SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 17, 1996
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INTEGRATED HEALTH SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-12306 23-2428312
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(State or other jurisdiction (Commission (IRS Employer
Of corporation) File Number) Identification No.)
10065 Red Run Boulevard, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 998-8400
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 17, 1996, Integrated Health Services, Inc. ("the Company")
acquired through merger First American Health Care of Georgia, Inc. ("First
American"), a provider of home health services in 21 states, principally
Alabama, California, Florida, Georgia, Michigan, Pennsylvania and Tennessee. The
Company believes First American is the fourth largest (and largest
privately-held) provider of home healthcare services in the United States.
The purchase price for First American was $154.1 million in cash plus
contingent payments of up to $155 million. The contingent payments will be paid
as follows: $10 million for 1999; $40 million for 2000; $51 million for 2001;
$39 million for 2002; and $15 million for 2003; provided that no contingent
payment will be paid in respect of any year in which the percentage increase in
the seasonally unadjusted Consumer Price Index for all Urban Consumers for the
Medical Care expenditure category (the "Medical CPI") exceeds 8% unless in any
subsequent year prior to 2004 the percentage increase in the Medical CPI is less
than 8%; and provided further that the foregoing contingency shall immediately
leave if legislation is enacted that changes the Medicare reimbursement
methodology for home health services to a prospectively determined rate
methodology, in whole or in part. The Company borrowed the cash purchase price
paid at the closing under its $700 million revolving credit facility with
Citibank, N.A., as Administrative Agent, and certain other lenders. $115 million
of the $154.1 million paid at closing was paid to the Health Care Financing
Administration ("HCFA") in settlement of claims by HCFA seeking repayment from
First American of certain disallowed reimbursements under Medicare, which claims
IHS believes relate to personal or corporate expenses, rather than care-related
expenses (the "HCFA Claims"). The total settlement with HCFA was $255 million;
the remaining $140 million will be paid from the contingent payments to the
extent such payments become due. During the first quarter of 1996, the Company
loaned $18.1 million to First American to fund certain of First American's
pension and tax liabilities. The loan, which bore interest at a rate per annum
equal to the prime rate plus 4% and was due December 31, 1996, was secured by a
pledge of certain shares of First American stock owned by First American's
principal stockholder.
The resolution of the HCFA Claims will require a restatement of First
American's financial statements. The HCFA Claims are substantial, and the
restatement of First American's financial statements is likely to have a
material adverse effect on First American's historical financial statements. As
a result, the Company's pro forma results of operation reflecting the First
American acquisition will be adversely affected, and such adverse effect could
be material.
The Company believes that the acquisition of First American will be an
important component in the implementation of its post-acute healthcare system.
First American, when combined with the Company's existing home healthcare
operations, will give the Company a significant home healthcare presence in 24
states, many of which are the states the Company has targeted for its post-acute
healthcare system. The Company believes that its expanded home healthcare
network will assist it in meeting the desire of payors for one stop shopping, as
well as offering capitated rates to managed care providers. Additionally, the
Company expects that Medicare will implement a prospective payment system for
home healthcare services in the next several years. Currently, Medicare provides
reimbursement for home healthcare on a cost basis which includes a rate of
return, subject to a cap. There is no reward for efficiency, provided that costs
are below the cap. Under prospective pay as currently proposed, a healthcare
provider would receive a predetermined rate for a given service. Providers with
costs below the predetermined rate will be entitled to keep some or all of this
difference. Under prospective pay, the efficient operator will be rewarded.
Since the largest component of home healthcare costs is labor, which is
basically fixed, the Company believes the differentiating factor in
profitability will be administrative costs. A large provider, which the Company
is as a result of the First American acquisition, should be able to achieve
administrative efficiencies compared with the small providers which currently
dominate the home healthcare industry, although there can be no assurance it
will be able to do so. There can be no assurance that Medicare will implement a
prospective payment system for home healthcare services in the next several
years or at all.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
It is impractible for the Company to provide the required financial
information on the date this report is being filed. As a result, pursuant to
Instruction (a)(4) of Item 7 to Form 8-K, the Company intends to file the
required historical financial statements of First American within 60 days after
the date this report was required to be filed.
b. PRO FORMA FINANCIAL INFORMATION.
It is impractible for the Company to provide the required financial
information on the date this report is being filed. As a result, pursuant to
Instruction (b)(2) of Item 7 of Form 8-K, the Company intends to file the
required pro forma financial information within 60 days after the date this
report was required to be filed.
c. EXHIBITS.
2.01 Merger Agreement, dated as of February 21, 1996 among Integrated
Health Services, Inc., IHS Acquisition XIV, Inc., and First American Health Care
of Georgia, Inc. and its Principal Shareholders.
2.02 Amendment to Merger Agreement, dated as of September 9, 1996, by and
among Integrated Health Services, Inc., IHS Acquisition XIV, Inc., First
American Health Care of Georgia, Inc., Robert J. Mills and Margie B. Mills.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED HEALTH SERVICES, INC.
Date: October 24, 1996 By /s/ W. Bradley Bennett
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Name: W. Bradley Bennett
Title: Executive Vice President and
Chief Accounting Officer
MERGER AGREEMENT
DATED AS OF FEBRUARY 21, 1996
AMONG
INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIV, INC.
AND
FIRST AMERICAN HEALTH CARE OF GEORGIA, INC.
AND ITS
PRINCIPAL SHAREHOLDERS
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<TABLE>
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TABLE OF CONTENTS
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ARTICLE I: MERGER.................................................................................... 1
1.1 Merger............................................................................... 1
1.2 Taking of Necessary Action........................................................... 1
ARTICLE II: CONVERSION................................................................................ 2
2.1 Conversion Of Stock.................................................................. 2
2.2 Manner of Exchange................................................................... 3
2.3 Contingent Payments.................................................................. 4
2.4 Closing Date Balance Sheet........................................................... 6
ARTICLE III: THE CLOSING............................................................................... 7
3.1 Time and Place of Closing............................................................ 7
3.2 Filings at Closing................................................................... 7
3.3 Effective Time....................................................................... 7
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE
PRINCIPAL SHAREHOLDERS AND THE COMPANY.................................... 8
4.1 Organization and Standing of the Company............................................. 8
4.2 Subsidiaries......................................................................... 8
4.3 Absence of Conflicting Agreements.................................................... 8
4.4 Consents............................................................................. 8
4.5 Company Shares....................................................................... 9
4.6 Trademarks........................................................................... 9
4.7 Contracts............................................................................ 9
4.8 Financial Statements................................................................. 11
4.9 Material Changes..................................................................... 12
4.10 Licenses; Permits; Certificates of Need.............................................. 12
4.11 Title, Condition of Personal Property................................................ 12
4.12 Legal Proceedings.................................................................... 13
4.13 Employees............................................................................ 13
4.14 Collective Bargaining, Labor Contracts, Employment Plans
and Practices, Etc................................................................... 14
4.15 ERISA................................................................................ 14
4.16 Insurance and Surety Agreements...................................................... 14
4.17 Relationships........................................................................ 14
4.18 Absence of Certain Events............................................................ 15
4.19 Compliance with Laws................................................................. 15
4.20 Finders.............................................................................. 16
4.21 Tax Returns.......................................................................... 16
4.22 Encumbrances Created by this Agreement............................................... 16
4.23 Environmental Matters................................................................ 16
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4.24 Real Property........................................................................ 17
4.25 Leasehold Interests.................................................................. 19
ARTICLE V: ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL SHAREHOLDERS................................................ 19
5.1 Authority............................................................................ 19
5.2 Binding Effect....................................................................... 19
5.3 Absence or Conflicting Agreements.................................................... 19
5.4 Consents............................................................................. 20
5.5 Ownership of Company Shares.......................................................... 20
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER................................................... 20
6.1 Organization and Standing............................................................ 20
6.2 Absence of Conflicting Agreements.................................................... 20
6.3 Consents............................................................................. 20
6.4 Finders.............................................................................. 21
6.5 Power and Authority.................................................................. 21
6.6 Material Changes..................................................................... 21
6.7 Binding Effect....................................................................... 21
6.8 Corporate Office..................................................................... 21
6.9 Legal Proceedings.................................................................... 21
ARTICLE VII: INFORMATION AND RECORDS
CONCERNING THE COMPANY AND THE BUYER..................................... 21
7.1 Buyer's Access to Information and Records Before Closing............................. 21
7.2 Company's Access to Information and Records Before Closing........................... 22
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL
EFFECTIVE TIME OF MERGER................................................. 22
8.1 Conduct of Business Pending Closing.................................................. 22
8.2 Negative Covenants of the Company.................................................... 23
8.3 Affirmative Covenants................................................................ 23
8.4 Pursuit of Consents and Approvals.................................................... 24
8.5 Supplementary Financial Information.................................................. 24
8.6 Exclusivity.......................................................................... 24
8.7 Solicitation Of Stockholders......................................................... 24
8.8 Dissenting Stockholders.............................................................. 24
8.9 Delivery of Schedules................................................................ 25
8.10 Audit................................................................................ 25
8.11 Delivery of Exhibits................................................................. 25
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS............................................... 25
9.1 Representations and Warranties....................................................... 26
9.2 Performance of Covenants............................................................. 26
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9.3 Delivery of Closing Certificate...................................................... 26
9.4 Opinions of Counsel.................................................................. 26
9.5 Legal Matters........................................................................ 26
9.6 Authorization Documents.............................................................. 26
9.7 Material Change...................................................................... 26
9.8 Approvals............................................................................ 26
9.9 Labor Agreements..................................................................... 27
9.10 Real Property Consents............................................................... 27
9.11 Title Insurance...................................................................... 27
9.12 Environmental Compliance............................................................. 28
9.13 Engineering Report................................................................... 28
9.14 Surveys.............................................................................. 28
9.15 Termite Inspections.................................................................. 28
9.16 No Adverse Legislation............................................................... 29
9.17 Settlement Releases.................................................................. 29
9.18 Severance Agreements................................................................. 29
9.19 Long-Term Debt....................................................................... 29
9.20 Options.............................................................................. 29
9.21 Financial............................................................................ 29
9.22 Approvals and Consents............................................................... 30
9.23 Resignations......................................................................... 30
9.24 Dissenters' Rights................................................................... 30
9.25 Hart-Scott-Rodino Act................................................................ 30
9.26 Release of Pledged Shares............................................................ 30
9.27 No Prohibited Transaction............................................................ 30
9.28 Other Documents...................................................................... 30
9.29 Bankruptcy Cases..................................................................... 30
9.30 Consulting Agreement................................................................. 31
9.31 Bankruptcy Court Approval, Break-Up Fee, Competitive Bidding
Requirements, and Exclusivity....................................................... 31
9.32 Disclosure Statement and Plan of Reorganization...................................... 31
9.33 Adequacy of Disclosure Statement..................................................... 31
9.34 Confirmation......................................................................... 31
9.35 Consummation......................................................................... 31
9.36 Conversion, Appointment of Trustee, Change in Management............................. 31
9.37 DIP Financing........................................................................ 32
ARTICLE X: CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY AND PRINCIPAL SHAREHOLDERS............................ 32
10.1 Representations and Warranties....................................................... 32
10.2 Performance of Covenants............................................................. 32
10.3 Delivery of Closing Certificate...................................................... 32
10.4 Opinion of Counsel................................................................... 32
10.5 Legal Matters........................................................................ 32
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10.6 Authorization Documents.............................................................. 32
10.7 Other Documents...................................................................... 32
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING.................................................. 33
11.1 Survival of Representations, Warranties and Covenants................................ 33
11.2 Indemnification by Principal Shareholders............................................ 33
11.3 Indemnification by Buyer............................................................. 33
11.4 Indemnification Period and Basket.................................................... 34
11.5 Control Of Defense of Indemnifiable Claims........................................... 34
11.6 Offsets.............................................................................. 34
11.7 Restrictions......................................................................... 35
11.8 Records.............................................................................. 35
11.9 Audit................................................................................ 36
11.10 Corporate Office..................................................................... 36
ARTICLE XII: TERMINATION.............................................................................. 36
12.1 Termination.......................................................................... 36
12.2 Effect of Termination................................................................ 36
ARTICLE XIII: BANKRUPTCY.............................................................................. 37
13.1 Bankruptcy Cases..................................................................... 37
13.2 Consulting Agreement........................................................ 37
13.3 Bankruptcy Court Approval, Break-Up Fee, Competitive Bidding
Requirements, and Exclusivity........................................................ 38
13.4 Disclosure Statement and Plan of Reorganization...................................... 38
13.5 Conversion, Appointment of Trustee, Change in Management............................. 38
13.6 DIP Financing........................................................................ 38
ARTICLE XIV: MISCELLANEOUS............................................................................ 38
14.5 Cooperation - Further Assistance..................................................... 39
14.6 Notices.............................................................................. 39
14.7 Waiver, Discharge, Etc............................................................... 40
14.8 Rights of Persons Not Parties........................................................ 40
14.9 Governing Law........................................................................ 40
14.11 Severability......................................................................... 40
14.12 Joint and Several.................................................................... 40
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MERGER AGREEMENT
This Merger Agreement (this "Agreement") is made as of 7:00 A.M. the
21st day of February, 1996, among Integrated Health Services, Inc., a Delaware
corporation ("Buyer"), IHS Acquisition XIV, Inc., a Delaware corporation
("Newco"), Robert J. Mills and Margie B. Mills (collectively, the "Principal
Shareholders"), and First American Health Care of Georgia, Inc., a Georgia
corporation (the "Company").
WHEREAS, the Principal Shareholders are the owners of an aggregate of
2,099,600 shares of the common stock of the Company (the total shares of the
common stock of the Company outstanding from time to time being referred to
herein as the "Company Shares"), representing approximately 75% of the total
issued and outstanding Company Shares on a fully diluted basis;
WHEREAS, Newco is a direct wholly-owned subsidiary of Buyer;
WHEREAS, Buyer, Newco, and the Company deem it advisable to merge Newco
with and into the Company (the "Merger") pursuant to this Agreement and the
Certificate of Merger annexed as Exhibit A hereto (the "Certificate of Merger");
WHEREAS, pursuant to the Merger, all Company Shares will be converted
into cash and the right to receive certain payments;
WHEREAS, at the time of the execution of this Agreement, the Company
advised Buyer that it intends to file bankruptcy cases under Chapter 11 of the
Bankruptcy Code for itself and each of its wholly-owned subsidiaries listed on
Schedule A attached hereto, in the United States Bankruptcy Court for the
Southern District of Georgia, Brunswick Division (the "Bankruptcy Court");
NOW, THEREFORE, the Principal Shareholders, Newco, Buyer, and the
Company, agree as follows:
ARTICLE I: MERGER
1.1 MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time of Merger (as defined in Article III, below),
Newco shall be merged with and into the Company and the separate existence of
Newco shall cease.
1.2 TAKING OF NECESSARY ACTION. Prior to and after the
Effective Time of Merger, subject to the provisions of this Agreement, the
Principal Shareholders and each of Buyer,
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Newco and the Company shall take all such action as may be necessary or
appropriate in order to effect the Merger and the consummation of all of the
transactions contemplated hereunder.
ARTICLE II: CONVERSION
2.1 CONVERSION OF STOCK.
(a) For the purposes of this Agreement, the following terms shall be
defined as indicated below:
(i) "Aggregate Common Share Merger Consideration" means One
Hundred and Fifty Million Dollars ($150,000,000) minus the
Aggregate Option Consideration.
(ii) "Aggregate Option Consideration" means the aggregate
amount equal to the Per Option Merger Consideration multiplied by
the total number of Company Shares for which the Company Options
are exercisable as of the Effective Time of Merger.
(iii) "Company Options" means the options to purchase common
stock of the Company set forth on Schedule 4.5.
(iv) "Contingent Payment" means the payment to be made to
the Shareholders pursuant to Section 2.3 below.
(v) "Equity Holder" means a holder of Company Shares or of
Company Options.
(vi) "Fully Diluted Shares" means the number of Company
Shares which would be outstanding immediately prior to the
Effective Time of Merger assuming the exercise in full of all of
the options to purchase common stock of the Company set forth on
Schedule 4.5.
(vii) "Per Common Share Merger Consideration" means the
Aggregate Common Share Merger Consideration divided by the number
of Company Shares issued and outstanding as of the Effective Time
of Merger.
(viii) "Per Option Merger Consideration" means $53.925.
(ix) "Principal Shareholders' Merger Consideration" means an
amount equal to the Per Common Share Merger Consideration
multiplied by the total number of Company Shares that the
Principal Shareholders own of record immediately prior to the
Effective Time of Merger.
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(x) "Proportionate Share" means a fraction, the numerator of
which is one, and the denominator of which is the total number of
Company Shares issued and outstanding immediately prior to the
Effective Time of Merger.
(xi) "Shareholder" means any holder of a Company Share that
is issued and outstanding immediately prior to the Effective Time
of Merger.
(b) At the Effective Time of Merger, each of the Company Shares other
than Dissenting Shares (as hereinafter defined in Section 2.2(e) below)
which is issued and outstanding immediately prior to the Effective Time of
Merger shall, without any action by the holder thereof, be converted into
the right to receive an amount of cash equal to the Per Common Share Merger
Consideration and the right to receive a Proportionate Share of the
Contingent Payment when and as payable under this Agreement.
(c) Each Company Option that has not been exercised as of the
Effective Time of Merger shall by reason of action by the Board of
Directors of the Company pursuant to the Stock Option Plan of the Company,
without any action by the holder thereof, be converted into the right to
receive an amount of cash equal to the Per Option Merger Consideration.
(d) Each share of Newco common stock outstanding immediately prior to
the Effective Time of Merger shall be converted into one share of common
stock of the Company.
2.2 Manner of Exchange.
(a) At the Closing, Buyer shall deliver to each Equity Holder who
shall surrender his or her certificates or instruments representing his or
her Company Shares or Company Options, together with a proper transmittal
instrument duly executed, and free and clear of all Liens, an amount of
cash equal to the amount of the Per Common Share Merger Consideration
and/or Per Option Merger Consideration, as the case may be, represented by
his or her surrendered certificates and instruments.
(i) In furtherance of satisfying the closing condition under
Section 9.17 hereof, Principal Shareholders' Merger Consideration
shall be reduced by such amount as shall be necessary to obtain the
Settlement Releases (as such term is defined in Section 9.17 hereof).
Prior to the Merger, the Company shall have agreed to pay to HCFA the
amounts required to obtain the Settlement Releases, and immediately
after the Merger, the Company and/or the Company's subsidiaries shall
pay to HCFA such amounts.
(ii) In furtherance of satisfying the closing condition under
Section 9.26 hereof, at the request of the Principal Shareholders,
Buyer shall pay over by delivery of certified check or wire transfer
such amount of the Principal Shareholders' Merger Consideration to The
Coastal Bank of Georgia (the "Share Release Amount") as shall be
necessary to obtain the Share Releases (as such term is defined in
Section 9.26 hereof).
