchasers, the Company and their respective successors and assigns
(including subsequent holders of Purchaser Stock); provided that the rights
and obligations the Purchasers under this Agreement shall not be assignable
except in connection with the permitted transfer of Purchaser Stock
hereunder and under the Stockholders' Agreement.
8.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by the Purchasers or on their behalf.
8.8 GOVERNING LAW. The corporate law of the state of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed
by the internal law and not the law of conflicts, of the State of Missouri.
8.9 AMENDMENT AND WAIVER. The provisions of this Agreement may be amended
and waived only with the prior written consent of the Company and each of
the Purchasers.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
-----------------------------------
David W. Cross, President and Chief
Executive Officer
REHABCARE CORPORATION
By: James M. Usdan
-----------------------------------
James M. Usdan, President and Chief
Executive Officer
David W. Cross
---------------------------------------
David W. Cross
John R. Lewis
---------------------------------------
John R. Lewis
David L. Steffy
---------------------------------------
David L. Steffy
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<PAGE> 1
EXHIBIT 10.15
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT is made and entered into as of the 22nd
day of September, 1994, by and among TRANSITIONAL CARE OF AMERICA, INC., a
Delaware corporation (the "COMPANY"), DAVID L. STEFFY ("STEFFY"), DAVID W.
CROSS ("CROSS"), JOHN L. LEWIS ("LEWIS") and REHABCARE CORPORATION, a Delaware
corporation ("REHABCARE") (Steffy, Cross, Lewis and RehabCare are hereinafter
sometimes referred to collectively as the "STOCKHOLDERS" and singularly as a
"STOCKHOLDER").
WHEREAS, the Stockholders are the holders of an aggregate of 3,000
shares of Common Stock of $0.10 par value of the Company (the "COMMON STOCK");
and
WHEREAS, the Stockholders and the Company have reached certain
understandings and agreements with respect to their ownership of the Common
Stock of the Company and any other equity securities (hereinafter defined)
issued by the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Stockholders
hereby agree with each other as follows:
1. PROHIBITED TRANSFERS. None of the Stockholders shall sell,
assign, transfer, pledge, hypothecate, mortgage or dispose of, by gift or
otherwise, or in any way encumber, all or any part of his or its equity
securities owned by such Stockholder except in compliance with the terms of
this Agreement. For purpose of this Agreement, the term "EQUITY SECURITIES"
shall mean and include all shares of capital stock of the Company, whether now
owned or hereafter acquired, as well as securities convertible into,
exercisable for or exchangeable for shares of capital stock of the Company.
2. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES. (a) The Company
shall, prior to any issuance of any of its securities (other than debt
securities with no equity feature), offer to each Stockholder by written notice
the right for a period of ten (10) days to purchase at an amount equal to the
price or other consideration and on the material terms for which such
securities are to be issued, a number of such securities so that, after giving
effect to such issuance (and the conversion, exercise and exchange into or for
(whether directly or indirectly) shares of Common Stock of all such securities
that are so convertible, exercisable, or exchangeable, other than options or
other rights to purchase Equity Securities granted to directors, officers,
employees or consultants of the Company pursuant to a stock option plan or
other stock-based benefit plan or incentive plan of the Company, ("Plan
Options") such Stockholder will continue to maintain such Stockholder's same
proportion of equity ownership in the Company as of the date of such notice
(treating each Stockholder, for the purpose of such computation, as the holder
of the number of shares of Common Stock of the Company which would be issuable
to such Stockholder on the date such offer is made, upon conversion, exercise
or exchange of other securities, other than Plan
Stockholders' Agreement Page 1
<PAGE> 2
Options, of the Company held by such Stockholder into or for (whether directly
or indirectly) shares of Common Stock and assuming the like conversion,
exercise and exchange of all such other securities, other than Plan Options,
held by other persons); provided, however, that the first refusal rights of the
Stockholders pursuant to this Section 2(a) shall not apply to securities issued
(i) in an offering pursuant to Section 2(b) of this Agreement to provide the
Company's financing where all of the shares in the offering are purchased by
RehabCare Corporation; (ii) as a stock dividend or upon any subdivision of
shares of Common Stock of the Company, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of Common Stock; (iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Company or any of its subsidiaries of all or
substantially all of the stock or assets of any other entity; (iv) pursuant to
a firm commitment underwritten public offering; and (v) pursuant to the
exercise of Plan Options pursuant to a plan, not to exceed 15% of the total
outstanding number of shares of the Company, approved by a majority of the
members of the Board of Directors of the Company (the amount of securities to
be issued by the Company that each Stockholder is entitled to purchase under
this Section 2(a) shall be referred to as that Stockholder's "PRO RATA
PORTION"). The Company's written notice to the Stockholder shall describe the
securities proposed to be issued by the Company and specify the number, price,
and payment terms. The Stockholder shall have a right of oversubscription such
that if any other Stockholder fails to accept the offer as to his or its pro
rata portion, the other Stockholders shall, among them, have the right to
purchase up to the balance of the offered securities not so purchased. Such
right of oversubscription may be exercised by a Stockholder by accepting the
offer as to more than his or its pro rata portion. If as a result thereof,
such oversubscriptions exceed the total number of offered securities available
in respect of such oversubscription privilege, the oversubscribing Stockholders
shall be cut back with respect to their oversubscriptions on a pro rata basis
in accordance with their respective pro rata portions or as they may otherwise
agree among themselves. Each Stockholder may accept the Company's offer as to
the full number of securities offered to all the Stockholders or any lesser
number, by written notice thereof given by the Stockholder to the Company prior
to the expiration of the aforesaid ten (10) day period, in which event the
Company shall promptly sell and such parties shall buy, upon the terms
specified, the number of securities agreed to be purchased by such party. The
Company shall be free at any time prior to thirty (30) days after the date of
the notice of offer to the Stockholders, to offer and sell to any third party
or parties the number of such securities not agreed by the Stockholders to be
purchased by them, at a price and on payment terms no less favorable to the
Company than those specified in such notice of offer to the Stockholders;
provided, however, that in no event shall the Company sell such securities to
any person or entity set forth on Schedule A hereto, unless RehabCare shall
consent in writing to such sale. However, if such third party sale or sales
are not consummated within such thirty (30) day period, the Company shall not
sell such securities as shall not have been purchased within such period
without again complying with this Section 2(a).
(b) Notwithstanding the provisions of Section 2(a)
hereof, at any time the Company proposes to issue any securities in an offering
commonly known as a "venture round of financing" ("VENTURE SECURITIES") then,
in such case RehabCare shall have the first right to
Stockholders' Agreement Page 2
<PAGE> 3
acquire all of such Venture Securities offered in the first venture round of
financing (and in subsequent rounds if RehabCare purchases all of such
securities in the first and each subsequent round) upon the conditions set
forth in this Section 2(b). The Company shall give notice of its intention to
issue Venture Securities and the Company and RehabCare shall enter into good
faith negotiations respecting the amount, terms, and conditions respecting the
sale of such Venture Securities (the "Agreed Terms"). If no agreement on the
Agreed Terms is reached on or before October 9, 1994, (the "NEGOTIATION
PERIOD"), then the Company may offer such Venture Securities to any other one
or more potential investors that are bona fide venture capital firms. To the
extent that the Company offers price and terms to a venture capital firm that
are more favorable to such firm than those last offered to RehabCare, RehabCare
shall have a right to accept such more favorable offer with respect to all of
the Venture Securities offered. RehabCare shall have five (5) business days
after receipt of the offer to accept such offer. In the event that the Company
and RehabCare do not reach an agreement for RehabCare to purchase all of the
securities issued in the first venture round of financing, then RehabCare shall
have the right to purchase a portion of the Venture Securities so offered in
the first and any subsequent venture rounds of financing up to that amount
which, when added to all of the other Equity Securities of the Company owned by
RehabCare, assuming the conversion, exercise or exchange of all convertible,
exercisable and exchangeable securities, other than Plan Options, would
preserve the percentage equity interest in the Company owned by RehabCare prior
to such financing round, to be purchased on the same terms and conditions as
those offered by said venture firm(s). RehabCare shall have the right to ask
three (3) bona fide venture capital firms to review the Company's business plan
in connection with the offering for first round Venture Securities. The
Company and the other Stockholders shall have the right to ask any other bona
fide venture capital firms to review the Company's business plan in connection
with the offering for the first or subsequent venture round(s) offering of
Venture Securities. The Company and any of the Stockholders may request that
the business plan be submitted to such bona fide venture firms at any time,
after October 9, 1994. In addition, at any time Steffy, Cross, and Lewis may
give a copy of the business plan, and have discussions, (but not reach a
definitive arrangement) with, up to three bona fide venture firms. RehabCare
shall cooperate with the Company in all negotiations with bona fide venture
firms, and provide reasonable assistance in obtaining venture financing from
such bona fide venture firms if no agreement on the Agreed Terms is reached
during the Negotiation Period. James M. Usdan shall be the contact person at
RehabCare for all discussions with the bona fide venture firms.
3. RIGHT OF FIRST REFUSAL ON STOCKHOLDERS DISPOSITIONS.
(a) If at any time any Stockholder desires to sell all or
any part of his or its Equity Securities pursuant to a bona fide offer from a
third party ("PROPOSED TRANSFEREE"), such Stockholder (the "OFFEROR") shall
submit a written offer (the "OFFER") to sell such Equity Securities (the
"OFFERED SHARES") to the other Stockholders on terms and conditions, including
price, not less favorable to the other Stockholders than those on which the
Offeror proposes to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the Offered
Shares proposed to be sold, the total number of shares owned
Stockholders' Agreement Page 3
<PAGE> 4
by the Offeror, the terms and conditions, including price, of the proposed sale
and any other material facts relating to the proposed sale. The Offer shall
further state that the other Stockholders may acquire, in accordance with the
provisions of this Agreement, all of the Offered Shares for the price and upon
the other terms and conditions, including deferred payment (if applicable) set
forth therein.
(b) Each Stockholder shall have the absolute right to
purchase that number of Offered Shares as shall be equal to the number of
Offered Shares multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock then owned by such Stockholder and the
denominator of which shall be the aggregate number of shares of Common Stock
then owned by all of the non-selling Stockholders. For purposes of this
Section 3, all of the Common Stock which a Stockholder has the right to acquire
from the Company upon the conversion, exercise or exchange of any of the
securities of the Company other than Plan Options then owned by such
Stockholder shall be deemed to be Common Stock then owned by such Stockholder.
The amount of Offered Shares that each Stockholder is entitled to purchase
under this Section 3 (b) shall be referred to as his or its "PERCENTAGE."
(c) Each non-selling Stockholder shall have a right of
oversubscription so that if any Stockholder fails to accept the Offer as to his
or its Percentage, the other non-selling Stockholders shall, among them, have
the right to purchase up to the balance of the Offered Shares not so purchased.
Such right of oversubscribing may be exercised by a Stockholder by accepting
the Offer as to more than his or its Percentage. If, as a result thereof, such
oversubscriptions exceed the total number of Offered Shares available in
respect of such oversubscription privilege, the oversubscribing Stockholders
shall be cut back with respect to their oversubscriptions on a pro rata basis
in accordance with their respective Percentages or as they may otherwise agree
among themselves.
(d) If a Stockholder desires to purchase all or any part
of the Offered Shares, such Stockholder shall communicate in writing his or its
election to purchase to the Offeror, which communication shall state the number
of Offered Shares said Stockholder desires to purchase and shall be delivered
in person or mailed to the Offeror at the address set forth in accordance with
Section 10 below within twenty (20) days of the date the Offer is made. Such
communication shall, when taken in conjunction with the Offer, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale and
purchase of such Offered Shares (subject to the aforesaid limitations as to a
Stockholder's right to purchase more than his or its Percentage).
(e) Sales of the Offered Shares to be sold to purchasing
Stockholders pursuant to this Section 3 shall be made at the offices of the
Company on the thirtieth (30th) day following the date the offer is made (or if
such thirtieth (30th) day is not a business day, then on the next succeeding
business day). Such sales shall be effected by the selling Stockholder's
delivery to each purchasing Stockholder of a certificate or certificates
evidencing the Offered Shares to be purchased by him or it, duly endorsed for
transfer to such purchasing Stockholder against payment
Stockholders' Agreement Page 4
<PAGE> 5
to the selling Stockholder of the purchase price therefore in the manner set
forth in the Offer by such purchasing Stockholder.
(f) If the Stockholders collectively do not communicate
their desire to purchase the number of shares equal to all of the Offered
Shares, the Offered Shares that have not been purchased by the Stockholders
pursuant to this Section 3 may be sold by the selling Stockholder at any time
within sixty (60) days after the date the Offer is made, subject to the
provisions of Sections 4 and 5. Any such sale shall be to the proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the proposed Transferee than those specified in the
Offer. Any such shares not sold within such sixty (60) day period shall
continue to be subject to the requirements of a prior offer pursuant to this
Section 3.
4. RIGHT OF PARTICIPATION IN SALES. In the event that RehabCare
Corporation holds a majority of the Equity Securities of the Company, assuming
the conversion, exercise or exchange of all convertible, exercisable or
exchangeable securities other than Plan Options into Common Stock, then in
connection with any Offer by RehabCare to sell a majority of the Equity
Securities of the Company, assuming the conversion, exercise or exchange of all
convertible, exercisable and exchangeable securities other than Plan Options
into Common Stock, each of the other Stockholders shall have the right to
include in the sale to the Proposed Transferee, upon the same terms and
conditions offered to such Proposed Transferee, the Equity Securities owned by
such Stockholders. The aggregate number of Equity Securities that the
Stockholders (other than RehabCare) shall be entitled to have included in such
sale will be that number that, upon conversion, exercise or exchange of all
convertible, exercisable and exchangeable securities, other than Plan Options,
into Common Stock of the Company would bear the same proportion to the total
number of Offered Shares proposed to be sold by RehabCare as the total number
of shares of Common Stock then held by RehabCare bears to the aggregate number
of then outstanding shares of the Company's Common Stock, and each such
Stockholder shall be entitled to participate in such number pro rata on the
basis of the number of shares of Equity Securities then held by him or it. For
purposes of the foregoing formula, all convertible, exercisable and
exchangeable securities, other than Plan Options, shall be deemed to have been
converted, exercised or exchanged into Common Stock. Any Stockholder wishing
so to participate in any such sale shall notify RehabCare of such intention as
soon as practicable after he or it shall have determined that the Stockholders
do not wish to exercise their right to purchase the Offered Shares pursuant to
Section 3, and in all events within ten (10) days after such determination has
been made. In the event that a Stockholder shall elect to participate in such
sale by RehabCare, said Stockholder shall individually give written notice to
RehabCare in accordance with Section 10 below. RehabCare and each
participating Stockholder shall sell to the Proposed Transferee all, or at the
option of the Proposed Transferee, pro rata any part of the Equity Securities
proposed to be sold by them at not less than the price per share and upon other
terms and conditions, if any, not more favorable to the Proposed Transferee
than those set forth in the Offer; provided, however, that any purchase of less
than all of such Equity Securities by the Proposed Transferee shall be made
from RehabCare and each participating Stockholder pro rata based upon the
number of Equity Securities proposed to be sold by each. As a condition to any
Stockholder selling Equity Securities to the
Stockholders' Agreement Page 5
<PAGE> 6
Proposed Transferee pursuant to this Section 4, all Equity Securities to be
sold by such Stockholder shall be fully paid and nonassessable shares free and
clear of all liens, encumbrances and other charges.
5. PERMITTED TRANSFERS. During the term of this Agreement,
anything herein to the contrary notwithstanding, the provisions of Sections 1,
2, 3, and 4 hereof shall not apply to: (i) any transfer of Equity Securities
by a Stockholder by gift or bequest or through inheritance to, or for the
benefit of any member or members of such Stockholder's immediate family; (ii)
any transfer of Equity Securities by a Stockholder to a trust in respect of
which such Stockholder serves as trustee, provided that the trust instrument
governing said trust shall provide that such Stockholder, as trustee, shall
retain sole and exclusive control over the voting and disposition of said
Equity Securities until the termination of this Agreement; (iii) any sale or
transfer of Equity Securities to the Company (so long as RehabCare is not a
majority shareholder as hereinafter defined); (iv) any sale of Equity
Securities pursuant to the Company's initial underwritten public offering; (v)
any sale or transfer of shares by a Stockholder to a majority-owned affiliate
of such Stockholder. In the event of any such transfer, other than pursuant to
clauses (iii) or (iv) of this Section 5, the transferee of such Equity
Securities shall hold the Equity Securities so acquired with all the rights
conferred by, and subject to all the restrictions imposed by, this Agreement
and shall be deemed a Stockholder for all purposes hereof.
6. LIQUIDITY RIGHTS FOR MINORITY STOCKHOLDERS. If all the
following conditions exist: (i) at least five (5) years have past since the
first venture round of financing were sold by the Company; (ii) no established
public market has developed for the shares; and (iii) RehabCare holds a
majority of the Common Stock of the Company (assuming the conversion, exercise
or exchange of all convertible, exercisable and exchangeable securities, other
than Plan Options, into Common Stock); then, during such time as all those
conditions exist, the Stockholders, other than RehabCare (the "MINORITY
STOCKHOLDERS"), shall have the right to request by written notification given
to all Stockholders that RehabCare purchase all or any portion of their Equity
Securities on terms, and at a price agreed to by RehabCare and the electing
Minority Stockholders. Any Stockholder receiving notification of such request
may join in such request by written notice given not later than twenty (20)
days after receipt of the initial request. If RehabCare and the electing
Minority Stockholder(s) are unable to agree upon price and terms within thirty
(30) days of any Minority Stockholder giving written notice as provided in
Section 10 hereof to RehabCare of his election to sell his shares to RehabCare
pursuant to this Section 6, then, RehabCare and the Company shall cooperate in
and assist the electing Minority Stockholder(s) in making a firm commitment
underwritten public offering of such shares, registered under the Securities
Act of 1933, as amended. The underwriter shall be an underwriter mutually
agreeable to RehabCare and the electing Minority Shareholder(s). All costs of
such offering, other than underwriting discounts and commissions applicable to
the shares of each Minority Stockholder shall be borne by the Company,
including each Minority Stockholder's legal, accounting, and other professional
fees and expenses. If no firm commitment public offering can be accomplished
at a price and in such amount of shares acceptable to the electing Minority
Stockholder, then RehabCare and the electing Minority Stockholder(s) shall
agree to retain an investment banking firm or appraisal firm
Stockholders' Agreement Page 6
<PAGE> 7
mutually acceptable to RehabCare and the electing Minority Stockholder(s) to
determine the price to be paid by RehabCare to the electing Minority
Stockholder(s) for his or its shares. The determination of such firm shall be
final and binding on RehabCare and the electing Minority Stockholder(s) and
RehabCare shall purchase such share for cash thirty (30) days after such
determination.
7. ELECTION OF DIRECTORS AND OFFICERS. Prior to this first
venture round of financing, each Stockholder agrees to vote all of his or its
Equity Securities at all elections of directors of the Company so that the
Board of Directors of the Company shall consist of four (4) members. Each
Stockholder agrees to vote his or its shares to cause and maintain the election
to the Board of Directors of the Company of Steffy, Cross, and a representative
of RehabCare. The initial representative of RehabCare shall be James M. Usdan.
Each Stockholder agrees to cause Cross to be elected and maintained as Chief
Executive Officer and Lewis as Chief Operating Officer of the Company for the
terms of their employment agreements with the Company (as such may be renewed,
extended, amended, or modified from time to time) so long as he is not subject
to termination for cause under his employment agreement. The terms and
conditions of their employment shall be controlled by their employment
agreements.
8. SPECIAL VOTING PROCEDURES. (a) Each of the Stockholders
covenants and agrees to vote or consent with respect to all shares of Equity
Securities owned or controlled by the Stockholder in the manner specified in
paragraph (b) of this Section 8 with respect to the following matters: any
vote or action of the stockholders of the Company necessary to authorize,
ratify, confirm, approve, or in any other manner give consent to any corporate
action the result of which would be for the Company to become a wholly-owned
subsidiary of RehabCare or of any affiliate of RehabCare, or for the
stockholders of RehabCare to receive a distribution of Company voting
securities constituting a majority of the then issued and outstanding shares
of all voting securities of the Company (a "CONSOLIDATION EVENT"). As used
herein: the term "WHOLLY-OWNED" shall mean that RehabCare and its affiliates
collectively own all of the then issued and outstanding voting securities of
the Company and the term "AFFILIATE" when used with respect to RehabCare shall
mean any person or entity controlled by, controlling, or under common control
with RehabCare.
(b) The Stockholders will vote or consent with respect to
all shares of Equity Securities owned or controlled by them in such a manner as
to cause the Consolidation Event NOT to occur unless the following has
occurred: prior to such stockholder vote or consent, holders of at least
two-thirds of the Equity Securities collectively owned by Steffy, Cross, and
Lewis (including all Equity Securities transferred by any of Steffy, Cross, or
Lewis in accordance with Sections 5(i), 5(ii), or 5 (v) of this Agreement)
shall have given notice in writing to all of the Stockholders of their consent
to the occurrence of the Consolidation Event. In the event that notice of
such two-thirds consent is given, and further provided that RehabCare gives
notice in writing to all of the other Stockholders that RehabCare and/or its
affiliates will vote or consent with respect to all shares of Equity
Securities that RehabCare or its affiliates own or control so as to cause the
Consolidation Event to occur, then all of the other Stockholders shall vote or
Stockholders' Agreement Page 7
<PAGE> 8
consent with respect to all of the Equity Securities each owns or controls in
such a manner as to cause the Consolidation Event to occur.
(c) The Stockholders agree to cause the Certificate of
Incorporation to be amended to require the affirmative vote of two-thirds of
the shares of each class of Equity Securities, voting separately as a class for
approval any extraordinary actions, including but not limited to any amendment
of the Certificates of Incorporation or the By-laws of the Company, any merger
or consolidation of the Company or sale of substantially all of the assets of
the Company to any entity other than an affiliate of RehabCare.
9. TERMINATION. This Agreement, and the respective rights and
obligations of the Stockholders, shall terminate on the date upon which the
Equity Securities are first traded on a national securities exchange or on the
National Market System of the National Association of Securities Dealers
Automated Quotation System.
10. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or mailed
by first class, registered or certified mail, postage paid, to each Stockholder
or the Company at its respective address set forth below, or to such other
address as the addressee shall have furnished to the other Stockholders and the
Company hereto in the manner prescribed by this Section 10:
<TABLE>
<S> <C>
Transitional Care of America, Inc. Mr. James M. Usdan
660 Newport Center Drive President
Suite 470 RehabCare Corporation
Newport Beach, California 92660 7733 Forsyth Boulevard, 17th Floor
St. Louis, Missouri 63105
Mr. David L. Steffy Mr. David W. Cross
660 Newport Center Drive 10 Lindworth Drive
Suite 470 St. Louis, Missouri 63124
Newport Beach, California 92660
Mr. John R. Lewis
342 Woodcliffe Place Drive
Chesterfield, Missouri 63005
</TABLE>
11. SPECIFIC PERFORMANCE. The rights of the Stockholders and the
Company under this Agreement are unique and, accordingly, the Stockholders and
the Company shall, in addition to such other remedies as may be available to
any of them at law or in equity, have the right to enforce their rights
hereunder by actions for specific performance to the extent permitted by law.
Stockholders' Agreement Page 8
<PAGE> 9
12. LEGEND. The certificates representing the shares subject to
this Agreement shall bear on their face a legend substantially as follows:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold or transferred in the absence
of an effective registration statement under the Securities Act or an
exemption from registration thereunder. The securities represented by
this Certificate are also subject to additional restrictions on
transfer as set forth in a Stock Agreement between the Company and the
signatories thereto dated as of September 22, 1994. A copy of such
Agreement may be obtained at the Company's principal place of business
without charge."
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter.
14. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of this
Agreement may be waived with the unanimous written consent of the Stockholders.
Any waiver by any party of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach of that
provision or of any other provision hereof. Each of the Stockholders and the
Company agrees to execute all such further instruments and documents and to
take all such further action as any party hereto may reasonably require in
order to effectuate the terms and purposes of this Agreement.
15. AMENDMENTS. Except as otherwise expressly provided herein,
this Agreement may not be amended except by an instrument in writing executed
by all Stockholders.
16. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the Stockholders and the Company
and their respective heirs, executors, legal representatives, successors and
permitted transferees, except as may be expressly provided otherwise herein.
17. APPLICABILITY OF AGREEMENT TO OTHER STOCKHOLDERS. Except
pursuant to a firm commitment underwritten public offering, the Company shall
not issue Equity Securities constituting ten percent (10%) or more of the
outstanding shares of capital stock of the Company and the Stockholders may not
sell, assign, convey or otherwise transfer Equity Securities constituting ten
percent (10%) on more of the outstanding shares of capital stock of the Company
to any person who is not a party to this Agreement unless the person to whom
such shares of capital stock are issued agrees, in a writing delivered
simultaneously with such issuance, sale, assignment, conveyance or transfer, to
become a party hereto and to be bound by and to comply with all applicable
terms and provisions of this Agreement.
Stockholders' Agreement Page 9
<PAGE> 10
18. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and
such invalid, illegal and unenforceable provisions shall be reformed and
construed so that it will be valid, legal, and enforceable to the maximum
extent permitted by law.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. SECTION HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Missouri.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By David W. Cross
-------------------------------------
Authorized Officer
STOCKHOLDERS: David L. Steffy
---------------------------------------
David L. Steffy
David W. Cross
---------------------------------------
David W. Cross
John R. Lewis
---------------------------------------
John R. Lewis
REHABCARE CORPORATION
By James M. Usdan
-------------------------------------
Authorized Officer
Stockholders' Agreement Page 10
<PAGE> 1
EXHIBIT 10.16
TRANSITION AGREEMENT
This Transition Agreement (the "Agreement") is made and entered into
this 22nd day of September, 1994, by and between RehabCare Corporation, a
Delaware corporation ("RehabCare"), Transitional Care of America, Inc., a
Delaware corporation ("TCA"), David W. Cross ("Cross") and John R. Lewis
("Lewis").
RECITALS
A. Contemporaneous with the execution of this Agreement, RehabCare,
Cross, Lewis and David L. Steffy ("Steffy") each are purchasing ownership
interests in TCA, pursuant to a Subscription Agreement and a Stockholders'
Agreement each of even date herewith, and RehabCare is releasing Cross and
Lewis from their Employment Agreements with RehabCare dated November 1, 1993
(the "Employment Agreements") and superseding such Employment Agreements with
the Non-Compete, Non-Hire, Non-Disclosure and Release Agreements by and among
RehabCare and each of TCA, Cross and Lewis, the Non-Development, Non-Hire and
Release Agreement by and between RehabCare and Steffy, and the Non-Compete,
Non-Hire and Non-Disclosure Agreement by and between TCA and Steffy, so that
Cross and Lewis may serve as the Chief Executive Officer and Chief Operating
Officer, respectively, of TCA.
B. TCA, RehabCare, Cross and Lewis desire to provide for the immediate
transition of Cross and Lewis from RehabCare to TCA.
C. TCA, RehabCare, Cross and Lewis further desire to arrange for the
provision of funds and certain administrative services by RehabCare to TCA and
for the provision of certain consulting services by Cross and Lewis to
RehabCare.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 "BUDGET" means the monthly estimates of Start-Up Expenditures
during the Transition Period as prepared by TCA and approved by RehabCare.
<PAGE> 2
1.2 "FIRST ROUND FINANCING" means the initial infusion of venture
capital into TCA by RehabCare and/or any other venture capital firm after the
initial capitalization of TCA.
1.3 "LOAN AGREEMENT" means that certain Revolving Credit Agreement
by and between RehabCare and TCA.
1.4 "PURCHASED SERVICES" means those services, other than the
Start-Up Services, RehabCare agrees to make available to TCA after TCA makes a
written request therefor and agrees to pay to RehabCare the fair market value
thereof, as more particularly described in Article IV and Exhibit B hereto.
1.5 "START-UP EXPENDITURES" means the operating expenses of TCA
during the Transition Period, including without limitation, the salaries of
Cross and Lewis and costs incurred for office space, equipment and supplies
needed by TCA to conduct its business.
1.6 "START-UP SERVICES" means the services that RehabCare agrees to
make available to TCA prior to December 31, 1994 without charge to TCA as more
particularly described in Article IV and Exhibit A.
1.7 "TRANSITION DATE" means September 22, 1994.
1.8 "TRANSITION PERIOD" means the period that commences on the date
this Agreement is executed and ends on the earlier of (i) the date First Round
Financing for TCA is funded, or (ii) December 31, 1994.
ARTICLE II
EMPLOYMENT OF CROSS AND LEWIS
2.1 TRANSITION OF EMPLOYMENT WITH REHABCARE. The employment of
Cross and Lewis by RehabCare pursuant to the Employment Agreements shall
terminate on the Transition Date and on such date Cross and Lewis shall vacate
their offices at RehabCare's offices in Clayton, Missouri and return to
RehabCare all property of RehabCare, including without limitation, credit
cards, keys, access and parking cards. On and after the Transition Date,
RehabCare shall have no further obligations to Cross and Lewis under the
Employment Agreements or under any employee or fringe benefit plans or policies
maintained by RehabCare for its executive employees, including without
limitation any incentive bonus plans or stock option plans, except for
(i) those payments that are specifically required to be paid to Cross and
Lewis pursuant to Sections 3.1 and 3.5 of their respective Non-Compete,
Non-Hire, Non-Disclosure and Release Agreements of even date herewith;
(ii) the continuation of medical benefits at the levels in effect as of the
Transition Date through June 30, 1995, the cost of the employer portion of
which shall be paid by RehabCare; and (iii) any other obligations as may be
required to be provided pursuant to federal or state law.
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<PAGE> 3
2.2 EMPLOYMENT OF CROSS AND LEWIS BY TCA. Cross and Lewis shall
commence full-time employment with TCA on the Transition Date and on and after
such date TCA shall pay all salary, expenses and benefits of Cross and Lewis,
pursuant to employment agreements with TCA executed as of even date herewith,
except as otherwise provided in Sections 3.1 and 3.5 of their respective
Non-Compete, Non-Hire, Non-Disclosure and Release Agreements with RehabCare of
even date herewith.