(b) At any time after the Effective Time of Merger, Buyer, the sole
shareholder of Newco, upon surrender of the stock certificate evidencing
all outstanding shares of Newco, shall
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be entitled to receive in exchange therefor a certificate representing
shares of stock of the Company, calculated on a one-to-one basis. Until so
surrendered, each such certificate that, prior to the Effective Time of
Merger, represented the outstanding shares of Newco stock will be deemed to
evidence such shares of the stock of the Company. Upon the surrender of
such certificate evidencing Newco stock, they shall be duly canceled.
(c) Subject to and upon the terms and conditions hereof, the Plan of
Merger and the General Corporation Law of the State of Delaware (the "GCL")
and laws of the State of Georgia, at the Effective Time of Merger, Newco
shall be merged with and into the Company. Each party hereto approves and
agrees to the Certificate of Merger and shall execute, deliver and file, or
shall cause to be executed, delivered and filed, all such instruments,
covenants, agreements, certificates and documents as shall be necessary to
effectuate the Certificate of Merger on the Closing Date (as hereinafter
defined).
(d) Notwithstanding any provision of this Agreement to the contrary,
if holders of Company Shares are entitled to demand appraisals for their
Company Shares under the laws of the State of Georgia, the following shall
apply. Any Company Shares held by a holder who had demanded appraisal of
such holder's Company Shares in accordance with such laws and who, as of
the Effective Time of Merger, has neither effectively withdrawn nor lost
the right to such appraisal ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Merger consideration, but the
holder thereof shall only be entitled to such rights as are granted by such
laws.
2.3 CONTINGENT PAYMENTS.
(a) Buyer shall pay to the Shareholders the Contingent Payments, if
any, as set forth in this Section 2.3.
(b) (i) The Contingent Payments shall be payable in respect of
calendar years ending December 31, 1999, December 31, 2000, December 31,
2001 and December 31, 2002.
(ii) The amount of the Contingent Payment in respect of any
calendar year shall not exceed the Cumulative Maximum Amount
applicable to such calendar year as defined and set forth below, and
otherwise shall equal $20 multiplied by the amount by which (x) the
total number of Home Health Visits (as defined below) during such
calendar year exceeds (y) the Base Number of Home Health Visits
applicable to such calendar year as set forth below.
(c) Subject to Buiyer's indemnification and offset rights as set forth
in Section 11.6 below, the Contingent Payments in respect of any calendar
year shall be paid as soon as practicable but no later than forty-five (45)
days after the last day of such calendar year, together with documentation
reasonably satisfactory to Principal Shareholders evidencing the actual
number of Home Health Visits for such calendar year.
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(i) For these purposes "Home Health Visits" means all home health
visits, whether pursuant to Medicare, Medicaid, private-pay or
otherwise made in the home health care operations of Buyer, on a
consolidated basis (the "Home Health Division").
(ii) (A) The "Cumulative Maximum Amount" applicable to the
calendar year ending December 31, 1999 shall be $20 million. The Base
Number of Home Health Visits applicable to such calendar year (the
"1999 Base") shall be 9,200,000.
(B) The "Cumulative Maximum Amount" applicable to the
calendar year ending December 31, 2000 shall be $55 million less
any Contingent Payments made during prior periods. The Base
Number of Home Health Visits applicable to such calendar year
(the "2000 Base") shall be equal to the 1999 Base plus the number
of Home Health Visits during the calendar year ending December
31, 1999 for which a Contingent Payment became due.
(C) The "Cumulative Maximum Amount" applicable to the
calendar year ending December 31, 2001 shall be $100 million less
any Contingent Payments made during prior periods. The Base
Number of Home Health Visits applicable to such calendar year
(the "2001 Base") shall be equal to the 2000 Base plus the number
of Home Health Visits during the calendar year ending December
31, 2000 for which a Contingent Payment became due.
(D) The "Cumulative Maximum Amount" applicable to the
calendar year ending December 31, 2002 shall be $127.5 million
less any Contingent Payments made during prior periods. The Base
Number of Home Health Visits applicable to such calendar year
(the "2002 Base") shall be equal to the 2001 Base plus the number
of Home Health Visits during the calendar year ending December
31, 2001 for which a Contingent Payment became due.
(d) Buyer agrees that if it sells, disposes of, or otherwise
eliminates any of the agencies constituting any part of the Home Health
Division, then it shall add to the number of Home Health Visits for
subsequent periods the proportionate number of Home Health Visits that
would otherwise have occurred in such subsequent periods, which
proportionate amount shall be calculated at the end of each remaining
calendar year. If Buyer sells all or substantially all of the Home Health
Division, unless otherwise paid by the acquiror, Buyer's obligation under
this Section 2.3 shall survive such sale or disposition, and the number of
Home Health Visits for the year of the sale or disposition and future years
shall be computed by using the number of Home Health Visits for the year
before the sale or disposition and increasing such number by 8% annually.
2.4 CLOSING DATE BALANCE SHEET.
(a) At the Closing, the Principal Shareholders shall cause the Company
to deliver to Buyer a written statement of the Company that the Company's
Executive Vice President and Chief
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of Corporate Staff certifies to be his good faith estimate of the Company's
balance sheet as of the Closing Date (the "Closing Date Balance Sheet").
(b) As soon as is reasonably practicable, but in any event within
sixty (60) days following the Closing Date, Buyer shall cause KPMG Peat
Marwick LLP, to complete, at Buyer's expense, a full-scope audit of the
Company's Closing Date Balance Sheet and the related consolidated
statements of operations, stockholders equity and cash flows for the period
from January 1, 1996, through the Closing Date, to verify the Company's
current assets and current liabilities as of the Closing Date, and shall
deliver to the Principal Shareholders its written report (the "Working
Capital Audit") setting forth the amount of such current assets and current
liabilities. Buyer will cause the auditors to consult with the Principal
Shareholders from time to time during such audit. If the Principal
Shareholders dispute the amount of the reduction as set forth in the
Working Capital Audit, the parties agree to utilize the following
procedures to resolve such dispute:
(i) Within sixty (60) days after delivery to the Principal
Shareholders of the Working Capital Audit, the Principal Shareholders
may deliver to Buyer a written report (the "Shareholders' Report")
from an independent accounting firm which the Principal Shareholders
select (the "Shareholders' Accountants") advising Buyer either that
Shareholders' Accountants (A) agree with the Working Capital Audit, or
(B) that one or more adjustments are required. The Principal
Shareholders shall bear the costs and expenses of the services of the
Shareholders' Accountants. If Buyer shall concur with the adjustments
the Shareholders' Accountants propose, or if Buyer shall not object
thereto in a writing that it delivers to the Principal Shareholders
within (30) days after Buyer's receipt of a Shareholders' Report, the
calculation of current assets and current liabilities (as so adjusted
in such Shareholders' Report) shall become final and shall not be
subject to further review, challenge or adjustment, absent fraud. If
the Principal Shareholders do not submit a Shareholders' Report within
the 60-day period provided herein, then the Working Capital Audit
shall become final and shall not be subject to further review,
challenge or adjustment, absent fraud.
(ii) In the event that the Principal Shareholders submit the
Shareholders' Report and Buyer and the Shareholders' Accountants are
unable to resolve with Buyer the disagreements set forth in such
report within thirty (30) days after the date of the Shareholders'
Report, then such disagreements shall be referred to a recognized firm
of independent certified public accountants experienced in auditing
home health care companies that the Principal Shareholders and Buyer
mutually select (or if they cannot agree on such selection, then a
"big six" accounting firm selected by lot, other than Price Waterhouse
LLP or KPMG Peat Marwick LLP ) (the "Settlement Accountants"), and the
determination of the Settlement Accountants shall be final and shall
not be subject to further review, challenge or adjustment, absent
fraud. The Settlement Accountants shall use their best efforts to
reach a determination not more than forty-five (45) days after such
referral. Buyer shall pay the costs and expenses of the services of
the Settlement Accountants if it is determined that there will be any
adjustment to the Working Capital Audit; otherwise, if there is no
adjustment, the Principal Shareholders shall pay such costs and
expenses of the Settlement Accountants.
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(c) Buyer shall be entitled to be indemnified in accordance with
Section 11.2(e) hereof, if the Working Capital Audit discloses that the
Company's current liabilities as of the Closing Date exceed the Company's
current assets as of the Closing Date by more than $34,000,000. In such
event, Buyer shall be entitled to indemnity in an amount equal to the
amount by which the excess (the "Current Liabilities Excess") of such
current liabilities over such current assets is greater than $34,000,000.
For purposes hereof, current assets and current liabilities shall be
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, and subject also to the
condition that any accrual or reserve on the Closing Date Balance Sheet for
Medicare recoupment shall not be included in current liabilities for
purposes of determining the Current Liabilities Excess.
ARTICLE III THE CLOSING
3.1 TIME AND PLACE OF CLOSING. The Closing of the transactions that
this Agreement contemplates (the "Closing") shall take place at offices of
Hunton & Williams in Atlanta, Georgia three (3) business days after the
satisfaction or waiver of all the conditions precedent set forth in Articles IX
and X hereof, or at such other time and place upon which the parties may agree.
The date on which the Closing is held is hereinafter called the "Closing Date."
3.2 FILINGS AT CLOSING. On the Closing Date, Buyer shall file the
Certificate of Merger or such other certificates, instruments and documents as
shall be required in order to effect the Merger in accordance with the Delaware
General Corporation Law, and the Company shall file the Articles of Merger in
accordance with the Official Code of Georgia Annotated. Each of Buyer, the
Company, Newco and Principal Shareholders shall take all lawful actions and use
their respective best efforts to cause the Merger to become effective as of the
Closing Date (or as promptly thereafter as possible).
3.3 EFFECTIVE TIME. The Merger shall become effective at the time
the Plan of Merger or such other instrument as the Delaware Secretary of State
shall require is made effective under the laws of the State of Delaware (the
"Effective Time of Merger").
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE
PRINCIPAL SHAREHOLDERS AND THE COMPANY
Each Principal Shareholder and the Company hereby represent and warrant
to Buyer as follows:
4.1 ORGANIZATION AND STANDING OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Each of the Subsidiaries (as defined in Section 4.2) is
a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. The Company and each Subsidiary are duly
qualified to do business in each state where the failure to so qualify would
have a material adverse
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effect on their respective businesses. Copies of the Articles of Incorporation
and By-Laws of the Company and the Subsidiaries, and all amendments thereof to
date, have been delivered to Buyer and are complete and correct. The Company and
the Subsidiaries have the power and authority to own the property and assets
they now own and to conduct the businesses they presently conduct, and to
execute and deliver this Agreement and each Transaction Document (as such term
is hereinafter defined) and to carry out the transactions contemplated hereby
and thereby.
4.2 SUBSIDIARIES. Except as described on Schedule 4.2, the Company
has no equity interest or investment in any other corporation, limited liability
company, partnership, joint venture or other entity or association. The
subsidiaries of the Company as described on Schedule 4.2 are referred to herein
collectively as the "Subsidiaries."
4.3 ABSENCE OF CONFLICTING AGREEMENTS. Except as disclosed in
Schedule 4.3, the execution and delivery by the Company of this Agreement,
including all Schedules and Exhibits hereto, and of the other agreements,
instruments, documents and certificates required or contemplated hereby
("Transaction Documents"), and the performance by the Company of the
transactions contemplated hereby and thereby, do not conflict with, or
constitute a breach of or a default under (i) the Articles of Incorporation or
By-Laws of the Company; or (ii) to the Company's knowledge, any applicable law,
rule, judgment, order, writ, injunction, or decree of any court, or (iii) any
applicable rule or regulation of any governmental authority or fiscal
intermediary; or (iv) any material agreement, indenture, contract or instrument
to which the Company or any of the Subsidiaries is now a party or by which any
of the assets of the Company or any of the Subsidiaries are bound. The Company
has taken all necessary corporate action to execute, deliver and perform this
Agreement and each Transaction Document and to perform each of the transactions
contemplated hereby and thereby. The Company has duly executed and delivered
this Agreement. When the Company executes and delivers this Agreement, each
Transaction Document will be the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms,
except to the extent that enforcement may be limited by (x) bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally or (y) general principles of equity.
4.4 CONSENTS. Except as disclosed on Schedule 4.4, or as
contemplated by Article XIII hereof, no authorization, consent, approval,
license, exemption by, or filing or registration with, any court, governmental
or quasi-governmental department, commission, board, bureau,agency or
instrumentality, domestic or foreign (Federal, state or local) is or will be
necessary in connection with the execution, delivery and performance by the
Company of this Agreement or of any of the Transaction Documents.
4.5 COMPANY SHARES. Schedule 4.5 sets forth a complete list and
description of the authorized capital stock of the Company, the number of shares
issued and outstanding of each class or series of such capital shares and the
identity of each Shareholder of the Company, in each case indicating the class
and number of shares held. All of such shares shown as issued and outstanding
are duly authorized, validly issued, fully paid and non-assessable. Except as
disclosed on Schedule 4.5, none of such shares is held in the treasury of the
Company. Except as disclosed on Schedule 4.5, the Principal Shareholders are the
record and beneficial owners of the number of shares set forth opposite their
respective names on Schedule 4.5, which shares are free and clear of any and all
liens,
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claims, security interests, mortgages, pledges, charges, rights of setoff,
restraints on transfers and encumbrances of any kind or nature whatsoever
("Liens"). Schedule 4.5 sets forth a list of all currently outstanding options
and warrants for the purchase of securities of the Company, and the identity of
each holder of any Company Options as well as certain other claims to options
more fully described in Schedule 4.12. At the Closing, each Company Option shall
have been converted into Per Option Merger Consideration or cancelled in
accordance with all applicable law. At the Effective Time of the Merger, there
will be no preemptive or similar rights to purchase or otherwise acquire capital
shares of the Company or any of the Subsidiaries pursuant to any provision of
law or the Articles of Incorporation or By-laws of the Company or any of the
Subsidiaries or by agreement or otherwise. At the Effective Time of the Merger,
except for the claims for options that are described on Schedule 4.12, there
shall not be outstanding any warrants, options or other rights to subscribe for
or purchase from the Company or the Principal Shareholders any capital stock of
the Company, nor shall there be outstanding any securities convertible into or
exchangeable for such capital stock.
4.6 TRADEMARKS. Schedule 4.6 sets forth a complete and accurate list
of all registered trademarks, service marks, copyrights and other items of
intellectual property that the Company or any of the Subsidiaries own, possess
or use, and any applications for any of the same. There are no claims or
proceedings pending or, to the knowledge of Principal Shareholders and the
Company, overtly threatened against the Company or any of the Subsidiaries
asserting that the use of any of the aforementioned intellectual property rights
infringes the rights of any other person, and, to the knowledge of the Principal
Shareholders and the Company, the Company and the Subsidiaries are not
infringing on the intellectual property rights of any other person.
4.7 CONTRACTS. Schedule 4.7 sets forth a complete and correct list
of all contracts of the following types to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries or
any of the assets of the Company or any of the Subsidiaries are bound and as to
which the Company or any of the Subsidiaries has any outstanding obligations as
of the date hereof (the "Contracts"):
(a) each contract for the employment, retention, severance or
termination of any director, officer, employee, consultant, agent or group
of employees of the Company or any of the Subsidiaries, each collective
bargaining agreement covering any group of employees of the Company or any
of the Subsidiaries and each noncompetition, confidentiality or similar
agreement with any such person or persons;
(b) each profit sharing, bonus, incentive, deferred compensation,
stock option, stock purchase, severance pay, thrift, pension, retirement,
hospitalization or other similar plan, agreement or arrangement;
(c) each contract or option for the sale of any of the assets,
properties or rights of the Company or any Subsidiary outside the ordinary
course of business, (whether or not such sale would be accomplished by a
sale of assets, a sale of shares, a merger or otherwise);
(d) each contract which contains any provisions requiring the Company
or any of the Subsidiaries to indemnify or act for any other person or
entity or to guaranty or act as surety for
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any other person or entity, except for any contract under which the Company
or any of the Subsidiaries is obligated for less than $50,000;
(e) each contract restricting the Company or any of the Subsidiaries
from conducting any type of business for any period of time or restricting
their use or disclosure of any confidential or proprietary information;
(f) each partnership, joint venture or management contract or similar
arrangement or agreement which involves a right to share profits or future
payments;
(g) each licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency or other similar contract which
entails aggregate payments by the Company or any of its Subsidiaries of
more than $50,000;
(h) each contract under which the Company or any of the Subsidiaries
performs services;
(i) each lease, license, sublease, sublicense or agreement with
respect to any real property or aIny interest therein;
(j) each lease, license, sublease, sublicense, agreement or
arrangement with respect to the use or ownership of any tangible personal
property by the Company or any of the Subsidiaries and which entails
aggregate annual payments of more than $25,000; and
(k) any other agreement which entails aggregate annual payments by the
Company or any of the Subsidiaries of more than $50,000;
(l) each agreement pursuant to which any professional of the type
described under 42 C.F.R. ss.410.20(b) renders services on behalf of the
Company;
(m) each agreement with referral sources, whether or not related to
the referrals, including "sub-contracting agreements" with respect to
Medicare and Medicaid patients.
Except as set forth on Schedule 4.7, each of the Contracts is valid,
binding and enforceable in accordance with its terms and is in full force and
effect. Except as set forth on Schedule 4.7, neither the Company nor any of the
Subsidiaries is in default under any material provision of any Contract and has
not given any party to any contract any written notice of default, set-off or
claim of default. To the knowledge of the Principal Shareholders and the
Company, the parties to the Contracts other than the Company and the
Subsidiaries are not in default of any of their respective obligations under the
Contracts, and there has not occurred any event which with the passage of time
or the giving of notice (or both) would constitute a default under any Contract
by such other parties. All amounts payable by the Company or any of the
Subsidiaries under the Contracts are, and will at the Closing Date, be current.
The Company has either delivered or made available to Buyer complete copies of
each of the Contracts or written descriptions in reasonable detail of the same.
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4.8 FINANCIAL STATEMENTS.
(a) The consolidated unaudited balance sheet (the "Balance Sheet") of
the Company and the Subsidiaries as of September 30, 1995 (the "Balance
Sheet Date"), and the consolidated unaudited balance sheet of the Company
and the Subsidiaries (the "New Balance Sheet") as of December 31, 1995 (the
"New Balance Sheet Date"), and the related statements of operations and
accumulated deficit and statements of cash flows for the nine- month period
and the year then ended, respectively, present fairly in all material
respects the financial condition and results of operations of the Company
and the Subsidiaries at and for the periods therein specified, subject to
normal, recurring audit adjustments, and were prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
Such statements of operation do not contain any items of special or
nonrecurring income or expense or any other income not earned or expense
not incurred in the ordinary course of business except as expressly
specified therein.