ARTICLE III
TRANSITION PERIOD LOAN TO TCA BY REHABCARE
3.1 OPERATING EXPENSES LOAN. During the Transition Period and
subject to the terms and conditions set forth in the Loan Agreement as of even
date herewith, RehabCare agrees to make funds available to TCA as TCA may from
time to time request pursuant to the Budget for the purpose of Start-Up
Expenditures. The aggregate principal amount which RehabCare shall be required
to make available and have outstanding at any given date shall not exceed the
amount set forth in the Budget for Start-Up Expenditures as of such date, but
in no event shall it exceed Three Hundred Thousand Dollars ($300,000.00). All
amounts made available to TCA by RehabCare pursuant to the Loan Agreement shall
be collectively referred to as the "Loan."
3.2 PROCEDURE FOR BORROWING. RehabCare shall cause amounts to be
made available to TCA pursuant to Section 3.1 at any time and from time to time
during the Transition Period only if TCA provides RehabCare with 48 hours prior
written notice specifying the amount TCA desires to borrow, the date on which
TCA desires that such amounts be made available to it and whether such amounts
should be delivered to TCA by check or wire transfer. If TCA elects delivery by
wire transfer, it shall provide such information regarding the account into
which such amounts are to be transferred as may be required by RehabCare and/or
RehabCare's bank. Each drawdown on the Loan shall be in the principal amount of
at least Five Thousand Dollars ($5,000).
3.3 INTEREST RATE. The outstanding balance under the Loan shall
bear interest at the rate per annum of one percent (1%) over the prime rate
charged by The Boatmen's National Bank of St. Louis for commercial loans, as in
effect from time to time during the period in which such Loan is outstanding,
with changes in the interest rate taking effect on the date a change in the
prime rate is made effective generally by said Bank. TCA shall pay on the first
day of each calendar quarter, commencing with the first quarter following the
date First Round Financing is funded, all accrued and unpaid interest. All
accrued and unpaid interest also shall be paid at the maturity of the Loan, as
described in Section 3.4. Any payment of interest which is not made on the due
date therefor, as specified herein, shall bear interest at the rate of one and
one-half percent (1-1/2%) per month until the date of payment.
3.4 MATURITY DATE. TCA shall have the right to prepay all or any
portion of the unpaid balance of the Loan from time to time prior to the
Maturity Date, as hereinafter
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<PAGE> 4
defined, without penalty or premium. All prepayments shall be applied solely to
the payment of principal. The entire outstanding balance of the Loan, including
all accrued and unpaid interest thereon, shall be due and payable on the date
three (3) years after the date on which RehabCare first makes funds available
to TCA pursuant to TCA's initial written request for a drawdown on the Loan
(the "Maturity Date"). In the event that the entire outstanding balance of the
Loan and all accrued and unpaid interest is not repaid by TCA on the Maturity
Date, such amounts shall bear interest at the rate of one and one-half percent
(1-1/2%) per month until the date of payment.
3.5 PAYMENTS AND MATURITY DATE. The Maturity Date and quarterly
interest payments are payable to RehabCare by check delivered at RehabCare's
office in Clayton, Missouri or by wire transfer to an account designated by
RehabCare.
ARTICLE IV
TRANSITION SERVICES
4.1 PROVISION OF START-UP SERVICES. RehabCare shall provide to TCA
upon TCA's written request the Start-Up Services as soon as practicable after
such request, with the intention of providing all written materials that are
then available by December 31, 1994. Such Start-Up Services shall be provided
by employees of RehabCare at times and locations that are mutually convenient
to RehabCare, the RehabCare employees and TCA and at such times as shall not
interfere with the performance by the RehabCare employee of his or her
RehabCare duties, it being recognized that RehabCare business takes precedence
over provision of Start-Up Services to TCA.
4.2 PROVISION OF PURCHASED SERVICES. From and after the termination
of the Transition Period, TCA shall have the right to make written request that
RehabCare provide, and RehabCare shall have the option of providing, the
Purchased Services.
4.3 COST OF SERVICES. The provision of Start-Up Services by
RehabCare to TCA shall be without charge to TCA by RehabCare. After its receipt
of TCA's written request for specific Purchased Services, RehabCare shall
determine if it will agree to provide such Purchased Services to TCA. If
RehabCare agrees to provide the Purchased Services requested by TCA, it will
provide TCA with an estimate of the fair market value of such Purchased
Services. After receipt of such fair market value estimate, TCA shall have the
right to approve its request for the specific Purchased Services at the
estimated fair market value. If TCA approves its request, RehabCare shall
provide the Purchased Services and TCA shall pay RehabCare the fair market
value therefor, as described in Section 4.4. Fair market value for the services
provided to TCA by RehabCare employees shall be based on the amount that an
independent third party would charge for the same or similar services, as
determined by RehabCare as of the date such services are rendered.
- 4 -
<PAGE> 5
4.4 PAYMENT BY TCA. RehabCare shall submit a written invoice to TCA
on or before the fifteenth (15th) day of each month for the fair market value of
all Purchased Services provided to TCA during the preceding month and TCA shall
remit payment therefor on or before the first day of the following month. Any
invoice that remains unpaid thirty (30) days after the due date shall bear
interest at the rate of one and one-half percent (1 1/2%) per month.
4.5 TERMINATION OF SERVICES. RehabCare shall not have the right to
terminate the Start-Up Services until the earlier of completion of the Start-Up
Services or December 31, 1994. Subject to the provisions of any separate written
agreements which govern the provision of specific Purchased Services by
RehabCare to TCA, RehabCare and TCA each shall have the right to terminate the
provision of any or all Purchased Services by RehabCare upon sixty (60) days
prior written notice to the other party. Upon termination, any and all amounts
due RehabCare by TCA shall be immediately due and payable.
ARTICLE V
CONSULTING SERVICES
5.1 PROVISION OF CONSULTING SERVICES. For a period through June 30,
1995 (the "Consulting Period"), TCA shall make Cross and Lewis available to
RehabCare on an "as requested" basis to consult with RehabCare and with their
successors with respect to their respective areas of responsibility at RehabCare
("Consulting Services"). Such Consulting Services shall include, but not be
limited to, the items set forth on Exhibit C of this Agreement and shall be
provided by Cross and Lewis at times and locations that are mutually convenient
to RehabCare and Cross and Lewis and at such times as shall not interfere with
the performance by Cross and Lewis of their TCA duties, it being recognized that
TCA business takes precedence over RehabCare business. Cross and Lewis shall not
be required to perform more than ten (10) hours of Consulting Services in any
month.
5.2 COMPENSATION. Cross and Lewis shall not be entitled to any
compensation or benefits for any Consulting Services provided to RehabCare
pursuant to this Article V.
5.3 SURVIVAL. The provisions of this Article V survive the
termination of this Agreement for any reason.
ARTICLE VI
LIMITATION OF LIABILITY
6.1 LIMITATION OF LIABILITY. In its provision of Purchased Services
to TCA pursuant to this Agreement, RehabCare shall have a duty to act, and to
cause its employees and agents to act, in a reasonably prudent manner, but
neither RehabCare nor any officer, director, employee or agent of RehabCare
shall be liable to TCA for any error, mistake, error of
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<PAGE> 6
judgment, mistake of law, or for any loss, liability, claim, damages, costs or
expenses incurred by TCA in connection with the provision of Purchased Services
under this Agreement. In their provision of Consulting Services to RehabCare
pursuant to this Agreement, Cross and Lewis shall have a duty to act in a
reasonably prudent manner, but Cross and Lewis shall not be liable to RehabCare
for any error, mistake, error of judgment, mistake of law, or for any loss,
liability, claim, damages, costs or expenses incurred by RehabCare in
connection with the provision of Consulting Services under this Agreement.
6.2 INDEMNIFICATION. TCA shall indemnify and hold harmless
RehabCare, its officers, directors and employees from and against any and all
losses, liabilities, claims, damages, costs and expenses (including attorneys'
fees and other expenses of litigation) to which such party may become subject as
a result of providing Purchased Services to TCA pursuant to this Agreement.
RehabCare shall indemnify and hold harmless Cross and Lewis from and against any
and all losses, liabilities, claims, damages, costs and expenses (including
attorneys' fees and other expenses of litigation) to which Cross and Lewis may
become subject as a result of providing Consulting Services to RehabCare
pursuant to this Agreement.
ARTICLE VII
TERMINATION
7.1 REHABCARE TERMINATION RIGHTS. Subject to the provisions of
Section 4.5 and the survival of Articles V and VI, RehabCare shall have the
right to terminate this Agreement upon ten (10) days prior written notice if:
(a) TCA fails to pay any invoice described in Section 4.4
above;
(b) Any of TCA, Cross or Lewis fail to provide any of the
Consulting Services described in Section 5.1 in accordance with the
terms set forth therein;
(c) Any of the Stockholders' Agreement, Subscription
Agreement, Non-Compete, Non-Hire, Non-Disclosure and Release
Agreements of Cross, Lewis and TCA, or the Non-Compete, Non-Hire and
Non-Disclosure Agreement or the Non-Development, Non-Hire and Release
Agreement of David L. Steffy, executed as of even date herewith, is
terminated or breached by any party other than RehabCare.
7.2 TCA TERMINATION RIGHTS. Subject to the provisions of Section
4.5 and the survival of Articles V and VI, TCA shall have the right to terminate
this Agreement upon ten (10) days prior written notice if:
(a) RehabCare fails to provide any of the payments or
benefits set forth in Section 2.1 hereof, or the Start-Up Services or
Purchased Services described in Article IV hereof, in accordance with
the terms set forth therein.
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<PAGE> 7
(b) Any of the Stockholders' Agreement, Subscription
Agreement, Non-Compete, Non-Hire, Non-Disclosure and Release Agreements
of Cross, Lewis, RehabCare or TCA, or the Non-Development, Non-Hire and
Release Agreement of David L. Steffy, executed as of even date herewith,
is terminated or breached by RehabCare.
ARTICLE VII
MISCELLANEOUS
8.1 RELATIONSHIP OF THE PARTIES. The parties hereto agree that all
officers, directors, employees or agents of RehabCare performing services
hereunder on behalf of TCA shall perform such services are employees of
RehabCare and that such officers, directors, employees or agents shall in no
way be deemed to be employees of TCA. The parties further agree that the
Consulting Services to be provided by Cross and Lewis during the Consulting
Period are provided as part of the arrangement between TCA and RehabCare as set
forth herein. Any Consulting Services provided by Cross and Lewis to RehabCare
during the Consulting Period shall not be deemed to create an employment or an
officer relationship between Cross and Lewis and RehabCare.
8.2 FURTHER ASSURANCES. Each of the parties will make, execute,
acknowledge, and deliver such other instruments and documents, and take all
such other actions, as the other party may reasonably request and as may
reasonably be required in order to effectuate the purposes of this Agreement
and to carry out the terms hereof.
8.3 ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned or transferred by either of the parties
hereto without the prior written consent of the other party, which consent may
not be reasonably withheld. Subject to the foregoing, this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto.
8.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail, return receipt requested, to the parties at the
following addresses:
If to RehabCare:
RehabCare Corporation
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
Attention: James M. Usdan, President
and Chief Executive Office
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<PAGE> 8
With a copy to:
Thompson & Mitchell
One Mercantile Center
Suite 3400
St. Louis, Missouri 63101
Attention: Robert M. LaRose, Esq.
If to TCA:
Transitional Care of America, Inc.
660 Newport Center Drive
Suite 470
Newport Beach, California 92660
Attention: David L. Steffy, Incorporator
With a copy to:
Suelthaus & Kaplan, P.C.
7733 Forsyth Boulevard
St. Louis, Missouri 63105
Attention: Thomas M. Walsh, Esq.
If to Cross and Lewis:
David W. Cross
10 Lindworth Drive
Ladue, Missouri 63124
John R. Lewis
342 Woodcliffe Place Drive
Chesterfield, Missouri 63005
8.5 AMENDMENT AND MODIFICATION. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated other than by an
agreement in writing signed by the parties hereto.
8.6 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
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<PAGE> 9
8.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.9 GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Missouri.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
REHABCARE CORPORATION
By James M. Usdan
-------------------------------------
James M. Usdan, President and
Chief Executive Officer
TRANSITIONAL CARE OF AMERICA, INC.
By David W. Cross
-------------------------------------
David W. Cross, President and
Chief Executive Officer
David W. Cross
-------------------------------------
David W. Cross
John R. Lewis
-------------------------------------
John R. Lewis
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<PAGE> 10
EXHIBIT A
START-UP SERVICES
RehabCare will provide the Start-Up Services to TCA on an "as needed"
and "as requested by TCA" basis with the understanding that RehabCare will fill
TCA's requests for services in as timely a manner as possible given its
resources and other constraints.
Start-Up Services means the following:
1. Market research on long-term care hospital regulations for all 50
states.
2. Provision of licensing (certification) procedures and protocols in
all 50 states.
3. Provision of unit financial modeling and reimbursement consultation.
4. Provision of RehabCare's policies and procedures and standard
operating manuals for TCA's use as foundations for the TCA
policies and procedures and standard operating procedure manuals.
TCA agrees to protect the information in RehabCare's policies and
procedures and standard operating procedure manuals and not to use them in a
competitive way against RehabCare.
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<PAGE> 11
EXHIBIT B
PURCHASED SERVICES
1. Preparation of a Business Plan
2. Personnel Recruitment
3. Policy and Procedure Development
4. Marketing
5. Financial Analyses
6. Development of Professional Services
7. LTCH Program Evaluation
8. Reimbursement Consultation
9. Space Planning
10. Internal Protocols and Procedures
11. Financial Planning
12. Development of LTCH Clinical Expertise
13. Assistance with Obtaining Professional Liability Insurance
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<PAGE> 12
EXHIBIT C
CONSULTING SERVICES
1. Assistance on skilled nursing facility product finalization.
2. Assistance on outpatient product finalization.
3. Assistance with respect to Columbia Hospital Corp. contract restructuring.
4. Development of an approach with respect to exempt openings of acute care
rehabilitation units.
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<PAGE> 1
EXHIBIT 10.17
TCA
NON-COMPETE, NON-HIRE,
NON-DISCLOSURE AND RELEASE
AGREEMENT
This Non-Compete, Non-Hire, Non-Disclosure and Release Agreement (the
"Agreement") is made and entered into as of this 22nd day of September, 1994,
by and between RehabCare Corporation, a Delaware corporation having its
principal place of business at 7733 Forsyth Boulevard, Suite 1700, St. Louis,
Missouri 63105 ("RehabCare"), and Transitional Care of America, Inc., a
Delaware corporation having its principal place of business at 660 Newport
Center Drive, Suite 470, Newport Beach, California 92660 ("TCA").
RECITALS
A. Contemporaneous with the execution of this Agreement, RehabCare,
David L. Steffy ("Steffy") and two senior members of RehabCare's management,
David W. Cross ("Cross") and John R. Lewis ("Lewis"), each are purchasing a
twenty-five percent (25%) ownership interest in TCA, an entity formed by
Steffy, pursuant to the terms and conditions of a Subscription Agreement, a
Transition Agreement and a Stockholders' Agreement dated as of even date
herewith.
B. Cross currently serves as Executive Vice President and Chief
Development Officer of RehabCare and Lewis currently serves as Executive Vice
President and Chief Operating Officer of RehabCare pursuant to Employment
Agreements with RehabCare dated November 1, 1993, (the "Employment
Agreements"), which contain certain binding non-compete, non-hire and
non-disclosure covenants.
C. TCA desires that RehabCare release Cross and Lewis from their
Employment Agreements, and the binding covenants contained therein, in order to
serve as the Chief Executive Officer and Chief Operating Officer of TCA.
D. Over the course of their employment, Cross and Lewis have had
access to confidential information regarding the business of RehabCare and have
developed close working relationships with RehabCare officers and employees.
E. In order to protect against the unauthorized disclosure and use of
such confidential information or the solicitation and hire of RehabCare
employees by TCA, RehabCare is willing to release Cross and Lewis from their
Employment Agreements and the binding covenants therein only if TCA enters into
contained non-compete, non-hire and confidentiality covenants with RehabCare,
as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 "PROPRIETARY INFORMATION" includes without limitation, any
trade secrets or confidential technology, proprietary information, customer
lists, lists of employees, mailing lists, details of contracts, pricing
policies, operational methods, marketing plans, product development plans,
research and development programs and plans, business acquisition plans,
internal memoranda, notes, records, transcripts, contracts and other documents
or files relating to RehabCare, which has been treated as proprietary and
confidential by RehabCare Business, knowledge belonging to or relating to the
business, sales, financial condition, products or other activities or affairs
of RehabCare, other confidential information, and any matter or thing
ascertained by Cross and Lewis or TCA through their or its association with
RehabCare, which has been treated as proprietary and confidential by RehabCare
and which is not otherwise in the public domain, including without limitation
the association which may result pursuant to the Transition Agreement, the use
or disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of RehabCare.
1.2 "RESTRICTED AREA" means the geographical area within (i) the
fifty states of the United States and (ii) the United States' territories and
possessions.
1.3 "RESTRICTED PERIOD" means the period commencing on the date
this Agreement is executed and ending on the earlier of (i) the fifth
anniversary of the execution of this Agreement, or (ii) the date on which there
is a Sale of Control of TCA.
1.4 "SALE OF CONTROL" means: (i) any consolidation or merger of TCA
with another corporation or entity or the sale or exchange by the stockholders
or the public offering of TCA's securities and as a result of such
consolidation, merger, sale, exchange or offering less than fifty percent (50%)
of the outstanding voting securities of the surviving or resulting corporation
or entity shall be owned in the aggregate by the stockholders of TCA, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended) of the party or parties to such consolidation, merger, sale or
exchange (other than TCA) as the same shall have existed immediately prior to
such consolidation, merger, sale, exchange or offering; or (ii) any sale,
lease, exchange or other transfer (in one transaction or in a series of related
transactions) of all, or substantially all, of the assets of TCA.
1.5 "STOCKHOLDERS' AGREEMENT" means that certain Stockholders'
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis as of even date
herewith which sets forth the rights and obligations of RehabCare, Steffy,
Cross and Lewis as TCA stockholders.
1.6 "SUBSCRIPTION AGREEMENT" means that certain Subscription
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis as of even date
herewith which outlines the terms and conditions of the initial purchase of TCA
stock by RehabCare, Steffy and the RehabCare Managers.
1.7 "TRANSITION AGREEMENT" means that certain Transition Agreement
by and between RehabCare, TCA, Cross and Lewis as of even date herewith which
outlines the
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<PAGE> 3
transition of Cross and Lewis to TCA and the ongoing arrangement between TCA
and RehabCare after such transition.
ARTICLE II
ACKNOWLEDGEMENTS OF TCA
2.1 REHABCARE BUSINESS. TCA acknowledges that the business of
RehabCare for purposes of this Agreement is the operation and management of
inpatient and outpatient rehabilitation programs and hospital-based skilled
nursing facilities (inpatient and outpatient rehabilitation programs and
hospital-based skilled nursing facilities are hereinafter referred to as the
"RehabCare Business").
2.2 REHABCARE EMPLOYEES AND CONTRACTORS. TCA acknowledges that
RehabCare has expended and will continue to expend substantial time, effort and
money in training its staff in the operation of RehabCare Business. The
employees and independent contractors of RehabCare who participate and who
will participate in RehabCare Business will have access to and possess
Proprietary Information of RehabCare. TCA acknowledges that to employ or
contract with former employees or independent contractors of RehabCare would
likely result in the use of RehabCare Proprietary Information in violation of
Section 3.3 hereof.
2.3 REHABCARE INDUCEMENT TO ENTER INTO AGREEMENTS. TCA
acknowledges that RehabCare is entering into the Subscription Agreement, the
Shareholder Agreement, the Transition Agreement and this Agreement and is
releasing the RehabCare Managers from their respective Employment Agreements
in part because of the covenants and assurances made by TCA in this Agreement,
including without limitation the non-compete, non-hire and the non-disclosure
covenants set forth in Article III hereof.
2.4 IRREPARABLE HARM TO REHABCARE. TCA acknowledges that the
non-compete, non-hire and non-disclosure covenants contained in Article III
hereof from TCA to RehabCare are essential to ensure the continued success of
RehabCare Business, and that RehabCare may sustain irreparable harm and damage
in the event that TCA violates any of said covenants.
ARTICLE III
COVENANTS OF TCA
3.1 NON-COMPETITION COVENANT. TCA covenants and agrees that it
shall not, directly or indirectly, during the Restricted Period and within the
Restricted Area:
(a) own, manage, operate, control, participate in the
management or control of, or be employed by, or act as the agent for,
lend its name to or initiate, maintain or continue any interest
whatsoever in any enterprise in direct competition with the RehabCare
Business except that in the first six months of operation by TCA of a
long-term care hospital, defined as a hospital or hospital
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<PAGE> 4
within a hospital that is formed and operated to be exempt from the
Medicare Prospective Payment System in accordance with the Health Care
Financing Administration provisions for long-term care hospitals, as
such provisions may be amended from time to time, and prior to its
qualification for an exemption from the Medicare Prospective Payment
System as a long-term care hospital in accordance with the applicable
Health Care Financing Administration provisions, TCA may operate as an
acute care rehabilitation hospital provided that if such hospital is
located within a radius of 10 miles from an existing acute care
rehabilitation unit operated by RehabCare, TCA may only accept patients
meeting both of the following criteria: (i) the patient is anticipated
to be admitted for a period of 25 days or more, and (ii) the patient is
anticipated to need less than three hours of physical or occupational
therapy per day during such period, except that a beneficial ownership
interest of less than five percent (5%) in any publicly traded company
shall not violate this Section 3.1(a).
(b) advance TCA's business interests with a then-existing
vendor, customer, representative or other person having a business
relationship with RehabCare by recommending, suggesting or assisting
such vendor, customer, representative or other person in the termination
or diminishment of its business relationship with RehabCare.
3.2 NON-HIRE COVENANT. TCA covenants and agrees that it shall not,
during the Restricted Period, directly or indirectly through the efforts of
persons acting by or through any other entity:
(a) solicit or encourage any employee, independent
contractor or representative of RehabCare, or any person who was an
employee, independent contractor or representative of RehabCare at any
time within the preceding twelve month period, to leave his or her
employment or engagement with RehabCare; or
(b) hire any employee, independent contractor or
representative of RehabCare, or any person who was an employee,
independent contractor or representative of RehabCare at any time within
the twelve month period preceding the initial solicitation or hire by or
on behalf of TCA without the prior written permission of the President
and Chief Executive Officer of RehabCare.
Notwithstanding the foregoing, TCA shall have the right to solicit,
encourage or hire any person who terminated his employment or engagement with
RehabCare prior to the date of this Agreement, and to engage an independent
contractor of RehabCare in a given community, with RehabCare's prior written
approval, if the services or the skills offered by such independent contractor
are unique or otherwise unavailable in such community.
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<PAGE> 5
3.3 NON-DISCLOSURE COVENANT. TCA covenants and agrees that:
(a) It shall keep confidential and not use or disclose to
others, except as expressly consented to in writing by RehabCare, or as
required by law to be disclosed, any Proprietary Information of
RehabCare to which it or any of its directors, officers, employees or
owners becomes privy; and
(b) All Proprietary Information made available to TCA by
RehabCare or Cross and Lewis in connection with any of the transactions
contemplated by the Shareholder Agreement, the Subscription Agreement
and/or the Transition Agreement concerning RehabCare Business at any
time shall be the property of RehabCare.
3.4 DURATION OF COVENANTS. The duration of the covenants set forth
in Section 3.1 and 3.2 shall expire upon the earlier of (i) the date the
Restricted Period expires or (ii) the date on which the Subscription Agreement,
the Stockholders' Agreement or the Transition Agreement is breached or otherwise
terminates and the duration of the covenant set forth in Section 3.3 shall be
perpetual and shall survive expiration of the Restricted Period and the
termination or expiration of any of the Stockholders' Agreement, Subscription
Agreement or Transition Agreement.
3.5 MUTUAL RELEASE BY TCA AND REHABCARE. In consideration of the
covenants and agreements set forth in this Agreement, the Subscription
Agreement, the Transition Agreement and the Stockholders' Agreement, TCA hereby
releases and holds RehabCare harmless against any and all actions, claims and
demands for damages or other payments by TCA in connection with the matters
addressed in such agreements arising on or before the date hereof. Likewise, in
consideration of the covenants and agreements set forth in this Agreement, the
Subscription Agreement, the Transition Agreement and the Stockholders'
Agreement, RehabCare hereby releases and holds TCA harmless against any and all
actions, claims and demands for damages or other payments by RehabCare in
connection with the matters addressed in such agreements arising on or before
the date hereof.
ARTICLE IV
RIGHTS AND REMEDIES UPON BREACH OF COVENANTS
4.1 REHABCARE RIGHTS GENERALLY. Upon a breach by TCA of any of the
provisions of this Agreement, RehabCare shall have the rights and remedies
described in Sections 4.2 and 4.3 below, each of which shall be independent of
the other and severally enforceable and all of which shall be in addition to
and not in lieu of any other rights and remedies available to RehabCare at law
or in equity.
4.2 INJUNCTIVE RELIEF. In addition to any other rights and remedies
available to RehabCare at law or in equity, RehabCare shall have the right and
remedy to have the provisions of this Agreement specifically enforced by any
court of competent jurisdiction, it being acknowledged and agreed by TCA that:
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<PAGE> 6
(a) the scope of the provisions of this Agreement are
reasonable in light of TCA's and Cross' and Lewis' relationship to
RehabCare and the confidential and Proprietary Information to which
Cross and Lewis have had access and in the future will have access;
(b) any breach of this Agreement by TCA will cause
irreparable injury to RehabCare and that any damages will not provide
adequate remedy to RehabCare; and
(c) compliance with the provisions set forth in this
Agreement will not be an unreasonable hardship on TCA or deprive it of
the opportunity to conduct its intended business.
4.3 DAMAGES. In addition to any other rights and remedies
available to RehabCare at law or in equity, RehabCare shall have the right and
remedy to require TCA to account for and pay over to RehabCare all
compensation, profits, money, accruals, increments or other benefits derived or
received by TCA as a result of any transactions constituting a breach by TCA of
Section 3.3 of this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. Any notice or other communication required or
permitted to be given to any party hereunder shall be in writing and shall be
delivered personally, or by facsimile copy, or sent by certified, registered
or express mail, postage prepaid, and shall be deemed given when so delivered
personally, or when receipt is acknowledged if by facsimile copy, or two
business days after the date of mailing if mailed, to the address of such party
set forth above (or to such other address as any party may from time to time
specify in writing pursuant to the notice provisions hereof).
5.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon RehabCare and TCA and their successors and
assigns and shall not be subject to voluntary or involuntary alienation,
assignment or transfer.
5.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, determined
without reference to its choice of law rules.
5.4 ENTIRE AGREEMENT. This Agreement, taken together with the
Shareholder Agreement, Subscription Agreement and Transition Agreement and the
other documents and instruments executed pursuant thereto to which TCA is a
party, constitute the entire agreement between TCA and RehabCare with regard to
the subject matter hereof, and supersedes and revokes contracts, agreements
and/or understandings between TCA and RehabCare relative thereto. This
Agreement was negotiated between TCA and RehabCare and TCA has consulted
counsel in connection herewith.
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<PAGE> 7
5.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by
RehabCare and TCA or, in the case of a waiver, by the party waiving compliance.
No delay on the part of RehabCare or its Board of Directors in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of RehabCare or its Board of Directors of any
right, power or privilege hereunder, or any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies that RehabCare may otherwise have at law or in equity.
5.6 SEVERABILITY. The parties acknowledge that the laws and public
policies of the various states of the United States might differ as to the
validity and enforceability of the covenants contained in Article III of this
Agreement. It is the intention of the parties that the activities of TCA be
restricted only to the extent necessary for the protection of the legitimate
business interests of Company, that the provisions of Article III shall, to the
fullest extent permissible under the law and public policy, be enforced by the
courts of each state and jurisdiction in which enforcement is sought, and that
the unenforceability (or the modification necessary to conform the covenants
contained in Article III with such law and public policy) of any part of
Article III shall not be deemed to render unenforceable any other part of
Article III. Accordingly, if any part of Article III shall be adjudicated to be
invalid or unenforceable in any action or proceeding in which TCA or its
successors or assigns, and RehabCare or its successors or assigns, are parties,
whether in its entirety or as modified as to duration, territory or otherwise,
then such part shall be deemed amended, as the case may be, in order to render
the remainder of Article III valid and enforceable. Any such deletion or
amendment shall apply only where the court rendering the same has jurisdiction.
In addition, the invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
5.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
REHABCARE CORPORATION
By: James M. Usdan
--------------------------------
James M. Usdan, President and
Chief Executive Officer
TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.18
REHABCARE
NON-COMPETE, NON-HIRE,
NON-DISCLOSURE AND RELEASE
AGREEMENT
This Non-Compete, Non-Hire, Non-Disclosure and Release Agreement (the
"Agreement") is made and entered into as of this 22nd day of September, 1994,
by and between RehabCare Corporation, a Delaware corporation having its
principal place of business at 7733 Forsyth Boulevard, Suite 1700, St. Louis,
Missouri 63105 ("RehabCare"), and Transitional Care of America, Inc., a
Delaware corporation having its principal place of business at 660 Newport
Center Drive, Suite 470, Newport Beach, California 92660 ("TCA").
RECITALS
A. Contemporaneous with the execution of this Agreement,
RehabCare, David L. Steffy ("Steffy") and two senior members of RehabCare's
management, David W. Cross ("Cross") and John R. Lewis ("Lewis"), each are
purchasing a twenty-five percent (25%) ownership interest in TCA, pursuant to
the terms and conditions of a Subscription Agreement, a Transition Agreement
and a Stockholders' Agreement dated as of even date herewith.
B. In conjunction with their investment in TCA, Cross and Lewis
desire to be released and RehabCare desires to release Cross and Lewis from
their Employment Agreements with RehabCare dated November 1, 1993, and the
binding non-compete, non-hire and non-disclosure covenants contained therein,
so that Cross and Lewis may serve as the Chief Executive Officer and Chief
Operating Officer, respectively, of TCA.