(b) The audited balance sheets of the Company and the Subsidiaries as
of December 31, 1993 and 1994, and the related statement of operations and
accumulated deficit and statement of cash flows for the year then ended,
that the Company previously delivered to Buyer, present fairly in all
material respects the financial condition and results of operations of the
Company and the Subsidiaries at and for the period therein specified and
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis. Such statements of operation do not contain
any items of special or nonrecurring income or expense or any other income
not earned or expense not incurred in the ordinary course of business
except as expressly specified therein.
(c) Except as set forth on Schedule 4.8(c) or as expressly set forth
on the Balance Sheet, at the Balance Sheet Date or as expressly set forth
on the New Balance Sheet, at the New Balance Sheet Date, the Company and
the Subsidiaries have no material liabilities or obligations (whether
absolute, accrued, contingent or otherwise and whether due or to become
due, including, without limitation, any guarantees of any obligations of
any other person or entity) of any kind or nature which was or is required
by generally accepted accounting principles to be reflected in a corporate
balance sheet and/or the notes thereto.
4.9 MATERIAL CHANGES. Except as expressly set forth in detail on
Schedule 4.9, since the Balance Sheet Date, there has not been any material
adverse change in the condition (financial or otherwise) of the assets,
properties or operations of the Company, whether or not covered by insurance or
other indemnity, and during such period of time the Company and the Subsidiaries
have conducted their businesses in the ordinary course, and have made no
payments or distributions to any Shareholder other than compensation paid in the
ordinary course of business, except as otherwise expressly permitted by this
Agreement.
4.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 4.10 sets
forth a description of (a) all licenses and other governmental,
quasi-governmental or other regulatory permits, authorizations or approvals for
the Company and the Subsidiaries that are now in effect; (b) all Certificates of
Need issued with respect to the home health agencies of the Company and the
Subsidiaries that are now in effect; and (c) each other license, permit or other
authorization that is necessary for the operation of such agencies (a "License"
and collectively the "Licenses"). The
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Licenses constitute all of the governmental, quasi-governmental and regulatory
licenses, permits and authorizations necessary to the operation of the business
of the Company and the Subsidiaries as it is operated on the date hereof. The
Company has made available to Buyer copies of all of the Licenses. Except as set
forth on Schedule 4.10, the Company and its Subsidiaries own, possess or
otherwise have the exclusive legal right to use the Licenses, free and clear of
all Liens. Except as set forth on Schedule 4.10, each License is in full force
and effect, and neither the Company nor any of its Subsidiaries has received
written notice of any proceeding to terminate or suspend any License or of any
condition or event (other than survey deficiencies which singly or in the
aggregate would not be material to any home health agency that the Company or
any of the Subsidiaries operates) which, if uncured, would result in the
termination or suspension of any License. None of the Licenses are: (a)
provisional, probationary, or restricted in any way except to the extent
qualified by any outstanding deficiencies or citations, particulars of which
have been set forth on Schedule 4.10; or (b) subject to any investigation,
cancellation, impairment, limitation, order, complaint, proceeding, or
suspension nor is such threatened or pending. Except as set forth on Schedule
4.10, all Licenses are in full force and effect. No conditions not generally
applicable to home health agencies requiring changes in the operation of the
Company or any of the Subsidiaries have been imposed, formally or informally, by
any License issuer during the past twenty-four (24) months.
4.11 TITLE, CONDITION OF PERSONAL PROPERTY.
(a) Except as disclosed on Schedule 4.11(a), the Company and its
Subsidiaries have good and indefeasible title to, or valid and subsisting
leasehold interests in, all of the personal property reflected on the
Balance Sheet and located at or used in connection with the operation of
their businesses, subject to no Liens whatsoever other than Permitted Liens
(as defined below). Except as disclosed on Schedule 4.11(a) and except for
Permitted Liens, no other person has any right to the use or possession of
any of such personal property and no currently effective financing
statement relating to any such personal property has been filed under the
Uniform Commercial Code in any jurisdiction, and the Company and its
Subsidiaries have not signed any currently effective financing statement or
any security agreement authorizing any secured party to file any financing
statement. All personal property comprising equipment, improvements,
furniture and other tangible personal property that the Company or any of
its Subsidiaries use, whether owned or leased, is sufficient to enable the
Company and its Subsidiaries to operate their businesses in a manner
consistent with their operation during the immediately preceding twelve
(12) months.
(b) "Permitted Liens" shall mean
(i) carriers', warehouseman's, mechanic's, materialmen's,
repairmen's or other similar liens arising in the ordinary course of
business and not reflected on applicable public records, or any such
liens bonded or properly reserved against; and
(ii) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases and statutory obligations
incurred in the ordinary course of business; and
(iii) rights of parties under Contracts set forth on Schedule
4.7;
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(iv) pledges or deposits in connection with workman's
compensation, unemployment insurance, and other social security
legislation; and
(v) liens described on Schedule 4.11(a).
4.12 LEGAL PROCEEDINGS. Other than as set forth on Schedule 4.12,
there are no legal or equitable claims, actions, suits, proceedings,
arbitrations or investigations, either administrative or judicial, pending, or,
to the knowledge of the Principal Shareholders and the Company, overtly
threatened against the Company or any of its Subsidiaries and which, if
adversely determined against the Company, (i) would involve a loss or liability
to the Company which exceeds insurance proceeds and the amount of any applicable
reserves on the Balance Sheet by Fifty Thousand ($50,000) Dollars or more, or
(ii) would interfere with the Company's ability to consummate the transactions
contemplated hereby.
4.13 EMPLOYEES. Schedule 4.13 contains a complete and correct list of
the name, position and 1995 W-2 compensation of (i) each employee of the Company
or any of its Subsidiaries who earns gross compensation in excess of $100,000
per year, and (ii) each consultant or agent of the Company or any of its
Subsidiaries (other than lawyers and accountants) who regularly receives
compensation in excess of $100,000 per year. Except as described on Schedule
4.13 and on Schedule 4.7(b), neither the Company nor any of its Subsidiaries has
any retirement or welfare benefit plan applicable to any of its employees.
Except as described on Schedule 4.13, neither the Company nor any of its
Subsidiaries has liability for any accrued and unpaid employee benefits or
compensation (including accrued vacation and sick days) for which adequate
accruals are not reflected on the Company's Balance Sheet. Schedule 4.13 also
sets forth a description of each written guideline or policy of the Company and
the Subsidiaries (whether or not enforceable) applicable generally to employees
with respect to vacations, sick days and termination of employment.
4.14 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PLANS AND
PRACTICES, ETC. During the two years prior to the Closing Date, there has been
no material adverse change in the relationship between the Company and its
Subsidiaries and their employees generally nor any strike or material labor
disturbance by any employees and, to the knowledge of the Principal Shareholders
and the Company, there is no indication that such a change, strike or labor
disturbance is likely. No labor union or similar organization represents
employees of the Company and the Subsidiaries and the Principal Shareholders and
the Company have no knowledge of pending or threatened activities, the purpose
of which is to achieve such representation of all or some of the employees of
the Company or its Subsidiaries. The Company and the Subsidiaries have not
received written notice that they are not currently in compliance with the
requirements of all Federal, state and local statutes, rules and regulations
applicable to any of the employee benefit plans, agreements and arrangements
identified on Schedule 4.7 and Schedule 4.13 and, to the best knowledge of the
Company and Principal Shareholders, except for the matters disclosed on Schedule
4.13, no basis exists for any such notice to be given.
4.15 ERISA. Except as disclosed on Schedule 4.15, neither the Company
nor any of the Subsidiaries maintains or makes contributions to and has not at
any time in the past maintained or made contributions to any employee pension
benefit plan which is subject to the Employee Retirement Income Security Act of
1974 ("ERISA"), including without limitation, any minimum funding
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standards. The Company and the Subsidiaries do not maintain or make
contributions to, and have not at any time in the past maintained or made
contributions to, any multiemployer plan subject to the terms of the
Multiemployer Pension Plan Amendment Act of 1980.
4.16 INSURANCE AND SURETY AGREEMENTS. Schedule 4.16 contains a
correct list of: (a) all policies of fire, liability and other forms of
insurance that the Company or any of the Subsidiaries own (including but not
limited to professional liability insurance, and any state- sponsored plan or
program for worker's compensation); and (b) all bonds, indemnity agreements and
other agreements of suretyship made for or held by the Company or any of the
Subsidiaries, including a brief description of the character of the bond or
indemnity agreement and the name of the surety or indemnifying party. Schedule
4.16 sets forth for each such insurance policy the name of the insurer, the
amount of coverage, the type of insurance, the policy number, the annual premium
and a brief description of the nature of insurance included under each such
policy. The Company or one of the Subsidiaries own each such policy and the
proceeds are payable solely to the Company or one of the Subsidiaries. All
insurance policies listed on Schedule 4.16 are in full force and effect. The
Company and the Subsidiaries have not received notice from any insurer of an
intention to terminate or modify any such policies other than under
circumstances where the Company and the Subsidiaries have received a commitment
for a satisfactory replacement policy, nor have the Company and the Subsidiaries
failed to comply with any of the material conditions contained in any such
policies.
4.17 RELATIONSHIPS. Except as disclosed on Schedule 4.17 hereto, no
Principal Shareholder and no partner or affiliate of any Principal Shareholder
has at any time within the last two (2) years had an ownership interest in any
business (corporate or otherwise) that had any business relationship with the
Company or any of the Subsidiaries by which the Company or any of the
Subsidiaries will be bound, or upon which the Company or any of the Subsidiaries
will rely, after the Closing.
4.18 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 4.18,
since the Balance Sheet Date, neither the Company nor any of the Subsidiaries
has:
(a) sold, assigned or transferred any of its assets or properties,
except in the ordinary course of business and consistent with past
practice,
(b) mortgaged, pledged or subjected to any Lien, other than a
Permitted Lien or a Real Estate Permitted Lien, any of the assets of the
Company or any of the Subsidiaries.
(c) made or suffered any amendment or termination of any Contract
other than in the ordinary course of business and consistent with past
practice;
(d) except in the ordinary course of business and consistent with past
practice, or otherwise to the extent necessary to comply with any
applicable minimum wage law, increased the salaries or other compensation
of any of its employees, agents or consultants identified on Schedule 4.13
or made any increase in, or any additions to, other benefits to which any
of such employees, agents or consultants may be entitled;
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(e) failed to pay or discharge when due any liabilities or
obligations, which failure has caused or will likely cause any material
damage or will likely give rise to the risk of a material loss to the
Company or any of the Subsidiaries;
(f) changed any of the accounting principles it followed or the
methods of applying such principles;
(g) declared, paid, set aside or reserved any amounts for payment of
any dividend or other distribution in respect of its securities, or
redeemed or repurchased or agreed to redeem or repurchase any of its
securities;
(h) failed to collect, withhold and/or pay to any proper governmental
agency any federal, state or local income, franchise, sales, use,
withholding or similar tax that applicable law requires be collected,
withheld and/or paid;
(i) instituted, settled or agreed to settle any litigation, action or
proceeding before any court or governmental agency relating to it or its
property which will likely have or has had a materially adverse affect on
the condition (financial or otherwise), properties, assets, liabilities,
operations, business or prospects of the Company or any of the
Subsidiaries; or
(j) entered into any material transaction other than in the ordinary
course of business and consistent with past practice.
4.19 COMPLIANCE WITH LAWS. Except for notices of non-compliance set
forth on Schedule 4.19 or as to which the Company and Subsidiaries have taken
corrective action acceptable to the applicable governmental agency, neither the
Company nor any of the Subsidiaries has, within two (2) years preceding the date
of this Agreement, received any written notice that it failed to comply in any
material respect with any Federal, state, local or other governmental laws or
ordinances, or any applicable orders, rules or regulations of any Federal,
state, local or other governmental or quasi-governmental agency having
jurisdiction over them ("Governmental Requirements"). Principal Shareholders
shall report to Buyer, within ten (10) business days after receiving any written
notices that the Company or any of the Subsidiaries is not in compliance in any
material respect with any of the foregoing. Except as set forth on Schedule
4.19, the Company and Principal Shareholders have no reason to believe that the
Company and the Subsidiaries are not in compliance with all Governmental
Requirements applicable to them and their respective operations, employees and
properties.
4.20 FINDERS. No broker or finder other than Hambrecht & Quist, LLC
and its affiliates has acted for Principal Shareholders or the Company in
connection with the transactions contemplated by this Agreement, and no other
broker or finder is entitled to any broker's or finder's fee or other commission
based in any way on agreements, understandings or arrangements with any
Principal Shareholder or the Company or the Subsidiaries.
4.21 TAX RETURNS. Except as disclosed on Schedule 4.21, the Company
and the Subsidiaries have timely filed all Federal, state, county and local
income, franchise, excise, property, employment-related, and other tax returns
and abandoned property reports (if any) that are due and
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required to be filed, and have paid all taxes (including any penalties and
interest) due with respect to such returns and reports. Except as disclosed on
Schedule 4.21, there are no claims, liens or judgments for taxes due from the
Company or any of the Subsidiaries, and to the knowledge of the Principal
Shareholders and the Company, no basis for any such claim, lien or judgment
exists.
4.22 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and
delivery of this Agreement and the Transaction Documents does not, and the
consummation of the transactions contemplated hereby and thereby will not,
create any liens or other encumbrances on any of the assets of the Company or
the Subsidiaries.
4.23 ENVIRONMENTAL MATTERS.
(a) At any time during the Company's ownership of the Owned Real
Property (as defined in Section 4.24) and, to the knowledge of the
Principal Shareholders and the Company, prior to the Company's ownership
thereof,
(i) Such Owned Real Property has not been used for the disposal
of any industrial refuse or waste, including but not limited to
potentially infectious waste, blood-contaminated materials or other
wastes generated in the course of patient treatment (collectively
"Medical Waste") or for the processing, manufacture, storage,
handling, treatment or disposal of any hazardous or toxic substance,
material or waste, other than in the ordinary course of business and
in substantial compliance with applicable Governmental Requirements;
(ii) Except as set forth in Schedule 4.23(a)(ii), no asbestos-
containing materials have been used or disposed of at such Owned Real
Property or used in the construction of such Owned Real Property;
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(iii) No machinery, equipment or fixtures containing
polychlorinated biphenyls ("PCBs") are located at such Owned Real
Property;
(iv) Except as set forth in Schedule 4.23(a)(iv), no storage
tanks for gasoline, petroleum or any other similar substance have been
located at such Owned Real Property;
(v) No Hazardous Substances (as defined below) have been located
at such Owned Real Property, which would subject the owner or occupant
to damages, penalties, or liabilities, and any obligation to remove
such Hazardous Substances has been met in compliance with applicable
Governmental Requirements; and
(vi) Within the last two (2) years the Company and the
Subsidiaries have not received written notice from any governmental
agency, except for notices of violation as to which the Company or the
Subsidiaries have taken corrective action acceptable to the applicable
governmental agency and as set forth in Schedule 4.23(a)(vi), claiming
that the Owned Real Property is not in material compliance with the
environmental laws described in 9(c) below or claiming any material
violation of any Federal, state or local law, rule, regulation or
ordinance concerning the generation, handling, storage or disposal of
Medical Waste.
(b) Schedule 4.23 lists all reports of health care and environmental
agencies that the Company or the Subsidiaries received during the last two
(2) years with respect to the operations of any of the Owned Real Property.
The Company has delivered copies of such reports to Buyer.
(c) The Company is in material compliance with all applicable
environmental laws, rules, regulations and ordinances regarding the
protection of the environment and applicable to it and the Owned Real
Property, including, but not limited to, the Resource Conservation and
Recovery Act of 1976, as amended, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, the Federal Water
Pollution Control Act, as amended by the Clean Water Act, the Federal Toxic
Substances Control Act, as amended. The foregoing representation and
warranty applies to all aspects of the operation of the Owned Real Property
including, but not limited to, the use, handling, treatment, storage,
transportation and disposal of any hazardous, toxic or infectious waste,
material or substance (including Medical Waste or any other Hazardous
Substances).
(d) The term "Hazardous Substance" as used in this Agreement shall
include, without limitation, gasoline, oil and other petroleum products,
and related and similar materials, and any other substance or material that
any federal, state or local law, ordinance, rules or regulation defines as
a hazardous, toxic or polluting substance or material.
4.24 REAL PROPERTY.
(a) Schedule 4.24 sets forth a complete and correct list of all real
property the Company or any Subsidiary owns (the "Owned Real Property").
The Company and the Subsidiaries have good and valid title to the Owned
Real Property, free and clear of all liens,
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claims, charges, easements, encumbrances and title exceptions of any kind
except for Real Estate Permitted Liens (as defined below).
(b) Except as set forth on Schedule 4.24(b), there are no agreements
of the Company or any of the Subsidiaries as sub-lessor granting to any
third party the right to use or occupy any of the Owned Real Property and
no person has any ownership interest or option or right of first refusal
(which has not been waived) to acquire any ownership interest in any of the
Owned Real Property or any building or improvements thereon;
(c) The Company and the Subsidiaries have not received any written
notices of violation that remain in effect which prohibit the existing use
of the structures presently comprising any of the Owned Real Property;
(d) To the knowledge of the Principal Shareholders and the Company,
there is no plan, study or effort by any governmental agency which would in
any material and adverse way affect the present use or zoning of any of the
Owned Real Property. To the knowledge of Principal Shareholders and the
Company, there are no assessments or proposed assessments and there is no
existing, proposed or contemplated plan to widen, modify or realign any
street or highway or any existing, proposed or contemplated eminent domain
proceedings that would in any material and adverse way affect any of the
Owned Real Property,
(e) The buildings and other improvements comprising the Owned Real
Property and all of their systems, including without limitation, the
heating, ventilating and air conditioning systems, the plumbing,
electrical, mechanical and drainage systems, and roofs are in good
operating condition, repair and working order, normal wear and tear
excepted;
(f) No assessment for public improvements has been made against the
Owned Real Property that remains unpaid, except for any assessments payable
in installments that are not yet due at the time of the Closing.
(g) All public utilities required for the operation of the Owned Real
Property either enter the property through adjoining public streets, or if
they pass through adjoining private land do so in accordance with valid
easements. Each parcel of Owned Real Property is adjacent to or has access
to an abutting street;
(h) There are no easements traversing or contiguous to any of the
Owned Real Property which interfere in any material respect with the use
and operation of thereof and which are not disclosed on any schedule hereto
or shown on the surveys referred to in Section 9.14 hereof; and
(i) Each parcel of Owned Real Property complies with all applicable
zoning regulations, and neither the Company nor any Subsidiary has received
any written notice of material noncompliance from any governmental agency
regarding any of the improvements constructed at any of the Owned Real
Property or the use or occupancy thereof which remains uncured.
(j) "Real Estate Permitted Liens" shall mean
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(i) Permitted Liens (as defined in Section 4.11(b));
(ii) easements, rights-of-way, restrictions and other
encumbrances which, in the aggregate, do not materially interfere with
the ordinary conduct of the business of the Company or any Subsidiary;
(iii) matters which an accurate survey or inspection of the
premises would disclose; and
(iv) liens described on Schedule 4.24(j).
4.25 LEASEHOLD INTERESTS. Schedule 4.25 hereto sets forth a
complete and correct list of all leases pursuant to which the Company or a
Subsidiary leases real property. Each of the Company and the Subsidiaries has
valid leasehold interests in all such real property free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever, except for Permitted
Liens. The Company has provided access to the Buyer to complete and correct
copies of the leases identified in Schedule 4.25.
ARTICLE V: ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL SHAREHOLDERS
Each of Principal Shareholders hereby represents and warrants to Buyer
as follows:
5.1 AUTHORITY. Each Principal Shareholder has the full legal
power and authority to make, execute, deliver and perform this Agreement and the
Transaction Documents to which he or she is a party. Such execution, delivery,
performance and consummation have been duly authorized by all necessary action
on the part of such Principal Shareholder, and such Principal Shareholder has
obtained or by the Closing Date will have obtained any necessary consents of
holders of indebtedness.
5.2 BINDING EFFECT. This Agreement and all Transaction Documents
to which such Principal Shareholder is a party constitute the legal, valid and
binding obligations of such Principal Shareholder, enforceable against such
Principal Shareholder in accordance with their respective terms, except to the
extent that enforcement may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or (ii) general principles of equity.
5.3 ABSENCE OR CONFLICTING AGREEMENTS. Except as disclosed on
Schedule 5.3, the execution and delivery by each Principal Shareholder of this
Agreement and each Transaction Document to which such Principal Shareholder is
or shall be a party, and the performance by such Principal Shareholder of the
transactions contemplated hereby and thereby do not conflict with, or constitute
a breach of or a default under any law or any judgment, order, writ, injunction
or decree of any court applicable to such Principal Shareholder, or any rule or
regulation of any other governmental or quasi-governmental agency applicable to
such Principal Shareholder, or any agreement, indenture, contract or instrument
to which such Principal Shareholder is now a party or by which any of the assets
of such Principal Shareholder is bound.
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5.4 CONSENTS. No authorization, consent, approval, license,
exemption by, filing or registration with any court, government or
quasi-governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance by such Principal Shareholder of this
Agreement or any of the Transaction Document or any of the transactions
contemplated hereby or thereby.
5.5 OWNERSHIP OF COMPANY SHARES. Except as described on Schedule
5.5, each Principal Shareholder is the lawful record and beneficial owner of all
of the Company Shares shown as owned by such Principal Shareholder in Schedule
4.5, with good and marketable title thereto, free and clear of all Liens.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Newco each represents and warrants to the Company and
Principal Shareholders as follows:
6.1 ORGANIZATION AND STANDING. Buyer and Newco are corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Copies of Buyer's and of Newco's Articles of Incorporation
and By-Laws, and all amendment thereof have been delivered to the Company, and
are complete and correct. Each of Buyer and Newco has the power and authority to
own the property and assets it now owns and to conduct the business that it
presently conducts.
6.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery by Buyer or Newco of this Agreement (including Schedules and Exhibits
hereto) or any of the Transaction Documents, nor (except for the required
approval of Buyer's senior secured lender) the performance by Buyer or Newco of
the transactions contemplated hereby and thereby, conflicts with, or constitutes
a breach of or a default under (i) the Certificate of Incorporation or By-Laws
of Buyer or Newco; or (ii) any applicable law or any judgment, order, writ,
injunction, or decree of any court or (iii) any applicable rule or regulation of
any other governmental agency or quasi-governmental agency, or (iv) any
agreement, indenture, contract or instrument to which Buyer or Newco is now a
party or by which any of the assets of Buyer or Newco is bound. The execution,
delivery and performance of this Agreement and each Transaction Document and the
performance of each of the transactions contemplated hereby or thereby has been
authorized by all necessary corporate action of the Company and of Newco, other
than, in the case of the Company, approval by its stockholders.
6.3 CONSENTS. Except for the consents of Buyer's Board of
Directors, the Buyer's senior secured lender, and filings pursuant to the H-S-R
Act, no authorization, consent, approval, license, exemption by, filing or
registration with any court or government or quasi-governmental department,
commission, board, bureau, agency or instrumentality, domestic or
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foreign, is or will be necessary in connection with the execution, delivery and
performance by Buyer or Newco of this Agreement or any of the Transaction
Documents.
6.4 FINDERS. Buyer has not dealt with any broker or finder other
than Hambrecht & Quist, LLC and its affiliates in connection with the
transactions contemplated by this Agreement, and no other broker or finder is
entitled to any broker's or finder's fee or other commission based in any way on
agreements, understandings or arrangements with Buyer.
6.5 POWER AND AUTHORITY. Each of Buyer and Newco has the
corporate power and authority to execute, deliver and perform this Agreement,
and as of the Closing, each of Buyer and Newco will have the corporate power and
authority to execute and deliver the Transaction Documents it must deliver to
the Company at the Closing.
6.6 MATERIAL CHANGES. Except as noted on Schedule 6.6, between
September 30, 1995 and the date of this Agreement, there has not been any
material adverse change in the condition (financial or otherwise) of the assets,
properties or operations of Buyer and its subsidiaries on a consolidated basis,
whether or not covered by insurance, and during such period of time Buyer has
conducted its business only in the ordinary course consistent with past
practice.
6.7 BINDING EFFECT. Each of Buyer and Newco has duly executed
and delivered this Agreement. This Agreement is, and the Transaction Documents
when Buyer and Newco execute and deliver them at the Closing will be, the legal,
valid and binding obligation of Buyer or Newco, enforceable against them in
accordance with their respective terms except to the extent that enforcement
maybe limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally or (b)
general principles of equity.
6.8 CORPORATE OFFICE. Buyer has no present intention of moving
the Company's principal corporate office from Brunswick, Georgia for five (5)
years following the Closing Date.
6.9 LEGAL PROCEEDINGS. Other than as set forth on Schedule 6.9,
there are no legal or equitable claims, actions, suits, proceedings,
arbitrations or investigations, either administrative or judicial, pending, or
to the knowledge of the Buyer, overtly threatened against the Buyer or any of
its subsidiaries that would interfere with the Buyer's ability to consummate the
transactions contemplated hereby.
ARTICLE VII: INFORMATION AND RECORDS
CONCERNING THE COMPANY AND THE BUYER
7.1 BUYER'S ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING.
Prior to the Closing Date, Buyer may investigate the financial and legal
condition of the Company and the
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Subsidiaries as Buyer deems necessary or advisable to familiarize itself with
the Company and the Subsidiaries and/or matters relating to their respective
history or operations. The Company and the Subsidiaries shall permit Buyer and
its authorized representatives (including legal counsel and accountants) to have
full access to the books and records of the Company and the Subsidiaries upon
reasonable notice and during normal business hours, and the Company and the
Subsidiaries will furnish to Buyer such financial and operating data and other
information and copies of documents with respect to the products, services,
operations and assets of the Company and the Subsidiaries as Buyer shall from
time to time reasonably request. The documents to which Buyer shall have access
shall include, but shall not be limited to, the tax returns and related work
papers of the Company and the Subsidiaries since inception and the Company shall
make such extracts thereof as Buyer or its representatives may reasonably
request from time to time to enable Buyer and its representatives to investigate
the affairs of the Company and the Subsidiaries and the accuracy of the
representations and warranties in this Agreement. The Company shall request its
accountants to cooperate with Buyer to disclose the results of audits relating
to the Company and the Subsidiaries and to produce the working papers relating
thereto.
7.2 COMPANY'S ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING.
Prior to the Closing Date, Buyer will furnish to the Company such financial and
operating data and other information and copies of documents with respect to the
Buyer's products, services, operations and assets as the Company shall from time
to time reasonably request. The information to which the Company shall have
access shall include only such information reasonably necessary to enable the
Company and its representatives to investigate the accuracy of the
representations and warranties the Buyer made in this Agreement and will be
limited to publicly available information.
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL
EFFECTIVE TIME OF MERGER
8.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date hereof
and the Effective Time of Merger, each of the Company, each Subsidiary and Buyer
shall maintain its existence and shall conduct its business in the ordinary
course of business consistent with past practice.
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8.2 NEGATIVE COVENANTS OF THE COMPANY. Without the prior written
approval of Buyer, which it shall not unreasonably withhold, neither the Company
nor any Subsidiary shall, between the date hereof and the Effective Time of
Merger:
(a) cause or permit to occur any of the events or occurrences
described in Section 4.18 (Absence of Certain Events) of this Agreement, or
which would have caused any of the representations or warranties of the
Company under this Agreement to be untrue had the same occurred prior to
the date hereof; or
(b) dissolve or merge or enter into a share exchange with any other
entity; or
(c) enter into any contract or negotiations in connection with any
union or other collective bargaining representative representing any
employees at the Company or any Subsidiary; or
(d) make any change to its Articles of Incorporation or By-Laws.
8.3 AFFIRMATIVE COVENANTS. Between the date hereof and the
Closing, the Company or any Subsidiary shall:
(a) maintain the physical assets of the Company and each Subsidiary in
substantially the state of repair, order and condition as on the date
hereof, reasonable wear and tear or loss by casualty excepted;
(b) maintain in full force and effect its Licenses currently in effect
unless any License is no longer necessary for the operation of the Company
or any Subsidiary;
(c) maintain in full force and effect the insurance policies and
binders currently in effect or replacements thereof, including without
limitation those listed on Schedule 4.16;
(d) utilize reasonable efforts to preserve the present business
organization of the Company and each Subsidiary, keep available the
services of the present employees and agents of the Company and each
Subsidiary, and maintain the relations and goodwill of the Company and each
Subsidiary with suppliers, employees and any others having business with
any of them;
(e) maintain all of the books and records relating to the Company or
any Subsidiary in accordance with its past practices;
(f) comply in all material respects with all provisions of the
Contracts listed in Schedule 4.17, and with any other material contracts
into which the Company or any Subsidiary entered in the ordinary course of
business from the date of this Agreement until the
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Closing Date, and comply in all material respects with all material laws,
rules and regulations applicable to the business of the Company or any
Subsidiary;
(g) pay when due all taxes, assessments, charges or levies imposed
upon the Company or any Subsidiary or on any of their respective properties
or which it is required to withhold and pay; and
(h) promptly advise Buyer in writing of the threat or commencement
against the Company or any Subsidiary of any claim, action, suit,
proceeding, arbitration or investigation that would materially and
adversely affect the operations, properties, assets or prospects of the
Company or any Subsidiary.
8.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing,
Buyer shall use reasonable efforts to obtain all consents and approvals from
governmental agencies and all other parties necessary for the lawful
consummation of the transactions contemplated hereby, (the "Required
Approvals"). The Principal Shareholders and the Company shall cooperate with and
use reasonable efforts to assist Buyer in obtaining all such approvals.
8.5 SUPPLEMENTARY FINANCIAL INFORMATION. Within forty-five (45)
days after the end of each calendar month between the date of this Agreement and
the Closing Date, the Company shall provide to Buyer unaudited financial
statements (including at a minimum, income statements and a balance sheet) for
the calendar month and, if applicable, the calendar quarter, then most recently
ended, which statements shall present fairly, in all material respects, the
results of the operations of the Company and its Subsidiaries, on a consolidated
basis at such date and for the period covered thereby, subject to normal,
recurring audit adjustments, all in accordance with generally accepted
accounting principles applied on a consistent basis; provided, however, that
such financial statements need not include financial information pertaining to
ABC Pharmaceuticals, Inc., ABC Continuecare, Ltd. (a Pennsylvania limited
partnership), or ABC International, Inc.
8.6 EXCLUSIVITY. Until the earlier of the Closing Date or the
termination of this Agreement pursuant to Section 12.1, neither the Principal
Shareholders nor the Company, nor any of their respective affiliates, shall
engage in any discussions or negotiations directly or indirectly with any other
party in respect of the sale of the Company Shares or of substantially all of
the assets of the Company, or in respect of any merger, consolidation or other
sale of the Company (any of said transactions being referred to herein as a
"Prohibited Transaction").
8.7 SOLICITATION OF STOCKHOLDERS. The Company shall through its
board of directors unanimously recommend to its stockholders approval of this
Agreement and the Merger and as promptly as practicable after the date of this
Agreement use its best efforts to obtain stockholder approval.
8.8 DISSENTING STOCKHOLDERS. The Company shall give Buyer (a)
prompt notice of any demands the Company receives from dissenting stockholders
for payment of the fair value
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for their Company Shares and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, voluntarily make any
payment with respect to, or settle or offer to settle, any such demands for
payment.
8.9 DELIVERY OF SCHEDULES. The Principal Shareholders will
deliver the Schedules to Buyer within twenty (20) business days following the
date of this Agreement except for Schedules under Section 4.23 and 4.24, which
shall be delivered within five (5) business days after each of the title
commitment and the environmental compliance report is delivered. Buyer will have
the right to terminate this Agreement forthwith upon notice to the Company if
any of the information disclosed on the Schedules is not acceptable to Buyer in
its sole discretion, or if all of the Schedules have not been delivered to Buyer
within the required time period, provided that such notice of termination must
be given, if at all, within a period (the "Schedule Review Period") which ends
twenty (20) business days following the date on which all of the Schedules shall
have been delivered to Buyer, or, except for Schedules 4.23 and 4.24 (which
shall be delivered as aforesaid), if all of the Schedules are not delivered to
Buyer within twenty (20) business days hereof, the period which ends twenty (20)
business days following the date on which all of the Schedules were to have been
delivered.
8.10 AUDIT. The Company and Principal Shareholders shall
cooperate with KPMG Peat Marwick with respect to the completion of an audit of
the Company's consolidated financial statements as of and for the years ended
December 31, 1993, 1994, and 1995. The costs of such audit with respect to the
1993 and 1994 financial statements (the "1993-1994 Audit Costs") will be borne
one-half by the Company and one-half by the Buyer. If this Agreement is
terminated pursuant to Section 12.1, the Company promptly shall pay to the Buyer
the Company's portion of the 1993-1994 Audit Cost. The entire cost of the audit
of the Company's 1995 financial statement will be paid by the Company,
irrespective of whether the Closing occurs.
8.11 DELIVERY OF EXHIBITS. Buyer shall deliver the Exhibits
within ten days after the date hereof. The Principal Shareholders or the Buyer
shall have the right to terminate this Agreement forthwith upon notice to the
parties if the parties are unable to agree on the contents of such Exhibits
within ten days after Buyer delivers such Exhibits to Buyer. Principal
Shareholder shall have the right, in its sole discretion, to terminate the
Agreement if Buyer fails to deliver such Exhibits within the required time
period.
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligation to consummate the Merger is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any one or more of which Buyer may waive in writing. Upon failure of any of the
following conditions, Buyer may terminate (without the necessity of obtaining
the consent of the Bankruptcy Court) this Agreement prior to Closing pursuant to
and in accordance with Article XII herein.
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9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Principal Shareholders and the Company in Article IV and V
shall be true and correct in all material respects at and as of the Closing
Date, as though such representations and warranties were made at and as of such
time except to the extent affected by the transactions herein contemplated.
9.2 PERFORMANCE OF COVENANTS. Each of the Principal Shareholders
and the Company shall have performed or complied in all material respects with
their respective agreements and covenants that this Agreement requires that they
perform or comply with prior to or at the Closing.
9.3 DELIVERY OF CLOSING CERTIFICATE. Each of the Principal
Shareholders and the Company shall have executed and delivered to Buyer a
certificate dated the Closing Date certifying that the conditions contemplated
by Sections 9.1 and 9.2 have been satisfied.
9.4 OPINIONS OF COUNSEL. The Company and Principal Shareholders
shall have delivered to Buyer an opinion of their counsel dated the Closing Date
in the form of Exhibit 9.4.
9.5 LEGAL MATTERS. No preliminary or permanent injunction or
other order (including a temporary restraining order) which prevents the
consummation of the transactions contemplated by this Agreement shall be in
effect.
9.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a
certificate of the Secretary or other officer of the Company certifying a copy
of resolutions of board of directors and Shareholders authorizing the Company's
execution, delivery and performance of this Agreement and the Transaction
Documents (including, without limitation, the Plan of Merger) and the
transactions contemplated hereby and thereby. Buyer also shall have received a
certificate of the Secretary or other officer certifying as to the incumbency of
the Company's officers.
9.7 MATERIAL CHANGE. Since the date of this Agreement there
shall not have been any material adverse change in the condition (financial or
otherwise) of the assets, properties or operations of the Company except as
permitted in or contemplated by this Agreement.
9.8 APPROVALS.
(a) The consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby shall have been
granted, including without limitation, the Required Approvals.
(b) None of the foregoing consents or approvals (i) shall have been
conditioned upon the modification or termination of any material lease,
Contract, commitment, license, easement or other authorization or (ii)
shall impose on Buyer any material condition or requirement with respect to
the Company or any of its Subsidiaries or their respective operations
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that is more restrictive than or different from the conditions imposed upon
such operations prior to Closing.
9.9 LABOR AGREEMENTS. The Company shall not have entered into
any contract or negotiations with any union or other collective bargaining
representative representing (or seeking to represent) any employees of the
Company.
9.10 REAL PROPERTY CONSENTS.
(a) The Company shall have used reasonable efforts to obtain the
consent of each landlord with whom the Company or any of the Subsidiaries
has a lease of real property which, by its terms, requires consent in the
event of a change of control of the Company, and the written consent of at
least two-thirds (2/3) of such landlords shall have been received by the
Company. Buyer shall have received written notice from Principal
Shareholders by the Closing Date, identifying any landlord that has not
given any necessary consent as of such date.
(b) The Company shall have obtained the written consent of the
respective holders of each of the mortgages and deeds of trust identified
on Schedule 4.3 to the change of control contemplated hereunder.
(c) The Company shall have obtained the written consent of IBM
Corporation to the change of control contemplated hereunder.
9.11 TITLE INSURANCE. Buyer shall have obtained within thirty
(30) days after the date of this Agreement, at its own expense and at normal
rates, a title commitment from a reputable title insurance company of Buyer's
choice (the "Title Company") for an owner's title policy, insuring the Company's
fee title in the Owned Real Property and insuring that the Company's title to
such property shall be good and marketable and free and clear of all liens,
assessments, restrictions, encumbrances, easements, leases, tenancies, claims or
rights of use or possession and other title objections ("Real Estate Liens"),
except for Permitted Liens, Real Estate Permitted Liens and the standard
exceptions normally contained in the ALTA Form B title policy and schedules
thereto; provided, however, that at the request of Buyer, the Company shall
provide affidavits to the Title Company or take such other actions that would
enable the Title Company to remove any of such standard exceptions. Within
thirty (30) days after the date of this Agreement, Buyer may obtain any survey
or engineering study, at Buyer's expense, and if such survey or study discloses
any material discrepancy or exception to title not included within the
restrictions permitted hereunder, including Real Estate Permitted Liens, Buyer
may give written notice to the Principal Shareholders and the Company within
five (5) days after Buyer's receipt of such report and give them up to thirty
(30) days thereafter to correct any problem identified therein. Upon Buyer's
full compliance with this Section 9.11 and in the absence of such correction,
Buyer may consider such a breach of representation and warranty under Section
9.1 above, subject to the provisions therein.