C. In connection with RehabCare's purchase of an ownership
interest in TCA, and the release of Cross and Lewis from their Employment
Agreements with RehabCare and their employment by TCA, Cross and Lewis have
agreed to enter into Non-Compete, Non-Hire, Non-Disclosure and Release
Agreements with RehabCare, Steffy has agreed to enter into a Non-Development,
Non-Hire and Release Agreement with RehabCare and a Non-Compete, Non-Hire and
Non-Disclosure Agreement with TCA and RehabCare has agreed to enter into the
non-compete, non-hire and non-disclosure covenants set forth herein, subject to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
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<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 "PROPRIETARY INFORMATION" includes without limitation, any trade
secrets or confidential technology, proprietary information, customer lists,
lists of employees, mailing lists, details of contracts, pricing policies,
operational methods, marketing plans, product development plans, research and
development programs and plans, business acquisition plans, internal memoranda,
notes, records, transcripts, contracts and other documents or files relating to
TCA Business, knowledge belonging to or relating to the business, sales,
financial condition, products or other activities or affairs of TCA, other
confidential information, and any matter or thing ascertained by RehabCare
through its association with TCA, which has been treated as proprietary and
confidential by TCA and which is not otherwise in the public domain, the use or
disclosure of which matter or thing might reasonably be construed to be contrary
to the best interests of TCA.
1.2 "RESTRICTED AREA" means the geographical area within (i) the
fifty states of the United States, and (ii) the United States' territories and
possessions.
1.3 "RESTRICTED PERIOD" means the period commencing on the date
this Agreement is executed and ending on the earlier of (i) the fifth
anniversary of the execution of this Agreement, or (ii) the date on which there
is a Sale of Control of TCA.
1.4 "SALE OF CONTROL" means: (i) any consolidation or merger of TCA
with another corporation or entity or the sale or exchange by the stockholders
or the public offering of TCA's securities and as a result of such
consolidation, merger, sale, exchange or public offering less than fifty
percent (50%) of the outstanding voting securities of the surviving or
resulting corporation or entity shall be owned in the aggregate by the
stockholders of TCA, other than affiliates (within the meaning of the
Securities Exchange Act of 1934, as amended) of the party or parties to such
consolidation, merger, sale or exchange (other than TCA) as the same shall have
existed immediately prior to such consolidation, merger, sale, exchange or
offering; or (ii) any sale, lease, exchange or other transfer (in one
transaction or in a series of related transactions) of all, or substantially
all, of the assets of TCA.
1.5 "STOCKHOLDERS' AGREEMENT" means that certain Stockholders'
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis as of even date
herewith which sets forth the rights and obligations of RehabCare, Steffy and
Cross and Lewis as TCA stockholders.
1.6 "SUBSCRIPTION AGREEMENT" means that certain Subscription
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis as of even date
herewith which outlines the terms and conditions of the initial purchase of TCA
stock by RehabCare, Steffy, Cross and Lewis.
1.7 "TRANSITION AGREEMENT" means that certain Transition Agreement
by and between RehabCare, TCA, Cross and Lewis dated as of even date herewith
which outlines the transition of Cross and Lewis to TCA and the ongoing
arrangement between TCA and RehabCare after such transition.
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<PAGE> 3
ARTICLE II
ACKNOWLEDGEMENTS OF REHABCARE
2.1 TCA BUSINESS. RehabCare acknowledges that the business of TCA
for purposes of this Agreement is the ownership of, leasing of, operation of
and the provision of contract management services to "long-term care
hospitals," defined as hospitals or hospitals within hospitals that are formed
and operated to be exempt from the Medicare Prospective Payment System in
accordance with the Health Care Financing Administration provisions for
long-term care hospitals, as such provisions may be amended from time to time
("LTCHs") (the ownership of, leasing of, operation of and the provision of
contract management services to LTCHs are hereinafter referred to as the "TCA
Business").
2.2 TCA EMPLOYEES AND CONTRACTORS. RehabCare acknowledges that TCA
will expend substantial time, effort and money in training its staff in the
operation of TCA Business. The employees and independent contractors of TCA
who participate and who will participate in TCA's Business will have access to
and possess Proprietary Information of TCA. RehabCare acknowledges that to
employ or contract with former employees or independent contractors of TCA would
likely result in the use by RehabCare of TCA Proprietary Information in
violation of Section 3.3 hereof.
2.3 IRREPARABLE HARM TO TCA. RehabCare acknowledges that the
non-compete, non-hire and non-disclosure covenants contained in Article III
hereof from RehabCare to TCA are essential to ensure the continued success of
TCA Business, and that TCA may sustain irreparable harm and damage in the event
that RehabCare violates any of said covenants.
ARTICLE III
COVENANTS OF REHABCARE
3.1 SHANNON MEDICAL CENTER. On and after the date this Agreement
is executed, TCA shall enter into good faith negotiations with Shannon Medical
Center, in San Angelo, Texas, with the intention of assuming RehabCare's
existing definitive agreement with Shannon Medical Center for the ownership or
operation of an LTCH at such facility. Notwithstanding anything in this
Agreement to the contrary, RehabCare shall have the right to own or operate an
LTCH at Shannon Medical Center at any time prior to TCA's assumption of
RehabCare's definitive agreement with Shannon Medical Center.
3.2 NON-COMPETITION COVENANT. Subject to the provisions of Section
3.1, RehabCare covenants and agrees that it shall not, directly or indirectly,
during the Restricted Period and within the Restricted Area:
(a) own, manage, operate, control, participate in the
management or control of, or be employed by, or act as the agent for,
lend its name to or initiate, maintain or continue any interest
whatsoever in any enterprise in direct competition with or having to do
with TCA Business, except that a beneficial
-3-
<PAGE> 4
ownership interest of less than five percent (5%) in any publicly
traded company shall not violate this Section 3.2(a); and
(b) advance RehabCare's business interest with a
then-existing vendor, customer, representative or other person having a
business relationship with TCA by recommending, suggesting or assisting
such vendor, customer, representative or other person in the termination
or diminishment of its business relationship with TCA.
Notwithstanding the foregoing, RehabCare may operate hospital-based
skilled nursing facilities provided that if such facility is located within a
radius of ten (10) miles from an existing LTCH operated by TCA, RehabCare shall
only accept patients who are anticipated to be admitted for a period of less
than 25 days.
3.3 NON-HIRE COVENANT. RehabCare covenants and agrees that it shall
not, during the Restricted Period, directly or indirectly through the efforts
of persons acting by or through any other entity:
(a) solicit or encourage any employee, independent
contractor or representative of TCA, or any person who was an employee,
independent contractor or representative of TCA at any time within the
preceding twelve month period, to leave his or her employment or
engagement with TCA; or
(b) hire any employee, independent contractor or
representative of TCA, or any person who was an employee, independent
contractor or representative of TCA at any time within the twelve month
period preceding the initial solicitation or hire by or on behalf of
RehabCare without the prior written permission of the President and
Chief Executive Officer of TCA.
Notwithstanding the foregoing RehabCare shall have the right to engage
an independent contractor of TCA in a given community, with TCA's prior written
approval, if the services or skills offered by such independent contractor are
unique or otherwise unavailable in such community.
3.4 NON-DISCLOSURE COVENANT. RehabCare covenants and agrees that:
(a) it shall keep confidential and not use or disclose to
others, except as expressly consented to in writing by TCA, or as
required by law to be disclosed, any Proprietary Information of TCA to
which any of its directors, officers, employees or owners becomes privy;
(b) all Proprietary Information made available to RehabCare
by TCA or Cross and Lewis in connection with any of the transactions
contemplated by the Stockholders' Agreement, the Subscription Agreement
and/or the Transition Agreement concerning TCA Business at any time
shall be the property of TCA.
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<PAGE> 5
3.5 DURATION OF COVENANTS. The duration of covenants set forth in
Section 3.2 and 3.3 shall expire upon the earlier of (i) the date the
Restricted Period expires or (ii) the date on which the Subscription Agreement,
the Stockholders' Agreement or the Transition Agreement is breached or
otherwise terminates, and the duration of the covenant set forth in Section 3.4
shall be perpetual and shall survive expiration of the Restricted Period and
the termination or expiration of any of the Stockholders' Agreement,
Subscription Agreement or Transition Agreement.
3.6 MUTUAL RELEASE BY TCA AND REHABCARE. In consideration of the
covenants and agreements set forth in this Agreement, the Subscription
Agreement, the Transition Agreement and the Stockholders' Agreement, TCA hereby
releases and holds RehabCare harmless against any and all actions, claims and
demands for damages or other payments by TCA in connection with the matters
addressed in such agreements arising on or before the date hereof. Likewise, in
consideration of the covenants and agreements set forth in this Agreement, the
Subscription Agreement, the Transition Agreement and the Stockholders'
Agreement, RehabCare hereby releases and holds TCA harmless against any and all
actions, claims and demands for damages or other payments by RehabCare in
connection with the matters addressed in such agreements arising on or before
the date hereof.
ARTICLE IV
RIGHTS AND REMEDIES UPON BREACH OF COVENANTS
4.1 TCA RIGHTS GENERALLY. Upon a breach by RehabCare of any of the
provisions of this Agreement, TCA shall have the rights and remedies described
in Sections 4.2 and 4.3 below, each of which shall be independent of the other
and severally enforceable and all of which shall be in addition to and not in
lieu of any other rights and remedies available to TCA at law or in equity.
4.2 INJUNCTIVE RELIEF. In addition to any other rights and remedies
available to TCA at law or in equity, TCA shall have the right and remedy to
have the provisions of this Agreement specifically enforced by any court of
competent jurisdiction, it being acknowledged and agreed by RehabCare that:
(a) the scope of the provisions of this Agreement are
reasonable in light of RehabCare's relationship to TCA and the
confidential and Proprietary Information to which RehabCare will have
access;
(b) any breach of this Agreement by RehabCare will cause
irreparable injury to TCA and that any damages will not provide adequate
remedy to TCA; and
(c) compliance with the provisions set forth in this Agreement
will not be an unreasonable hardship on RehabCare or deprive it of the
opportunity to conduct its intended business.
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<PAGE> 6
4.3 DAMAGES. In addition to any other rights and remedies
available to TCA at law or in equity, TCA shall have the right and remedy to
require RehabCare to account for and pay over to TCA all compensation, profits,
money, accruals, increments or other benefits derived or received by RehabCare
as a result of any transactions constituting a breach by RehabCare of Section
3.4 of this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. Any notice or other communication required or
permitted to be given to any party hereunder shall be in writing and shall be
delivered personally, or by facsimile copy, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed given when so delivered
personally, or when receipt is acknowledged if by facsimile copy, or two
business days after the date of mailing if mailed, to the address of such party
set forth above (or to such other address as any party may from time to time
specify in writing pursuant to the notice provisions hereof).
5.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon RehabCare and TCA and their successors and
assigns and shall not be subject to voluntary or involuntary alienation,
assignment or transfer.
5.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, determined
without reference to its choice of law rules.
5.4 ENTIRE AGREEMENT. This Agreement, taken together with the
Shareholder Agreement, Subscription Agreement and Transition Agreement and the
other documents and instruments executed pursuant thereto to which RehabCare is
a party, constitute the entire agreement between TCA and RehabCare with regard
to the subject matter hereof, and supersedes and revokes contracts, agreements
and/or understandings between TCA and RehabCare relative thereto. This
Agreement was negotiated between TCA and RehabCare and RehabCare has consulted
counsel in connection herewith.
5.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by
RehabCare and TCA or, in the case of a waiver, by the party waiving compliance.
No delay on the part of TCA or its Board of Directors in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of TCA or its Board of Directors of any right, power or
privilege hereunder, or any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies that TCA may otherwise have at law or in equity.
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<PAGE> 7
5.6 SEVERABILITY. The parties acknowledge that the laws and public
policies of the various states of the United States might differ as to the
validity and enforceability of the covenants contained in Article III of this
Agreement. It is the intention of the parties that the activities of RehabCare
be restricted only to the extent necessary for the protection of the legitimate
business interests of TCA, that the provisions of Article III shall, to the
fullest extent permissible under the law and public policy, be enforced by the
courts of each state and jurisdiction in which enforcement is sought, and that
the unenforceability (or the modification necessary to conform the covenants
contained in Article III with such law and public policy) of any part of
Article III shall not be deemed to render unenforceable any other part of
Article III. Accordingly, if any part of Article III shall be adjudicated to be
invalid or unenforceable in any action or proceeding in which TCA or its
successors or assigns, and RehabCare or its successors or assigns, are parties,
whether in its entirety or as modified as to duration, territory or otherwise,
then such part shall be deemed amended, as the case may be, in order to render
the remainder of Article III valid and enforceable. Any such deletion or
amendment shall apply only where the court rendering the same has jurisdiction.
In addition, the invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
5.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
REHABCARE CORPORATION
By: James M. Usdan
---------------------------------------------
James M. Usdan, President and Chief
Executive Officer
TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------------------
David W. Cross, President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 10.19
STEFFY/REHABCARE
NON-DEVELOPMENT, NON-HIRE
AND RELEASE
AGREEMENT
This Non-Development, Non-Hire and Release Agreement (the "Agreement")
is made and entered into as of this 22nd day of September, 1994, by and between
RehabCare Corporation, a Delaware corporation having its principal place of
business at 7733 Forsyth Boulevard, Suite 1700, St. Louis, Missouri 63105
("RehabCare"), and David L. Steffy, with offices at 660 Newport Center Drive,
Suite 470, Newport Beach, California 92660 ("Steffy").
RECITALS
A. Contemporaneous with the execution of this Agreement, RehabCare,
Steffy and two senior members of RehabCare's management, David W. Cross
("Cross") and John R. Lewis ("Lewis"), each are purchasing a twenty-five
percent (25%) ownership interest in Transitional Care of America, Inc., a
Delaware corporation ("TCA"), an entity formed by Steffy, pursuant to the terms
and conditions of a Subscription Agreement, a Transition Agreement and a
Stockholders' Agreement dated as of even date herewith.
B. Cross currently serves as Executive Vice President and Chief
Development Officer of RehabCare and Lewis currently serves as Executive Vice
President and Chief Operating Officer of RehabCare pursuant to Employment
Agreements with RehabCare dated November 1, 1993, (the "Employment
Agreements"), which contain certain binding non-compete, non-hire and
non-disclosure covenants.
C. Steffy desires that RehabCare release Cross and Lewis from their
Employment Agreements, and the binding covenants contained therein, in order to
serve as the Chief Executive Officer and Chief Operating Officer of TCA.
D. In order to protect against competition with TCA and the
solicitation and hire of RehabCare employees by Steffy or an entity in which
Steffy has a majority or controlling equity interest, Steffy is willing to
enter into non-development and non-hire covenants with RehabCare, as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 "RESTRICTED AREA" means the geographical area within (i) the
fifty states of the United States and (ii) the United States' territories and
possessions.
<PAGE> 2
1.2 "RESTRICTED PERIOD" means with respect to Steffy, the period
commencing on the date this Agreement is executed and ending on the earlier of
(i) November 1, 1996 or (ii) the date on which there is a Sale of Control of
TCA.
1.3 "SALE OF CONTROL" means: (i) any consolidation or merger of TCA
with another corporation or entity or the sale or exchange by the stockholders
or the public offering of TCA's securities and as a result of such
consolidation, merger, sale, exchange or offering less than fifty percent (50%)
of the outstanding voting securities of the surviving or resulting corporation
or entity shall be owned in the aggregate by the stockholders of TCA, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended) of the party or parties to such consolidation, merger, sale or
exchange (other than TCA) as the same shall have existed immediately prior to
such consolidation, merger, sale exchange or offering; or (ii) any sale, lease,
exchange or other transfer (in one transaction or in a series of related
transactions) of all, or substantially all, of the assets of TCA.
1.4 "STOCKHOLDERS' AGREEMENTS" means that certain Stockholders'
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis of even date
herewith which sets forth the rights and obligations of RehabCare, Steffy,
Cross and Lewis as TCA stockholders.
1.5 "SUBSCRIPTION AGREEMENT" means that certain Subscription
Agreement by and among TCA, RehabCare, Steffy, Cross and Lewis of even date
herewith which outlines the terms and conditions of the initial purchase of TCA
stock by RehabCare, Steffy, Cross and Lewis.
1.6 "TRANSITION AGREEMENT" means that certain Transition Agreement
by and between RehabCare, TCA, Cross and Lewis as of even date herewith which
outlines the transition of Cross and Lewis to TCA and the ongoing arrangement
between TCA and RehabCare after such transition.
ARTICLE II
ACKNOWLEDGEMENTS OF STEFFY
2.1 REHABCARE BUSINESS. The current business of RehabCare for
purposes of this Agreement is the operation and management of inpatient and
outpatient rehabilitation programs and hospital-based skilled nursing
facilities (inpatient and outpatient rehabilitation programs and hospital-based
skilled nursing facilities are hereinafter referred to as the "RehabCare
Business").
2.2 REHABCARE EMPLOYEES AND CONTRACTORS. Steffy acknowledges that
RehabCare has stated that it has expended and will continue to expend
substantial time, effort and money in training its staff in the operation of
RehabCare Business.
2.3 REHABCARE INDUCEMENT TO ENTER INTO AGREEMENTS. Steffy
acknowledges that RehabCare is entering into the Subscription Agreement, the
Stockholders' Agreement, the Transition Agreement and this Agreement and is
releasing Cross and Lewis from their respective
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<PAGE> 3
Employment Agreements in part because of the covenants and assurances made by
Steffy in this Agreement, including without limitation the non-development and
non-hire covenants set forth in Article III hereof.
2.4 IRREPARABLE HARM TO REHABCARE. Steffy acknowledges that the
non-development and non-hire covenants contained in Article III hereof from
Steffy to RehabCare are essential to ensure the continued success of RehabCare
Business, and that RehabCare may sustain irreparable harm and damage in the
event that Steffy violates any of said covenants.
ARTICLE III
COVENANTS OF STEFFY AND REHABCARE
3.1 NON-DEVELOPMENT COVENANT. Steffy covenants and agrees that if,
at any time during the Restricted Period, TCA is dissolved or otherwise does not
engage in the ownership of, operation of, or the provision of contract
management services to "long-term care hospitals," defined as hospitals or
hospitals within hospitals that are formed and operated to be exempt from the
Medicare Prospective Payment System in accordance with the Health Care Financing
Administration provisions for long-term care hospitals, as such provisions may
be amended from time to time (referred to herein as "LTCHs"), Steffy shall not,
nor shall he cause any entity in which he has a majority or controlling equity
interest to, directly or indirectly, during the Restricted Period and within the
Restricted Area, own, manage, operate, participate in the management or control
of, or be employed by, or act as the agent for, lend his name to or initiate,
maintain or continue any interest whatsoever in any enterprise which is involved
in the ownership of, operation of, or the provision of contract management
services to LTCHs, unless RehabCare has the same rights with respect to such
enterprise as are set forth in Sections 2 and 3 of the Stockholders' Agreement
and the right to acquire an ownership interest in such enterprise which is equal
to its ownership interest in TCA as of the date TCA is dissolved or otherwise
ceases to engage in the ownership of, operation of, or the provision of contract
management services to LTCHs. If RehabCare does not exercise such rights or
acquire such ownership interest, Steffy shall not thereafter be bound by the
provisions of this Section 3.1.
3.2 NON-HIRE COVENANT. Steffy covenants and agrees that he shall
not, nor shall he cause any entity in which he has a majority or controlling
equity interest to, during the Restricted Period, directly or indirectly through
the efforts of persons acting on behalf of Steffy or by or through such other
entity:
(a) solicit or encourage any employee or independent
contractor of RehabCare, or any person who was an employee or
independent contractor of RehabCare at any time within the preceding
twelve month period, to leave his or her employment or engagement with
RehabCare; or
(b) hire any employee or independent contractor of
RehabCare, or any person who was an employee or independent contractor
of RehabCare at any time within the twelve month period preceding the
initial solicitation or hire by or on behalf of Steffy or such other
entity without the prior written permission of the President and Chief
Executive Officer of RehabCare.
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<PAGE> 4
Notwithstanding the foregoing, TCA shall have the right to solicit,
encourage or hire any person who terminated his employment or engagement with
RehabCare prior to the date of this Agreement, and to engage an independent
contractor of RehabCare in a given community, with RehabCare's prior written
approval, if the services or the skills offered by such independent contractor
are unique or otherwise unavailable in such community.
3.3 DURATION OF COVENANTS. The covenants set forth in this Article
III shall expire upon the earlier of (i) the date the Restricted Period expires
or (ii) the date on which the Subscription Agreement, the Stockholders'
Agreement or the Transition Agreement is breached or otherwise terminates.
3.4 MUTUAL RELEASE BY STEFFY AND REHABCARE. In consideration of
the covenants and agreements set forth in this Agreement, the Subscription
Agreement, the Transition Agreement and the Stockholders' Agreement, Steffy
hereby releases and holds RehabCare harmless against any and all actions,
claims and demands for damages or other payments by Steffy in connection with
the matters addressed in such agreements arising on or before the date hereof.
Likewise, in consideration of the covenants and agreements set forth in this
Agreement, the Subscription Agreement, the Transition Agreement and the
Stockholders' Agreement, RehabCare hereby releases and holds Steffy harmless
against any and all actions, claims and demands for damages or other payments
by RehabCare in connection with the matters addressed in such agreements
arising on or before the date hereof.
ARTICLE IV
RIGHTS AND REMEDIES UPON BREACH OF COVENANTS
4.1 REHABCARE RIGHTS GENERALLY. Upon a breach by Steffy of any of
the provisions of this Agreement, RehabCare shall have the rights and remedies
described in Section 4.2 below, each of which shall be independent of the other
and severally enforceable and all of which shall be in addition to and not in
lieu of any other rights and remedies available to RehabCare at law or in
equity.
4.2 INJUNCTIVE RELIEF. In addition to any other rights and
remedies available to RehabCare at law or in equity, RehabCare shall have the
right and remedy to have the provisions of this Agreement specifically enforced
by any court of competent jurisdiction, it being acknowledged and agreed by
Steffy that:
(a) the scope of the provisions of this Agreement are
reasonable in light of the relationship of Cross, Lewis and Steffy
to TCA and RehabCare;
(b) any breach of this Agreement by Steffy may cause
irreparable injury to RehabCare and that any damages will not provide
adequate remedy to RehabCare; and
(c) compliance with the provisions set forth in this
Agreement will not be an unreasonable hardship on Steffy or deprive
him of a means of livelihood.
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<PAGE> 5
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. Any notice or other communication required or
permitted to be given to any party hereunder shall be in writing and shall be
delivered personally, or by facsimile copy, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed given when so delivered
personally, or when receipt is acknowledged if by facsimile copy, or two
business days after the date of mailing if mailed, to the address of such party
set forth above (or to such other address as any party may from time to time
specify in writing pursuant to the notice provisions hereof).
5.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon RehabCare and its successors and assigns, and
Steffy and his heirs and personal representatives, but Steffy' rights and
obligations hereunder are personal to him and shall not be subject to voluntary
or involuntary alienation, assignment or transfer.
5.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, determined
without reference to its choice of law rules.
5.4 ENTIRE AGREEMENT. This Agreement, taken together with the
Stockholders' Agreement, Subscription Agreement and Transition Agreement and
the other documents and instruments executed pursuant thereto to which Steffy
is a party, constitute the entire agreement between Steffy and RehabCare with
regard to the subject matter hereof, and supersedes and revokes contracts,
agreements and/or understandings between Steffy and RehabCare relative thereto.
This Agreement was negotiated between Steffy and RehabCare and Steffy has
consulted counsel in connection herewith.
5.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by
RehabCare and Steffy or, in the case of a waiver, by the party waiving
compliance. No delay on the part of RehabCare or its Board of Directors in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of RehabCare or its Board of
Directors of any right, power or privilege hereunder, or any single or partial
exercise of any right, power or privilege hereunder, preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that RehabCare may otherwise have at law or
in equity.
5.6 SEVERABILITY. The parties acknowledge that the laws and public
policies of the various states of the United States might differ as to the
validity and enforceability of the covenants contained in Article III of this
Agreement. It is the intention of the parties that the activities of Steffy be
restricted only to the extent necessary for the protection of the legitimate
business interests of RehabCare, that the provisions of Article III shall, to
the fullest extent permissible under the law and public policy, be enforced by
the courts of each state and
- 5 -
<PAGE> 6
jurisdiction in which enforcement is sought, and that the unenforceability (or
the modification necessary to conform the covenants contained in Article III
with such law and public policy) of any part of Article III shall not be deemed
to render unenforceable any other part of Article III. Accordingly, if any part
of Article III shall be adjudicated to be invalid or unenforceable in any
action or proceeding in which Steffy or his heirs or personal representatives,
and RehabCare or its successors or assigns, are parties, whether in its
entirety or as modified as to duration, territory or otherwise, then such part
shall be deemed amended, as the case may be, in order to render the remainder
of Article III valid and enforceable. Any such deletion or amendment shall
apply only where the court rendering the same has jurisdiction. In addition,
the invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
5.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
5.9 SURVIVAL. The provisions of this Agreement shall survive the
termination or breach of any of the Stockholders' Agreement, Subscription
Agreement or Transition Agreement, and/or the failure of TCA to commence or
continue operations, at any time during the Restricted Period.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
REHABCARE CORPORATION
By: James M. Usdan
----------------------------------
James M. Usdan, President and
Chief Executive Officer
"STEFFY"
David L. Steffy
--------------------------------------
David L. Steffy
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<PAGE> 1
EXHIBIT 10.20
CROSS
NON-COMPETE, NON-HIRE,
NON-DISCLOSURE AND RELEASE
AGREEMENT
This Non-Compete, Non-Hire, Non-Disclosure and Release Agreement (the
"Agreement") is made and entered into as of this 22nd day of September, 1994,
by and between RehabCare Corporation, a Delaware corporation having its
principal place of business at 7733 Forsyth Boulevard, Suite 1700, St. Louis,
Missouri 63105 ("RehabCare"), and David W. Cross, residing at 10 Lindworth
Drive, Ladue, Missouri 63124 ("Cross").
RECITALS
A. Contemporaneous with the execution of this Agreement, RehabCare
and Cross and two other investors each are purchasing a twenty-five percent
(25%) ownership interest in Transitional Care of America, Inc., a Delaware
corporation ("TCA"), pursuant to the terms and conditions of a Subscription
Agreement, Transition Agreement and a Stockholders' Agreement dated as of even
date herewith.
B. Cross currently serves as the Executive Vice President and
Chief Development Officer of RehabCare pursuant to an Employment Agreement by
and between RehabCare and Cross dated November 1, 1993, (the "Employment
Agreement"), which contains certain binding non-compete, non-solicitation,
non-hire and non-disclosure covenants.
C. As of the Transition Date (as defined in the Transition
Agreement), Cross desires to voluntarily terminate his employment with
RehabCare, with the consent of RehabCare, to serve as Chief Executive Officer
of TCA.
D. RehabCare is willing to release Cross from his Employment
Agreement and the binding covenants contained therein, provided that Cross
enters into new non-compete, non-hire and confidentiality covenants with
RehabCare, as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 "PROPRIETARY INFORMATION" includes without limitation, any
trade secrets or confidential technology, proprietary information, customer
lists, lists of employees, mailing lists, details of contracts, pricing
policies, operational methods, marketing plans, product development plans,
research and development programs and plans, business acquisition plans,
internal memoranda, notes, records, transcripts, contracts and other documents
or files relating to RehabCare Business, knowledge belonging to or relating to
the business, sales, financial
<PAGE> 2
condition, products or other activities or affairs of RehabCare, other
confidential information, and any matter or thing ascertained by Cross through
Cross' association with RehabCare, which has been treated as proprietary and
confidential by RehabCare and which is not otherwise in the public domain, the
use or disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of RehabCare.
1.2 "RESTRICTED AREA" means the geographical area within
(i) the fifty states of the United States and (ii) the United States'
territories and possessions, and (iii) each foreign country, possession or
territory in which RehabCare or an affiliate of RehabCare may be engaged in
business.
1.3 "RESTRICTED PERIOD" means with respect to Cross, the
period commencing on the date this Agreement is executed and ending on the
earlier of (i) November 1, 1996, (ii) the date on which there is a Sale of
Control of TCA. Notwithstanding the foregoing, if the first venture round of
financing (as defined in Section 2(b) of the Stockholders' Agreement) has not
been consummated by March 31, 1995 and, if after such date, TCA gives notice to
all TCA stockholders of its abandonment of efforts to raise such financing,
Restricted Period means one year from the date of such notice.
1.4 "SALE OF CONTROL" means: (i) any consolidation or
merger of TCA with another corporation or entity or the sale or exchange by the
stockholders or the public offering of TCA's securities and as a result of such
consolidation, merger, sale, exchange or public offering less than fifty
percent (50%) of the outstanding voting securities of the surviving or
resulting corporation or entity shall be owned in the aggregate by the
stockholders of TCA, other than affiliates (within the meaning of the Securities
Exchange Act of 1934, as amended) of the party or parties to such
consolidation, merger, sale or exchange (other than TCA) as the same shall
have existed immediately prior to such consolidation, merger, sale, exchange or
offering; or (ii) any sale, lease, exchange or other transfer (in one
transaction or in a series of related transactions) of all, or substantially
all, of the assets of TCA.
1.5 "STOCKHOLDERS' AGREEMENT" means that certain
Stockholders' Agreement by and among TCA, RehabCare, Cross and the other
investors as of even date herewith which sets forth the rights and obligations
of TCA stockholders.
1.6 "SUBSCRIPTION AGREEMENT" means that certain
Subscription Agreement by and among TCA, RehabCare, Cross and the other
investors as of even date herewith which outlines the terms and conditions of
the initial purchase of TCA stock by RehabCare, Cross and the other investors.
1.7 "TRANSITION AGREEMENT" means that certain Transition
Agreement by and between RehabCare, TCA, Cross and John R. Lewis as of even
date herewith which outlines the transition of Cross and John R. Lewis to TCA
and the ongoing arrangement between TCA and RehabCare after such transition.