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9.12 ENVIRONMENTAL COMPLIANCE. Buyer shall have received within
thirty (30) days after the date of this Agreement, at its own expense, a written
report from a qualified geotechnical or engineering firm of Buyer's choice,
concerning the presence of Hazardous Substances, asbestos or products containing
asbestos, radon and/or ureaformaldehyde insulation on or in the Owned Real
Property. Such report shall disclose at a minimum: (1) the results of a review
of prior uses of the Owned Real Property that local public records disclose (2)
contacts with local officials to determine whether any records exist with
respect to the disposal of Hazardous Substances at the Owned Real Property; (3)
if deemed necessary by such engineering or geotechnical firm, or by Buyer, soil
samples and groundwater samples consistent with good engineering practice; and
(4) evaluation of the surrounding areas for sensitive environmental receptors,
such as drinking water wells or aquifers, hospitals and schools.
In the event that such report states that any Hazardous Substance
exists at the Owned Real Property or that the Owned Real Property is not
otherwise in material compliance with applicable environmental laws or
regulations, Buyer may give written notice to the Principal Shareholders and the
Company within five (5) days after Buyer's receipt of such report and give them
up to thirty (30) days thereafter to correct any problem identified therein.
Upon Buyer's full compliance with this Section 9.12 and in the absence of such
correction, Buyer may consider such a breach of representation and warranty
under Section 9.1 above, subject to the provisions therein.
9.13 ENGINEERING REPORT. Buyer shall have received within (30)
days after the date of this Agreement, at its own expense, an engineering survey
and report from a qualified engineering firm of Buyer's choice concerning a full
and complete inspection of the Owned Real Property, the physical soundness and
structural integrity of the buildings and the condition (including freedom from
material defect) of the heating, air conditioning, plumbing and electrical
systems, the appliances of or in the buildings and other material components.
In the event that such report states that a material problem exists,
Buyer may give written notice to the Principal Shareholders and the Company
within five (5) days after Buyer's receipt of such report and give them up to
thirty (30) days to correct such problem. In the absence of such correction,
Buyer may consider such a breach of representation and warranty under Section
9.1 above, subject to the provisions therein.
9.14 SURVEYS. Buyer shall have received, at Buyer's expense,
surveys from licensed surveyors of the Owned Real Property.
9.15 TERMITE INSPECTIONS. Buyer shall have received within thirty
(30) days after the date hereof, at Buyer's expense, reports from qualified
inspectors of Buyer's choice with respect to any termite, wood- boring insect or
other pest infestation at the Owned Real Property, and/or resultant damage that
has not been corrected in all material respects.
In the event that such report states that a material problem exists,
Buyer may give written notice to the Principal Shareholders and the Company
within five (5) days after Buyer's receipt
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of such report and give them up to thirty (30) days to correct such problem.
Upon Buyer's full compliance with this Section 9.13 and in the absence of such
correction, Buyer may consider such a breach of representation and warranty
under Section 9.1 above, subject to the provisions therein.
9.16 NO ADVERSE LEGISLATION. Between the date hereof and the
Closing Date, there shall not have been adopted any legislation, and there shall
not have been adopted by HCFA any regulation, which shall have the effect of
implementing Medicare reimbursement rules applicable to the Company which are
not at least as favorable to the Company as the prospective pay reimbursement
structure contained in that certain bill known and designated as H.R. 2491.
9.17 SETTLEMENT RELEASES. Within nine months of the date hereof,
Buyer shall have received agreements (the "Settlement Releases") that the Office
of the Inspector General ("OIG") and HCFA have executed and that are reasonably
acceptable to Buyer providing that none of the Company, any Subsidiary and the
Buyer will be held liable (including, without limitation, by way of making
offsets) or responsible for any Medicare or Medicaid liability for periods prior
to the Closing, and which provide for the withdrawal of any pending or
threatened legal proceedings by OIG or HCFA which propose to exclude the Company
from Medicare or Medicaid programs as set forth below. HCFA shall have resumed
periodic interim payments ("PIPs") and agreed to pay to the Company all PIPs
withheld prior to Closing.
9.18 SEVERANCE AGREEMENTS. The Company shall have entered into
Severance Agreements with Joel V. Mills, David G. Mills and Lee Dobson, in the
form of Exhibit 9.18, which Severance Agreements shall provide for severance
benefits equal to three times the annual salary on the date hereof, and premium
amounts on the date of termination of employment for life, health and disability
insurance paid by the Company to or on behalf of him less amounts paid to each
such individual after the Closing.
9.19 LONG-TERM DEBT. The aggregate amount of long-term debt and
long-term capital lease obligations of the Company, determined in accordance
with generally accepted accounting principles consistently applied shall not
exceed $12,000,000.
9.20 OPTIONS. Each of the Company Options shall have been
converted into the Per Option Merger Consideration.
9.21 FINANCIAL. Buyer shall have received (a) the unaudited
consolidated financial statements of the Company for each quarterly and monthly
period since January 1, 1995, through the Closing Date, (b) the Closing Date
Balance Sheet that the Company's Vice President and Chief of Corporate Staff has
certified in accordance with Section 2.3, and (c) the audited consolidated
financial statement of the Company as of and for the year ended December 31,
1995; provided, however, that such financial statements need not include
financial information pertaining to ABC Pharmaceuticals, Inc., ABC Continuecare,
Ltd. or ABC International, inc.
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9.22 APPROVALS AND CONSENTS.
(a) The Buyer's senior secured lenders shall have approved the Merger,
provided that this condition shall be deemed to be waived if Buyer does not
notify the Company of its failure to obtain such approval on or before the
later of (a) March 31, 1996, or (b) the expiration of the Schedule Review
Period.
(b) The Buyer's board of directors shall have approved the Merger,
provided that this condition shall be deemed to be waived if Buyer does not
notify the Company on or before three weeks after the date hereof of its
failure to obtain such approval.
9.23 RESIGNATIONS. Buyer shall have received the resignations of
the Principal Shareholders as officers of the Company and the Subsidiaries, as
well as their written agreement to terminate their existing employment
agreements with the Company effective as of the Closing Date and to waive any
severance or other compensation and benefits payable to them under their
existing Employment Agreements after the Closing Date, other than their right to
be paid for paid days off accrued on the Balance Sheet. Buyer also shall have
received the resignations of all of the directors of each of the Company and the
Subsidiaries.
9.24 DISSENTERS' RIGHTS. At least ninety-five percent of the
Shareholders shall have approved the Merger, this Agreement and the transactions
contemplated hereby, and all Equity Holders shall have irrevocably waived any
rights to make demand for appraisal of Company Shares in accordance with the
corporation law of the State of Georgia in connection with the Merger.
9.25 HART-SCOTT-RODINO ACT. All applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act") shall
have expired or been terminated.
9.26 RELEASE OF PLEDGED SHARES. All of the Company Shares pledged
by the Principal Shareholders to The Coastal Bank of Georgia shall have been
released from such pledge in a manner satisfactory to Buyer (the "Share
Releases").
9.27 NO PROHIBITED TRANSACTION. No Prohibited Transaction shall
have occurred.
9.28 OTHER DOCUMENTS. The Principal Shareholders and the Company
shall have furnished Buyer with all other documents, certificates and other
instruments that they are required to furnish to Buyer.
9.29 BANKRUPTCY CASES. Each of t he Debtors (as such term is
defined in Section 13.1 below) shall have filed a petition for relief under
Chapter 11 of the Bankruptcy Code (as hereinafter defined) in the Bankruptcy
Court (as hereinafter defined) on or before February 21, 1996.
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9.30 CONSULTING AGREEMENT. The Debtors shall file a motion for,
and use their reasonable efforts to obtain, Bankruptcy Court approval of the
Consulting Agreement (as hereinafter defined in Section 13.02). The Bankruptcy
Court shall have issued a "Final Order" (as defined herein) approving the
Consulting Agreement on or before 40 days after commencement of the first
bankruptcy case. The Consulting Agreement will be in form and substance
satisfactory to Buyer in its sole and absolute discretion and will not have been
terminated without Buyer's consent. "Final Order" means an order or judgment of
the Bankruptcy Court or other court of competent jurisdiction, as entered on the
docket in any chapter 11 case or the docket of any other court of competent
jurisdiction, which has not been reversed, stayed, or amended, and as to which
the time to appeal or seek certiorari has expired, and no appeal or petition for
certiorari has been timely filed, or as to which any appeal that has been or may
be taken or any petition for certiorari that has been timely filed has been
resolved by the highest court to which the order or judgment was appealed or
from which certiorari was sought.
9.31 BANKRUPTCY COURT APPROVAL, BREAK-UP FEE, COMPETITIVE BIDDING
REQUIREMENTS, AND EXCLUSIVITY. The Bankruptcy Court shall have issued a Final
Order approving the motion referred to in Section 13.3 below on or before 40
days after commencement of the first bankruptcy case.
9.32 DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION. The Debtors
shall have filed a disclosure statement, if required, (the "Disclosure
Statement") and proposed plan of reorganization in the bankruptcy cases
consistent with the terms of this Agreement and the Consulting Agreement, all in
form and substance reasonably acceptable to Buyer, on or before 35 days after
commencement of the first bankruptcy case.
9.33 ADEQUACY OF DISCLOSURE STATEMENT. The Bankruptcy Court shall
have issued a Final Order approving the adequacy of the Disclosure Statement, if
a disclosure statement is required, on or before 55 days after commencement of
the first bankruptcy case.
9.34 CONFIRMATION. The Bankruptcy Court shall have issued a Final
Order confirming the plan of reorganization on or before 95 days after
commencement of the first bankruptcy case.
9.35 CONSUMMATION. The plan of reorganization shall have been
consummated on or before 110 days after commencement of the first bankruptcy
case.
9.36 CONVERSION, APPOINTMENT OF TRUSTEE, CHANGE IN MANAGEMENT. No
chapter 11 case regarding any Debtor shall have been converted to a case under
chapter 7 of the Bankruptcy Code, no trustee shall have been appointed regarding
any Debtor, and there shall have been no material changes in the Debtors'
management to which Buyer has not consented. Buyer has consented to the
employment of Chamberlain & Canster, Inc.
9.37 DIP FINANCING. No order shall have been entered providing
for any post-petition financing arrangement without the previous written consent
of Buyer with respect thereto.
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ARTICLE X: CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY AND PRINCIPAL SHAREHOLDERS
The obligation of the Principal Shareholders and the Company to
consummate the Merger is subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer and Newco in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made at and as of such time, except to the extent affected
by the transactions herein contemplated.
10.2 PERFORMANCE OF COVENANTS. Buyer and Newco each shall have
performed or complied in all material respects with each of its agreements and
covenants that this Agreement requires that they perform or comply with prior to
or at the Closing.
10.3 DELIVERY OF CLOSING CERTIFICATE. Buyer shall have delivered
to the Principal Shareholders a certificate of an officer of Buyer dated the
Closing Date certifying that the statements made in Sections 10.1 and 10.2 are
true, correct and complete as of the Closing Date.
10.4 OPINION OF COUNSEL. Buyer shall have delivered to the
Principal Shareholders an opinion, dated the Closing Date, of Blass & Driggs,
Esqs., counsel for Buyer, in the form of Exhibit 10.4.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or
other order (including a temporary restraining order) which prevents the
consummation of the transactions contemplated by this Agreement shall be in
effect.
10.6 AUTHORIZATION DOCUMENTS. The Principal Shareholders shall
have received a certificate of the Secretary or other officer of each of Buyer
and Newco certifying a copy of resolutions of the board of directors of Buyer
and Newco authorizing Buyer's and Newco's execution, delivery and performance of
this Agreement and the Transaction Documents (including, without limitations,
the Plan of Merger) and the transactions contemplated hereby and thereby, and
also certifying the incumbency of the officers of Buyer and Newco.
10.7 OTHER DOCUMENTS. Buyer shall have furnished the Principa
Shareholders with all documents, certificates and other instruments that the
Buyer is required to furnish to the Principal Shareholders.
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING
11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties, covenants and agreements that each party makes in
this Agreement or in any
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Schedule, certificate, document or list that any such party delivered pursuant
hereto shall survive the Closing and the Effective Time of Merger.
Notwithstanding any investigation conducted before or after the Closing or the
decision of any party to consummate the Closing, each party hereto shall be
entitled to rely and is hereby declared to have reasonably relied upon the
representations and warranties of the other party.
11.2 INDEMNIFICATION BY PRINCIPAL SHAREHOLDERS. Each of the
Principal Shareholders and the Company, shall indemnify and defend Buyer and
hold it harmless against any and all damage, loss, liability, cost and expense
(including, without limitations, reasonable attorney's fee's and expenses) (all
of the foregoing hereinafter collectively referred to as "Loss") resulting from:
(a) any inaccuracy in any representation, or any breach of any
warranty, that any Principal Shareholder made in this Agreement or any
Transaction Document, provided that Buyer makes a claim to the Principal
Shareholders within ninety (90) days after Buyer learns of such inaccuracy
or breach, except for breaches as to which any of the Subsidiaries would be
entitled to indemnification from Buyer under the Management Agreement; or
(b) the breach by any Principal Shareholder of any covenant in this
Agreement or any Transaction Document, except for breaches as to which any
of the Subsidiaries would be entitled to indemnification from Buyer under
the Management Agreement; or
(c) any liability of the Company to the Medicare or Medicaid programs,
or to any other third party payor, for the recoupment of reimbursement the
Company received prior to the Effective Time of Merger; or
(d) the claims for options, and any related employment agreement
claims, described on Schedule 4.12; or
(e) the amount of Current Liability Excess as determined in accordance
with Section 2.4(c); or
(f) the investigation, defense or (to the extent the indemnifying
party consents) settlement, of any of the foregoing or the enforcement of
this indemnity obligation.
11.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend
the Principal Shareholders and hold them harmless against and with respect to
any and all Loss resulting from:
(a) any inaccuracy in any representation, or breach of any warranty,
that the Buyer made in this Agreement or any Transaction Document, provided
that the Principal Shareholders make a claim to Buyer within ninety (90)
days after they learn of such inaccuracy or breach; or
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(b) the breach by Buyer of any covenant in this Agreement or any
Transaction Document; or
(c) the investigation, defense, or (to the extent the indemnifying
party consents) settlement, of any of the foregoing or the enforcement of
this indemnity obligation.
11.4 INDEMNIFICATION PERIOD AND BASKET. Any claim for
indemnification pursuant to Sections 11.2 or 11.3 must be asserted by written
notice to the party from whom indemnification is sought within twelve (12)
months following the Closing Date, provided that no such time limitation shall
be applicable to claims that Buyer asserts with respect to any Recoupment
Liability or with respect to any breach of the representations and warranties
contained in Section 4.21. Such written notice shall contain a detailed
description of the nature of the claim and the basis therefor. No party shall be
entitled to indemnification hereunder unless and until the aggregate amount of
all claims for which such party may be entitled to indemnification hereunder
equals or exceeds One Hundred Fifty Thousand ($150,000) Dollars.
11.5 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS. A party seeking
indemnification under Section 11.2 or 11.3, or 2.4(c) shall give the other party
prompt written notice of the claim for which it seeks indemnification. Failure
of the party seeking indemnification to give such prompt notice shall not
relieve the other party of its indemnification obligation, provided that such
indemnification obligation shall be reduced by any damages such other party
suffered that results from a failure to give prompt notice hereunder. The party
receiving the aforementioned notice shall be entitled to participate in the
defense of such claim. If at any time the party receiving such notice
acknowledges in writing that the claim is fully indemnifiable under this
Agreement, it shall have the right to assume total control of such claim at its
own expense. If the party receiving such notice does not assume total control of
such claim, the other party agrees not to settle such claim without the written
consent of the party receiving notice, which consent shall not be unreasonably
withheld, delayed or conditioned. Nothing contained in this Section 11.5 shall
prevent either party from assuming total control of the defense and/or settling
of any claim against it for which indemnification is not sought under this
Agreement.
11.6 OFFSETS. Buyer shall be entitled to offset any amounts due
to it by reason of any indemnification claim under this Article 11 against any
amount which may then or thereafter become due to any Principal Shareholder as a
Contingent Payment. If Buyer shall be entitled to indemnification under Section
11.2(e) above, it shall offset any indemnification claims against future
Contingent Payments as they become due prior to proceeding with other
indemnification rights.
11.7 RESTRICTIONS.
(a) From and after the Closing Date, no Principal Shareholder shall
disclose, directly or indirectly, to any person outside of Buyer's employ
without the express authorization of Buyer any pricing strategies or
records of the Company, any proprietary data or trade secrets
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the Company owns or any financial or other information about the Company
not then in the public domain; provided, however, that Principal
Shareholder shall be permitted to make such disclosures as may be required
by law or by a court or governmental authority.
(b) For five (5) years after the Closing Date, no Principal
Shareholder shall engage or participate in any effort or act to induce any
of the suppliers, employees or independent contractors of the Company to
cease doing business with or to terminate their employment with the
Company.
(c) For five (5) years after the Closing Date, the Principal
Shareholders shall not, directly or indirectly, for or on behalf of
themselves or any other person, firm, entity or other enterprise, engage in
or act as a consultant for (except as provided below), be a partner in,
have a proprietary interest in, or loan money to any person, enterprise,
partnership, association, corporation, joint venture or other entity which
is directly or indirectly engaging in the business of owning, operating or
managing any entity of any type, licensed or unlicensed, which is engaged
in or provides home health care anywhere within the United States of
America. However, the foregoing shall not prohibit the Principal
Shareholders from owning not more than 2% of the issued shares of any
company whose common stock is listed for trading on any national securities
exchange or on the NASDAQ National Market System, or from writing or
speaking about the home health care industry, or from consulting with any
home health care provider about Medicare, Medicaid and other third party
payor reimbursement issues and regulatory compliance issues.
(d) Principal Shareholders acknowledge that the restrictions contained
in this Paragraph 11.7 are reasonable and necessary to protect the
legitimate business interests of Buyer and that any violation thereof by
any of them would result in irreparable harm to Buyer. Accordingly,
Principal Shareholders agree that if they violate any of the restrictions
contained in this Section 11.7, Buyer shall be entitled, without the
necessity of posting any bond or security, to obtain from any court of
competent jurisdiction a preliminary and permanent injunction as well as
any other relief provided at law or equity, under this Agreement or
otherwise. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceedings, then the parties agree that the period of
time or the scope of such restrictions (or both) shall be adjusted in such
a manner or for such a time (or both) as is adjudged to be reasonable.
11.8 RECORDS. On the Closing Date, the Company shall deliver to
Buyer all records and files not then in Buyer's possession relating to the
operation of the Company. Buyer shall provide the Principal Shareholders
reasonable access to such records and files during normal business hours and
upon reasonable prior notice for purposes of completing tax returns or other
filings with governmental authorities or courts.
11.9 AUDIT. Following Closing, the Principal Shareholders will
cooperate and provide such information as may be necessary in connection with an
audit of the Company's financial
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statement for the periods beginning January 1, 1995, and ending after the
Closing Date. Buyer shall bear the cost of such audit.
11.10 CORPORATE OFFICE. For a period of not less than three (3)
years following the Closing Date, Buyer agrees to maintain the principal
corporate operations of the Company in Brunswick, Georgia, and to continue the
employment of as many of the current employees of the Company as reasonably
practicable in the context of the Company's then current business plan.
ARTICLE XII: TERMINATION
12.1 TERMINATION. This Agreement may be terminated at any time
at or prior to the Closing by:
(a) Buyer, if any condition precedent to Buyer's obligations hereunder
that is set forth in Article IX hereof has not been satisfied by the
Closing Date, or by Buyer pursuant to Section 8.9 hereof or by Buyer if the
Consulting Agreement is terminated for any reason; or
(b) the Principal Shareholders, if any condition precedent to the
Principal Shareholders' obligations hereunder that is set forth in Article
X hereof has not been satisfied by the Closing Date; or
(c) the mutual consent of Buyer and Principal Shareholders; or
(d) Buyer or the Principal Shareholders, if the Closing shall not have
occurred by a date (the "Expiration Date") which is the later of (i) a date
six (6) months following the date hereof, and (ii) a date which is
forty-five (45) days after the execution of the Settlement Releases (other
than due to the breach of any party hereto). Notwithstanding the foregoing,
however, in the event that the Closing shall not have occurred by a date
six (6) months following the date hereof due to the failure of the
Bankruptcy Court to proceed expeditiously with the confirmation of the
Debtors' plan of reorganization, then Buyer shall have the right to extend
the Expiration Date by a period not to exceed three (3) months under
Section 12.1(d)(i).
12.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 12.1, this Agreement shall become null and void without any
liability of any party to the other except as otherwise provided herein.
12.3 BREAK-UP FEE. In the event that the Closing does not occur
due to:
(a) any direct or indirect conduct by or on behalf of any Debtor to
preclude Buyer from being able to fulfill its obligations under this
Agreement or the Consulting Agreement; or
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(b) this Agreement not being approved by the Bankruptcy Court (i)
because of an offer from, or a sale or transfer to some other person or
entity of all or a substantial portion of any of the Company Shares, or all
or a substantial portion of the assets of any of the Debtors, or, in
respect of any merger, consolidation or other sale of any Debtor or (ii)
because any of the Debtors seeks to obtain confirmation of a plan of
reorganization in contravention of the terms of this Agreement,
and provided that Buyer has fully performed the obligations that it was to
perform prior to Closing, the Principal Shareholders and the Company shall
be jointly and severally obligated to pay to Buyer a break-up fee in the
amount of Fifteen Million Dollars ($15,000,000), with the exception that if
the Closing does not occur due to the marketing of any Debtor in
contravention of the Agreement by the Principal Shareholders, the Company
or its subsidiaries during the term of this Agreement, the Principal
Shareholders and the Company shall be jointly and severally obligated to
pay to Buyer a break-up fee in the amount of Twenty-Five Million Dollars
($25,000,000). This provision shall survive the Termination of the
Agreement.
In the event that the Closing does not occur due to Buyer's
unjustified refusal to close and provided that the Company has fully
performed the obligations that it was to perform prior to Closing, Buyer
shall pay to the Company in cash the amount by which the consideration that
a purchaser pays for the stock or assets of the Company is less than
$250,000,000 but such payment shall not exceed $15,000,000. In the event
that either (i) Buyer without cause terminates the Consulting Agreement or
(ii) the Company terminates the Consulting Agreement with cause, and Buyer
thereafter terminates this Agreement based solely upon the termination of
the Consulting Agreement, then no break-up fee shall be payable.
ARTICLE XIII: BANKRUPTCY
13.1 BANKRUPTCY CASES. The Company has advised Buyer that it
intends that it and each of its subsidiaries set forth on Schedule 13.1 attached
hereto (the "Debtors") shall file a petition for relief under Chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. ss.ss. 101- 1330 (the "Bankruptcy
Code"), in the United States Bankruptcy Court for the Southern District of
Georgia, Brunswick Division (the "Bankruptcy Court") on or before February 21,
1996.
13.2 CONSULTING AGREEMENT. The Debtors shall file a motion for,
and use their respective best efforts to obtain, Bankruptcy Court approval of a
"Consulting Agreement" in form and substance satisfactory to Buyer in its sole
and absolute discretion on or before 7 business days after commencement of the
first bankruptcy case. The Consulting Agreement will not have been terminated
without Buyer's consent, unless termination is for cause. The motion, any order
regarding approval of the Consulting Agreement and the Consulting Agreement
shall be in form and substance reasonably acceptable to Buyer.
13.3 BANKRUPTCY COURT APPROVAL, BREAK-UP FEE, COMPETITIVE BIDDING
REQUIREMENTS, AND EXCLUSIVITY. The Debtors shall file a motion for, and use
their respective
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best efforts to obtain, Bankruptcy Court approval of (a) all of the terms and
conditions of this Agreement, (b) the break-up fee provided for in Section 12.3
of this Agreement, (c) competitive bidding requirements to the effect that any
competing bid provides for total consideration provided in this Agreement plus
Fifty Million Dollars ($50,000,000.00) and that Buyer has the right to match any
competing bid and to receive a partial credit in respect of any increased bid by
Buyer against the cash portion of the purchase price under this Agreement in an
amount equal to Twenty Million Dollars ($20,000,000.00), and (d) the exclusivity
provisions of Section [8.6] of this Agreement, all on or before 7 business days
after commencement of the first bankruptcy case.
13.4 DISCLOSURE STATEMENT AND PLAN OF REORGANIZATION. The Debtors
shall file a disclosure statement, if required, and proposed plan of
reorganization in the bankruptcy cases consistent with the terms of this
Agreement and the Consulting Agreement, all in form and substance reasonably
acceptable to Buyer, on or before 35 days after commencement of the first
bankruptcy case.
13.5 CONVERSION, APPOINTMENT OF TRUSTEE, CHANGE IN MANAGEMENT. No
chapter 11 case regarding any Debtor shall have been converted to a case under
chapter 7 of the Bankruptcy Code. No trustee shall have been appointed regarding
any Debtor.
13.6 DIP FINANCING. No order shall have been entered regarding
any post-petition financing arrangement without the previous written consent of
Buyer with respect thereto.
ARTICLE XIV: MISCELLANEOUS
14.1 COSTS AND EXPENSES. Except as expressly otherwise provided
in this Agreement, each party hereto shall bear its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby.
14.2 PERFORMANCE. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and the breaching party hereby waives the defense that
there may be an adequate remedy at law. Should any party default in its
performance hereunder, the remaining party shall be entitled to recover from
such defaulting party its reasonable attorneys fees incurred in the enforcement
of its rights hereunder.
14.3 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to
the benefit of each party hereto and its or their successors and proper assigns.
No party may assign its, his or her interest under this Agreement to any other
person or entity without the prior written consent of the other parties hereto;
provided, however, that, after the Closing, Buyer may assign its rights
hereunder to one or more subsidiaries of Buyer.
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14.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement
and the Exhibits, Schedules, and other agreements referenced herein, embody the
entire agreement and understanding of the parties and supersede any and all
prior agreements, arrangements and understandings relating to matters provided
for herein. The captions used herein are for convenience only and shall not
control or affect the meaning or construction of the provisions of this
Agreement. This Agreement may be executed in one or more counterparts, and all
such counterparts shall constitute one and the same instrument.
14.5 COOPERATION -- FURTHER ASSISTANCE. As and when any party
hereto after the Closing reasonably requests, the other parties will (at the
expense of the requesting party) execute and deliver, or cause to be executed
and delivered, all such documents, instruments and consents and will use
reasonable efforts to take all such action as may be reasonably necessary to
carry out the intent and purposes of this Agreement.
14.6 NOTICES. All notices and demands required or permitted
hereunder shall be in writing and shall be deemed to be properly given or made
when personally delivered to the party or parties entitled to receive the notice
or when sent by certified or registered mail, postage prepaid, properly
addressed to the party entitled to receive such notice at the address stated
below:
If to any Seller Robert J. and Margie B. Mills
or the Company: 2660 Frederica Road
St. Simons Island, Georgia 31522
Copy to: David H. Williams, Esq.
Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
If to Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Brian K. Davidson
Copy to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
Such addresses may be changed by providing written notice as provided in this
Section 14.6.
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14.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be
released, discharged or abandoned in any manner, except by an instrument that
each of the parties hereto executes in writing. The failure of any party to
enforce any of the provisions of this Agreement shall not be construed to be a
waiver of any such provision, nor to affect the validity of this Agreement or
any part hereof or the right of such party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other breach.
14.8 RIGHTS OF PERSONS NOT PARTIES. Nothing contained in this
Agreement shall be deemed to create rights in persons not parties hereto, other
than the successors and proper assigns of the parties hereto.
14.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, disregarding any
contrary rules relating to the choice or conflict of laws.
14.10 AMENDMENTS, SUPPLEMENTS, ETC. At any time before or after
the execution and delivery of this Agreement, the parties may amend or
supplement this Agreement as the parties may determine to be necessary,
appropriate or desirable to further the purposes of this Agreement, to clarify
the intention of the parties or to add to or to modify the terms or conditions
hereof. The parties hereto shall make such technical changes to this Agreement,
not inconsistent with the purposes hereof, as may be required to effect or
facilitate any governmental approval or acceptance of this Agreement or to
effect or facilitate any filing or recording required for the consummation of
any portion of the transactions contemplated hereby. Any such amendment or
supplement may only be done by an instrument in writing that each of the parties
signs.
14.11 SEVERABILITY. Any provision, or distinguishable portion of
any provision, of this Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 11.5 shall be
determined to be overly broad in any respect, then it should be enforceable to
the maximum extent permissible under the law, To the extent permitted by
applicable law, the parties waive any provision of law which renders a provision
hereof prohibited or unenforceable in any respect.
14.12 JOINT AND SEVERAL. Except as expressly set forth herein,
each of the representations, warranties and covenants of Principal Shareholders
under this Agreement shall be joint and several.
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IN WITNESS WHEREOF, each of the parties hereto and in the capacity
indicated below has executed this Agreement as of the day and year first above
written.
PRINCIPAL SHAREHOLDERS:
/s/ Robert J. Mills
----------------------------------------
Robert J. Mills
/s/ Margie B. Mills
----------------------------------------
Margie B. Mills
COMPANY:
FIRST AMERICAN HEALTH CARE OF
GEORGIA, INC.
By:/s/ Frank M. Chamberlain
-------------------------------------
Frank M. Chamberlain
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:/s/ Marshall A. Elkins
-------------------------------------
Marshall A. Elkins
NEWCO:
IHS ACQUISITION XIV, INC.
By: /s/ Marshall A. Elkins
-------------------------------------
Marshall A. Elkins
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AMENDMENT TO MERGER AGREEMENT
This Amendment (this "Amendment Agreement"), dated as of September 9, 1996,
is by and among Integrated Health Services, Inc. ("IHS" or "Buyer"), IHS
Acquisition XIV, Inc. ("Newco"), First American Health Care of Georgia, Inc.
("First American" or the "Company"), Robert J. Mills ("R. Mills") and Margie B.
Mills ("M. Mills", and together with R. Mills, the "Principal Shareholders").
WITNESSETH THAT:
WHEREAS, the parties hereto are parties to a Merger Agreement (the "Merger
Agreement"), dated as of February 21, 1996; and
WHEREAS, First American and its subsidiaries (the "Debtors") filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code, 11
U.S.C. ss.ss. 101-1330, in the United States Bankruptcy Court for the Southern
District of Georgia, Brunswick (the "Bankruptcy Court"), on February 21, 1996;
and
WHEREAS, the Debtors have filed an Amended and Restated Plan of
Reorganization (the "Plan") and an Amended and Restated Disclosure Statement
(the "Disclosure Statement") with the Bankruptcy Court on or about August 21,
1996; and
WHEREAS, it is a condition to the Closing (as defined in Section 3.1
hereof) under the Merger Agreement that IHS (including its subsidiaries) receive
executed agreements from the United States Office of the Inspector General (the
"OIG") and the U.S. Department of Health and Human Services through the Health
Care Financing Administration ("HCFA") reasonably acceptable to IHS, providing,
among other things, that IHS, First American, and its subsidiaries shall not be
held liable (including, without limitation, by way of making offsets) or
responsible for any Medicare or Medicaid liability for periods prior to the
Closing (except for First American's payment of the amount required to obtain
the Settlement Releases, as contemplated by Section 2.2(a)(i) of the Merger
Agreement), and which provide for the withdrawal of any pending or threatened
legal proceedings by OIG or HCFA that propose to exclude the Company from
Medicare or Medicaid programs; and
WHEREAS, IHS, First American and the subsidiaries of First American have
entered into a term sheet (the "Term Sheet") with respect to a Settlement
Agreement (the "Settlement Agreement") with HCFA and the U.S. Department of
Justice (the "DOJ") with respect to the settlement of various claims among the
parties thereto; and
WHEREAS, the Term Sheet and the Plan and the Disclosure Statement
contemplate that the Merger Agreement be amended in certain respects; and
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WHEREAS, the parties hereto desire to amend the Merger Agreement as
provided herein;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Article II of the Merger Agreement is hereby amended to read in its entirety
as follows:
"ARTICLE II: CONVERSION AND
TERMINATION OF ALLOWED INTERESTS
2.1 Certain Definitions.
(a) References to this "Agreement" shall mean the Merger Agreement, as
amended with the written consent of each party thereto.
(b) Capitalized terms used herein, and not otherwise defined, shall have
the meanings ascribed thereto in the Merger Agreement. To the extent not covered
by the preceding sentence, capitalized terms used herein and not otherwise
described herein shall have the meanings ascribed thereto in the Plan as filed
on or about August 21, 1996; provided that if any such definition shall be
amended pursuant to an amendment to the Plan, which amended definition is
approved in writing by each party hereto, such amended definition shall apply.
(c) "Merger Consideration" shall mean the Mills Merger Consideration and
the Non-Mills Merger Consideration.
(d) "Mills Merger Consideration" shall mean the amounts payable to the
Mills Holders in accordance with Section 2.3(a)(i) and 2.3(b) below.
(e) "Non-Mills Merger Consideration" shall mean the amounts payable to the
Non-Mills Option Holders in accordance with Section 2.3(a)(ii) below.
(f) "Non-Mills Option Holders" means the holders of Allowed Options other
than the Principal Shareholders, Joel V. Mills, David G. Mills, Angela Dobson
and Lee Dobson (the "Mills Family") and other than any person who has acquired
(except for transfer(s) to J. Alan Welch prior to the date hereof) any Allowed
Options from any member of the Mills Family (collectively, the Mills Family and
such transferees being referred to herein as the "Mills Holders").
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(g) "Pro Rata" means, with respect to any Non-Mills Option Holder,
proportionately so that the ratio of the amount of funds distributed to any
Non-Mills Option Holder (on account of Allowed Option(s)) to the amount of all
funds distributed to Non-Mills Option Holders on account of Allowed Options is
the same as the ratio of the Individual Equity Holding of such holder to the
Total Equity Holdings of the Non-Mills Option Holders; provided, however, that
H. Wayne Phears will receive no more than $20 per Allowed Option out of the
Non-Mills Merger Consideration.
2.2 Conversion and Cancellation of Allowed Interests.
(a) At the Effective Time of Merger (as defined in Section 3.3 of this
Agreement), each share of Allowed Common Stock shall, without any action by the
holder thereof, be converted into the right to receive the portion of the Mills
Merger Consideration allocable to such share in accordance with Schedule 2.1(g)
and the Plan as the same may be amended with the written consent of each party
hereto.
(b) At or prior to the Effective Time of Merger, each Allowed Option shall
have been canceled and terminated and converted, in accordance with the Plan as
the same may be amended with the written consent of each party hereto and the
Stock Option Plan of the Company, into the right to receive the portion of the
Mills Merger Consideration in accordance with Schedule 2.1(g) and the Plan as
the same may be amended with the written consent of each party hereto, in the
case of Mills Holders, or in the case of Non-Mills Option Holders, the Pro Rata
distribution of the Non-Mills Merger Consideration, in each case, allocable to
such Allowed Option in accordance with the Plan as the same may be amended with
the written consent of each party hereto, without any action by the holder
thereof.
(c) Each share of Newco common stock outstanding immediately prior to the
Effective Time of Merger shall be converted into one share of common stock of
the Company.
(d) Buyer agrees that, prior to the Closing, the Company may, in accordance
with all applicable laws, rules and regulations, cancel each of the three (3)
awards of 25,000 shares of the Company's Class B Stock the Company granted to
individuals (themselves not being Principal Shareholders) for services as
directors. The consideration for any such cancellation shall be the agreement by
the Company to pay to the holder of such canceled shares any amount that would
have been payable to him or her had the shares not been canceled prior to
consummation of the Merger on the dates and in the manner otherwise provided by
this Agreement (including Schedule 2.1(g)). Such amounts payable to such holders
shall be deemed part of the Mills Merger Consideration for all purposes of this
Agreement and the holders thereof shall be holders of Allowed Interests to the
extent provided in the Plan. The Company shall not cancel any such award unless
the holder thereof shall have executed and delivered to the Company a
transmittal letter in the form and substance required pursuant to Section 2.3(c)
below.
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2.3 Manner of Exchange and Payment; Estate Representative.
(a) At the Closing, Buyer shall pay to the Estate Representative, by wire
transfer to the Bank Account (as such term is hereinafter defined), as payment
of the cash portion of: (i) the Mills Merger Consideration payable at Closing,
an amount equal to Thirty Million Two Hundred and Thirty Thousand Dollars
($30,230,000), less (A) any amount by which the Mills Merger Consideration shall
be reduced in accordance with Section 11.6 of this Agreement, and (B) any other
indemnification amounts to which Buyer may then be entitled in accordance with
Article XI hereof; and (ii) the Non-Mills Merger Consideration payable at
Closing, an amount equal to Eight Million Eight Hundred and Fifty-Four Thousand
Dollars ($8,854,000), less (A) any amount by which the Non-Mills Merger
Consideration shall be reduced in accordance with Section 11.6 of this
Agreement, and (B) any other indemnification amounts to which Buyer may then be
entitled in accordance with Article XI hereof. Such payment(s) shall be further
reduced by applicable federal, state and local tax withholdings as provided in
instructions Buyer furnishes to the Company.