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<PAGE> 3
ARTICLE II
ACKNOWLEDGEMENTS OF CROSS
2.1 REHABCARE BUSINESS. The current business of RehabCare
for the purposes of this Agreement is the operation and management of inpatient
and outpatient rehabilitation programs and hospital-based skilled nursing
facilities (inpatient and outpatient rehabilitation programs and hospital-based
skilled nursing facilities are hereinafter referred to as the "RehabCare
Business").
2.2 REHABCARE EMPLOYEES AND CONTRACTORS. Cross acknowledges
that RehabCare has expended and will continue to expend substantial time,
effort and money in training its staff in the operation of RehabCare Business.
2.3 REHABCARE INDUCEMENT TO ENTER INTO AGREEMENTS. Cross
acknowledges that RehabCare has stated that it is entering into the
Subscription Agreement, the Stockholders' Agreement, the Transition Agreement
and this Agreement and is releasing Cross from his Employment Agreement in part
because of the covenants and assurances made by Cross in this Agreement,
including without limitation the non-compete, non-hire and the non-disclosure
covenants set forth in Article III hereof.
2.4 IRREPARABLE HARM TO REHABCARE. Cross acknowledges that
the non-compete, non-hire and non-disclosure covenants contained in Article III
hereof from Cross to RehabCare are essential to ensure the continued success of
RehabCare Business, and that RehabCare may sustain irreparable harm and damage
in the event that Cross violates any of said covenants.
ARTICLE III
COVENANTS OF CROSS AND REHABCARE
3.1 NON-COMPETITION COVENANT. Cross covenants and agrees
that he shall not, nor shall he cause TCA to, directly or indirectly, during the
Restricted Period and within the Restricted Area:
(a) own, manage, operate, control, participate in
the management or control of, or be employed by, or act as the
agent for, lend his name to or initiate, maintain or continue
any interest whatsoever in any enterprise in direct competition
with the RehabCare Business except that in the first six months
of operation by TCA of a "long-term care hospital" (as the terms
is defined in Section 3.1(c) of this Agreement) and prior to its
qualification for an exemption from the Medicare Prospective
Payment System as a long-term hospital in accordance with the
applicable Health Care Financing Administration provisions, TCA
may operate as an acute care rehabilitation hospital provided
that if such hospital is located within a radius of 10 miles
from an existing acute care rehabilitation unit operated by
RehabCare, TCA may only accept patients meeting both of the
following criteria: (i) the patient is anticipated to be
admitted for a
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<PAGE> 4
period of 25 days or more, and (ii) the patient is anticipated
to need less than three hours of physical or occupational therapy per
day during such period, except that a beneficial ownership interest of
less than five percent (5%) in any publicly traded company shall not
violate this Section 3.1(a).
(b) advance TCA's business interests with a then-existing
vendor, customer, representative or other person having a business
relationship with RehabCare by recommending, suggesting or assisting
such vendor, customer, representative or other person in the
termination or diminishment of its business relationship with RehabCare.
(c) own, manage, operate, participate in the management or
control of, or be employed by, or act as the agent for, lend
his or its name to or initiate, maintain or continue any interest
whatsoever in any enterprise other than TCA which is involved in the
ownership of, operation of, or the provision of contract management
services to "long-term care hospitals," defined as hospitals or
hospitals within hospitals that are formed and operated to be exempt
from the Medicare Prospective Payment System in accordance with the
Health Care Financing Administration provisions for long-term care
hospitals, as such provisions may be amended from time to time, except
that a beneficial ownership interest of less than five percent (5%) in
any publicly traded company shall not violate this Section 3.1(c).
If the first venture round of financing (as defined in Section 2(b) of
the Stockholders' Agreement) has not been consummated by March 31, 1995 and, if
after such date, TCA gives notice to all TCA stockholders of its abandonment of
efforts to raise such financing, then for a period of one (1) year from the date
of such notice, RehabCare agrees to pay Cross his then current base salary with
TCA (whether pursuant to an employment agreement or otherwise) in consideration
of Cross' covenants and agreements pursuant to this Section 3.1.
3.2 NON-SOLICITATION AND NON-HIRE COVENANT. Cross covenants and
agrees that he shall not, nor shall he cause TCA to, during the Restricted
Period, directly or indirectly through the efforts of persons acting by or
through TCA or any other entity:
(a) solicit or encourage any employee or independent
contractor of RehabCare, or any person who was an employee or
independent contractor of RehabCare at any time within the preceding
twelve month period, to leave his or her employment or engagement with
RehabCare; or
(b) hire any employee or independent contractor of
RehabCare, or any person who was an employee or independent contractor
of RehabCare at any time within the twelve month period preceding the
initial solicitation or hire by or on behalf of Cross and/or TCA without
the prior written permission of the President and Chief Executive
Officer of RehabCare.
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<PAGE> 5
Notwithstanding the foregoing, TCA shall have the right to solicit,
encourage or hire any person who terminated his employment or engagement with
RehabCare prior to the date of this Agreement, and to engage an independent
contractor of RehabCare in a given community, with RehabCare's prior written
approval, if the services or the skills offered by such independent contractor
are unique or otherwise unavailable in such community.
3.3 NON-DISCLOSURE COVENANT. Cross covenants and agrees that:
(a) Cross shall keep confidential and not use or disclose
to others, except as expressly consented to in writing by RehabCare, or
as required by law to be disclosed, any Proprietary Information of
RehabCare;
(b) All Proprietary Information made or compiled by Cross
or made available to him concerning RehabCare business at any time
shall be the property of RehabCare;
(c) Cross shall not take, retain or remove from the
premises of RehabCare in any manner any Proprietary Information of any
kind; and
(d) All copyrights, Proprietary Information, trademarks and
trade names developed or conceived by Cross during the term of his
Employment Agreement are the property of RehabCare and shall have been
disclosed and, if applicable, assigned to RehabCare.
3.4 DURATION OF COVENANTS. The covenants set forth in Section 3.1
and 3.2 shall expire upon the earlier of (i) the date the Restricted Period
expires or (ii) the date on which the Subscription Agreement, the Stockholders'
Agreement or the Transition Agreement is breached or otherwise terminates, and
the duration of the covenant set forth in Section 3.3 shall be perpetual and
shall survive expiration of the Restricted Period and the termination or
expiration of any of the Stockholders' Agreement, Subscription Agreement or
Transition Agreement.
3.5 MUTUAL RELEASE BY CROSS AND REHABCARE. In consideration of the
covenants and agreements set forth in this Agreement, the Subscription
Agreement, the Transition Agreement and the Stockholders' Agreement, Cross
agrees that, effective as of the date of this Agreement, he voluntarily
terminates his employment with RehabCare without cause against RehabCare and
hereby releases and holds RehabCare harmless against any and all actions,
claims and demands for damages or other payments by Cross arising on or before
the date hereof in connection with the voluntary termination of Cross'
employment with RehabCare and Cross' Employment Agreement, except for (i) those
payments that are specifically required under Cross' Employment Agreement in
the event of a voluntary termination of employment by Cross without cause
against RehabCare (in particular, the provisions of Section 9(e)(ii) of such
Employment Agreement) and (ii) the continuation of medical benefits at the
levels in effect as of the Transition Date through June 30, 1995, the cost of
the employer portion of which shall be paid by RehabCare. Likewise, in
consideration of the covenants and agreements set forth in this Agreement, the
Subscription Agreement, the Transition Agreement and the Stockholders'
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<PAGE> 6
Agreement, RehabCare agrees that, effective as of the date of this Agreement,
it accepts Cross' voluntary termination of his employment with RehabCare without
cause against RehabCare and hereby releases and holds Cross harmless against
any and all actions, claims and demands for damages or other payments by
RehabCare arising on or before the date hereof in connection with the voluntary
termination of Cross' employment with RehabCare. Cross and RehabCare mutually
agree that Cross' Employment Agreement with RehabCare is terminated as of the
date hereof except to the extent of the payments due thereunder to Cross with
regard to his voluntary termination of employment without cause against
RehabCare (in particular, the provisions of Section 9(e)(ii) of such Employment
Agreement).
ARTICLE IV
RIGHTS AND REMEDIES UPON BREACH OF COVENANTS
4.1 REHABCARE RIGHTS GENERALLY. Upon a breach by Cross of any of
the provisions of this Agreement, RehabCare shall have the rights and remedies
described in Sections 4.2 and 4.3 below, each of which shall be independent of
the other and severally enforceable and all of which shall be in addition to
and not in lieu of any other rights and remedies available to RehabCare at law
or in equity.
4.2 INJUNCTIVE RELIEF. In addition to any other rights and
remedies available to RehabCare at law or in equity, RehabCare shall have the
right and remedy to have the provisions of this Agreement specifically enforced
by any court of competent jurisdiction, it being acknowledged and agreed by
Cross that:
(a) the scope of the provisions of this Agreement are
reasonable in light of Cross' relationship to RehabCare and the
confidential and Proprietary Information to which Cross has had access
and in the future will have access;
(b) any breach of this Agreement by Cross may cause
irreparable injury to RehabCare and that any damages will not provide
adequate remedy to RehabCare; and
(c) compliance with the provisions set forth in this
Agreement will not be an unreasonable hardship on Cross or deprive him
of a means of livelihood.
4.3 DAMAGES. In addition to any other rights and remedies
available to RehabCare at law or in equity, RehabCare shall have the right and
remedy to require Cross to account for and pay over to RehabCare all
compensation, profits, money, accruals, increments or other benefits derived or
received by Cross as a result of any transactions constituting a breach by
Cross of Section 3.3 of this Agreement.
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<PAGE> 7
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. Any notice or other communication required or
permitted to be given to any party hereunder shall be in writing and shall be
delivered personally, or by facsimile copy, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed given when so delivered
personally, or when receipt is acknowledged if by facsimile copy, or two
business days after the date of mailing if mailed, to the address of such party
set forth above (or to such other address as any party may from time to time
specify in writing pursuant to the notice provision hereof).
5.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon RehabCare and its successors and assigns, and
Cross and his heirs and personal representatives, but Cross' rights and
obligations hereunder are personal to him and shall not be subject to voluntary
or involuntary alienation, assignment or transfer.
5.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, determined
without reference to its choice of law rules.
5.4 ENTIRE AGREEMENT. This Agreement, taken together with the
Stockholders' Agreement, Subscription Agreement and Transition Agreement and
the other documents and instruments executed pursuant thereto to which Cross is
a party, constitute the entire agreement between Cross and RehabCare with regard
to the subject matter hereof, and supersedes and revokes contracts, agreements
and/or understandings between Cross and RehabCare relative thereto. This
Agreement was negotiated between Cross and RehabCare and Cross has consulted
counsel in connection herewith.
5.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by
RehabCare and Cross or, in the case of a waiver, by the party waiving
compliance. No delay on the part of RehabCare or its Board of Directors in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of RehabCare or its Board of
Directors of any right, power or privilege hereunder, or any single or partial
exercise of any right, power or privilege hereunder, preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies that RehabCare may otherwise
have at law or in equity.
5.6 SEVERABILITY. The parties acknowledge that the laws and public
policies of the various states of the United States might differ as to the
validity and enforceability of the covenants contained in Article III of this
Agreement. It is the intention of the parties that the activities of Cross be
restricted only to the extent necessary for the protection of the legitimate
business interests of RehabCare, that the provisions of Article III shall, to
the fullest extent permissible under the law and public policy, be enforced by
the courts of each state and jurisdiction in which enforcement is sought, and
that the unenforceability (or the modification
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<PAGE> 8
necessary to conform the covenants contained in Article III with such law and
public policy) of any part of Article III shall not be deemed to render
unenforceable any other part of Article III. Accordingly, if any part of
Article III shall be adjudicated to be invalid or unenforceable in any action
or proceeding in which Cross or his heirs or personal representatives, and
RehabCare or its successors or assigns, are parties, whether in its entirety or
as modified as to duration, territory or otherwise, then such part shall be
deemed amended, as the case may be, in order to render the remainder of Article
III valid and enforceable. Any such deletion or amendment shall apply only
where the court rendering the same has jurisdiction. In addition, the validity
or unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
5.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
REHABCARE CORPORATION
By: JAMES M. USDAN
-------------------------------
JAMES M. USDAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
"CROSS"
DAVID W. CROSS
-----------------------------------
DAVID W. CROSS
-8-
<PAGE> 1
EXHIBIT 10.21
LEWIS
NON-COMPETE, NON-HIRE,
NON-DISCLOSURE AND RELEASE
AGREEMENT
This Non-Compete, Non-Hire, Non-Disclosure and Release Agreement (the
"Agreement") is made and entered into as of this 22nd day of September, 1994,
by and between RehabCare Corporation, a Delaware corporation having its
principal place of business at 7733 Forsyth Boulevard, Suite 1700, St. Louis
Missouri 63105 ("RehabCare"), and John R. Lewis, residing at 342 Woodcliffe
Place Drive, Chesterfield, Missouri 63005 ("Lewis").
RECITALS
A. Contemporaneous with the execution of this Agreement, RehabCare
and Lewis and two other investors each are purchasing a twenty-five percent
(25%) ownership interest in Transitional Care of America, Inc., a Delaware
corporation ("TCA"), pursuant to the terms and conditions of a Subscription
Agreement, Transition Agreement and a Stockholders' Agreement dated as of even
date herewith.
B. Lewis currently serves as the Executive Vice President and
Chief Operating Officer of RehabCare pursuant to an Employment Agreement by and
between RehabCare and Lewis dated November 1, 1993, (the "Employment
Agreement"), which contains certain binding non-compete, non-solicitation,
non-hire and non-disclosure covenants.
C. As of the Transition Date (as defined in the Transition
Agreement), Lewis desires to voluntarily terminate his employment with
RehabCare, with the consent of RehabCare, to serve as Chief Operating Officer
of TCA.
D. RehabCare is willing to release Lewis from his Employment
Agreement and the binding covenants contained therein, provided that Lewis
enters into new non-compete, non-hire and confidentiality covenants with
RehabCare, as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 "PROPRIETARY INFORMATION" includes without limitation, any
trade secrets or confidential technology, proprietary information, customer
lists, lists of employees, mailing
<PAGE> 2
lists, details of contracts, pricing policies, operational methods, marketing
plans, product development plans, research and development programs and plans,
business acquisition plans, internal memoranda, notes, records, transcripts,
contracts and other documents or files relating to RehabCare Business,
knowledge belonging to or relating to the business, sales, financial condition,
products or other activities or affairs of RehabCare, other confidential
information, and any matter or thing ascertained by Lewis through Lewis'
association with RehabCare, which has been treated as proprietary and
confidential by RehabCare and which is not otherwise in the public domain, the
use or disclosure of which matter or thing might reasonably be construed to be
contrary to the best interests of RehabCare.
1.2 "RESTRICTED AREA" means the geographical area within (i) the
fifty states of the United States and (ii) the United States' territories and
possessions, and (iii) each foreign country, possession or territory in which
RehabCare or an affiliate of RehabCare may be engaged in business.
1.3 "RESTRICTED PERIOD" means with respect to Lewis, the period
commencing on the date this Agreement is executed and ending on the earlier of
(i) November 1, 1996 or (ii) the date of which there is a Sale of Control of
TCA. Notwithstanding the foregoing, if the first venture round of financing (as
defined in Section 2(b) of the Stockholders' Agreement) has not been
consummated by March 31, 1995 and, if after such date, TCA gives notice to all
TCA stockholders of its abandonment of efforts to raise such financing,
Restricted Period means one year from the date of such notice.
1.4 "SALE OF CONTROL" means: (i) any consolidation or merger of TCA
with another corporation or entity or the sale or exchange by the stockholders
or the public offering of TCA's securities and as a result of such
consolidation, merger, sale, exchange or offering less than fifty percent (50%)
of the outstanding voting securities of the surviving or resulting corporation
or entity shall be owned in the aggregate by the stockholders of TCA, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended) of the party or parties to such consolidation, merger, sale or
exchange (other than TCA) as the same shall have existed immediately prior to
such consolidation, merger, sale, exchange or offering; of (ii) any sale,
lease, exchange or other transfer (in one transaction or in a series of related
transactions) of all, or substantially all, of the assets of TCA.
1.5 "STOCKHOLDERS' AGREEMENT" means that certain Stockholders'
Agreement by and among TCA, RehabCare, Lewis and the other investors as of even
date herewith which sets forth the rights and obligations of TCA stockholders.
1.6 "SUBSCRIPTION AGREEMENT" means that certain Subscription
Agreement by and among TCA, RehabCare, Lewis and the other investors as of even
date herewith which outlines the terms and conditions of the initial purchase
of TCA stock by RehabCare, Lewis and the other investors.
1.7 "TRANSITION AGREEMENT" means that certain Transition Agreement
by and between RehabCare, TCA, Lewis and David W. Cross as of even date
herewith which outlines
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<PAGE> 3
the transition of Lewis and David W. Cross to TCA and the ongoing arrangement
between TCA and RehabCare after such transition.
ARTICLE II
ACKNOWLEDGEMENTS OF LEWIS
2.1 REHABCARE BUSINESS. The current business of RehabCare for
purposes of this Agreement is the operation and management of inpatient and
outpatient rehabilitation programs and hospital-based skilled nursing
facilities (inpatient and outpatient rehabilitation programs and hospital-based
skilled nursing facilities are hereinafter referred to as the "RehabCare
Business").
2.2 REHABCARE EMPLOYEES AND CONTRACTORS. Lewis acknowledges that
RehabCare has expended and will continue to expend substantial time, effort and
money in training its staff in the operation of RehabCare Business.
2.3 REHABCARE INDUCEMENT TO ENTER INTO AGREEMENTS. Lewis
acknowledges that RehabCare has stated that it is entering into the
Subscription Agreement, the Stockholders' Agreement, the Transition Agreement
and this Agreement and is releasing Lewis from his Employment Agreement in part
because of the covenants and assurances made by Lewis in this Agreement,
including without limitation the non-compete, non-hire and the non-disclosure
covenants set forth in Article III hereof.
2.4 IRREPARABLE HARM TO REHABCARE. Lewis acknowledges that the
non-compete, non-hire and non-disclosure covenants contained in Article III
hereof from Lewis to RehabCare are essential to ensure the continued success of
RehabCare Business, and that RehabCare may sustain irreparable harm and damage
in the event that Lewis violates any of said covenants.
ARTICLE III
COVENANTS OF LEWIS AND REHABCARE
3.1 NON-COMPETITION COVENANT. Lewis covenants and agrees that he
shall not, nor shall he cause TCA to, directly or indirectly, during the
Restricted Period and within the Restricted Area:
(a) own, manage, operate, control, participate in the
management or control of, or be employed by, or act as the agent for,
lend his name to or initiate, maintain or continue any interest
whatsoever in any enterprise in direct competition with the RehabCare
Business except that in the first six months of operation by TCA of a
"long-term care hospital" (as that term is defined in Section 3.1(c) of
this Agreement) and prior to its qualification for an exemption from the
Medicare Prospective Payment System as a long-term hospital in
accordance with the applicable Health Care Financing Administration
provisions,
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<PAGE> 4
TCA may operate as an acute care rehabilitation hospital provided that
if such hospital is located within a radius of 10 miles from an existing
acute care rehabilitation unit operated by RehabCare, TCA may only
accept patients meeting both of the following criteria: (i) the patient
is anticipated to be admitted for a period of 25 days or more and (ii)
the patient is anticipated to need less than three hours of physical or
occupational therapy per day during such period, except a beneficial
ownership interest of less than five percent (5%) in any publicly traded
company shall not violate this Section 3.1(a).
(b) advance TCA's business interests with a then-existing
vendor, customer, representative or other person having a business
relationship with RehabCare by recommending, suggesting or assisting
such vendor, customer, representative or other person in the termination
of diminishment of its business relationship with RehabCare; or
(c) own, manage, operate, participate in the management or
control of, or be employed by, or act as the agent for, lend his or its
name to or initiate, maintain or continue any interest whatsoever in any
enterprise other than TCA which is involved in the ownership of,
operation of, or the provision of contract management services to
"long-term care hospitals," defined as hospitals or hospitals within
hospitals that are formed and operated to be exempt from the Medicare
Prospective Payment System in accordance with the Health Care Financing
Administration provisions for long-term care hospitals, as such
provisions may be amended from time to time, except a beneficial
ownership interest of less than five percent (5%) in any publicly traded
company shall not violate this Section 3.1(c).
If the first venture round of financing (as defined in Section 2(b) of
the Stockholders' Agreement) has not been consummated by March 31, 1995 and, if
after such date, TCA gives notice to all TCA stockholders of its abandonment of
efforts to raise such financing, for a period of one (1) year from the date of
such notice, RehabCare agrees to pay Lewis his then current base salary with
TCA (whether pursuant to an employment agreement or otherwise) in consideration
of Lewis' covenants and agreements pursuant to this Section 3.1.
3.2 NON-SOLICITATION AND NON-HIRE COVENANT. Lewis covenants and
agrees that he shall not, nor shall he cause TCA to, during the Restricted
Period, directly or indirectly through the efforts of persons acting by or
through TCA or any other entity:
(a) solicit or encourage any employee or independent
contractor of RehabCare, or any person who was an employee or
independent contractor of RehabCare at any time within the preceding
twelve month period, to leave his or her employment or engagement with
RehabCare; or
(b) hire any employee or independent contractor of
RehabCare, or any person who was an employee or independent contractor
of RehabCare at any time
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<PAGE> 5
within the twelve month period preceding the initial solicitation or
hire by or on behalf of Lewis and/or TCA without the prior written
permission of the President and Chief Executive Officer of RehabCare.
Notwithstanding the foregoing, TCA shall have the right to solicit,
encourage or hire any person who terminated his employment or engagement with
RehabCare prior to the date of this Agreement, and to engage an independent
contractor of RehabCare in a given community, with RehabCare's prior written
approval, if the services or the skills offered by such independent contractor
are unique or otherwise unavailable in such community.
3.3 NON-DISCLOSURE COVENANT. Lewis covenants and agrees that:
(a) Lewis shall keep confidential and not use or disclose
to others, except as expressly consented to in writing by RehabCare, or
as required by law to be disclosed, any Proprietary Information of
RehabCare;
(b) All Proprietary Information made or compiled by Lewis
or made available to him concerning RehabCare business at any time shall
be the property of RehabCare;
(c) Lewis shall not take, retain or remove from the
premises of RehabCare in any manner any Proprietary Information of any
kind; and
(d) All copyrights, Proprietary Information, trademarks and
trade names developed or conceived by Lewis during the term of his
Employment Agreement are the property of RehabCare and shall have been
disclosed and, if applicable, assigned to RehabCare.
3.4 DURATION OF COVENANTS. The covenants set forth in Sections 3.1
and 3.2 shall expire upon the earlier of (i) the date the Restricted Period
expires or (ii) the date on which the Subscription Agreement, the Stockholders'
Agreement or the Transition Agreement is breached or otherwise terminated, and
the duration of the covenant set forth in Section 3.3 shall be perpetual and
shall survive expiration of the Restricted Period and the termination or
expiration of any of the Stockholders' Agreement, Subscription Agreement or
Transition Agreement.
3.5 MUTUAL RELEASE BY LEWIS AND REHABCARE. In consideration of the
covenants and agreements set forth in this Agreement, the Subscription
Agreement, the Transition Agreement and the Stockholders' Agreement, Lewis
agrees that, effective as of the date of this Agreement, he voluntarily
terminates his employment with RehabCare without cause against RehabCare and
hereby releases and holds RehabCare harmless against any and all actions,
claims and demands for damages or other payments by Lewis arising on or before
the date hereof in connection with the voluntary termination of Lewis'
employment with RehabCare and Lewis' Employment Agreement, except for (i) those
payments that are specifically required under Lewis' Employment Agreement in
the event of voluntary termination of employment by Lewis without cause against
RehabCare, (ii) beginning six (6) months after the date of this
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<PAGE> 6
Agreement and continuing for twelve (12) months thereafter RehabCare shall pay
Lewis $125,000, less the amount of any compensation Lewis may receive during
such twelve (12) month period from any other employment, independent contractor
or consulting arrangement and (iii) the continuation of medical benefits at the
levels in effect as of the Transition Date through June 30, 1995, the cost of
the employer portion of which shall be paid by RehabCare. Likewise, in
consideration of the covenants and agreements set forth in this Agreement, the
Subscription Agreement, the Transition Agreement and the Stockholders'
Agreement, RehabCare agrees that, effective as of the date of this Agreement,
it accepts Lewis' voluntary termination of his employment with RehabCare
without cause against RehabCare and hereby releases and holds Lewis harmless
against any and all actions, claims and demands for damages or other payments
by RehabCare arising on or before the date hereof in connection with the
voluntary termination of Lewis' employment with RehabCare. Lewis and RehabCare
mutually agree that Lewis' Employment Agreement with RehabCare is terminated as
of the date hereof except to the extent of the payments due thereunder to Lewis
with regard to his voluntary termination of employment without cause against
RehabCare.
ARTICLE IV
RIGHTS AND REMEDIES UPON BREACH OF COVENANTS
4.1 REHABCARE RIGHTS GENERALLY. Upon a breach by Lewis of any of
the provisions of this Agreement, RehabCare shall have the rights and remedies
described in Sections 4.2 and 4.3 below, each of which shall be independent of
the other and severally enforceable and all of which shall be in addition to and
not in lieu of any other rights and remedies available to RehabCare at law or in
equity.
4.2 INJUNCTIVE RELIEF. In addition to any other rights and
remedies available to RehabCare at law or in equity, RehabCare shall have the
right and remedy to have the provisions of this Agreement specifically enforced
by any court of competent jurisdiction, it being acknowledged and agreed by
Lewis that:
(a) the scope of the provisions of this Agreement are
reasonable in light of Lewis' relationship to RehabCare and the
confidential and Proprietary Information to which Lewis has had access
and in the future will have access;
(b) any breach of this Agreement by Lewis may cause
irreparable injury to RehabCare and that any damages will not provide
adequate remedy to RehabCare; and
(c) compliance with the provisions set forth in this
Agreement will not be an unreasonable hardship on Lewis or deprive
him of a means of livelihood.
4.3 DAMAGES. In addition to any other rights and remedies
available to RehabCare at law or in equity, RehabCare shall have the right and
remedy to require Lewis to account for and pay over to RehabCare all
compensation, profits, money, accruals, increments
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<PAGE> 7
or other benefits derived or received by Lewis as a result of any transactions
constituting a breach by Lewis of Section 3.3 of this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. Any notice or other communication required or
permitted to be given to any party hereunder shall be in writing and shall be
delivered personally, or by facsimile copy, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed given when so delivered
personally, or when receipt is acknowledged if by facsimile copy, or two
business days after the date of mailing if mailed, to the address of such party
set forth above (or to such other address as any party may from time to time
specify in writing pursuant to the notice provisions hereof).
5.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon RehabCare and its successors and assigns, and
Lewis and his heirs and personal representatives, but Lewis' rights and
obligations hereunder are personal to him and shall not be subject to voluntary
or involuntary alienation, assignment or transfer.
5.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri, determined
without reference to its choice of law rules.
5.4 ENTIRE AGREEMENT. This Agreement, taken together with the
Stockholders' Agreement, Subscription Agreement and Transition Agreement and
the other documents and instruments executed pursuant thereto to which Lewis is
a party, constitute the entire agreement between Lewis and RehabCare with
regard to the subject matter hereof, and supersedes and revokes contracts,
agreements and/or understandings between Lewis and RehabCare relative thereto.
This Agreement was negotiated between Lewis and RehabCare and Lewis has
consulted counsel in connection herewith.
5.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by
RehabCare and Lewis or, in the case of a waiver, by the party waiving
compliance. No delay on the part of RehabCare or its Board of Directors in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of RehabCare or its Board of
Directors of any right, power or privilege hereunder, or any single or partial
exercise of any right, power or privilege hereunder, preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that RehabCare may otherwise have at law or
in equity.
5.6 SEVERABILITY. The parties acknowledge that the laws and public
policies of the various states of the United States might differ as to the
validity and enforceability of the covenants contained in Article III of this
Agreement. It is the intention of the parties that the
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<PAGE> 8
activities of Lewis be restricted only to the extent necessary for the
protection of the legitimate business interests of RehabCare, that the
provisions of Article III shall, to the fullest extent permissible under the
law and public policy, be enforced by the courts of each state and jurisdiction
in which enforcement is sought, and that the unenforceability (or the
modification necessary to conform the covenants contained in Article III with
such law and public policy) of any part of Article III, if to render
unenforceable any other part of Article III. Accordingly, if any part of
Article III shall be adjudicated to be invalid or unenforceable in any action
or proceeding in which Lewis or his heirs or personal representatives, and
RehabCare or its successors or assigns, are parties, whether in its entirety or
as modified as to duration, territory or otherwise, then such part shall be
deemed amended, as the case may be, in order to render the remainder of Article
III valid and enforceable. Any such deletion or amendment shall apply only
where the court rendering the same has jurisdiction. In addition, the
invalidity or unenforceability of any particular provision of this Agreement
shall not affect the other provisions hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
5.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
5.8 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
REHABCARE CORPORATION
By: James M. Usdan
------------------------------------
JAMES M. USDAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
"Lewis"
John R. Lewis
---------------------------------------
JOHN R. LEWIS
-8-
<PAGE> 1
================================================================================
EXHIBIT 10.22
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
TRANSITIONAL CARE OF AMERICA, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of December 30, 1994
================================================================================
Transitional Care of America, Inc.
Stock Purchase Agreement Page 1
<PAGE> 2
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
("AGREEMENT") is dated as of the date last below written by and among
TRANSITIONAL CARE OF AMERICA, INC., a Delaware corporation (the "COMPANY"), and
the several purchasers named in the attached Schedule I (individually a
"PURCHASER" and collectively the "PURCHASERS").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 630,000 shares (the "PREFERRED SHARES") of the authorized but
unissued Series A Convertible Preferred Stock $0.001 par value, of the Company
(the "SERIES A CONVERTIBLE PREFERRED STOCK"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE PREFERRED SHARES. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Aggregate Purchase
Price for Preferred Shares" on Schedule I.
SECTION 1.02 CLOSING. The closing shall take place at the offices of
Suelthaus & Kaplan, P.C., 7733 Forsyth Blvd., 12th Floor, St. Louis, Missouri
63105, 10:00 a.m., local time, on December 30, 1994, or at such other location,
date and time as may be agreed upon between the Purchasers and the Company
(such closing being called the "CLOSING" and such date and time being called
the "CLOSING DATE"), provided that at least $4,000,000 of the Aggregate
Purchase Price for Preferred Shares shall have been received by the Company on
or before January 4, 1995, and the balance shall be received by the Company not
later than January 6, 1995. At the Closing, the Company shall issue and
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Preferred
Shares being purchased by it at the Closing. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall deliver to the Company in immediately
available funds, in the amount set forth opposite
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Stock Purchase Agreement Page 2
<PAGE> 3
the name of such Purchaser under the heading "Aggregate Purchase Price for
Preferred Shares" on Schedule I.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which exceptions shall only apply to the
specific representation or warranty referenced therein.
SECTION 2.01 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
(A) The Company is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as
now conducted and as proposed to be conducted, to execute, deliver and perform
this Agreement, the Registration Rights Agreement dated as of the date hereof
between the Company and the Purchasers (the "REGISTRATION RIGHTS AGREEMENT")
the two Stock Repurchase Agreements dated as of the date hereof between the
Company and the other parties thereto named in paragraph (i) of Article IV of
this Agreement, (the "STOCK REPURCHASE AGREEMENTS"), and the Stockholders'
Agreement dated as of the date hereof between the Company and the Purchasers
and the other parties thereto named in paragraph (l) of Article IV of this
Agreement (the "STOCKHOLDERS' AGREEMENT") to issue, sell and deliver the
Preferred Shares and to issue and deliver the shares of Common Stock, $0.001
par value, of the Company ("COMMON STOCK") issuable upon conversion of the
Preferred Shares (the "CONVERSION SHARES").
(B) The Company has no subsidiaries other than those set forth on
Schedule II, Section 2.01(b), and does not otherwise (i) own of record or
beneficially, directly or indirectly, (A) any shares of capital stock or
securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or similar arrangement
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.02 AUTHORIZATION OF AGREEMENTS, ETC.
(A) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement, the Stock Repurchase Agreements and the
Stockholders' Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and the issuance and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action and
Transitional Care of America, Inc.
Stock Purchase Agreement Page 3
<PAGE> 4
will not violate any provision of law, any order of any court or other agency
of government, the Certificate of Incorporation of the Company, as amended (the
"CHARTER") or the By-laws of the Company, as amended, or any provision of any
indenture, agreement, or other instrument to which the Company is bound, or
conflict with, result in a breach of, or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement, or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim, or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company. No provision of any of the Registration
Rights Agreement, Stock Repurchase Agreements or Stockholders' Agreement
violates, conflicts with, results in a breach of, or constitutes (with due
notice or lapse of time or both) a default under any indenture, agreement, or
other instrument to which the Company is bound or, to the best of the Company's
knowledge, any other indenture, agreement, or instrument (regardless, in each
such case, of whether any such violation , conflict, breach, or default relates
to the Company or to another party to any such indenture, agreement, or other
instrument).
(B) The Preferred Shares have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series A Convertible Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims, and encumbrances imposed by or through
the Company except as set forth in this Agreement, the Registration Rights
Agreement, and the Stockholders' Agreement. The Conversion Shares have been
duly reserved for issuance upon conversion of the Preferred Shares and, when so
issued, will be duly authorized, validly issued, fully paid, and nonassessable
shares of Common Stock with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims,
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement and the Stockholders' Agreement. Neither the
issuance, sale, or delivery of the Preferred Shares not the issuance or
delivery of the Conversion Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person, except as disclosed on Schedule II, Section 2.02(b).
SECTION 2.03 VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid, and binding
obligation of the Company, enforceable in accordance with its terms. The
Registration Rights Agreement, the Stock Repurchase Agreements, and the
Stockholders' Agreement, when executed and delivered in
Transitional Care of America, Inc.
Stock Purchase Agreement Page 4
<PAGE> 5
accordance with this Agreement, will constitute the legal, valid, and binding
obligations of the Company, enforceable in accordance with their respective
terms.
SECTION 2.04 AUTHORIZED CAPITAL STOCK. The authorized capital stock
of the Company consists of (i) 630,000 shares of Preferred Stock, $0.001 par
value (the "PREFERRED STOCK"), of which 630,000 shares have been designated
Series A Convertible Preferred Stock, and (ii) 980,000 shares of Common Stock,
$0.001 par value. Immediately prior to the Closing, 242,200 shares of Common
Stock will be validly issued and outstanding, fully paid, and nonassessable
with no personal liability attaching to the ownership thereof and no shares of
Series A Convertible Preferred Stock will have been issued. The stockholders
of record and holders of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to purchase or otherwise
acquire equity securities of the Company, and the subscriptions, warrants,
options, convertible securities, and other such rights held by each, are as set
forth in the attached Schedule II, Section 2.04. The designations, powers,
preferences, rights, qualifications, limitations, and restrictions in respect
of each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit A, and all such
designations, powers, preferences, rights, qualifications, limitations, and
restrictions are valid, binding, and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule II, Section 2.04,
(i) no person owns of record or is known to the Company to own beneficially any
share of Common Stock, (ii) no subscription, warrant, option, convertible
security, or other right (contingent or other) to purchase or otherwise acquire
equity securities of the Company is authorized or outstanding, and (iii) there
is no commitment by the Company to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or asset.
Except as provided for in the Charter or as set forth in the attached Schedule
II, Section 2.04, the Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except for the Stock Repurchase Agreements and the
Stockholders' Agreement and as set forth on Schedule II, Section 2.04, to the
best of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights, or proxies relating to any securities of the
Company (whether or not the Company is a party thereto). All of the
outstanding securities of the Company were issued in compliance with all
applicable Federal and state securities laws.
SECTION 2.05 FINANCIAL STATEMENTS. The Company has furnished to the
Purchasers the unaudited balance sheet of the Company as of November 30, 1994
(the "BALANCE SHEET") and the related statements of income, stockholders'
equity, and cash flows of the Company for the period ended November 30, 1994.
All such financial statements have been prepared in accordance with generally
accepted accounting principles consistently
Transitional Care of America, Inc.
Stock Purchase Agreement Page 5
<PAGE> 6
applied and fairly present the financial position of the Company as of November
30, 1994. Since the date of the Balance Sheet, (i) there has been no change in
the assets, liabilities, or financial condition of the Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business which individually or in the aggregate have not been materially
adverse and (ii) none of the business, prospects, conditions, operations,
assets, property, or affairs of the Company has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
SECTION 2.06 EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET.
Since the date of the Balance Sheet, the Company has not (i) issued any stock,
bond, or other corporate security, (ii) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), except as
set forth on Schedule II, Section 2.06, and except for current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued, or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary
course of business, or cancelled any debt or claim, (vii) sold, assigned,
transferred, or granted any exclusive license with respect to any patent,
trademark, trade name, service mark, copyright, trade secret, or other
intangible asset, (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business
and consistent with past practice, (x) made any material change in the manner
of business or operations of the Company, (xi) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby,
or (xii) entered into any commitment (contingent or otherwise) to do any of the
foregoing. Since the date of the Balance Sheet, there have been no changes in
the assets, liabilities, financial condition or operating results of the
Company except changes in the ordinary course of business that have been,
individually or in the aggregate, materially adverse.
SECTION 2.07 LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding, or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or its assets,
prospects, properties, operations or condition, at law or in equity, or before
or by any Federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
(ii) arbitration proceeding relating to the Company pending under collective
bargaining agreements or otherwise, or (iii) governmental inquiry pending or,
to the best of the Company's knowledge, threatened against or affecting the
Company (including without
Transitional Care of America, Inc.
Stock Purchase Agreement Page 6
<PAGE> 7
limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and there is no basis for any of the foregoing.
The Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property, or affairs. The Company is not a
party to any order, writ, judgment, injunction, or decree known to or served
upon the Company of any court or of any Federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign. There is no action or suit by the Company pending or
threatened against others. The Company has complied with all laws, rules,
regulations, and orders applicable to its business, operations, properties,
assets, products, and services, and the Company has all necessary permits,
licenses, and other authorizations required to conduct its business as
conducted and as proposed to be conducted. There is no existing law, rule,
regulation, or order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation, or order, whether Federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or proposes to conduct its business.
SECTION 2.08 PROPRIETARY INFORMATION OF THIRD PARTIES. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may
be violating any of the terms or conditions of his employment, non-competition,
or non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party, or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the
best of the Company's knowledge, no person employed by or affiliated with the
Company has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture, or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees, or agents by any
officer, director, or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a
breach of the terms, conditions, or provisions of or constitute a default under
any contract, covenant, or instrument under which any such person is obligated.
The Company does not
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believe it is or will be necessary to use any inventions of any employee made
prior to his or her employment by the Company.
SECTION 2.09 TITLE TO PROPERTIES. The Company has good and marketable
title to the properties and assets reflected on the Balance Sheet or acquired
by it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions, and other
encumbrances, except for liens for or current taxes not yet due and payable and
minor imperfections of title, if any, not material in nature or amount,
individually or in the aggregate, and not materially detracting from the value
or impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company.
SECTION 2.10 LEASEHOLD INTERESTS. Each lease or agreement to which
the Company is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement without any default of the
Company thereunder and, to the best of the Company's knowledge, without any
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company under any such lease or agreement
or, to the best of the Company's knowledge, by any other party thereto. The
Company's possession of such property has not been disturbed and, to the best
of the Company's knowledge, no claim has been asserted against the Company
adverse to its rights in such leasehold interests.
SECTION 2.11 INSURANCE. The Company within thirty days after the
Closing Date (except for life insurance policies which shall be in full force
and effect within ninety days after the Closing Date) will hold in full force
and effect valid policies covering all of the insurance required to be
maintained by it under the terms of the Stockholders' Agreement.
SECTION 2.12 TAXES. The Company has filed all tax returns, and
reports, required to be filed by it, and the Company has paid all taxes shown
to be due by such returns as well as all other taxes, assessments, and
governmental charges which have become due or payable, including without
limitation all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors, and third parties. All such taxes with respect
to which the Company has become obligated pursuant to elections made by the
Company in accordance with generally accepted practice have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. The Federal income tax returns of the Company have never been audited
by the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county, or local taxes
ever existed or is pending or, to the best of the Company's knowledge,
threatened. The Company has not executed a waiver of any statute of
limitations on the
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collection or assessment of taxes. There is no tax lien, whether imposed by
any Federal, state, county, or local taxing authority, outstanding against the
assets, properties, or business of the Company. The Company has never filed
(a) an election pursuant to Section 1362 of the Internal Revenue code of 1986,
as amended (the "CODE"), that the Company be taxed as an S corporation, (b)
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations, or (c) other election that would have a material effect on the
business, properties, prospects or condition of the Company. Consummation of
the transactions contemplated by this Agreement or by any other agreement,
understanding or commitment (contingent or otherwise) to which the Company is a
party or by which it is otherwise bound will not have the effect of limiting
the Company's ability to use net operating losses in full to offset taxable
income.
SECTION 2.13 OTHER AGREEMENTS. Except as set forth in the attached
Schedule II, Section 2.13, the Company is not a party to or otherwise bound by
any written or oral, absolute or contingent, contract, instrument, agreement or
understanding , or other restriction which individually or in the aggregate
could materially adversely affect the business, prospects, condition,
operations, property, or affairs of the Company.
(A) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after
acceptance thereof or to delay the acceptance thereof, or which varies
in any material respect from the Company's standard form contracts;
(B) contract with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to
any of its employees);
(C) contract or other commitment with any supplier containing
any provision permitting any party other than the Company to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the
Company to meet its obligations under the contract when due or the
occurrence of any other event;
(D) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of an
aggregate amount of $25,000, except as set froth Schedule II, Section
2.13;
(E) contract, except as set forth on Schedule II, Section 2.13,
for the employment of any officer, employee, or other person (whether
of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company;
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(F) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option, or other
plan, contract or understanding pursuant to which benefits are provided
to any officer, director, or employee of the Company (other than group
insurance plans applicable to employees generally);
(G) agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(H) guaranty of any obligation for borrowed money or otherwise;
(I) voting trust or agreement, stockholders' agreement (other
than the Stockholders' Agreement), pledge agreement, buy-sell
agreement, or first refusal or preemptive rights agreement relating to
any securities of the Company;
(J) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company has
advanced or agreed to advance money or has agreed to lease any property
as lessee or lessor which lease payments would exceed $10,000 per year,
except as set forth on Schedule II, Section 2.13(j).
(K) agreement or obligation (contingent or otherwise) to issue,
sell, or otherwise distribute or to repurchase or otherwise acquire or
retire any shares of its capital stock or any of its other equity
securities, except as set forth on Schedule II, Section 2.13.
(L) assignment, license, or other agreement with respect to any
form of intangible property;
(M) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement
except as set forth on Schedule II, Section 2.13(m).
(N) agreement under which it has limited or restricted its
right to compete with any person in any respect, except as set forth on
Schedule II, Section 2.13(n).
(O) other contract or group of related contracts with the same
party involving more than $25,000 or continuing over a period of more
than six months from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company without penalty upon notice
of thirty (30) days or less;
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(P) other contract, instrument, commitment, plan, or
arrangement, a copy of which would be required to be filed with the
Securities and Exchange Commission (the "COMMISSION") as an exhibit to
a registration statement on Form S-1 if the Company were registering
securities under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
The Company, and to the best of Company's knowledge each other party thereto,
have in all material respects performed all the obligations required to be
performed by them to date, have received no notice of default and are not in
default (with due notice or lapse of time or both) under any lease, agreement,
or contract now in effect to which the Company is a party or by which it or its
property may be bound. The Company has no present expectation or intention of
not fully performing all its obligations under each such lease, contract, or
other agreement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any contract or commitment to which the Company is
a party. The Company is in full compliance with all of the terms and
provisions of its Charter and By-laws, as amended.
SECTION 2.14 PATENTS, TRADEMARKS, ETC. Set forth on Schedule II,
Section 2.14 is a list and brief description of all patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, and copyrights, and all applications for such
which are in the process of being prepared, owned by, or registered in the name
of the Company, or of which the Company is a licensor or licensee or in which
the Company has any right, and in each case a brief description of the nature
of such right. The Company owns or possesses sufficient legal rights to use
all patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, and know how (collectively, "Intellectual
Property") necessary or desirable to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the business or operations
(as conducted or proposed to be conducted) of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
to the best of the Company's knowledge there is no basis for any such claim
(whether or not pending or threatened). To the best of the Company's
knowledge, all technical information developed by and belonging to the Company
which has not been patented or registered has been kept confidential. The
Company has not granted or assigned to any other person or entity any right to
sell or to provide the services or proposed services of the Company. There are
no outstanding options, licenses or agreements of any kind relating to the
Intellectual Property, nor is the Company bound by on a party to any options,
licenses or agreements of
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any kind with respect to the patents, patent applications, trademarks,
trademark applications, service marks service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets or know how of any
other person or entity.
SECTION 2.15 LOANS AND ADVANCES. Except as set forth on Schedule II,
Section 2.15 attached hereto, the Company does not have any outstanding loans
or advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the Company in
respect of reasonable and necessary reimbursable business expenses anticipated
to be incurred by them in connection with their performance of services for the
Company and in accordance with the Business Plan.
SECTION 2.16 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. The Company has not assumed, guaranteed, endorsed, or otherwise
become directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to, or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or
supplier which was significant to the Company during the period covered by the
financial statements referred to in SECTION 2.05 or which has been significant
to the Company thereafter, has terminated, materially reduced, or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or qualification, or consent or approval of or
other action by, any Federal, state, or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance by the Company of this Agreement, the Registration Rights
Agreement, the Stock Repurchase Agreements or the Stockholders' Agreement, the
issuance, sale, and delivery of the Preferred Shares or, upon conversion
thereof, the issuance and delivery of the Conversion Shares, other than (i)
filings pursuant to state securities laws (all of which filings have been made
by the Company) in connection with the sale of the Preferred Shares and (ii)
with respect to the Registration Rights Agreement, the registration of the
shares covered thereby with the Commission and filings pursuant to state
securities laws.
SECTION 2.19 DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any certificate or other written statements
delivered to the Investors, nor the Business Plan of the Company submitted to
the Investors (the "BUSINESS PLAN"),
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contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
None of the statements, documents, certificates, or other items prepared or
supplied by the Company with respect to the transactions contemplated hereby
contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact which the Company has not disclosed to the Purchasers and their counsel in
writing and of which the Company is aware which materially and adversely
affects or could materially and adversely affect the business, prospects,
financial condition, operations, property, or affairs of the Company. The
financial projections and other estimates contained in the Business Plan were
prepared by the Company in good faith based on the Company's experience in the
industry and on assumptions of fact and opinion as to future events which the
Company, based on the Company's experience in the industry and on assumptions
of fact and opinion as to future events which the Company, at the date of the
issuance of the Business Plan, believed to be reasonable after due
investigation, but which the Company cannot and does not assure or guarantee
the attainment of in any manner. As of the date hereof no facts have come to
the attention of the Company which would, in its opinion, require the Company
to revise or amplify the assumptions underlying such projections and other
estimates or the conclusions derived therefrom. The Company has fully provided
each Purchaser will all the information that such Purchaser has requested for
deciding whether to purchase the Series A Preferred Stock and all information
known by the Company that the Company believes is reasonably necessary to
enable such Purchaser to make such decision.
SECTION 2.20 OFFERING OF THE PREFERRED SHARES. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer,
or otherwise in connection with the offering or sale of the Preferred Shares or
any security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance, or sale of any security of the Company under circumstances which
might require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance, or sale of the Preferred
Shares to the registration provisions of the Securities Act.
SECTION 2.21 BROKERS. The Company has no contract, arrangement, or
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 OFFICERS. Set forth in Schedule II, Section 2.22 is a
list of the names of the officers of the Company, together with the title or
job classification of each
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such person and the total compensation anticipated to be paid to each such
person by the Company and its subsidiaries in 1994 and 1995. Except as set
forth on Schedule II, Section 2.22, none of such persons has an employment
agreement or understanding, whether oral or written, with the Company which is
not terminable on notice by the Company without cost or other liability to the
Company, except normal severance arrangements and accrued vacation pay.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. No director, officer,
employee, or stockholder of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner, or holder of more than
5% of the outstanding capital stock thereof, is a party to any transaction with
the Company, including any contract, agreement, or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to any such person or firm,
except as set forth on Schedule II, Section 2.23.
SECTION 2.24 EMPLOYEES. Each of the officers of the Company, each key
employee and each other employee now employed by the Company who has access to
confidential information of the Company has or will execute an employment
agreement or Employee Nondisclosure Agreement providing for appropriate
protections for the Company's proprietary and confidential information. No
officer or key employee of the Company has advised the Company (orally or in
writing) that he intends to terminate employment with the Company. The Company
has complied in all material respect with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining, and the payment of Social Security and
other taxes, and with the Employee Retirement Income Security Act of 1974, as
amended. There are no pending or threatened strikes or other labor actions.
SECTION 2.25 U.S. REAL PROPERTY HOLDING CORPORATION. The Company is
not now and has never been a "United States real property holding corporation,"
as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
SECTION 2.26 COMPLIANCE WITH OTHER INSTRUMENTS.
(A) The Company is not in violation or default of any provision of its
Restated Certificate or Bylaws, or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to the
best of its knowledge, of any provision of any federal or state statute, rule
or regulation applicable to the Company. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
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Stockholders' Agreement, the Stock Repurchase Agreements, and the consummation
of the transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
(B) The Company has avoided every condition, and has not performed any
act, the occurrence of which would result in the Company's loss of any right
granted under any license, contract or other agreement.
SECTION 2.27 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely affect
the business, properties, prospects, or financial condition of the Company, and
the Company believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
SECTION 2.28 ENVIRONMENTAL AND SAFETY LAWS. To the best of its
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to the best of its knowledge, other than expenditures customary for the
business conducted or to be conducted by the Company, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
SECTION 2.29 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974, except as set forth on Schedule II, Section 2.29.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 3.01 Each Purchaser severally represents and warrants to the
Company that:
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(A) it is an "accredited investor" within the meaning of Rule
501 under the Securities Act and was not organized for the specific
purpose of acquiring the Preferred Shares;
(B) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof, including the possible loss of its entire investment in the
Company;
(C) it has had an opportunity to ask any and all such questions
respecting, and to discuss any and all aspects of, the Company's
business, management, and financial affairs with the Company's
management;
(D) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not with
a view to or for sale in connection with any distribution thereof; and
(E) it understands that (i) the issuance of the Preferred
Shares and the Conversion Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section
4(2) thereof or Rule 505 or 506 promulgated under the Securities Act,
and have not been registered under the securities laws of any state by
reason of their issuance in a transaction exempt from the registration
requirements thereof, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration, (iii) the Preferred Shares and the
Conversion Shares will bear a legend to such effect, and (iv) the
Company will make a notation on its transfer books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
SECTION 4.01 The obligation of each Purchaser to purchase and pay for
the Preferred Shares being purchased by it on the Closing Date is, at its
option, subject to the satisfaction, on or before the final Closing Date, of
the following conditions:
(A) OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received
from Suelthaus & Kaplan, P.C., counsel for the Company, an opinion dated the
Closing Date, in form and scope satisfactory to the Purchasers and their
counsel, in substantially the form of Exhibit B attached hereto.
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(B) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties contained in ARTICLE II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Secretary of the Company shall have certified to such effect to
the Purchasers in writing.
(C) PERFORMANCE. The Company shall have performed and complied with
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Secretary of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this ARTICLE IV have
been satisfied.
(D) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified
or other copies of such documents as they reasonably may request.
(E) PURCHASE BY OTHER PURCHASERS. Each Purchaser shall have purchased
and paid for the Preferred Shares being purchased by it on the Closing Date,
and the aggregate purchase price paid by all of the Purchasers for the
Preferred Shares being purchased by them on the Closing Dates shall be in the
aggregate at least $6,300,000.
(F) SUPPORTING DOCUMENTS. The Purchasers and their counsel shall have
received copies of the following documents:
(I) (A) the Charter, certified as of a recent date by the
Secretary of State of the State of Delaware, and (B) a certificate of
said Secretary dated as of a recent date as to the due incorporation
and good standing of the Company, the payment of all excise taxes by
the Company and listing all documents of the Company on file with said
Secretary;
(II) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that
attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of all resolutions adopted
by the Board of Directors or the stockholders of the Company
authorizing the execution, delivery, and performance of this Agreement,
the Registration Rights Agreement, the Stock Repurchase Agreements, and
the Stockholders' Agreement, the issuance, sale, and delivery of the
Preferred Shares and the reservation, issuance, and delivery of the
Conversion Shares, and that all such resolutions are in full force and
effect and are all
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the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Registration Rights Agreement, the
Stock Repurchase Agreements, and the Stockholders' Agreement; (C)
that the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause
(i)(B) above; and (D) to the incumbency and specimen signature of each
officer of the Company executing this Agreement, the Registration
Rights Agreement, any of the Stock Repurchase Agreements, and the
Stockholders' Agreement, the stock certificates representing the
Preferred Shares and any certificate or instrument furnished pursuant
hereto, and a certification by another officer of the Company as to the
incumbency and signature of the officer signing the certificate
referred to in this clause (ii); and
(III) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel reasonably may request.
(G) REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered the Registration Rights Agreement.
(H) ELECTION OF DIRECTORS. The number of directors constituting the
entire Board of Directors shall have been fixed at seven (7) and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: James M. Usdan, David W. Cross, and David L.
Steffy as the directors elected solely by the holders of the Common Stock, and
Jeffrey J. Collinson, Wilfred E. Jaeger and James E. Tananbaum as the
directors elected solely by the holders of the Series A Convertible Preferred
Stock.
(I) STOCK REPURCHASE AGREEMENTS. The Stock Repurchase Agreements shall
have been executed and delivered by the Company and each of David W. Cross and
John R. Lewis.
(J) CHARTER. The Charter shall read in its entirety as set forth in
Exhibit A.
(K) EMPLOYEE AGREEMENTS. Copies of all employment agreements between
the Company and its employees and copies of all Employee Nondisclosure
Agreements shall have been delivered to counsel for the Purchasers.
(L) STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement shall have
been executed and delivered by the Company and each of the following entities
and persons shall have executed and delivered to counsel for the Purchasers the
Stockholders' Agreement: RehabCare Corporation, David W. Cross, John R. Lewis,
David L. Steffy and the Purchasers.
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(M) PREEMPTIVE RIGHTS. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Preferred Shares or the Conversion Shares shall have irrevocably waived the
same in writing.
(N) MINIMUM PURCHASES. This Agreement shall have been executed and
delivered by Purchasers that are obligated hereunder to purchase at least
630,000 Preferred Shares for an aggregate purchase price of at least $6,300,000
and such Purchasers shall have delivered to the Company the full purchase price
for the Preferred Shares to be purchased by them on or before the final Closing
Date.
(O) FEES OF PURCHASERS' COUNSEL. The Company shall have paid in
accordance with SECTION 6.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
(P) AMENDMENT OF BY-LAWS. If and to the extent necessary, the By-laws
of the Company shall have been amended to comply with the terms and provisions
of the Stockholders' Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that so
long as any of the Preferred Shares is outstanding:
SECTION 5.01 RESERVE FOR CONVERSION SHARES. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Shares or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval, or other action by or
make any filing with any court or administrative body that
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may be required under applicable state securities laws in connection with the
issuance of shares of Common Stock upon conversion of the Preferred Shares.
SECTION 5.02 CORPORATE EXISTENCE. The Company shall maintain and
cause each of its subsidiaries, if any, to maintain their respective corporate
existence, rights, and franchises in full force and effect.
SECTION 5.03 USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Preferred Shares as set forth in the Business Plan.
Pending disbursement for such purposes, the proceeds shall be invested in
short-term, interest-bearing government securities, certificates of deposit, or
their equivalents.
SECTION 5.04 COMPLIANCE WITH LAWS. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations,
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 EXPENSES. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall
pay the reasonable fees and disbursements of the Purchasers' special counsel,
Brobeck, Phleger & Harrison in connection with such transactions in an amount
not to exceed $10,000.
SECTION 6.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations, and warranties made herein or in the Registration Rights
Agreement, the Stock Repurchase Agreements, the Stockholders' Agreement, or any
certificate or instrument delivered to the Purchasers pursuant to or in
connection with this Agreement, the Registration Rights Agreement, the Stock
Repurchase Agreements, or the Stockholders' Agreement, shall survive the
execution and delivery of this Agreement, the Registration Rights Agreement,
the Stock Repurchase Agreements, and the Stockholders' Agreement, the issuance,
sale and delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03 BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this
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Agreement or to the transactions contemplated hereby, based in any way on
agreements, arrangements, or understandings made or claimed to have been made
by such party with any third party.
SECTION 6.04 PARTIES IN INTEREST. All representations, covenants, and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants, and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.05 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person
or mailed by certified or registered mail, return receipt requested, or
telecopied or telexed in the case of non-U.S. residents, addressed as follows:
(a) if to the Company, at 7733 Forsyth Blvd., 11th Floor, St.
Louis, Missouri 63105, telecopy number (314) 727-7166 with a copy to
Thomas M. Walsh, Esq., Suelthaus & Kaplan, P.C., 7733 Forsyth Blvd.,
12th Floor, St. Louis, Missouri 63105, telecopy number (314) 727-7166;
and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Schedule I, with a copy to Jay K. Hachigian, Esq., Brobeck,
Phleger & Harrison, 2200 Geng Road, Two Embarcadero Place, Palo Alto,
California 94303, telecopy number (415) 496-2885;
or in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri.
SECTION 6.07 ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 6.08 COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may
be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Any signature required in this Agreement or in any document or
instrument contemplated herein may be made by facsimile
Transitional Care of America, Inc.
Stock Purchase Agreement Page 21
<PAGE> 22
transmission, and such facsimile signature shall, for all purposes, be deemed
an original signature.
SECTION 6.09 AMENDMENTS. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent
of the Company and the holders of at least three-fourths of the outstanding
shares of Common Stock issued or issuable upon conversation of the Preferred
Shares sold hereby.
SECTION 6.10 SEVERABILITY. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
constructing or interpreting any term or provision of this Agreement.
SECTION 6.12 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(A) "PERSON" shall mean an individual, corporation, trust,
partnership, limited partnership, limited liability company, joint
venture, unincorporated organization, government agency or any agency
or political subdivision thereof, or other entity.
(B) "SUBSIDIARY" shall mean, as to the Company, any corporation
of which more than 50 percent of the outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or might have
vetoing power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company, or by one or more of
its subsidiaries, or by the Company and one or more of its
subsidiaries.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the 30th day of December, 1994.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
--------------------------------
David W. Cross, President
Transitional Care of America, Inc.
Stock Purchase Agreement Page 22
<PAGE> 23
PURCHASERS: SIERRA VENTURES IV, L.P.
By James B. Tananbaum
----------------------------------------
James B. Tananbaum, Venture Partner
SIERRA VENTURES IV INTERNATIONAL, L.P.
By James B. Tananbaum
----------------------------------------
James B. Tananbaum, Venture Partner
WPG ENTERPRISE FUND II, L.P.
By WPG VENTURE PARTNERS III, L.P.,
General Partner
By Ellen Feeney
----------------------------------------
Ellen Feeney, General Partner
WEISS, PECK GREER VENTURE
ASSOCIATES III, L.P.
By WPG VENTURE PARTNERS III, L.P.,
General Partner
By Ellen Feeney
----------------------------------------
Ellen Feeney, General Partner
Transitional Care of America, Inc.
Stock Purchase Agreement Page 23
<PAGE> 24
LIFE SCIENCE ENTREPRENEUR FUND
By Brian C. Cunningham
-----------------------------------
General Partner
SCHRODER VENTURES LIMITED
PARTNERSHIP
By SCHRODER VENTURE
MANAGEMENT L.P.,
Its General Partner
By SCHRODER VENTURE
MANAGERS, INC.
Its General Partner
By Jeffrey J. Collinson
-----------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
SCHRODERS INCORPORATED
By Jeffrey J. Collinson
-----------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
SCHRODER VENTURES U.S. TRUST
By SCHRODER INTERNATIONAL
TRUST COMPANY LIMITED,
Trustee
By Jeffrey J. Collinson
-----------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
Transitional Care of America, Inc.