(b) On such dates as shall be required in accordance with Section 2.4 of
this Agreement, Buyer shall pay to the Estate Representative the amount of the
Contingent Payments then due in accordance with Section 2.4 of this Agreement,
less (i) any amount by which the Mills Merger Consideration shall be reduced in
accordance with Section 11.6 of this Agreement, and (ii) any other
indemnification amounts to which Buyer may then be entitled in accordance with
Article XI hereof. Such payment(s) shall be further reduced by applicable
federal, state and local tax withholdings as provided in instructions Buyer
furnishes to the Company.
(c) The Plan shall require the Estate Representative to distribute the
Merger Consideration to any holder of any Allowed Interest only after such
holder executes and delivers to the Estate Representative and Buyer a
transmittal letter, accompanied (in the case of issued and outstanding stock) by
the instrument, if any, evidencing such holder's Allowed Interest (or a lost
certificate affidavit and indemnity, with such other assurance as Buyer may
reasonably require), such transmittal letter to include: (i) representations and
warranties to the effect that: (A) such holder owns the applicable Allowed
Interests free and clear of all liens, claims, restrictions on transfer,
security interests, pledges and encumbrances (collectively "adverse claims") of
any kind or nature whatsoever other than adverse claims described in subsection
(d) hereof that are fully discharged upon payment of the Merger Consideration
pursuant to subsection (d), (B) such holder has the authority and capacity to
execute and deliver such transmittal letter, to surrender such Allowed Interest
(as applicable) and to receive the Merger Consideration with respect thereto,
and to accept and perform any other provisions of the transmittal letter which
the holder is specified therein to perform; (ii) acknowledgment that such
holder's rights to receive Merger Consideration are governed by the provisions
of the Plan, including, without limitation, the right of Buyer to make offsets
in accordance with Section 11.6 of this Agreement; (iii) acknowledgment that the
Company or its designee (including Buyer, as applicable) may withhold or receive
applicable Federal, state and local taxes out of the distribution of any Merger
Consideration to such holder; (iv) an undertaking of the holder to give effect
to the terms of appointment of the Estate
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Representative in accordance with Annex A of this Agreement; (v) agreement that
such holder waives, releases and agrees not to assert, any claims against the
Company, any of its Subsidiaries, the Buyer, Newco or any Mills Holder, or any
of their respective shareholders, officers, directors, agents, attorneys or
other advisers, or any other person or persons any of them designates, arising
out of any action, omission, matter, event or occurrence on or prior to the
Closing, except for specific enumerated exceptions with respect to the Company
or Buyer that are acceptable to the Company and Buyer; (vi) agreement that upon
payment of any amount to the Estate Representative, none of Buyer, Newco, the
Company or any of its Subsidiaries shall have any liability with respect to any
such payment or the Bank Account (as defined in subsection (g) below); and (vii)
an undertaking to indemnify and hold Buyer, Newco and the Estate Representative
harmless from any loss, damage, liability, cost and expense (including, without
limitation, attorneys' fees) arising out of any breach by said holder of any
representation, warranty, covenant or undertaking he or she makes in such
transmittal letter. If such a transmittal letter cannot be obtained, Buyer
and/or the Estate Representative may seek approval from the Bankruptcy Court for
release of the affected funds subject to legal safeguards the Bankruptcy Court
may provide in lieu of the provisions of the transmittal letter.
(d) Each Principal Shareholder hereby authorizes and directs Buyer and/or
the Estate Representative to pay, out of the Mills Merger Consideration payable
to such Principal Shareholder, to The Coastal Bank of Georgia, the DOJ and, with
the agreement of such Principal Shareholder, any other holder of an adverse
claim which Buyer and/or the Estate Representative may deem necessary, such
amount as shall be necessary to discharge adverse claims such persons or
entities hold against the Principal Shareholders or the Allowed Interests they
hold and otherwise to give effect to the Principal Shareholders' agreements with
such holders, as made known to Buyer and/or the Estate Representative prior to
Closing.
(e) At any time after the Effective Time of Merger, IHS of Brunswick, Inc.,
a wholly-owned subsidiary of Buyer and the sole shareholder of Newco, upon
surrender of the stock certificate evidencing all outstanding shares of Newco,
shall be entitled to receive in exchange therefor a certificate representing
shares of stock of the Company, calculated on a one-to-one basis. Until so
surrendered, each such certificate that, prior to the Effective Time of Merger,
represented the outstanding shares of Newco stock will be deemed to evidence
such shares of the stock of the Company. Upon the surrender of such certificate
evidencing Newco stock, they shall be duly canceled.
(f) Subject to and upon the terms and conditions of this Agreement, at the
Effective Time of Merger, Newco shall be merged with and into the Company. Each
party hereto shall execute, deliver and file, or shall cause to be executed,
delivered and filed, all such instruments, certificates of merger and other
certificates and documents as shall be necessary to effectuate the Merger under
corporate and bankruptcy laws, and in accordance with the Plan (as the same may
be amended with the written consent of each party hereto), on the Closing Date
(as hereinafter defined).
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(g) The "Bank Account" shall mean the bank account established for the
Estate Representative in accordance with the Plan or such other depository or
means of safeholding as the Bankruptcy Court may approve. The Principal
Shareholders agree that upon payment of any amount to the Estate Representative,
subject to applicable withholdings and payments to holders of adverse claims to
the extent required above, none of Buyer, Newco, the Company or any other Debtor
shall have any liability with respect to such Bank Account or any such payment
regardless of whether the Bank Account is opened in the name of any of them and
regardless of any investment decisions made with respect to such funds after
such payment by Buyer and regardless of to whom the Estate Representative makes
any payment. The Principal Shareholders shall indemnify and hold harmless the
Buyer and the Company from and against any and all Loss (as such term is
hereinafter defined) arising out of any action or omission by the Estate
Representative with respect to any funds Buyer or the Company paid to or at the
instruction of the Estate Representative.
2.4 Contingent Payments.
(a) The Mills Merger Consideration shall include the following amounts
payable on the following dates, subject to the contingencies set forth below and
Buyer's rights under Section 11.6 of this Agreement (the "Contingent Payments"):
(i) On or before February 15, 2001, a sum shall be paid to the Estate
Representative in respect of the year 2000 equal to Five Million Dollars
($5,000,000);
(ii) On or before February 15, 2002, a sum shall be paid to the Estate
Representative in respect of the year 2001 equal to Six Million Dollars
($6,000,000) plus the amount, if any, of the Contingent Payment in respect
of the year 2000 that shall not have been paid by reason of the occurrence
of the contingency set forth below in any such prior year provided in
subsection (b) hereof;
(iii) On or before February 15, 2003, a sum shall be paid to the
Estate Representative in respect of the year 2002 equal to Four Million
Dollars ($4,000,000) plus the amount, if any, of the Contingent Payments in
respect of the years 2000 and 2001 that shall not have been paid by reason
of the occurrence of the contingency set forth below in any such prior year
as provided in subsection (b) hereof; and
(iv) On or before February 15, 2004, a sum shall be paid to the Estate
Representative equal to any amount of the Contingent Payments in respect of
the years 2000, 2001 and 2002 that shall not have been paid by reason of
the occurrence of the contingency set forth below in any such prior year as
provided in subsection (b) hereof.
(b) No Contingent Payment shall be payable following an applicable year (a
"Subject Year") if the year-to-year percentage increase from December of the
year preceding the Subject Year in the seasonally unadjusted Consumer Price
Index for all urban consumers (CPI-U)
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for the Medical Care expenditure category (as reported in table 1 of the CPI
Detailed Report, prepared by the Bureau of Labor Statistics in the U.S.
Department of Labor) ("CPI") exceeds eight percent (8%). Thus, for example, if
the CPI determined for the period of December 1999 to December 2000 exceeds
eight percent (8%), the Contingent Payment of Five Million Dollars ($5,000,000)
otherwise accruing in the year 2000 and due to be paid on or before February 15,
2001, would not be paid; then, if the CPI determined for the period of December
2000 to December 2001 does not exceed eight percent (8%), the Contingent Payment
of Six Million Dollars ($6,000,000) otherwise accruing in the year 2001, plus
the Contingent Payment of Five Million Dollars ($5,000,000) in respect of the
year 2000 would be due and payable on or before February 15, 2002.
Notwithstanding the foregoing, if legislation is enacted that changes the
Medicare reimbursement methodology for home health services to a prospectively
determined rate methodology, in whole or in part, the foregoing contingency
shall terminate thereupon and all Contingent Payments shall be made then and
thereafter, including payment in full of Contingent Payments from prior years
that have not yet been paid, as if no contingency thereafter applies. In the
event that the CPI, as defined above, is not regularly maintained and published
by the Bureau of Labor Statistics in the U.S. Department of Labor, or a
successor agency, any affected party may petition the Bankruptcy Court for use
of a comparable reference considered appropriate.
(c) Buyer shall cause the Company or its successors to make payment, and
Buyer agrees to provide HHS and DOJ with a guarantee, to HHS and DOJ as provided
in the Settlement Agreement.
2.5 Working Capital Adjustments to the Merger Consideration.
(a) Buyer shall be entitled to be indemnified in accordance with Article XI
of this Agreement on a dollar-for-dollar basis (subject to application of the
Reserve (as defined in, and in accordance with, Section 11.4 below), for the
amount of the Company's Negative Working Capital (as defined below) as at the
Closing Date that exceeds Thirty-Four Million Dollars ($34,000,000). 1 For
purposes of this Agreement, the Company's "Negative Working Capital" shall be
the amount by which the consolidated current liabilities of the Company and its
- --------
1 By way of example only, assuming that Negative Working Capital was
$50,000,000, and Buyer had no indemnification claims under Sections
11.2(a)(i) through and including Section 11.2(a)(v), and had no
indemnification claims under Sections 11.2(a)(vii) and 11.2(a)(viii), then
Buyer would have an indemnification claim for $16,000,000 pursuant to Section
11.2(a)(vi). Pursuant to Section 11.4, $16,000,000 of the Reserve would be
applied against such $16,000,000 claim, and accordingly no amount would be
payable in respect of such $16,000,000 claim, and the amount of the remaining
Reserve available for application against any future indemnification claims
would be reduced by such $16,000,000, from $17,000,000 to $1,000,000.
On the other hand, assuming Buyer were entitled to indemnification for a Loss
in the amount of $1,500,000 pursuant to Section 11.2(a)(i) for a breach of a
representation and that such Loss could not be included as a current
liability or current asset reduction in the calculation of Negative Working
Capital, and further assuming that Negative Working Capital was $50,000,000,
then Buyer would have aggregate indemnification claims for $17,500,000 (i.e.,
$1,500,000 for the breach of representation pursuant to Section 11.2(a)(i)
plus $16,000,000 for the amount by which Negative Working Capital exceeded
$34,000,000 pursuant to Section 11.2(a)(vi)). Pursuant to Section 11.4, the
entire $17,000,000 Reserve would be applied against $17,000,000 of such
indemnification aggregate $17,500,000 claims, and the balance of $500,000
would be payable by the Principal Shareholders to Buyer.
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Subsidiaries as at the Closing Date shall exceed the consolidated current assets
of the Company as at the Closing Date. For the purposes of calculating the
Negative Working Capital, current assets and current liabilities shall be
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied ("GAAP"); provided that
notwithstanding GAAP requirements or past practices, (i) current liabilities
will be accrued for the Allowed Claim of Buyer for $18 million, plus accrued
interest, due to it in connection with the Reimbursement Agreement, dated as of
December 29, 1995, among the Company, its Subsidiaries and Buyer, and for fees
and expenses of KPMG Peat Marwick which the Company has agreed to reimburse to
Buyer under Section 8.10 of this Agreement, but no other reimbursements in
connection with Buyer's participation in the Bankruptcy proceedings or in
connection with Buyer's acquisition of the Company shall be included as current
liabilities for this purpose; (ii) periodic interim payments hereafter received
and/or due from Medicare for service periods ending on or before the Closing
Date shall be treated as current assets at the Closing, without deduction for
overpayment, disallowance of charges, or any other reduction, for such purpose,
and no other periodic interim payments received and/or due from Medicare on or
after the Closing Date shall be treated as current assets of the Closing for
such purpose; (iii) severance/separation payments payable to Joel V. Mills,
David G. Mills, and Lee Dobson as provided in this Agreement shall not be
treated as current liabilities at the Closing for such purpose; (iv) liabilities
for overpayments or prior reserves that have been discharged pursuant to the
Settlement Agreement shall not be treated as current liabilities at the Closing
for such purpose; (v) settlement obligations of the Company with HCFA and DOJ
pursuant to the Settlement Agreement shall not be treated as current liabilities
at the Closing for such purpose and, except as otherwise expressly provided in
Section 11.7(c) of this Agreement, the tax benefits associated with the payment
of such obligations shall not be treated as current assets for such purpose;
(vi) the credit of $2,900,000 that HCFA has agreed to accept for payment of the
fine the Company incurred, as provided in the Settlement Agreement, will be
treated as a reduction in the current liability for such fine at Closing for
such purpose and the balance of the fines shall be treated as a current
liability for such purpose; (vii) the Company and Buyer will agree (after
consultation with the Principal Shareholders or their representatives), prior to
Closing, on reasonable reserves for pending or threatened claims and proceedings
and other contingencies resulting from pre- closing events or circumstances for
such purpose, and all of such reserves shall be treated as current liabilities
for this purpose; and (viii) the costs and savings arising out of restructuring
and cost reduction measures heretofore or hereafter incurred will be excluded
from the calculation of Negative Working Capital for this purpose to the extent
Buyer and Company hereafter jointly confirm in writing that such restructuring
or cost reduction measures were undertaken after consultation with Buyer
primarily to provide operational benefits after the Closing (which restructuring
and cost reduction measures may include sale or disposition of facilities;
cancellation of leases; and termination or reassignment of personnel).
(b) By September 15, 1996 (or such later date as Buyer may accept), the
Company shall deliver to Buyer the projected balance sheet, as at the Closing
Date, of the Company and the Subsidiaries on a consolidated basis (the
"Company's Projected Closing Date Balance Sheet") and of the amount of Negative
Working Capital, if any, that the Company has
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certified to be its best good faith estimate of the foregoing prepared in
accordance with GAAP subject to the adjustments described in subsection (a)
above, and except that footnote information and effects of adjusting, closing or
correcting entries that can only be ascertained through year-end audit
procedures may, as necessary, be omitted. As soon as practicable after receipt
by Buyer of the Company's Projected Closing Date Balance Sheet, and in any event
within ten (10) days after such receipt, Buyer shall complete and deliver to the
Company a review ("Buyer's Review") of the Company's Projected Closing Date
Balance Sheet and the projected Negative Working Capital. If such review shall
reveal that Buyer has any disputes with respect to the Company's Projected
Closing Date Balance Sheet or the projected Negative Working Capital, then
representatives of Buyer, the Company and the Principal Shareholders shall
promptly meet and shall attempt in good faith to resolve any such disputes:
(i) If there are no such disputes or if all of such disputes are
resolved within ten (10) days after the Company's receipt of Buyer's
Review, then the projected balance sheet, as at the Closing Date, of the
Company and the Subsidiaries on a consolidated basis as agreed to between
Buyer and the Company, including the determination of the projected
Negative Working Capital, if any, shall be set forth as an attachment to
this Agreement (the "Projected Closing Date Balance Sheet"), and the amount
of the Merger Consideration payable at Closing shall be reduced by the
amount, if any, to which Buyer shall be entitled to indemnification in
accordance with Section 11.2(a)(vi) (the "Negative Working Capital
Indemnification Amount") in accordance with Section 11.6 of this Agreement.
If the projected Negative Working Capital Indemnification Amount, if any,
set forth in the Projected Closing Date Balance Sheet shall be in excess of
the amount of the Merger Consideration payable at the Closing in accordance
with Section 2.3(a) hereof, then Buyer, in its sole discretion, shall be
entitled to terminate this Agreement in accordance with Article XII hereof,
or to proceed with the closing of the transactions contemplated by this
Agreement, in which case, it shall be entitled to offset the amount of the
projected Negative Working Capital that exceeds the Merger Consideration
payable at Closing against payment of the Contingent Payments in accordance
with Section 11.6 of this Agreement and/or to proceed with any other
indemnification or other rights it may have.
(ii) If the parties are unable to resolve all of such disputes within
such time period, then the Closing may be delayed for up to thirty (30)
days following Confirmation of the Plan unless Buyer elects to close
notwithstanding such disputes, in which case Buyer shall deposit the
disputed amount of any Negative Working Capital Indemnification Amount
under escrow arrangements acceptable to the Company, Buyer and the
Principal Shareholders (or, as applicable, as the Bankruptcy Court
prescribes) pending resolution of such disputes. If the representatives of
Company, Buyer and the Principal Shareholders are unable to resolve all of
such disputes within thirty (30) days following Confirmation of the Plan,
and if Buyer does not elect to close as aforesaid notwithstanding such
disputes, then either the Company or Buyer shall be entitled to terminate
this Agreement in accordance with Article XII hereof.
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(c) On or prior to the first anniversary of the Closing Date, Buyer shall,
at Buyer's expense, review the Projected Closing Date Balance Sheet and the
related consolidated statements of operations, stockholders equity and cash
flows for the period from January 1, 1996 through the Closing Date, to verify
the Company's Negative Working Capital as of the Closing Date, and shall deliver
to the Estate Representative its written report (the "Negative Working Capital
Report") setting forth the amount of such Negative Working Capital. Buyer will
consult with the Estate Representative from time to time during such review. If
the Estate Representative disputes the Negative Working Capital Report, the
parties agree to utilize the following procedure to resolve such dispute:
(i) After delivery to the Estate Representative of the Negative
Working Capital Report, the Estate Representative may deliver to Buyer a
written report (the "Estate Representative's Report") advising Buyer either
(A) that the Estate Representative agrees with the Negative Working Capital
Report, or (B) that one or more adjustments are required. If the Estate
Representative fails to deliver an Estate Representative Report ten (10)
days after Buyer has notified the Estate Representative that ninety (90)
days have elapsed since the date of delivery of the Negative Working
Capital Report to the Estate Representative, and that a response is
required if it is intended to be given, the Estate Representative shall be
deemed to have consented to the calculation of Negative Working Capital as
set forth on the Negative Working Capital Report, which calculation shall
thereupon become final and shall not be subject to further review,
challenge or adjustment, absent fraud, but subject to item (iii) below. If
Buyer concurs with the adjustments the Estate Representative proposes, or
if Buyer does not object thereto in a writing that it delivers to the
Estate Representative within (30) days after Buyer's receipt of an Estate
Representative's Report, the calculation of Negative Working Capital (as so
adjusted in such Estate Representative's Report) shall become final and
shall not be subject to further review, challenge or adjustment, absent
fraud, but subject to clause (iii) below. The Company shall make available
to the Estate Representative such books and records of the Company and its
Subsidiaries as shall be reasonably necessary for the Estate Representative
to prepare the Estate Representative's Report.