Stock Purchase Agreement Page 24
<PAGE> 25
THREE ARCH PARTNERS, L.P.
By Wilfred E. Jaeger
------------------------------------
Wilfred E. Jaeger
THREE ARCH ASSOCIATES, L.P.
By Wilfred E. Jaeger
------------------------------------
Wilfred E. Jaeger
ALTA V LIMITED PARTNERSHIP
By ALTA V MANAGEMENT
PARTNERS, L.P.
By Guy P. Nohra
------------------------------------
General Partner
CUSTOMS HOUSE PARTNERS
By J. Deheage
------------------------------------
Transitional Care of America, Inc.
Stock Purchase Agreement Page 25
<PAGE> 26
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PREFERRED PURCHASE
SHARES PRICE FOR
NAME AND TO BE PREFERRED
ADDRESS OF PURCHASER PURCHASED SHARES
- ----------------------------------------------------------------------
<S> <C> <C>
Alta V Limited Partnership 98,960 $ 989,600
c/o Burr, Egan, Deleage & Co.
One Embarcadero Center
Suite 4050
San Francisco, California 94111
Customs House Partners 1,040 $ 10,400
c/o Burr, Egan, Deleage & Co.
One Embarcadero Center
Suite 4050
San Francisco, California 94111
Sierra Ventures IV, L.P. 192,300 $1,923,000
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
Sierra Ventures IV International, L.P. 7,700 $ 77,000
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
Weiss, Peck & Greer Venture
Associates III, L.P. 41,160 $ 411,600
555 California Street, Suite 4760
San Francisco, California 94104
</TABLE>
Transitional Care of America, Inc.
Stock Purchase Agreement Page 26
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PREFERRED PURCHASE
SHARES PRICE FOR
NAME AND TO BE PREFERRED
ADDRESS OF PURCHASER PURCHASED SHARES
- ----------------------------------------------------------------------
<S> <C> <C>
Weiss Enterprise Fund II, L.P. 58,840 $588,400
555 California Street, Suite 4760
San Francisco, California 94104
Life Science Entrepeneur Fund 5,000 $ 50,000
c/o Weiss, Peck & Greer
555 California Street, Suite 4760
San Francisco, California 94104
Schroder Ventures Limited Partnership 60,000 $600,000
1055 Washington Blvd.
Stamford, Connecticut 06901
Schroder Ventures U.S. Trust 15,000 $150,000
1055 Washington Blvd.
Stamford, Connecticut 06901
Schroders Incorporated 50,000 $500,000
1055 Washington Blvd.
Stamford, Connecticut 06901
THREE ARCH PARTNERS, L.P. 81,600 $816,000
2800 Sand Hill Road, Suite 270
Menlo Park, California 94025
THREE ARCH ASSOCIATES, L.P. 18,400 $184,000
2800 Sand Hill Road, Suite 270
Menlo Park, California 94025
</TABLE>
Transitional Care of America, Inc.
Stock Purchase Agreement Page 27
<PAGE> 28
SCHEDULE II
SECTION 2.01(B)
Subsidiaries of the Company
TCA OF CENTRAL OKLAHOMA, INC., a Missouri corporation -- all issued and
outstanding shares of capital stock are owned by the Company.
SECTION 2.02(B)
Pre-emptive Rights with Respect to Preferred Shares
Pre-emptive rights were formerly held by the holders of the common stock
of the Company pursuant to that certain Stockholders Agreement dated
September 22, 1994, by and among the Company, David L. Steffy, David W.
Cross, John R. Lewis, and RehabCare Corporation (the "PRIOR
STOCKHOLDERS' AGREEMENT"), a copy of which was previously supplied by
the Company to Purchasers. As a part of the transactions contemplated in
the Series A Convertible Preferred Stock Purchase Agreement, the prior
Stockholders' Agreement is terminated effective as of the first Closing
Date. RehabCare Corporation has waived its pre-emptive rights with
respect to the transactions contemplated in the Agreement by letter
dated December 13, 1994, a copy of which was previously supplied by the
Company to Purchasers.
SECTION 2.04
Stockholders of Record
<TABLE>
<S> <C>
RehabCare Corporation 59,325 shares of Common Stock
David L. Steffy 59,325 shares of Common Stock
David W. Cross 59,325 shares of Common Stock
John R. Lewis 59,325 shares of Common Stock
Three Arch Partners 4,900 shares of Common Stock
</TABLE>
Employee Stock Options
11% of the authorized Common Stock has been reserved for employee stock
options.
Other Rights with Respect to Capital Stock
Transitional Care of America
Series A Convertible Preferred Stock Purchase Agreement
Schedule II Page 1
<PAGE> 29
See rights grant in Prior Stockholders Agreements referenced in Section
2.02(b) of this Schedule II.
SECTION 2.06
Liabilities not Reflected on Balance Sheet
The Company has liabilities not reflected on the Balance Sheet of
approximately $20,000.00 related to corporate office start-up expenses
and approximately $30,000.00 that will become due to an executive search
firm when Samuel A. Morse's employment initiates.
Note to RehabCare Corporation
The Company has borrowed $265,200.00 from RehabCare Corporation,
pursuant to that certain Revolving Credit Note dated October 28, 1994, a
copy of which was previously supplied by the Company to Purchasers.
SECTION 2.10
Leasehold Interests
The Company has agreed to enter into a written sublease agreement with
Suelthaus & Kaplan, P.C., counsel to the Company, to sublease 4000
square feet of office space, to serve as the principal offices of the
Company. The lease will be for a term of five years, and the rental will
be at market rates.
SECTION 2.13
Other Agreements
(d) Lease dated November 30, 1994, by and between TCA of Southern
Oklahoma and Southwest medical Center, Oklahoma City, Oklahoma
(the "Lease"), a copy of which was previously supplied by the
Company to Purchasers.
(e) (i) David W. Cross Employment Agreement, dated September
22, 1994, a copy of which was previously supplied by
the Company to Purchasers.
Transitional Care of America
Series A Convertible Preferred Stock Purchase Agreement
Schedule II Page 2
<PAGE> 30
(ii) John R. Lewis Employment Agreement, dated September 22,
1994, a copy of which was previously supplied by the
Company to Purchasers.
(iii) Samuel A. Morse Employment Agreement, dated December 2,
1994, a copy of which was previously supplied by the
Company to Purchasers.
(iv) James D. Pomeroy Employment Agreement, dated October
28, 1994, a copy of which was previously supplied by
the Company to Purchasers.
(v) Anthony J. Torrente Employment Agreement, dated
December 8, 1994, a copy of which was previously
supplied by the Company to Purchasers.
(vi) Madalene Roedl Employment Agreement, dated December 6,
1994, a copy of which was previously supplies by the
Company to Purchasers.
(g) See Revolving Credit Note, referenced in Section 2.06 of this
Schedule II.
(i) See Prior Stockholders Agreement, referenced in Section 2.02(b)
of this Schedule II.
(j) See Lease, referenced in Section 2.13(d) of this Section II.
(k) See Prior Stockholders Agreement, referenced in Section 2.02(b)
of this Schedule II. See Stock Repurchase Agreements referred
to in this Agreement.
(n) (i) TCA Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between the
Company and RehabCare Corporation, a copy of which was
previously supplied by the Company to Purchasers.
(ii) RehabCare Non-Compete, Non-Hire, Non-Disclosure and
Release Agreement, dated September 22, 1994, by and
between the Company and RehabCare Corporation, a copy
of which was previously supplied by the Company to
Purchasers.
(iii) Steffy/RehabCare Non-Development, Non-Hire and Release
Agreement, dated September 22, 1994, by and between
David L. Steffy
Transitional Care of America
Series A Convertible Preferred Stock Purchase Agreement
Schedule II Page 3
<PAGE> 31
and RehabCare Corporation, a copy of which was
previously supplied by the Company to Purchasers.
(iv) Cross Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between
David W. Cross and RehabCare Corporation, a copy of
which was previously supplied by the Company to
Purchasers.
(v) Lewis Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between
John R. Lewis and RehabCare Corporation, a copy of
which was previously supplied by the Company to
Purchasers.
(p) (i) Letter of Intent, dated August 12, 1994, by and among
RehabCare Corporation, the Company, David L. Steffy,
David W. Cross, and John R. Lewis, a copy of which was
previously supplied by the Company to Purchasers.
(ii) Subscription Agreement, dated September 22, 1994, by
and among the Company, RehabCare Corporation, David L.
Steffy, David W. Cross, and John R. Lewis, a copy of
which was previously supplied by the Company to
Purchasers.
(iii) Transition Agreement, dated September 22, 1994, by and
among the Company, RehabCare Corporation, David W.
Cross and John R. Lewis, a copy of which was
previously supplied by the Company to Purchasers.
SECTION 2.14
Patents, Patent Rights, etc.
The Company is exploring the possibility of registering its name as a
trademark. No decision on this matter has been made as of the date
hereof.
SECTION 2.15
Loans
Reference is made to Section 2.06 of this Schedule II.
Transitional Care of America
Series A Convertible Preferred Stock Purchase Agreement
Schedule II Page 4
<PAGE> 32
SECTION 2.22
Officers
--------
President: David W. Cross
Chief Executive Officer: David W. Cross
Executive Vice President: John R. Lewis
Chief Operating Officer: John R. Lewis
Treasurer: David W. Cross
Secretary: David W. Cross
Job titles are contained in the By-laws of the Company, a copy of which
was previously supplied by the Company to Purchasers, and as set out in
each of Messrs. Cross' and Lewis' Employment Agreements, copies of
which were previously supplied by the Company to Purchasers.
Compensation for each of Messrs. Cross and Lewis are as set forth in
their individual Employment Agreements. Samuel A. Morse has agreed to
become an executive officer when his employment initiates. It is
contemplated that the chief financial officer, when employed, will also
be an executive officer.
SECTION 2.23
Transactions with Affiliates
Reference is hereby made to Sections 2.02(b), 2.06, 2.13, 2.15, and
2.22 of this Schedule II, and the documents and agreements referenced
therein.
Transitional Care of America
Series A Convertible Preferred Stock Purchase Agreement
Schedule II Page 5
<PAGE> 1
EXHIBIT 10.23
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT ("AGREEMENT"), made as of the date last
below written, by and between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation (the "COMPANY"), and David W. Cross (the "STOCKHOLDER").
WHEREAS, the Stockholder is the holder of an aggregate of 59,325 shares
of common stock, $0.001 par value, of the Company (the "COMMON STOCK");
WHEREAS, certain investors (the "INVESTORS") are acquiring an aggregate
of 630,000 shares of Series A Convertible Preferred Stock of the Company
pursuant to the terms of a Series A Convertible Preferred Stock Purchase
Agreement dated the date hereof between the Company and the Investors (the
"PURCHASE AGREEMENT"); and
WHEREAS, it is a condition to the obligations of the Investors under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree with each other as
follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "STOCK" shall mean and include all shares of Common
Stock, and all other securities of the Company which may be issued in exchange
for or in respect of shares of Common Stock (whether by way of stock split,
stock dividend, combination, reclassification, reorganization, or any other
means).
(b) "SHARES" shall mean and include all shares of Stock
owned as of the date hereof by the Stockholder.
2. PROHIBITED TRANSFERS. The Stockholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber, or dispose of all or any of
his Shares except Shares that have become Vested Shares as hereinafter defined,
and any such transfer shall be to the Company or to the Investors as expressly
provided in this Agreement or in a Stockholders' Agreement by and among the
Company, the Investors, the Stockholder, and the other parties thereto, dated
of even date herewith. Notwithstanding the foregoing, and provided in each
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 1
<PAGE> 2
instance that the Company shall have first received an opinion from Company
counsel that such transfer is permitted by and is in accordance with applicable
state and Federal securities laws, the Stockholder may transfer all or any of
his Shares (i) by way of gift to any member of his family or to any trust for
the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company, as a condition to such
transfer, to be bound by all of the provisions of this Agreement to the same
extent as if such transferee were the Stockholder, or (ii) by will or the laws
of descent and distribution, in which event each such transferee shall be bound
by all of the provisions of this Agreement to the same extent as if such
transferee were the Stockholder. As used herein, the word "FAMILY" shall
include any spouse, lineal ancestor or descendant, brother or sister.
3. OPTION OF COMPANY UPON TERMINATION OF EMPLOYMENT.
(a) If the Stockholder shall, within three years from the date of
this Agreement, cease to be employed in any capacity by the Company or any of
its subsidiaries, due to removal for "cause" (as defined herein) or due to
voluntary departure, the Company may within sixty (60) days from the date upon
which the Stockholder shall so cease to be employed, exercise its option under
this Section 3 to purchase from the Stockholder all of his Shares (such number
of Shares being subject to equitable adjustment for any stock split, stock
dividend, combination of shares, or the like and based upon Common Stock or
Common Stock equivalents) other than any of such Shares which become Vested
Shares, as defined in Section 3(b). As used in this Agreement, "CAUSE" shall
mean that Stockholder (i) breaches any material covenant of any agreement with
the Company to which he is a party, (ii) is convicted of any felony or of any
crime involving moral turpitude, (iii) participates in fraud against the
Company, or (iv) intentionally damages any material property of the Company. As
used in this Agreement, "CAUSE" shall not include the death or disability of
the Stockholder.
(b) "VESTED SHARES" shall mean the following amounts of the Shares
on the following dates: on the date hereof, 14,829 Shares shall be Vested
Shares. An additional 1,236 Shares shall become Vested Shares at the end of
each full month from the date of this Agreement, so that none of the Shares
shall be subject to repurchase after the third anniversary of the date hereof,
provided that no additional Shares shall become Vested Shares after the date
upon which the Stockholder shall cease to be employed in any capacity by the
Company or any of its subsidiaries. Notwithstanding the foregoing, upon (i) the
death or disability of the Stockholder (which disability continues for more
than six months), (ii) the termination of Stockholder's employment by the
Company without cause or the termination of the Stockholder's employment with
the Company by the Stockholder for cause, or (iii) any merger, consolidation,
sale of all (or substantially all) of the assets of the Company, or other
business combination involving the sale or transfer of all or substantially
all) of the capital stock or assets of the Company in which the Company is not
the surviving
Stock Repurchase Agreement-Transitional Care of America, Inc. Page 2
<PAGE> 3
entity, or, if it is the surviving entity, either (i) does not survive as an
operating ongoing concern in substantially the same line of business, or (ii)
is controlled by persons or entities previously unaffiliated with the Company,
then all Shares shall, immediately prior to the consummation of any of the
foregoing events, become Vested Shares for the purposes of this Agreement.
(c) The purchase price of any Shares for which the Company
exercises its option under this Section 3 (the "Option Price") shall be $00.42
per Share (such price being subject to equitable adjustment for any stock
split, stock dividend, combination of shares, or the like and based upon
Common Stock or Common Stock equivalents.
(d) If the Company desires to exercise its option to purchase, it
shall do so by communicating in writing its election to purchase to the
Stockholder, which communication shall state the number of Shares the Company is
electing to purchase and the Option Price and shall be delivered in person or
mailed to the Stockholder at the address set forth in accordance with Section 6
below within the 60-day period provided for in Section 3(a). The sale of the
Shares to be sold to the Company pursuant to this Section 3 shall be made at
the offices of the Company on the 20th day following the date of the Company's
written election to purchase (or if such 20th day is not a business day, then
on the next succeeding business day). Such sale shall be effected by the
Stockholder's delivery to the Company of a certificate or certificates
evidencing the Shares to be purchased by it, duly endorsed for transfer to the
Company, against payment to the Stockholder by the Company of the Option Price
for each Share to be purchased by the Company.
(e) In addition to the other restrictions provided in this
Agreement, in no event shall the Stockholder transfer any Shares pursuant to
any other Section of this Agreement if, upon completing such transfer, the
Stockholder would be unable to meet his obligations (whether accrued or
contingent) under this Section 3.
4. SPECIFIC ENFORCEMENT. The Stockholder expressly agrees that
the Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by the Stockholder, the Company shall, in addition
to all other remedies, be entitled to a temporary or permanent injunction,
without showing any actual damage, and/or a decree for specific performance, in
accordance with the provisions hereof.
5. LEGEND. Each certificate evidencing any of the Shares shall
bear a legend substantially as follows:
"The shares represented by this certificate are subject to all the
terms and conditions of a certain Stock Repurchase Agreement dated as of
December __,
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 3
<PAGE> 4
1994, a copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
6. NOTICES. Notices given hereunder shall be deemed to have been
duly given on the date of personal delivery or on the date of postmark if
mailed by certified or registered mail, return receipt requested, to the
Stockholder at his address specified on the applicable signature page hereto or
such other address as the addressee may subsequently notify the Company of in
writing, and to the Company at its then principal offices.
7. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and neither this Agreement nor any provision hereof may be waived, modified,
amended or terminated except by a written agreement signed by the parties
hereto. To the extent any term or other provision of any other indenture,
agreement or instrument by which any party hereto is bound conflicts with this
Agreement, this Agreement shall have precedence over such conflicting term or
provision.
8. GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall
be governed by the internal laws of the State of Missouri and shall be binding
upon the heirs, personal representatives, executors, administrators,
successors, and assigns of the parties.
9. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
10. SEVERABILITY. If any provision of this Agreement shall be held
to be illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid, or unenforceable any other provision
and shall not in any manner affect or render illegal, invalid, or unenforceable
any other provision of this Agreement, and this Agreement shall be carried out
as if any such illegal, invalid or unenforceable provision were not contained
herein.
11. CAPTIONS. Captions are for convenience only and are not deemed
to be part of this Agreement.
12. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall
create an obligation on the Company or the Investors to continue the
Stockholder's employment with the Company.
13. COUNTERPARTS; FACSIMILE SIGNATURE. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 4
<PAGE> 5
shall constitute one and the same instrument. A facsimile transmission of a
signature hereto shall be deemed for all purposes to be an original signature.
IN WITNESS WHEREOF, the parties hereto have set their hand this 30th
day of December, 1994.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President
STOCKHOLDER: David W. Cross
------------------------------------
10 LINDWORTH
------------------------------------
Street Address
St. Louis, Missouri 63124
------------------------------------
City, State, Zip Code
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 5
<PAGE> 1
EXHIBIT 10.24
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT ("AGREEMENT"), made as of the date last
below written, by and between TRANSITIONAL CARE OF AMERICA, INC., a Delaware
corporation (the "COMPANY"), and John R. Lewis (the "STOCKHOLDER").
WHEREAS, the Stockholder is the holder of an aggregate of 59,325 shares
of common stock, $0.001 par value, of the Company (the "COMMON STOCK");
WHEREAS, certain investors (the "INVESTORS") are acquiring an aggregate
of 630,000 shares of Series A Convertible Preferred Stock of the Company
pursuant to the terms of a Series A Convertible Preferred Stock Purchase
Agreement dated the date hereof between the Company and the Investors (the
"PURCHASE AGREEMENT"); and
WHEREAS, it is a condition to the obligations of the Investors under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree with each other as
follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "STOCK" shall mean and include all shares of Common
Stock, and all other securities of the Company which may be issued in exchange
for or in respect of shares of Common Stock (whether by way of stock split,
stock dividend, combination, reclassification, reorganization, or any other
means).
(b) "SHARES" shall mean and include all shares of Stock
owned as of the date hereof by the Stockholder.
2. PROHIBITED TRANSFERS. The Stockholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber, or dispose of all or any of
his Shares except Shares that have become Vested Shares as hereinafter defined,
and any such transfer shall be to the Company or to the Investors as expressly
provided in this Agreement or in a Stockholders' Agreement by and among the
Company, the Investors, the Stockholder, and the other parties thereto, dated
of even date herewith. Notwithstanding the foregoing, and provided in each
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 1
<PAGE> 2
instance that the Company shall have first received an opinion from Company
counsel that such transfer is permitted by and is in accordance with applicable
state and Federal securities laws, the Stockholder may transfer all or any of
his Shares (i) by way of gift to any member of his family or to any trust for
the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company, as a condition to such
transfer, to be bound by all of the provisions of this Agreement to the same
extent as if such transferee were the Stockholder, or (ii) by will or the laws
of descent and distribution, in which event each such transferee shall be bound
by all of the provisions of this Agreement to the same extent as if such
transferee were the Stockholder. As used herein, the word "FAMILY" shall
include any spouse, lineal ancestor or descendant, brother or sister.
3. OPTION OF COMPANY UPON TERMINATION OF EMPLOYMENT.
(a) If the Stockholder shall, within three years from the date of
this Agreement, cease to be employed in any capacity by the Company or any of
its subsidiaries, due to removal for "cause" (as defined herein) or due to
voluntary departure, the Company may within sixty (60) days from the date upon
which the Stockholder shall so cease to be employed, exercise its option under
this Section 3 to purchase from the Stockholder all of his Shares (such number
of Shares being subject to equitable adjustment for any stock split, stock
dividend, combination of shares, or the like and based upon Common Stock or
Common Stock equivalents) other than any of such Shares which become Vested
Shares, as defined in Section 3(b). As used in this Agreement, "CAUSE" shall
mean that Stockholder (i) breaches any material covenant of any agreement with
the Company to which he is a party, (ii) is convicted of any felony or of any
crime involving moral turpitude, (iii) participates in fraud against the
Company, or (iv) intentionally damages any material property of the Company. As
used in this Agreement, "CAUSE" shall not include the death or disability of
the Stockholder.
(b) "VESTED SHARES" shall mean the following amounts of the Shares
on the following dates: on the date hereof, 14,829 Shares shall be Vested
Shares. An additional 1,236 Shares shall become Vested Shares at the end of
each full month from the date of this Agreement, so that none of the Shares
shall be subject to repurchase after the third anniversary of the date hereof,
provided that no additional Shares shall become Vested Shares after the date
upon which the Stockholder shall cease to be employed in any capacity by the
Company or any of its subsidiaries. Notwithstanding the foregoing, upon (i) the
death or disability of the Stockholder (which disability continues for more
than six months), (ii) the termination of Stockholder's employment by the
Company without cause or the termination of the Stockholder's employment with
the Company by the Stockholder for cause, or (iii) any merger, consolidation,
sale of all (or substantially all) of the assets of the Company, or other
business combination involving the sale or transfer of all or substantially
all) of the capital stock or assets of the Company in which the Company is not
the surviving
Stock Repurchase Agreement-Transitional Care of America, Inc. Page 2
<PAGE> 3
entity, or, if it is the surviving entity, either (i) does not survive as an
operating ongoing concern in substantially the same line of business, or (ii)
is controlled by persons or entities previously unaffiliated with the Company,
then all Shares shall, immediately prior to the consummation of any of the
foregoing events, become Vested Shares for the purposes of this Agreement.
(c) The purchase price of any Shares for which the Company
exercises its option under this Section 3 (the "Option Price") shall be $00.42
per Share (such price being subject to equitable adjustment for any stock
split, stock dividend, combination of shares, or the like and based upon
Common Stock or Common Stock equivalents.
(d) If the Company desires to exercise its option to purchase, it
shall do so by communicating in writing its election to purchase to the
Stockholder, which communication shall state the number of Shares the Company is
electing to purchase and the Option Price and shall be delivered in person or
mailed to the Stockholder at the address set forth in accordance with Section 6
below within the 60-day period provided for in Section 3(a). The sale of the
Shares to be sold to the Company pursuant to this Section 3 shall be made at
the offices of the Company on the 20th day following the date of the Company's
written election to purchase (or if such 20th day is not a business day, then
on the next succeeding business day). Such sale shall be effected by the
Stockholder's delivery to the Company of a certificate or certificates
evidencing the Shares to be purchased by it, duly endorsed for transfer to the
Company, against payment to the Stockholder by the Company of the Option Price
for each Share to be purchased by the Company.
(e) In addition to the other restrictions provided in this
Agreement, in no event shall the Stockholder transfer any Shares pursuant to
any other Section of this Agreement if, upon completing such transfer, the
Stockholder would be unable to meet his obligations (whether accrued or
contingent) under this Section 3.
4. SPECIFIC ENFORCEMENT. The Stockholder expressly agrees that
the Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by the Stockholder, the Company shall, in addition
to all other remedies, be entitled to a temporary or permanent injunction,
without showing any actual damage, and/or a decree for specific performance, in
accordance with the provisions hereof.
5. LEGEND. Each certificate evidencing any of the Shares shall
bear a legend substantially as follows:
"The shares represented by this certificate are subject to all the
terms and conditions of a certain Stock Repurchase Agreement dated as of
December __,
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 3
<PAGE> 4
1994, a copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
6. NOTICES. Notices given hereunder shall be deemed to have been
duly given on the date of personal delivery or on the date of postmark if
mailed by certified or registered mail, return receipt requested, to the
Stockholder at his address specified on the applicable signature page hereto or
such other address as the addressee may subsequently notify the Company of in
writing, and to the Company at its then principal offices.
7. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and neither this Agreement nor any provision hereof may be waived, modified,
amended or terminated except by a written agreement signed by the parties
hereto. To the extent any term or other provision of any other indenture,
agreement or instrument by which any party hereto is bound conflicts with this
Agreement, this Agreement shall have precedence over such conflicting term or
provision.
8. GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall
be governed by the internal laws of the State of Missouri and shall be binding
upon the heirs, personal representatives, executors, administrators,
successors, and assigns of the parties.
9. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
10. SEVERABILITY. If any provision of this Agreement shall be held
to be illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid, or unenforceable any other provision
and shall not in any manner affect or render illegal, invalid, or unenforceable
any other provision of this Agreement, and this Agreement shall be carried out
as if any such illegal, invalid or unenforceable provision were not contained
herein.
11. CAPTIONS. Captions are for convenience only and are not deemed
to be part of this Agreement.
12. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall
create an obligation on the Company or the Investors to continue the
Stockholder's employment with the Company.
13. COUNTERPARTS; FACSIMILE SIGNATURE. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 4
<PAGE> 5
shall constitute one and the same instrument. A facsimile transmission of a
signature hereto shall be deemed for all purposes to be an original signature.
IN WITNESS WHEREOF, the parties hereto have set their hand this 30th
day of December, 1994.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
---------------------------------
David W. Cross, President
STOCKHOLDER: John R. Lewis
------------------------------------
342 Woodcliffe Place Drive
------------------------------------
Street Address
Chesterfield Missouri 63005
------------------------------------
City, State, Zip Code
Stock Repurchase Agreement - Transitional Care of America, Inc. Page 5
<PAGE> 1
EXHIBIT 10.25
================================================================================
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
TRANSITIONAL CARE OF AMERICA, INC.
AND
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
DATED AS OF DECEMBER 20, 1995
================================================================================
<PAGE> 2
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("AGREEMENT")
is dated as of the date last below written by and among TRANSITIONAL CARE OF
AMERICA, INC., a Delaware corporation (the "COMPANY"), and the several
purchasers named in the attached Schedule I (individually a "PURCHASER" and
collectively the "PURCHASERS").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 405,994 shares (the "SERIES B PREFERRED SHARES") of the authorized
but unissued Series B Convertible Preferred Stock $0.001 par value, of the
Company (the "SERIES B CONVERTIBLE PREFERRED STOCK"); and
WHEREAS, the Purchasers, severally, wish to purchase the Series B
Preferred Shares on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE SERIES B PREFERRED SHARES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE SERIES B PREFERRED
SHARES. The Company agrees to issue and sell to each Purchaser, and each
Purchaser hereby agrees to purchase from the Company, the number of Series B
Preferred Shares set forth opposite the name of such Purchaser under the
heading "Number of Series B Preferred Shares to be Purchased" on Schedule I, at
the aggregate purchase price set forth opposite the name of such Purchaser
under the heading "Aggregate Purchase Price for Series B Preferred Shares" on
Schedule I.
SECTION 1.02 CLOSING. The closing shall take place at the offices of
Suelthaus & Walsh, P.C., 7733 Forsyth Boulevard, 12th Floor, St. Louis,
Missouri 63105, 10:00 a.m., local time, on December 20, 1995, or at such
other location, date and time as may be agreed upon between the Purchasers and
the Company (such closing being called the "CLOSING" and such date and time
being called the "CLOSING DATE"). At the Closing, the Company shall issue and
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Series B
Preferred Shares being purchased by it at the Closing. As payment in full for
the Series B Preferred Shares being purchased by it under this Agreement, and
against delivery of the stock certificate or certificates therefor as
aforesaid, on the Closing Date each Purchaser shall deliver to the Company in
immediately available funds, the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price for Series B Preferred
Shares" on Schedule I.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 1
<PAGE> 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as set
forth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken and which exceptions shall only apply to the
specific representation or warranty referenced therein):
SECTION 2.01 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
(A) The Company is a corporation duly incorporated, validly existing, and
in good standing under the laws of the State of Delaware and is duly licensed
or qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character of the properties owned or leased by it requires such
licensing or qualification. The Company has the corporate power and authority
to own and hold its properties and to carry on its business as now conducted
and as proposed to be conducted, to execute, deliver and perform this
Agreement, the Amended and Restated Registration Rights Agreement dated as of
the date hereof between the Company, the Purchasers and the other parties
thereto named therein (the "REGISTRATION RIGHTS AGREEMENT"), and the Amended
and Restated Stockholders' Agreement dated as of the date hereof between the
Company, the Purchasers and the other parties thereto named therein (the
"STOCKHOLDERS' AGREEMENT") to issue, sell and deliver the Series B Preferred
Shares and to issue and deliver the shares of Common Stock, $0.001 par value,
of the Company ("COMMON STOCK") issuable upon conversion of the Preferred
Shares (the "CONVERSION SHARES").
(B) The Company has no subsidiaries other than those set forth on Schedule
II, Section 2.01(b) (the "SUBSIDIARIES"), and does not otherwise (i) own of
record or beneficially, directly or indirectly, (A) any shares of capital stock
or securities convertible into capital stock of any other corporation or (B)
any participating interest in any partnership, joint venture or similar
arrangement or other non-corporate business enterprise or (ii) control,
directly or indirectly, any other entity. Each of the Subsidiaries is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the State of Missouri and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification.
Each of the Subsidiaries has the corporate power and authority to own and hold
its properties and to carry on its business as now conducted and as proposed to
be conducted.
SECTION 2.02 AUTHORIZATION OF AGREEMENTS, ETC.
(A) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement and the Stockholders' Agreement, the performance
by the Company of its obligations hereunder and thereunder, the issuance, sale
and delivery of the Series B Preferred Shares and the issuance and delivery of
the Conversion Shares have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of
Transitional Care of America, Inc. - Stock Purchase Agreement Page 2
<PAGE> 4
government, the Certificate of Incorporation of the Company, as amended (the
"CHARTER") or the By-laws of the Company, as amended, or any provision of any
indenture, agreement, or other instrument to which the Company is bound, or
conflict with, result in a breach of, or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement, or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim, or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company. No provision of any of the Registration
Rights Agreement or the Stockholders' Agreement violates, conflicts with,
results in a breach of, or constitutes (with due notice or lapse of time or
both) a default under any indenture, agreement, or other instrument to which
the Company is bound or, to the best of the Company's knowledge, any other
indenture, agreement, or instrument (regardless, in each such case, of whether
any such violation, conflict, breach, or default relates to the Company or to
another party to any such indenture, agreement, or other instrument).
(B) The Series B Preferred Shares have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid
and nonassessable shares of Series B Convertible Preferred Stock with no
personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims, and encumbrances imposed by
or through the Company except as set forth in this Agreement, the Registration
Rights Agreement, and the Stockholders' Agreement. The Conversion Shares have
been duly reserved for issuance upon conversion of the Series B Preferred
Shares and, when so issued, will be duly authorized, validly issued, fully
paid, and nonassessable shares of Common Stock with no personal liability
attaching to the ownership thereof and will be free and clear of all liens,
charges, restrictions, claims, and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement and the
Stockholders' Agreement. Neither the issuance, sale, or delivery of the Series
B Preferred Shares nor the issuance or delivery of the Conversion Shares is
subject to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person, except as disclosed on
Schedule II, Section 2.02(b).
SECTION 2.03 VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid, and binding
obligation of the Company, enforceable in accordance with its terms. The
Registration Rights Agreement and the Stockholders' Agreement, when executed
and delivered in accordance with this Agreement, will constitute the legal,
valid, and binding obligations of the Company, enforceable in accordance with
their respective terms.
SECTION 2.04 AUTHORIZED CAPITAL STOCK. The authorized capital stock of
the Company consists of (i) 1,035,994 shares of Preferred Stock, $0.001 par
value (the "PREFERRED STOCK"), of which 630,000 shares have been designated
Series A Convertible Preferred Stock and 405,994 shares have been designated
Series B Convertible Preferred Stock, and (ii) 1,420,994 shares of Common
Stock, $0.001 par value. Immediately prior to the Closing, 242,200 shares of
Common Stock will be validly issued and outstanding, fully paid, and
nonassessable, 630,000 shares of Series A Convertible Preferred Stock will be
validly issued and outstanding, fully paid, and nonassessable and no shares of
Series B Convertible Preferred Stock will have been issued. The
stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the
Transitional Care of America, Inc. - Stock Purchase Agreement Page 3
<PAGE> 5
attached Schedule II, Section 2.04. The designations, powers, preferences,
rights, qualifications, limitations, and restrictions in respect of each class
and series of authorized capital stock of the Company are as set forth in the
Charter, a copy of which is attached as Exhibit A, and all such designations,
powers, preferences, rights, qualifications, limitations, and restrictions are
valid, binding, and enforceable and in accordance with all applicable laws.
Except as set forth in the attached Schedule II, Section 2.04, (i) no
person owns of record or is known to the Company to own beneficially any share
of Common Stock, (ii) no subscription, warrant, option, convertible security,
or other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding, and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in the attached Schedule II,
Section 2.04, the Company has no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. Except for the Stock Repurchase Agreements dated as of December 30,
1994, between the Company and David W. Cross and John R. Lewis (the "STOCK
REPURCHASE AGREEMENTS"), the Stockholders' Agreement and as set forth on
Schedule II, Section 2.04, to the best of the Company's knowledge there are no
voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights, or proxies
relating to any securities of the Company (whether or not the Company is a
party thereto). All of the outstanding securities of the Company were issued
in compliance with all applicable Federal and state securities laws. Each of
the Subsidiaries has authorized capital stock of 30,000 shares of common stock
of which 100 shares are validly issued and outstanding, owned by the Company,
fully paid, and nonassessable. There are no subscriptions, warrants, options,
convertible securities, or other rights (contingent or other) to purchase or
otherwise acquire equity securities of any Subsidiary authorized, issued or
outstanding and there is no commitment by any Subsidiary to issue shares,
subscriptions, warrants, options, convertible securities or other such rights.
SECTION 2.05 FINANCIAL STATEMENTS. The Company has furnished to the
Purchasers the unaudited consolidated and consolidating balance sheet of the
Company and the Subsidiaries as of November 30, 1995, and the related
consolidated and consolidating statements of income, stockholders' equity, and
cash flows of the Company and the Subsidiaries for the period ended November
30, 1995 (the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial position of the Company
as of November 30, 1995, provided, however, the Financial Statements are
subject to normal year-end adjustments (which will not be material individually
or in the aggregate) and lack footnotes and other presentation items. Since
the date of the Financial Statements (i) there has been no change in the
assets, liabilities, or financial condition of the Company or any of the
Subsidiaries from that reflected in the Financial Statements except for changes
in the ordinary course of business which individually or in the aggregate have
not been materially adverse and (ii) none of the business, prospects,
conditions, operations, assets, property, or affairs of the Company or any of
the Subsidiaries has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 4
<PAGE> 6
SECTION 2.06 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS.
Since the date of the Financial Statements, neither the Company nor any of the
Subsidiaries have (i) issued any stock, bond, or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except as set forth on Schedule II, Section 2.06, and
except for current liabilities incurred and liabilities under contracts entered
into in the ordinary course of business, (iii) discharged or satisfied any lien
or encumbrance or incurred or paid any obligation or liability (absolute,
accrued, or contingent) other than current liabilities shown on the Financial
Statements and current liabilities incurred since the date of the Financial
Statements in the ordinary course of business, (iv) declared or made any
payment or distribution to stockholders or purchased or redeemed any share of
its capital stock or other security, (v) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens of current
real property taxes not yet due and payable, (vi) sold, assigned or transferred
any of its tangible assets except in the ordinary course of business, or
canceled any debt or claim, (vii) sold, assigned, transferred, or granted any
exclusive license with respect to any patent, trademark, trade name, service
mark, copyright, trade secret, or other intangible asset, (viii) suffered any
material loss of property or waived any right of substantial value whether or
not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company or any of the Subsidiaries, (xi) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby,
or (xii) entered into any commitment (contingent or otherwise) to do any of the
foregoing. Since the date of the Financial Statements, there have been no
changes in the assets, liabilities, financial condition or operating results
of the Company or any of the Subsidiaries except changes in the ordinary course
of business that have been, individually or in the aggregate, materially
adverse.
SECTION 2.07 LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding, or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of its
Subsidiaries or its or their assets, prospects, properties, operations or
condition, at law or in equity, or before or by any Federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company or any of the Subsidiaries pending under collective bargaining
agreements or otherwise, or (iii) governmental inquiry pending or, to the best
of the Company's knowledge, threatened against or affecting the Company or any
of its Subsidiaries (including without limitation any inquiry as to the
qualification of the Company or any Subsidiary to hold or receive any license
or permit), and there is no basis for any of the foregoing. The Company has
not received any opinion or memorandum or legal advice from legal counsel to
the effect that it or any of the Subsidiaries is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, property, or affairs.
Neither the Company nor any of its Subsidiaries is a party to any order, writ,
judgment, injunction, or decree known to or served upon the Company or any of
the Subsidiaries of any court or of any Federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign. There is no action or suit by the Company or any of the
Subsidiaries pending or threatened against others. The Company and the
Subsidiaries have complied with all laws, rules, regulations, and orders
applicable to its business, operations, properties, assets, products, and
services, and the Company and its Subsidiaries have applied for, or will timely
apply for all necessary permits, licenses, and other authorizations required to
conduct its business as
Transitional Care of America, Inc. - Stock Purchase Agreement Page 5
<PAGE> 7
conducted and as proposed to be conducted. There is no existing law, rule,
regulation, or order, and neither the Company nor any of its Subsidiaries after
due inquiry are aware of any proposed law, rule, regulation, or order, whether
Federal or state, which would prohibit or restrict the Company or any of
the Subsidiaries from, or otherwise materially adversely affect the Company or
any of the Subsidiaries in, conducting its or their business in any
jurisdiction in which it or they are now conducting business or propose to
conduct business.
SECTION 2.08 PROPRIETARY INFORMATION OF THIRD PARTIES. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company or any of the
Subsidiaries has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition, or non-disclosure agreement with
such third party, (b) disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation of such
third party, or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company or any of
the Subsidiaries which suggests that such a claim might be contemplated. To
the best of the Company's knowledge, no person employed by or affiliated with
the Company or any of the Subsidiaries has employed or proposes to employ any
trade secret or any information or documentation proprietary to any former
employer, and to the best of the Company's knowledge, no person employed by or
affiliated with the Company or any of the Subsidiaries has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture, or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company or any of the Subsidiaries, and the Company has no reason to
believe there will be any such employment or violation. To the best of the
Company's knowledge, none of the execution or delivery of this Agreement, or
the carrying on of the business of the Company or any of the Subsidiaries as
officers, employees, or agents by any officer, director, or key employee of the
Company or any of the Subsidiaries, or the conduct or proposed conduct of the
business of the Company or any of the Subsidiaries, will conflict with or
result in a breach of the terms, conditions, or provisions of or constitute a
default under any contract, covenant, or instrument under which any such person
is obligated. Neither the Company nor any of the Subsidiaries believes it is
or will be necessary to use any inventions of any employee made prior to his or
her employment by the Company or any of the Subsidiaries.
SECTION 2.09 TITLE TO PROPERTIES. The Company and the Subsidiaries have
good and marketable title to the properties and assets reflected on the
Financial Statements or acquired by it or them since the date of the Financial
Statements (other than properties and assets disposed of in the ordinary course
of business since the date of the Financial Statements), and all such
properties and assets are free and clear of mortgages, pledges, security
interests, liens, charges, claims, restrictions, and other encumbrances, except
for liens for or current taxes not yet due and payable and minor imperfections
of title, if any, not material in nature or amount, individually or in the
aggregate, and not materially detracting from the value or impairing the use of
the property subject thereto or impairing the operations or proposed operations
of the Company or any of the Subsidiaries.
SECTION 2.10 LEASEHOLD INTERESTS. Each lease or agreement to which the
Company or any of the Subsidiaries is a party under which it or they is a
lessee of any property, real or personal, is a
Transitional Care of America, Inc. - Stock Purchase Agreement Page 6
<PAGE> 8
valid and subsisting agreement without any default of the Company or any of the
Subsidiaries thereunder and, to the best of the Company's knowledge, without
any default thereunder of any other party thereto. Attached as Schedule II,
Section 2.10 is a list of all real property leases to which the Company or any
Subsidiary is a party. No event has occurred and is continuing which, with due
notice or lapse of time or both, would constitute a default or event of default
by the Company or any of the Subsidiaries under any such lease or agreement or,
to the best of the Company's knowledge, by any other party thereto. The
Company's and Subsidiaries' possession of such property has not been disturbed
and, to the best of the Company's knowledge, no claim has been asserted
against the Company or any Subsidiary adverse to its or their rights in such
leasehold interests.
SECTION 2.11 INSURANCE. Attached as Schedule II, Section 2.11, is a list
of all material insurance policies of the Company and the Subsidiaries
currently in force and effect. To the best knowledge of the Company, the
insurance coverage of the Company and the Subsidiaries with respect to its and
their properties, assets and business is customary for companies similarly
situated and the Company deems such insurance to be sufficient and such
insurance meets the requirements set forth in the Stockholders' Agreement.
SECTION 2.12 TAXES. The Company and all Subsidiaries have filed all tax
returns, and reports, required to be filed by them, and the Company and all
Subsidiaries have paid all taxes shown to be due by such returns as well as all
other taxes, assessments, and governmental charges which have become due or
payable, including without limitation all taxes which the Company and all
Subsidiaries are obligated to withhold from amounts owing to employees,
creditors, and third parties. All such taxes with respect to which the Company
and all Subsidiaries have become obligated pursuant to elections made by the
Company and any Subsidiary in accordance with generally accepted practice have
been paid and adequate reserves have been established for all taxes accrued
but not yet payable. The Federal income tax returns of the Company have never
been audited by the Internal Revenue Service. No deficiency assessment with
respect to or proposed adjustment of the Company's or any Subsidiaries'
Federal, state, county, or local taxes ever existed or is pending or, to the
best of the Company's knowledge, threatened. Neither the Company nor any of
the Subsidiaries have executed a waiver of any statute of limitations on the
collection or assessment of taxes. There is no tax lien, whether imposed by
any Federal, state, county, or local taxing authority, outstanding against the
assets, properties, or business of the Company or any of the Subsidiaries.
Neither the Company nor any of the Subsidiaries have filed (a) an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the
"CODE"), that the Company or any of the Subsidiaries be taxed as an S
corporation, (b) a consent pursuant to Section 341(f) of the Code, relating to
collapsible corporations, or (c) any other election that would have a material
effect on the business, properties, prospects or condition of the Company or
any of the Subsidiaries. Consummation of the transactions contemplated by this
Agreement or by any other agreement, understanding or commitment (contingent or
otherwise) to which the Company or any of the Subsidiaries is a party or by
which it or they are otherwise bound will not have the effect of limiting the
Company's ability to use net operating losses in full to offset taxable income.
SECTION 2.13 OTHER AGREEMENTS. Except as set forth in the attached
Schedule II, Section 2.13, neither the Company nor any of the Subsidiaries is a
party to or otherwise bound by any written or oral, absolute or contingent,
contract, instrument, agreement or understanding, or other restriction
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which individually or in the aggregate could materially adversely affect the
business, prospects, condition, operations, property, or affairs of the Company
or any of the Subsidiaries. Except as set forth on Schedule II, Section 2.13,
neither the Company nor any of the Subsidiaries is a party to any:
(A) sales contract which entitles any customer to a rebate or right
of set-off, to return any product to the Company or any Subsidiary after
acceptance thereof or to delay the acceptance thereof, or which varies in
any material respect from the Company's or the Subsidiaries' standard
form contracts;
(B) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of
its or its Subsidiaries' employees);
(C) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or a Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by the Company or any
of its Subsidiaries to meet its or their obligations under the contract
when due or the occurrence of any other event;
(D) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of an
aggregate amount of $25,000;
(E) contract for the employment of any officer, employee, or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company or
the Subsidiaries;
(F) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option, or other plan, contract or
understanding pursuant to which benefits are provided to any officer,
director, or employee of the Company or any Subsidiary (other than group
insurance plans applicable to employees generally);
(G) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company or any Subsidiary;
(H) guaranty of any obligation for borrowed money or otherwise;
(I) voting trust or agreement, stockholders' agreement (other than
the Stockholders' Agreement), pledge agreement, buy-sell agreement, or
first refusal or preemptive rights agreement relating to any securities
of the Company or any Subsidiary;
(J) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to
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advance money or has agreed to lease any property as lessee or lessor
which lease payments would exceed $10,000 per year;
(K) agreement or obligation (contingent or otherwise) to issue,
sell, or otherwise distribute or to repurchase or otherwise acquire or
retire any shares of capital stock or any other equity securities of the
Company or any of its Subsidiaries;
(L) assignment, license, or other agreement with respect to any form
of intangible property;
(M) agreement under which the Company or any Subsidiary has granted
any person any registration rights, other than the Registration Rights
Agreement;
(N) agreement under which the Company or any Subsidiary has limited
or restricted its or their right to compete with any person in any
respect;
(O) other contract or group of related contracts with the same party
involving more than $25,000 or continuing over a period of more than six
months from the date or dates thereof (including renewals or extensions
optional with another party), which contract or group of contracts is not
terminable by the Company or any Subsidiary without penalty upon notice
of thirty (30) days or less;
(P) other contract, instrument, commitment, plan, or arrangement, a
copy of which would be required to be filed with the Securities and
Exchange Commission (the "COMMISSION") as an exhibit to a registration
statement on Form S-1 if the Company were registering securities under
the Securities Act of 1933, as amended (the "SECURITIES ACT").
The Company and each Subsidiary, and to the best of Company's knowledge each
other party thereto, have in all material respects performed all the
obligations required to be performed by them to date, have received no notice
of default and are not in default (with due notice or lapse of time or both)
under any lease, agreement, or contract now in effect to which the Company or
any Subsidiary is a party or by which they or their property may be bound. The
Company and each Subsidiary has no present expectation or intention of not
fully performing all its obligations under each such lease, contract, or other
agreement, and neither the Company nor any Subsidiary have any knowledge of any
breach or anticipated breach by the other party to any contract or commitment
to which the Company or any Subsidiary is a party. The Company and each of the
Subsidiaries are in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
SECTION 2.14 PATENTS, TRADEMARKS, ETC. Set forth on Schedule II, Section
2.14 is a list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, and copyrights, and all applications for such which
are in the process of being prepared, owned by, or registered in the name of
the Company and any of the Subsidiaries, or of which the Company or any
Subsidiary is a licensor or licensee or in which the Company or any Subsidiary
has any right, and in each case a brief description of the nature of such
right. The Company and each Subsidiary owns or possesses sufficient legal
rights to use all
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patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, and know how (collectively, "INTELLECTUAL
PROPERTY") necessary or desirable to the conduct of its and their business as
conducted and as proposed to be conducted, and no claim is pending or, to the
best of the Company's knowledge, threatened to the effect that the business or
operations (as conducted or proposed to be conducted) of the Company or any
Subsidiary infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property, and there is no basis for any such
claim (whether or not pending or threatened). No claim is pending or
threatened to the effect that any such Intellectual Property owned or licensed
by the Company, or which the Company otherwise has the right to use, is invalid
or unenforceable by the Company or any Subsidiary, and to the best of the
Company's knowledge there is no basis for any such claim (whether or not
pending or threatened). To the best of the Company's knowledge, all technical
information developed by and belonging to the Company or any Subsidiary which
has not been patented or registered has been kept confidential. Neither the
Company nor any Subsidiary has granted or assigned to any other person or
entity any right to sell or to provide the services or proposed services of the
Company or any Subsidiary. There are no outstanding options, licenses or
agreements of any kind relating to the Intellectual Property, nor is the
Company or any Subsidiary bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, manufacturing processes, formulae, trade secrets or
know how of any other person or entity.
SECTION 2.15 LOANS AND ADVANCES. Except as set forth on Schedule II,
Section 2.15 attached hereto, neither the Company nor any Subsidiary has any
outstanding loans or advances to any person nor are they obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company or a Subsidiary in respect of reasonable and necessary reimbursable
business expenses anticipated to be incurred by them in connection with their
performance of services for the Company or a Subsidiary.
SECTION 2.16 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. Neither the Company nor any Subsidiary has assumed, guaranteed,
endorsed, or otherwise become directly or contingently liable on any
indebtedness of any other person (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to, or otherwise invest in the debtor, or otherwise to
assure the creditor against loss), except for guaranties by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
SECTION 2.17 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or
supplier which was significant to the Company or any Subsidiary during the
period covered by the Financial Statements referred to in Section 2.05 or which
has been significant to the Company or any Subsidiary thereafter, has
terminated, materially reduced, or threatened to terminate or materially reduce
its purchases from or provision of products or services to the Company or any
Subsidiary, as the case may be.
SECTION 2.18 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or qualification, or consent or approval of or
other action by, any Federal, state, or other governmental agency or
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instrumentality is or will be necessary for the valid execution, delivery and
performance by the Company of this Agreement, the Registration Rights
Agreement, or the Stockholders' Agreement, the issuance, sale, and delivery of
the Series B Preferred Shares or, upon conversion thereof, the issuance and
delivery of the Conversion Shares, other than (i) filings pursuant to state
securities laws (all of which filings have been made by the Company) in
connection with the sale of the Series B Preferred Shares and (ii) with respect
to the Registration Rights Agreement, the registration of the shares covered
thereby with the Commission and filings pursuant to state securities laws.
SECTION 2.19 DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any certificate or other written statements
delivered to the Purchasers, which includes the Company's business plan
contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
None of the statements, documents, certificates, or other items prepared or
supplied by the Company or any Subsidiary with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not
misleading. There is no fact which the Company has not disclosed to the
Purchasers and their counsel in writing and of which the Company is aware which
materially and adversely affects or could materially and adversely affect the
business, prospects, financial condition, operations, property, or affairs of
the Company or any of the Subsidiaries. The financial projections and other
estimates contained in the Company's business plan were prepared by the Company
in good faith based on the Company's experience in the industry and on
assumptions of fact and opinion as to future events which the Company, based on
the Company's experience in the industry and on assumptions of fact and opinion
as to future events which the Company, at the date of the issuance of the
Company's business plan, believed to be reasonable after due investigation, but
which the Company cannot and does not assure or guarantee the attainment of in
any manner. As of the date hereof, no facts have come to the attention of the
Company or any Subsidiary which would, in its opinion, require the Company to
revise or amplify the assumptions underlying such projections and other
estimates or the conclusions derived therefrom. The Company and the
Subsidiaries have fully provided each Purchaser will all the information that
such Purchaser has requested for deciding whether to purchase the Series B
Preferred Stock and all information known by the Company that the Company
believes is reasonably necessary to enable such Purchaser to make such
decision.
SECTION 2.20 OFFERING OF THE SERIES B PREFERRED SHARES. Neither the
Company nor any person authorized or employed by the Company as agent, broker,
dealer, or otherwise in connection with the offering or sale of the Series B
Preferred Shares or any security of the Company similar to the Series B
Preferred Shares has offered the Series B Preferred Shares or any such similar
security for sale to, or solicited any offer to buy the Series B Preferred
Shares or any such similar security from, or otherwise approached or negotiated
with respect thereto with, any person or persons, and neither the Company nor
any person acting on its behalf has taken or will take any other action
(including, without limitation, any offer, issuance, or sale of any security of
the Company under circumstances which might require the integration of such
security with the Series B Preferred Shares under the Securities Act or the
rules and regulations of the Commission thereunder), in either case so as to
subject the offering, issuance, or sale of the Series B Preferred Shares to the
registration provisions of the Securities Act.
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SECTION 2.21 BROKERS. Neither the Company nor any Subsidiary has a
contract, arrangement, or understanding with any broker, finder, or similar
agent with respect to the transactions contemplated by this Agreement.
SECTION 2.22 OFFICERS. Set forth in Schedule II, Section 2.22 is a list
of the names of the officers of the Company. The total compensation
anticipated to be paid to each such person in 1995 and 1996 is as set forth in
their respective employment agreements. Except as set forth on Schedule II,
Section 2.22, none of such persons has an employment agreement or
understanding, whether oral or written, with the Company which is not
terminable on notice by the Company without cost or other liability to the
Company, except normal severance arrangements and accrued vacation pay.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. No director, officer,
employee, or stockholder of the Company, or member of the family of any such
person, nor any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner, or holder of more than
5% of the outstanding capital stock thereof, is a party to any transaction with
the Company, including any contract, agreement, or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to any such person or firm,
except as set forth on Schedule II, Section 2.23.
SECTION 2.24 EMPLOYEES. Each of the officers of the Company, each key
employee and each other employee now employed by the Company or any Subsidiary
who has access to confidential information of the Company or any Subsidiary has
or will execute an employment agreement or Employee Nondisclosure Agreement
providing for appropriate protections for the Company's or Subsidiary's
proprietary and confidential information. No officer or key employee of the
Company or any Subsidiary has advised the Company or any Subsidiary (orally or
in writing) that he intends to terminate employment with the Company or any
Subsidiary. The Company and all of the Subsidiaries have complied in all
material respect with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining, and the payment of Social Security and other taxes, and with the
Employee Retirement Income Security Act of 1974, as amended. There are no
pending or threatened strikes or other labor actions.
SECTION 2.25 U.S. REAL PROPERTY HOLDING CORPORATION. Neither the Company
nor any Subsidiary is now or ever been a "United States Real Property Holding
Corporation," as defined in Section 897(c)(2) of the Code and Section
1.897-2(b) of the Regulations promulgated by the Internal Revenue Service.
SECTION 2.26 COMPLIANCE WITH OTHER INSTRUMENTS.
(A) Neither the Company nor any of its Subsidiaries is in violation or
default of any provision of their Charter or Bylaws, or of any instrument,
judgment, order, writ, decree or contract to which they are a party or by which
they are bound, or, to the best of their knowledge, of any provision of any
Federal or state statute, rule or regulation applicable to the Company or any
Subsidiary. The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Stockholders' Agreement, and the
consummation of the transactions contemplated
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hereby and thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree
or contract or an event that results in the creation of any lien, charge
or encumbrance upon any assets of the Company or any Subsidiary or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company or any
Subsidiary, its business or operations or any of its assets or properties.
(B) The Company and each Subsidiary has avoided every condition, and has
not performed any act, the occurrence of which would result in the Company's or
the Subsidiary's loss of any right granted under any license, contract or other
agreement.
SECTION 2.27 PERMITS. The Company and each Subsidiary has, has applied
for, or will timely apply for all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and each
Subsidiary, and the Company and each Subsidiary believes it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. Neither the Company or any Subsidiary is in
default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
SECTION 2.28 ENVIRONMENTAL AND SAFETY LAWS. To the best of their
knowledge, neither the Company nor any of the Subsidiaries is in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best of its knowledge, other than
expenditures customary for the business conducted or to be conducted by
the Company and the Subsidiaries, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
SECTION 2.29 EMPLOYEE BENEFIT PLANS. Neither the Company nor any of the
Subsidiaries have any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974, except as set forth on Schedule II,
Section 2.29.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 3.01 Each Purchaser severally represents and warrants to the
Company that:
(A) it is an "accredited investor" within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of acquiring
the Series B Preferred Shares;
(B) it has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of development so as to
be able to evaluate the risks and
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merits of its investment in the Company and it is able financially to bear the
risks thereof, including the possible loss of its entire investment in the
Company;
(C) it has had an opportunity to ask any and all such questions
respecting, and to discuss any and all aspects of, the Company's business,
management, and financial affairs with the Company's management;
(D) the Series B Preferred Shares being purchased by it are being acquired
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof; and
(E) it understands that (i) the issuance of the Series B Preferred Shares
and the Conversion Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505
or 506 promulgated under the Securities Act, and have not been registered under
the securities laws of any state by reason of their issuance in a transaction
exempt from the registration requirements thereof, (ii) the Series B Preferred
Shares and, upon conversion thereof, the Conversion Shares must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration, (iii) the Series B
Preferred Shares and the Conversion Shares will bear a legend to such effect,
and (iv) the Company will make a notation on its transfer books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
SECTION 4.01 The obligation of each Purchaser to purchase and pay for the
Series B Preferred Shares being purchased by it on the Closing Date is, at its
option, subject to the satisfaction, on or before the final Closing Date, of
the following conditions:
(A) OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received from
Suelthaus & Walsh, P.C., counsel for the Company, an opinion dated the Closing
Date, in form acceptable to Purchasers.
(B) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Secretary of the Company shall have certified to such effect to
the Purchasers in writing.
(C) PERFORMANCE. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Secretary of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have
been satisfied.
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(D) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified
or other copies of such documents as they reasonably may request.
(E) PURCHASE BY OTHER PURCHASERS. Each Purchaser shall have purchased and
paid for the Series B Preferred Shares being purchased by it on the Closing
Date, and the aggregate purchase price paid by all of the Purchasers for the
Series B Preferred Shares being purchased by them on the Closing Dates shall be
in the aggregate at least $8,400.000.
(F) SUPPORTING DOCUMENTS. The Purchasers and their counsel shall have
received copies of the following documents:
(i) (A) the Charter, certified as
of a recent date by the Secretary of State
of the State of Delaware, and (B) a
certificate of said Secretary dated as of a
recent date as to the due incorporation and
good standing of the Company, and the
payment of all excise taxes by the Company;
and
(ii) a certificate of the Secretary
or an Assistant Secretary of the Company
dated the Closing Date and certifying: (A)
that attached thereto is a true and
complete copy of the By-laws of the Company
as in effect on the date of such
certification; (B) that attached thereto
is a true and complete copy of all
resolutions adopted by the Board of
Directors or the stockholders of the
Company authorizing the execution,
delivery, and performance of this
Agreement, the Registration Rights
Agreement, and the Stockholders'
Agreement, the issuance, sale, and
delivery of the Series B Preferred Shares
and the reservation, issuance, and
delivery of the Conversion Shares, and
that all such resolutions are in full
force and effect and are all the
resolutions adopted in connection with the
transactions contemplated by this
Agreement, the Registration Rights
Agreement, and the Stockholders'
Agreement; (C) that the Charter has not
been amended since the date of the last
amendment referred to in the certificate
delivered pursuant to clause (i)(B) above;
and (D) to the incumbency and specimen
signature of each officer of the Company
executing this Agreement, the Registration
Rights Agreement, the Stockholders'
Agreement, the stock certificates
representing the Series B Preferred Shares
and any certificate or instrument
furnished pursuant hereto, and a
certification by another officer of the
Company as to the incumbency and signature
of the officer signing the certificate
referred to in this clause (ii); and
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(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as
the Purchasers or their counsel reasonably may request.
(G) REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered the Registration Rights Agreement.
(H) ELECTION OF DIRECTORS. The number of directors constituting the
entire Board of Directors shall have been fixed at seven (7) and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: James M. Usdan, David W. Cross, and David L.
Steffy as the directors elected solely by the holders of the Common Stock, and
Jeffrey J. Collinson, Wilfred E. Jaeger and James E. Tananbaum as the
directors elected solely by the holders of the Preferred Stock.
(I) CHARTER. The Charter shall read in its entirety as set forth in
Exhibit A.
(J) EMPLOYEE AGREEMENTS. Copies of all employment agreements between the
Company and its employees and copies of all Employee Nondisclosure Agreements
shall have been delivered to counsel for the Purchasers.
(K) STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement shall have been
executed and delivered by the Company and each of the following entities and
persons shall have executed and delivered to counsel for the Purchasers the
Stockholders' Agreement: RehabCare Group, Inc., David W. Cross, John R. Lewis,
David L. Steffy, Life Science Entrepreneur Fund and the Purchasers.
(L) PREEMPTIVE RIGHTS. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Series B Preferred Shares or the Conversion Shares shall have irrevocably
waived the same in writing.
(M) MINIMUM PURCHASES. This Agreement shall have been executed and
delivered by Purchasers that are obligated hereunder to purchase at least
405,994 Series B Preferred Shares for an aggregate purchase price of at least
$8,400,000 and such Purchasers shall have delivered to the Company the full
purchase price for the Series B Preferred Shares to be purchased by them on or
before the final Closing Date.
(N) FEES OF PURCHASERS' COUNSEL. The Company shall have paid in
accordance with Section 6.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
(O) AMENDMENT OF BY-LAWS. If and to the extent necessary, the By-laws of
the Company shall have been amended to comply with the terms and provisions of
the Stockholders' Agreement.
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ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that so long
as any of the Series B Preferred Shares is outstanding:
SECTION 5.01 RESERVE FOR CONVERSION SHARES. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Series B
Preferred Shares and otherwise complying with the terms of this Agreement, such
number of its duly authorized shares of Common Stock as shall be sufficient to
effect the conversion of the Series B Preferred Shares from time to time
outstanding or otherwise to comply with the terms of this Agreement. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Preferred Shares or otherwise to
comply with the terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval, or
other action by or make any filing with any court or administrative body that
may be required under applicable state securities laws in connection with the
issuance of shares of Common Stock upon conversion of the Series B Preferred
Shares.
SECTION 5.02 CORPORATE EXISTENCE. The Company shall maintain and cause
each of its Subsidiaries to maintain their respective corporate existence,
rights, and franchises in full force and effect.
SECTION 5.03 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Series B Preferred Shares as set forth in the Company's
business plan as it may be amended from time-to-time. Pending disbursement for
such purposes, the proceeds shall be invested in short-term, interest-bearing
government securities, certificates of deposit, or their equivalents.
SECTION 5.04 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations, and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 EXPENSES. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall
pay the reasonable fees and disbursements of the Purchasers' special counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP in connection
with such transactions in an amount not to exceed $10,000.
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<PAGE> 19
SECTION 6.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations, and warranties made herein or in the Registration Rights
Agreement, the Stockholders' Agreement, or any certificate or instrument
delivered to the Purchasers pursuant to or in connection with this Agreement,
the Registration Rights Agreement, or the Stockholders' Agreement, shall
survive the execution and delivery of this Agreement, the Registration Rights
Agreement, and the Stockholders' Agreement, the issuance, sale and delivery of
the Conversion Shares, and all statements contained in any certificate or other
instrument delivered by the Company hereunder or thereunder or in connection
herewith or therewith shall be deemed to constitute representations and
warranties made by the Company.
SECTION 6.03 BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements, or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04 PARTIES IN INTEREST. All representations, covenants, and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants, and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Stock or Conversion Shares.
SECTION 6.05 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person
or mailed by certified or registered mail, return receipt requested, or
telecopied or telexed in the case of non-U.S. residents, addressed as follows:
(a) if to the Company, at 7733 Forsyth Boulevard, 11th
Floor, St. Louis, Missouri 63105 telecopy number (314)
725-0443, with a copy to Thomas M. Walsh, Esq., Suelthaus &
Walsh, P.C., 7733 Forsyth Boulevard, 12th Floor, St. Louis,
Missouri 63105, telecopy number (314) 727-7166; and
(b) if to any Purchaser, at the address of such
Purchaser set forth in Schedule I, with a copy to Jay
K. Hachigian, Esq., Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Second Floor, 600 Hansen
Way, Palo Alto, California, 94301, telecopy number
(415) 843-0314.
or in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri.
SECTION 6.07 ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 18
<PAGE> 20
SECTION 6.08 COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Any signature required in this Agreement or in any document or
instrument contemplated herein may be made by facsimile transmission, and such
facsimile signature shall, for all purposes, be deemed an original signature.
SECTION 6.09 AMENDMENTS. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least three-fourths of the outstanding shares of
Common Stock issued or issuable upon conversion of the Series B Preferred
Shares sold hereby.
SECTION 6.10 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in constructing
or interpreting any term or provision of this Agreement.
SECTION 6.12 PERSON. As used in this Agreement, person shall mean an
individual, corporation, trust, partnership, limited partnership, limited
liability company, joint venture, unincorporated organization, government
agency or any agency or political subdivision thereof, or other entity.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the 20th day of December, 1995.
COMPANY: TRANSITIONAL CARE OF AMERICA, INC.
By: David W. Cross
----------------------------------------
David W. Cross, President
PURCHASERS: SIERRA VENTURES IV, L.P.
By: James B. Tananbaum
----------------------------------------
James B. Tananbaum, Venture Partner
Transitional Care of America, Inc. - Stock Purchase Agreement Page 19
<PAGE> 21
SIERRA VENTURES IV INTERNATIONAL, L.P.
By: James B. Tananbaum
------------------------------------
James B. Tananbaum, Venture Partner
WPG ENTERPRISE FUND II, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
General Partner
By: Ellen M. Feeney
------------------------------------
Ellen M. Feeney, General Partner
WEISS, PECK & GREER VENTURE ASSOCIATES,
III, L.P.
By: WPG VENTURE PARTNERS III, L.P.,
General Partner
By: Ellen M. Feeney
------------------------------------
Ellen M. Feeney, General Partner
SCHRODER VENTURES LIMITED PARTNERSHIP
By: SCHRODER VENTURE MANAGEMENT, L.P.,
Its General Partner
By: SCHRODER VENTURE MANAGERS, INC.,
Its General Partner
By: Pete Everson
------------------------------------
Director and Vice-President
SCHRODERS INCORPORATED
By: Jeffrey J. Collinson
------------------------------------
Jeffrey J. Collinson, Attorney-in-Fact
Transitional Care of America, Inc. - Stock Purchase Agreement Page 20
<PAGE> 22
SCHRODER VENTURES U.S. TRUST
By: SCHRODER INTERNATIONAL TRUST
COMPANY LIMITED, as Trustee
By: Pete Everson
------------------------------------
Director
THREE ARCH PARTNERS, L.P.
By: Wilfred E. Jaeger
------------------------------------
Wilfred E. Jaeger, M.D.
THREE ARCH ASSOCIATES, L.P.
By: Wilfred E. Jaeger
------------------------------------
Wilfred E. Jaeger, M.D.
ALTA V LIMITED PARTNERSHIP
By: ALTA V MANAGEMENT PARTNERS, L.P.
By: Guy P. Nohra
------------------------------------
General Partner
CUSTOMS HOUSE PARTNERS
By: J. DeLeage
------------------------------------
General Partner
MAYFIELD VIII
By: Wende S. Hutton
------------------------------------
Title: General Partner
---------------------------------
Transitional Care of America, Inc. - Stock Purchase Agreement Page 21
<PAGE> 23
MAYFIELD ASSOCIATES FUND II
By: Wende S. Hutton
------------------------------------
Title: General Partner
---------------------------------
Transitional Care of America, Inc. - Stock Purchase Agreement Page 22
<PAGE> 24
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF SERIES B AGGREGATE PURCHASE
NAME AND ADDRESS PREFERRED SHARES TO PRICE FOR SERIES B
OF PURCHASER BE PURCHASED PREFERRED SHARES
- ------------------ ------------------- ------------------
<S> <C> <C>
Alta V Limited Partnership 47,830 $ 989,602.70
c/o Burr, Egan, Deleage & Co.
One Embarcadero Center, Suite 4050
San Francisco, California 94111
Customs House Partners 503 $ 10,407.07
c/o Burr, Egan, Deleage & Co.
One Embarcadero Center, Suite 4050
San Francisco, California 94111
Sierra Ventures IV, L.P. 69,708 $ 1,442,258.52
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
Sierra Ventures IV International, L.P. 2,791 $ 57,745.79
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
Weiss, Peck & Greer Venture 21,943 $ 454,000.67
Associates III, L.P.
555 California Street, Suite 4760
San Francisco, California 94104
WPG Enterprise Fund II, L.P. 26,390 $ 546,009.10
555 California Street, Suite 4760
San Francisco, California 94104
Schroder Ventures Limited Partnership 8,159 $ 168,809.71
c/o Collinson Howe Venture Partners, Inc.
1055 Washington Boulevard
Stamford, Connecticut 06901
</TABLE>
Transitional Care of America, Inc. - Stock Purchase Agreement Page 23
<PAGE> 25
<TABLE>
<CAPTION>
NUMBER OF SERIES B AGGREGATE PURCHASE
NAME AND ADDRESS PREFERRED SHARES TO PRICE FOR SERIES B
OF PURCHASER BE PURCHASED PREFERRED SHARES
- ---------------- ------------------- ------------------
<S> <C> <C>
Schroder Ventures U.S. Trust 2,040 $ 42,207.60
c/o Collinson Howe Venture Partners, Inc.
1055 Washington Boulevard
Stamford, Connecticut 06901
Schroders Incorporated 6,800 $ 140,692.00
c/o Collinson Howe Venture Partners, Inc.
1055 Washington Boulevard
Stamford, Connecticut 06901
Three Arch Partners, L.P. 39,456 $ 816,344.64
2800 Sand Hill Road, Suite 270
Menlo Park, California 94025
Three Arch Associates, L.P. 8,877 $ 183,665.13
2800 Sand Hill Road, Suite 270
Menlo Park, California 94025
Mayfield VIII 162,922 $3,370,856.18
2800 Sand Hill Road
Menlo Park, California 94025
Mayfield Associates Fund II 8,575 $ 177,416.75
2800 Sand Hill Road
Menlo Park, California 94025
</TABLE>
Transitional Care of America, Inc. - Stock Purchase Agreement Page 24
<PAGE> 26
SCHEDULE II
SECTION 2.01(B)
Subsidiaries of the Company
TCA OF CENTRAL OKLAHOMA, INC., a Missouri corporation -- all outstanding
shares of capital stock are owned by the Company.
TCA OF EASTERN OKLAHOMA, INC., a Missouri corporation -- all outstanding
shares of capital stock are owned by the Company.
TCA OF CENTRAL INDIANA, INC., a Missouri corporation -- all outstanding
shares of capital stock are owned by the Company.
TCA OF NORTHWEST INDIANA, INC., a Missouri corporation -- all
outstanding shares of capital stock are owned by the Company.
TCA OF SOUTHWEST INDIANA, INC., a Missouri corporation -- all
outstanding shares of capital stock are owned by the Company.
TCA OF GREATER ST. LOUIS, INC., a Missouri corporation -- all
outstanding shares of capital stock are owned by the Company.
TCA OF EASTERN KANSAS, INC., a recently formed Missouri corporation --
all outstanding shares of capital stock are owned by the Company. The
Company will cause this subsidiary to qualify to do business in Kansas
shortly.
SECTION 2.02(B)
Pre-emptive Rights with Respect to Preferred Shares
Pre-emptive rights were formerly held by the holders of the common stock
of the Company pursuant to that certain Stockholders Agreement dated
September 22, 1994, by and among the Company, David L. Steffy, David W.
Cross, John R. Lewis, and RehabCare Group, Inc. (f/k/a RehabCare
Corporation) (the "PRIOR STOCKHOLDERS' AGREEMENT"), a copy of which was
previously supplied by the Company to Purchasers. As a part of the
transactions contemplated in the Series A Convertible Preferred Stock
Purchase Agreement, the Prior Stockholders' Agreement was terminated
effective as of the Closing under the Series A Convertible Stock
Purchase Agreement. RehabCare Group, Inc. waived its pre-emptive rights
with respect to the venture financing transactions contemplated in the
Agreement by letter dated December 13, 1994, a copy of which was
previously supplied by the Company to Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 1
Schedule II
<PAGE> 27
In connection with the Closing of the transactions pursuant to
the Series A Convertible Preferred Stock Purchase Agreement, the
Company, the Founders, and the Investors (as defined in said agreement)
entered into a Stockholders' Agreement dated December 30, 1994, which
provides for certain pre-emptive rights. The pre-emptive rights
contained in that agreement are waived with respect to issuance of
405,994 shares of Series B Preferred Shares, pursuant to the Amended
and Restated Stockholders' Agreement to be executed in connection with
and as a condition to the Closing of the Series B Preferred Stock
Purchase Agreement.
SECTION 2.04
<TABLE>
<CAPTION>
Shareholders of Record
----------------------
<S> <C>
Sierra Ventures IV, L.P. 192,300 shares of Series A Convertible
Preferred Stock
Sierra Ventures IV, International, L.P. 7,700 shares of Series A Convertible
Preferred Stock
Schroder Ventures Limited Partnership 60,000 shares of Series A Convertible
Preferred Stock
Schroder Ventures U.S. Trust 15,000 shares of Series A Convertible
Preferred Stock
Schroders Incorporated 50,000 shares of Series A Convertible
Preferred Stock
Weiss, Peck & Greer Venture 41,160 shares of Series A Convertible
Associates III, L.P. Preferred Stock
Weiss Enterprise Fund II, L.P. 58,840 shares of Series A Convertible
Preferred Stock
Life Science Entrepreneur Fund 5,000 shares of Series A Convertible
Preferred Stock
Alta V Limited Partnership 98,960 shares of Series A Convertible
Preferred Stock
Customs House Partners 1,040 shares of Series A Convertible
Preferred Stock
Three Arch Partners, L.P. 81,600 shares of Series A Convertible
Preferred Stock
</TABLE>
Transitional Care of America, Inc. - Stock Purchase Agreement Page 2
Schedule II
<PAGE> 28
Three Arch Associates, L.P. 18,400 shares of Series A Convertible
Preferred Stock
David W. Cross 59,325 shares of Common Stock
John R. Lewis 59,325 shares of Common Stock
David L. Steffy 59,325 shares of Common Stock
RehabCare Group, Inc. 59,325 shares of Common Stock
Three Arch Partners, L.P. 3,998 shares of Common Stock
Three Arch Associates, L.P. 902 shares of Common Stock
Employee Stock Options
John P. Keefe 19,600 shares of Common Stock
Samuel Morse 19,600 shares of Common Stock
James D. Pomeroy 14,700 shares of Common Stock
Anthony J. Torrente 18,200 shares of Common Stock
Thomas M. Walsh 6,500 shares of Common Stock
Kathie Nohre 5,000 shares of Common Stock
Madalene Roedl 2,000 shares of Common Stock
Available 22,200 shares of Common Stock
(plus an additional 35,000 shares of
Common Stock upon Closing of the
sale of the Series B Preferred Stock)
Other Rights with Respect to Capital Stock
See rights granted in the agreements referenced in Section 2.02(b) of this
Schedule II.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 3
Schedule II
<PAGE> 29
SECTION 2.06
Liabilities not Reflected on Balance Sheet
(i) See Agreement by and between the Company and Healthcare
Management Systems, Inc., referenced in Section 2.13(d) of this
Schedule II.
(ii) See Venture Lease Proposal by and between the Company and
Comdisco, Inc., referenced in Section 2.13(g) of this Schedule
II.
SECTION 2.10
Leasehold Interests
(i) The Company has entered into a written sublease agreement with
Suelthaus & Walsh, P.C., counsel to the Company, to sublease
4000 square feet of office space, to serve as the principal
offices of the Company. The lease will terminate March 31, 2000,
and the rental is at market rates.
(ii) Restated Lease, dated November 30, 1994, and an Amendment to
the Restated Lease, dated January 20, 1995, by and between TCA
of Central Oklahoma, Inc. and Southwest Medical Center of
Oklahoma, Inc., Oklahoma City, Oklahoma, a copy of which was
previously supplied by the Company to Purchasers.
(iii) Lease Agreement, dated August 16, 1995, by and between TCA of
Central Indiana, Inc. and St. Francis Hospital and Health
Centers, an operating division of Sisters of St. Francis Health
Services, Inc., Beech Grove, Indiana, a copy of which was
previously supplied by the Company to Purchasers.
(iv) Lease Agreement, dated August 17, 1995, by and between TCA of
Eastern Oklahoma, Inc. and Muskogee Regional Medical Center,
Muskogee, Oklahoma, a copy of which was previously supplied by
the Company to Purchasers, as amended by an amendment dated
December 12, 1995, a copy of which was previously supplied by
the Company to Purchasers.
(v) Lease Agreement, dated August 23, 1995, by and between TCA of
Northwest Indiana, Inc. and St. Margaret Mercy Healthcare
Centers, Inc., Hammond, Indiana, a copy of which was previously
supplied by the Company to Purchasers.
(vi) Lease Agreement, dated September 14, 1995, by and between TCA
of Greater St. Louis, Inc. and Deaconess Health Services
Corporation, St. Louis, Missouri, a copy of which was previously
supplied by the Company to Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 4
Schedule II
<PAGE> 30
SECTION 2.11
Insurance Policies
(i) The Company, TCA of Central Oklahoma, Inc., TCA of Northwest
Indiana, Inc., TCA of Central Indiana, Inc., and TCA of Eastern
Oklahoma, Inc., are insured by Hartford Insurance Co. for
property damage and auto liability, by Chicago Insurance Co.
for general and professional liability, and by Assigned Risk
for workers' compensation, a copy of the Summary of Insurance
was previously supplied by the Company to Purchasers.
(ii) Key man life insurance policy by Federal Kemper Life Assurance
Company insuring David W. Cross for the benefit of the Company,
a copy of the policy specifications was previously supplied by
the Company to Purchasers.
(iii) Key man life insurance policy by Federal Kemper Life Assurance
Company insuring John R. Lewis for the benefit of the Company,
a copy of the policy specifications was previously supplied by
the Company to Purchasers.
SECTION 2.13
Other Agreements
(d) Agreement, dated November 29, 1995, by and between the Company
and Healthcare Management Systems, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(e) (i) David W. Cross Employment Agreement, dated September
22, 1994, a copy of which was previously supplied by
the Company to Purchasers.
(ii) John R. Lewis Employment Agreement, dated September 22,
1994, a copy of which was previously supplied by the
Company to Purchasers.
(iii) Samuel A. Morse Employment Agreement, dated December 2,
1994, a copy of which was previously supplied by the
Company to Purchasers.
(iv) James D. Pomeroy Employment Agreement, dated October
28, 1994, a copy of which was previously supplied by
the Company to Purchasers.
(v) Anthony J. Torrente Employment Agreement, dated
December 8, 1994, a copy of which was previously
supplied by the Company to Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 5
Schedule II
<PAGE> 31
(vi) Madalene Roedl Employment Agreement, dated December 6,
1994, a copy of which was previously supplied by the
Company to Purchasers.
(vii) John P. Keefe Employment Agreement, dated June 1, 1995,
a copy of which was previously supplied by the Company
to Purchasers.
(viii) Interim Medical Director Agreement, dated March 1,
1995, by and between TCA of Central Oklahoma, Inc. and
Dr. Anthony Czerwinski, M.D., a copy of which was
previously supplied by the Company to Purchasers.
(ix) Medical Director Agreement, dated March 7, 1995, by and
between TCA of Central Oklahoma, Inc. and Dr. Rebecca
Eagle, M.D., a copy of which was previously supplied by
the Company to Purchasers.
(x) The Company is in the process of entering into an
employment agreement with Kathie Nohre, and TCA of
Central Indiana, Inc. and TCA of Northwest Indiana,
Inc. are in the process of entering into Medical
Director Agreements.
(f) (i) John P. Keefe Stock Option Agreement, dated September
13, 1995, a copy of which was previously supplied by
the Company to Purchasers.
(ii) Samuel A. Morse Stock Option Agreement, dated March 27,
1995, a copy of which was previously supplied by the
Company to Purchasers.
(iii) James D. Pomeroy Stock Option Agreement, dated March
27, 1995, a copy of which was previously supplied by
the Company to Purchasers.
(iv) Tony J. Torrente Stock Option Agreement, dated
January 27, 1995, a copy of which was previously
supplied by the Company to Purchasers.
(v) Thomas M. Walsh Stock Option Agreement, dated January
27, 1995, a copy of which was previously supplied by
the Company by Purchasers.
(vi) Standard form Stock Option Agreements will be entered
into with Tony J. Torrente, Kathie Nohre, and
Madalene Roedl for stock options granted November 27,
1995.
(vii) See agreements referenced in Section 2.29 of this
Schedule II.
(g) (i) Revolving Credit Note, dated October 28, 1994, payable
to RehabCare Group, Inc. and disclosed in the Company's
financial statements.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 6
Schedule II
<PAGE> 32
(ii) Venture Lease Proposal, dated November 29, 1995, by and
between the Company and Comdisco, Inc., a copy of which
was previously supplied by the Company to Purchasers.
(i) (i) See prior stockholders agreements, referenced in
Section 2.02(b) of this Schedule II.
(ii) See Stock Repurchase Agreements referred to in this
Agreement.
(j) (i) See Lease Agreements, referenced in Section 2.10 of
this Schedule II.
(ii) See Venture Lease Proposal by and between the Company
and Comdisco, Inc., referenced in Section 2.13(g) of
this Schedule II.
(k) (i) See agreements, referenced in Section 2.02(b) of this
Schedule II.
(ii) See Stock Repurchase Agreements referred to in this
Agreement.
(iii) See Stock Option Agreements referred to in this Section
2.13(f) of this Schedule II.
(l) See Agreement by and between the Company and Healthcare
Management Systems, Inc., referenced in Section 2.13(d) of this
Schedule II.
(n) (i) TCA Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between the
Company and RehabCare Group, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(ii) RehabCare Non-Compete, Non-Hire, Non-Disclosure and
Release Agreement,dated September 22, 1994, by and
between the Company and RehabCare Group, Inc., a copy of
which was previously supplied by the Company to
Purchasers.
(iii) Steffy/RehabCare Non-Development, Non-Hire and Release
Agreement, dated September 22, 1994, by and between
David L. Steffy and RehabCare Group, Inc., a copy of
which was previously supplied by the Company to
Purchasers.
(iv) Cross Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between
David W. Cross and RehabCare Group, Inc., a copy of
which was previously supplied by the Company to
Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 7
Schedule II
<PAGE> 33
(v) Lewis Non-Compete, Non-Hire, Non-Disclosure and Release
Agreement, dated September 22, 1994, by and between John
R. Lewis and RehabCare Group, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(o) (i) Agreement for Radiology Services, dated March 2, 1995,
by and between TCA of Central Oklahoma, Inc. and
Medical Imaging Center of Oklahoma, Inc., a copy of
which was previously supplied by the Company to
Purchasers.
(ii) Agreement for Pharmacy Services, dated November 1, 1995,
by and between TCA of Central Oklahoma, Inc. and
PharmaSource Healthcare, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(iii) Agreement, dated November 21, 1995, by and between TCA
of Central Oklahoma, Inc. and Formations in Health Care,
Inc., a copy of which was previously supplied by the
Company to Purchasers.
(iv) Agreement for Pharmacy Services, dated December 15,
1995, by and between TCA of Northwest Indiana, Inc. and
PharmaSource Healthcare, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(v) Agreement for Pharmacy Services, effective January 1,
1996, by and between TCA of Central Indiana, Inc. and
PharmaSource Healthcare, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(vi) Agreement for Pharmacy Services, effective January 1,
1996, by and between TCA of Eastern Oklahoma, Inc. and
PharmaSource Healthcare, Inc., a copy of which was
previously supplied by the Company to Purchasers.
(p) (i) Letter of Intent, dated August 12, 1994, by and among
RehabCare Group, Inc., the Company, David L. Steffy,
David W. Cross, and John R. Lewis, a copy of which was
previously supplied by the Company to Purchasers.
(ii) Subscription Agreement, dated September 22, 1994, by and
among the Company, RehabCare Group Inc., David L.
Steffy, David W. Cross, and John R. Lewis, a copy of
which was previously supplied by the Company to
Purchasers.
(iii) Transition Agreement, dated September 22, 1994, by and
among the Company, RehabCare Group, Inc., David W. Cross
and John R. Lewis, a copy of which was previously
supplied by the Company to Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 8
Schedule II
<PAGE> 34
SECTION 2.14
Patents, Patent Rights, etc.
The Company has applied to the U.S. Patent and Trademark Office for
registration of two trademarks on the Principal Trademark Register. The
first application is U.S. Trademark Application, Serial No. 74/613,427,
for the registration of THE "HOSPITAL-WITHIN-A-HOSPITAL" COMPANY for use
in connection with long-term care hospital services. The U.S. Patent
and Trademark Office's Examining Attorney made an initial determination
that THE "HOSPITAL-WITHIN-A-HOSPITAL" COMPANY is merely descriptive of
long-term care hospital services and therefore, not registrable on the
Principal Trademark Register. The Company has filed a response to
refute the Examining Attorney's initial determination, and is waiting
for a further determination as of the date hereof. A copy of the
trademark application and correspondence dated November 29, 1995,
describing the status of such application have been previously supplied
by the Company to Purchasers.
The second application is U.S. Trademark Application, Serial No.
74/613,928, for the registration of TRANSITIONAL CARE OF AMERICA and TCA
logo design for use in connection with long-term care hospital services.
The U.S. Patent and Trademark Office's Examining Attorney made an
initial determination that the TCA logo design is distinctive and
therefore, registrable on the Principal Register, but TRANSITIONAL CARE
OF AMERICA is merely descriptive of long-term care hospital services.
The Examining Attorney requires the Company to disclaim the exclusive
right to TRANSITIONAL CARE OF AMERICA to register the TCA logo design.
The Company has filed a response to refute the Examining Attorney's
determination that TRANSITIONAL CARE OF AMERICA is merely descriptive,
and is waiting for a further determination as of the date hereof. A copy
of the trademark application and correspondence dated November 29, 1995,
describing the status of such application have been previously supplied
by the Company to Purchasers.
SECTION 2.15
Loans
Reference is made to Section 2.06 of this Schedule II.
SECTION 2.22
Officers
President and Chief Executive Officer: David W. Cross
Chief Operating Officer: John R. Lewis
Treasurer: David W. Cross
Secretary: Thomas M. Walsh
Transitional Care of America, Inc. - Stock Purchase Agreement Page 9
Schedule II
<PAGE> 35
Chief Financial Officer: John P. Keefe
Executive Vice President: Samuel A. Morse
Vice President-Business Development: Tony J. Torrente
Vice President-Business Development: James R. Pomeroy
Vice President-Professional Services: Kathie Nohre
Compensation for each of the officers is set forth in their individual
Employment Agreements, except for Thomas M. Walsh, who has no written
employment agreement and his employment is terminable at will, without
cost to the Company.
SECTION 2.23
Transactions with Affiliates
Reference is hereby made to Sections 2.02(b), 2.06, 2.10, 2.13, 2.15,
and 2.22 of this Schedule II, and the documents and agreements
referenced therein.
SECTION 2.29
Employee Benefit Plans
(i) The Transitional Care of America, Inc. Stock Option Plan,
adopted on January 26, 1995, a copy of which was previously
supplied by the Company to Purchasers.
(ii) The Company's Adoption Agreement, dated September 22, 1995, for
the Transitional Care of America, Inc. Employee Savings Plan
(401(k) plan), a copy of which was previously supplied by the
Company to Purchasers.
Transitional Care of America, Inc. - Stock Purchase Agreement Page 10
Schedule II
<PAGE> 1
Exhibit 11.1
Intensiva HealthCare Corporation and subsidiaries Statement
Re Computation of Loss Per Share
Six Months
Year Ended Ended
December 31, June 30,
1995 1996
------------ ----------
Net loss (2,847,485) (1,749,971)
========== ==========
Weighted average common shares
outstanding 1,332,100 1,332,100
Common stock equivalents (a) (a)
Pro forma effect for the issuance of common
shares upon automatic conversion of
convertible preferred stock upon the
completion of the IPO 5,697,967 5,697,967
Effect of options and warrants
since July 1995, at prices below the
anticipated IPO price 238,425 238,425
---------- ----------
Weighted average outstanding shares 7,268,492 7,268,492
========== ==========
Pro forma loss per share (0.39) (0.24)
========== ==========
(a) Effect of common stock equivalents (stock options) is antidulutive and
therefore excluded.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
NAME STATE OF INCORPORATION
---- ----------------------
TCA of Central Oklahoma, Inc. Missouri
TCA of Greater St. Louis, Inc. Missouri
TCA of Eastern Oklahoma, Inc. Missouri
TCA of Central Indiana, Inc. Missouri
TCA of Southwest Indiana, Inc. Missouri
TCA of Northwest Indiana, Inc. Missouri
TCA of Eastern Kansas, Inc. Missouri
TCA of Akron, Inc. Missouri
TCA of Corpus Christi, Inc. Missouri
TCA of Central Ohio, Inc. Missouri
TCA of Muskegon, Inc. Missouri
Exhibit 21.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTENSIVA
HEALTHCARE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR
THE PERIOD FROM JULY 18, 1994 THROUGH DECEMBER 31, 1995, AND CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995
(UNAUDITED), AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR OTHER
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 11,261,422 5,217,325
<SECURITIES> 0 0
<RECEIVABLES> 985,697 4,855,737
<ALLOWANCES> 139,508 103,800
<INVENTORY> 9,087 119,982
<CURRENT-ASSETS> 12,390,524 10,440,252
<PP&E> 587,904 2,038,391
<DEPRECIATION> 29,494 248,879
<TOTAL-ASSETS> 13,698,053 13,431,440
<CURRENT-LIABILITIES> 1,183,336 1,876,039
<BONDS> 0 0
0 0
5,697,967 5,697,967
<COMMON> 1,332,100 1,332,100
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 13,698,053 13,431,440
<SALES> 1,488,389 6,076,075
<TOTAL-REVENUES> 1,488,389 6,076,075
<CGS> 0 0
<TOTAL-COSTS> 2,520,873 6,304,812
<OTHER-EXPENSES> 1,884,063 1,323,748
<LOSS-PROVISION> 139,508 150,036
<INTEREST-EXPENSE> 28,604 34,172
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,847,485) (1,749,971)
<EPS-PRIMARY> (0.39) (0.24)
<EPS-DILUTED> (0.39) (0.24)
</TABLE>