(ii) In the event that the Estate Representative submits the Estate
Representative's Report, and Buyer and the Estate Representative are unable
to resolve with Buyer the disagreements set forth in such report within
thirty (30) days after the date of Estate Representative's Report, then
such disagreements shall be referred to a recognized firm of independent
certified public accountants experienced in auditing home health companies
that the Estate Representative and Buyer mutually select (or if they cannot
agree on such selection, then a "big six" accounting firm selected by lot,
other than any such accounting firm for the Company or Buyer during the
two-year period then ended, or if there shall be no such accounting firm,
then any nationally recognized accounting firm the Bankruptcy Court
selects) (the "Settlement Accountants"), and the determination of the
Settlement Accountants shall be final and shall not be subject to further
review, challenge or adjustment, absent fraud. The Settlement Accountants
shall
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use their best efforts to reach a determination not more than forty-five
(45) days after such referral. Buyer shall pay the cost and expenses of the
services of the Settlement Accountants; however, if it is determined that
there will not be any adjustment to the Negative Working Capital Audit in
favor of the Estate Representative, Buyer shall be entitled to offset the
amount of such costs and expenses of the Settlement Accountants against the
Contingent Payment next coming due.
(iii) If any contingent liability for which a reserve is included in
the calculation of Negative Working Capital is finally determined to be
liquidated and undisputed, such liquidated and undisputed amount shall be
used in lieu of the reserve for purposes of calculating Negative Working
Capital.
(d) If the actual Negative Working Capital as finally determined in
accordance with subsections (c) (i), (ii) and (iii) above shall be greater than
the last applicable determination of Negative Working Capital in accordance with
this Agreement, then the amount, if any, for which Buyer shall be entitled to
indemnification in accordance with Article XI of this Agreement (including,
without limitation, Section 11.4 thereof relating to application of the Reserve)
shall be redetermined based on such excess. If the Negative Working Capital as
finally determined in accordance with subsection (c)(i), (ii) and (iii) above
shall be less than the last applicable determination of Negative Working Capital
in accordance with this Agreement, then Buyer shall, subject to its offset
rights for other indemnification claims pursuant to Section 11.6 hereof, return,
upon demand, to the Estate Representative the amount of any excess
indemnification amount it receives in accordance with Article XI of this
Agreement by reason of such higher Negative Working Capital set forth in the
last applicable determination of Negative Working Capital in accordance with
this Agreement, such amount to be distributed to the holders of the Allowed
Interests in accordance with the Plan. 2
(e) In connection with this Section 2.5, Buyer and the Company agree to
notify each other prior to Confirmation of the Plan of any findings or
anticipated disputes that its respective senior management believes will have a
significant impact on the calculation of the Negative Working Capital. Failure
to comply with the foregoing obligation shall not be deemed a waiver of the
right to assert such fact after the Closing with respect to the calculation of
Negative Working Capital or otherwise."
- --------
2 By way of example only, assuming that Negative Working Capital was determined
on the Closing Date to be $52,000,000, and Buyer had no indemnification
claims under Sections 11.2(a)(i) through and including Section 11.2(a)(v),
and had no indemnification claims under Sections 11.2(a)(vii) and
11.2(a)(viii), then Buyer would have an indemnification claim for $18,000,000
pursuant to Section 11.2(a)(vi). Pursuant to Section 11.4, $17,000,000 of the
Reserve would be applied against such $18,000,000 claim, and accordingly the
balance of $1,000,000 would be offset against the Merger Consideration
payable at the Closing. If six months later, a matter is liquidated for
$2,500,000 and the amount of the reserve for such matter on the Projected
Closing Date Balance Sheet was $2,000,000, then the amount of Negative
Working Capital would be redetermined by substituting the $2,500,000
liquidated amount for the $2,000,000 reserve. Accordingly, the amount of
Buyer's indemnification claim under Section 11.2(a)(vi) would be redetermined
to be $18,500,000 instead of $18,000,000. Pursuant to Section 11.4,
$17,000,000 of the Reserve would be applied against such $18,500,000 claim,
and accordingly Buyer would be entitled to receive $1,500,000. Because
$1,000,000 was previously offset against the Merger Consideration payable at
the Closing, the remaining $500,000 would be offset against the Contingent
Payments.
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2. Section 3.1 of the Merger Agreement is hereby amended to read in its entirety
as follows:
"3.1 Time and Place of Closing. The closing of the transactions that this
Agreement contemplates (the "Closing") shall take place at the offices of the
Company's counsel Nelson Mullin Riley & Scarborough in Atlanta, Georgia, after
the satisfaction or waiver of all the conditions precedent set forth in this
Agreement on such date as Buyer shall select upon giving the Company and the
Principal Shareholders at least three (3) business days prior written notice,
which date shall not be fewer than three (3) business days after such conditions
have been satisfied or more than fifteen (15) business days after such
conditions have been satisfied, or at such other time and place upon which the
parties may agree. The date on which the Closing is held is hereinafter called
the "Closing Date"."
3. Article IV of the Merger Agreement is hereby amended as follows:
(a) The last sentence of Section 4.3 of the Agreement is hereby amended to
read in its entirety as follows:
"Subject to obtaining a Final Order confirming the Plan, this Agreement
and, when executed and delivered, each other Transaction Document will be the
legal, valid and binding obligations of the Company (insofar as the Company is a
party thereto or otherwise bound by its terms) enforceable against it in
accordance with their terms. For purposes of this Agreement, the Transaction
Documents shall include this Agreement, the certificates of merger, and the
closing certificate contemplated by Section 9.3 hereof."
(b) Buyer agrees that the following matters shall not constitute breaches
of representations or warranties or covenants: (i) any disallowance of charges
or business activities to the extent they are sought (it being understood that
the foregoing shall not apply to items as to which the parties to the Term Sheet
agreed merely to cooperate) or considered to be settled pursuant to the Term
Sheet; (ii) the existence of the claims set forth in the Claims Registry with
the Bankruptcy Court, but only to the extent described therein and included as
current liabilities in the determination of Negative Working Capital; (iii)
restructuring and cost reduction measures heretofore, or hereafter incurred to
the extent Buyer and Company hereafter jointly confirm in writing that such
restructuring or cost reduction measures were undertaken after consultation with
Buyer primarily to provide operational benefits after the Closing (which
restructuring or cost reduction measures may include sale or disposition of
facilities, cancellation of leases, and termination or reassignment of
personnel) (iv) changes in the ordinary course of business consistent with past
practices in the physical condition of, the property, plant and equipment of the
Company and its Subsidiaries, (v) adjustments to the financial statements of the
Company and its Subsidiaries for the 1993, 1994 and 1995 fiscal years made on
the recommendation of KPMG Peat Marwick pursuant to the written reports
heretofore delivered to Buyer, (vi) any changes in Allowed Interests that are
otherwise fully addressed in the Plan, and (vii) any other event, act or
occurrence insofar as and to the extent that the resulting Loss can be, and
therefore is, included as a current liability in the Negative Working Capital
determination.
12
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4. Article VIII of the Merger Agreement is amended by adding the following:
"8.12 Best Efforts. Buyer, the Principal Shareholders and, subject to
approval of this Agreement by the Bankruptcy Court, the Company shall use their
best efforts to cause the conditions set forth in Articles IX and X of this
Agreement to be satisfied.
8.13 The Plan. The Principal Shareholders agree to vote in favor of the
Plan, as the same may be amended with their consent or as the Company shall
recommend to conform to this Agreement and as shall not adversely affect such
Principal Shareholders.
8.14 Consulting. On and after September 9, 1996, Buyer may consult with the
Company, and the parties shall cooperate with each other to make plans and
provide preparation, to the extent consistent with the dictates of the
Bankruptcy Court, for an efficient and orderly transition in the management and
control of the Company and its Subsidiaries to Buyer after the Closing. In
furtherance of the foregoing, a limited number of Buyer's representatives shall
be entitled to visit the Company for this purpose at reasonable times during
business hours upon giving the Company at least two (2) business days prior
notice of such visit; provided that all such visits shall be made under the
supervision of the senior management of the Company and shall not interfere with
the operations of the business of the Company and its Subsidiaries. In no event
shall the foregoing be deemed to limit the authority of senior management to
direct the business and affairs of the Company in accordance with their rights
and obligations as senior management.
5. Article IX of the Merger Agreement is hereby amended as follows:
(a) With respect to the condition set forth in Section 9.4 of the Merger
Agreement, the forms of legal opinions of counsel to the Company and of counsel
to the Principal Shareholders which, if delivered at the Closing, will satisfy
the condition set forth in Section 9.4 are attached hereto as Exhibits 9.4-1 and
9.4-2.
(b) The conditions set forth in Section 9.10 may be deemed satisfied if the
consents referred to therein shall not be required by reason of actions taken in
accordance with the Plan. Buyer acknowledges that the conditions set forth in
Section 9.11 to 9.15 have been satisfied or waived.
(c) Section 9.17 is hereby amended to read in its entirety as follows:
"9.17 Settlement Releases. The Settlement Agreement, consistent with the
Term Sheet shall have been executed and delivered and all of the conditions set
forth therein shall have been satisfied."
(d) Section 9.23 is hereby amended to read in its entirety as follows:
"9.23 Resignations. Buyer shall have received the resignations of all of
the directors of each of the Company and the Subsidiaries. Effective as of the
Closing Date, each of Frank Chamberlain and Charles Cansler shall have provided
their written resignations as officers and from all other authority on behalf of
the Company and the Subsidiaries and their engagement shall have been terminated
with no further liability for compensation payable for services rendered after
the Closing Date, except that Buyer agrees to pay compensation and reimburse
expenses on the basis provided in their engagement agreement with the Company as
disclosed to Buyer for services requested by Buyer or the Company (with Buyer's
knowledge) through completion of
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<PAGE>
Closing and thereafter to wind up their responsibilities or for other services
in the Bankruptcy Case, in each case such services to be provided after Closing
to be coordinated in advance with the General Counsel of Buyer as he requests,
and provided Buyer agrees to continue to give effect to the indemnification
provision included in their written terms of engagement as disclosed to Buyer.
All costs and expenses payable to or on behalf of Messrs. Chamberlain or Cansler
for services described above shall be treated as current liabilities or
reductions in current assets for purposes of determining Negative Working
Capital."
(a) Sections 9.30, 9.31, 9.32 and 9.33 are hereby deemed to have been
waived or satisfied.
(b) Section 9.34 is hereby amended to read in its entirety as follows:
"9.34 Confirmation Period. The Bankruptcy Court shall have issued an order
confirming the Plan, and such order shall not be subject to any appeal which is
unacceptable to Buyer or its senior secured lenders."
(c) Section 9.35 shall be amended to read in its entirety as follows:
"9.35 Consummation. The Plan shall have been consummated on or before
November 15, 1996."
(d) Two new conditions are added to the end of Article IX as follows:
"9.38 Consent of Secured Lenders.
(a) The senior secured lenders of Buyer shall have approved this Agreement,
as amended, the Plan, as amended, and the transactions contemplated by this
Agreement and the Plan, as amended.
(b) All of the conditions to the foregoing consent and Buyer's receipt of
its financing from its senior secured lenders with respect to the transactions
contemplated by this Agreement shall have been satisfied.
9.39 Omnibus Agreement. An Omnibus Agreement (the "Omnibus Agreement")
providing for the final resolution of financial claims and interests (in
addition to the matters provided for therein) of each Principal Shareholder
shall have been executed and delivered by each Principal Shareholder and the
Company and shall be reasonably acceptable to Buyer."
9.40 Indemnification Obligations. The aggregate amount to which Buyer shall
be entitled to indemnification pursuant to Article XI of this Agreement (subject
to Section 11.4 thereof relating to the Reserve) shall not exceed the amount of
cash Merger Consideration otherwise payable at Closing.
14
<PAGE>
ARTICLE X OF THE MERGER AGREEMENT IS HEREBY AMENDED AS FOLLOWS:
(a) The following provision is added as Section 10.8:
10.8 Bankruptcy. The Bankruptcy Court will approve this Agreement, all
conditions to Confirmation provided in the Plan as amended to conform with this
Agreement or as shall not adversely affect any Principal Shareholder or as to
which said Principal Shareholder shall agree will be substantially satisfied,
and the Bankruptcy Court will confirm the Plan, as so amended.
5. Article XI of the Merger Agreement is hereby amended as follows:
(a) Section 11.2 of the Merger Agreement is hereby amended in its entirety
to read as follows:
"11.2 Indemnification of Buyer.
(a) Subject to Section 11.4 below (which provides for application of the
Reserve), each of the Principal Shareholders, and, to the extent set forth
below, the Company, shall indemnify and defend Buyer and hold it harmless
against any and all damage, loss, liability, cost and expense (including,
without limitation, reasonable attorney's fee's and expenses) the Buyer (or any
of its subsidiaries), the Company or its Subsidiaries incur (all of the
foregoing hereinafter collectively referred to as "Loss") resulting from:
(i) any inaccuracy in any representation, or any breach of any
warranty, that the Company or any Principal Shareholder made in this
Agreement or any Transaction Document; or
(ii) the breach by the Company or any Principal Shareholder of any
covenant in this Agreement or any Transaction Document; or
(iii) any liability of the Company or any Subsidiary to the Medicare
or Medicaid programs, or to any other third party payor, for the recoupment
of reimbursement the Company or any Subsidiary received prior to the
Effective Time of Merger, except to the extent paid or otherwise discharged
pursuant to the releases provided pursuant to the Settlement Agreement or
discharged pursuant to the payment of the criminal fine by any Principal
Shareholder or by Buyer, the Company or its Subsidiaries pursuant to the
Settlement Agreement; or
15
<PAGE>
(iv) the claims for options, and any related employment agreement
claims, described on Schedule 4.12 except to the extent included in the
Merger Consideration or included as a current liability or asset reduction
in the calculation of Negative Working Capital; or
(v) any action or omission of any Principal Shareholder, or any other
officer, director or employee of the Company or any Subsidiary occurring
before the filing of bankruptcy by the Company that constituted a crime,
fraud or pertained to any personal benefit he or she improperly received
(exclusive of matters paid or otherwise discharged pursuant to the releases
provided pursuant to the Settlement Agreement or the payment of the
criminal fine by any Principal Shareholder or by the payments to be made by
Buyer, the Company or any of its Subsidiaries pursuant to the Settlement
Agreement), any indemnification or contribution claims by any of the
foregoing in connection with any such action (or any action from which the
Buyer, the Company or any of its Subsidiaries is discharged pursuant to the
Settlement Agreement), and any amounts due to any Principal Shareholder by
the Company or any Subsidiary, except as expressly provided in this
Agreement or the Omnibus Agreement; or
(vi) the amount by which Negative Working Capital exceeds $34,000,000
as determined in accordance with Section 2.5;
(vii) any pension, retirement or profit sharing plan, arrangement or
fund (including obligations mandated by foreign or local law), or any other
employee benefit plan as defined in Section 3(e) of the Employee Retirement
Income Security Act of 1934, as amended ("ERISA"), including, without
limitation, the failure to comply with any provisions thereof or any laws,
rules, regulations, orders or guidelines applicable thereto, including,
without limitation, any "prohibited transaction", as such term is defined
in the Internal Revenue Code of 1986, as amended (the "IRC") Section 4975
and Title I of ERISA, any accumulated funding deficiency (as defined in IRC
Section 412(a)) or any "reportable event" (as defined under any applicable
provision of the IRC or ERISA) or liabilities arising from disallowance of
tax deduction taken by the Company or any Subsidiary on or prior to the
Closing; or
(viii) the investigation, defense or reasonable settlement (in
accordance with Section 11.5 hereof) after the Closing, of any of the
foregoing or the enforcement of this indemnity obligation; provided that
with respect to clause (vi) above, expenses of normal investigation
(including audit expenses and fees) and analysis and resolution of
liabilities arising in the ordinary course of business will not be the
basis for a Loss.
(b) The Company's indemnification obligations under this Section 11.2 shall
terminate and be of no further force or effect upon the Closing, and no
Principal Shareholder shall have any right to claim indemnification or
contribution against the Company or any of its Subsidiaries, or their respective
successors and assigns, or right to claim reduction or pro ration of his or her
own indemnification obligations, based on the applicability or non-applicability
of such indemnification obligations of the Company.
16
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(b) Section 11.3(a) of the Merger Agreement is hereby amended by deleting
all words after the words "Transaction Document" and before the word "or".
(c) Sections 11.4, 11.5 and 11.6 of the Merger Agreement are hereby amended
to read in their entirety as follows:
"11.4 Indemnification Period and Reserve. Any claim for indemnification
pursuant to Sections 11.2 or 11.3 must be asserted by written notice to the
party from whom indemnification is sought by no later than the date on which the
first Contingent Payment shall become due and payable, provided that no such
time limitation shall be applicable to claims that Buyer asserts with respect to
any indemnification claim pursuant to Section 11.2(a)(iii) above or with respect
to any breach of the representations or the warranties contained in Sections
4.15 or 4.21 or the indemnification set forth in Section 11.2(a)(vii) above.
Such written notice shall contain a detailed description of the nature of the
claim and the basis therefor. No Principal Shareholder shall be entitled to
indemnification hereunder unless and until the aggregate amount for all claims
for which such party may be entitled to indemnification hereunder equals or
exceeds One Hundred Fifty Thousand Dollars ($150,000). Upon Closing, Buyer shall
not be entitled to indemnification or any other recovery for breach of this
Agreement or the other Transaction Documents for claims asserted unless and
until and to the extent the aggregate amount of all such claims equals or
exceeds Seventeen Million Dollars ($17,000,000) (the "Reserve"), except that the
Reserve shall not limit claims based on any defect in title or ownership of any
Allowed Interest of the Principal Shareholders, or adverse claims pertaining
thereto, shall not limit operation of the Plan in accordance with its terms or
remedies generally available from the Bankruptcy Court, and shall not apply to
claims against the Principal Shareholders under Section 11.2(a)(v).
11.5 Control of Defense of Indemnifible Claims. A party seeking
indemnification under Section 11.2 or 11.3 shall give the other party prompt
written notice of the claim for which it seeks indemnification. Failure of the
party seeking indemnification to give such prompt notice shall not relieve the
other party of its indemnification obligation, provided that such
indemnification obligation shall be reduced by any damages such other party
suffered that results from a failure to give prompt notice hereunder. Buyer
shall be entitled to manage and control the defense, reasonable settlement or
other disposition, payment or discharge of all matters for which indemnification
is available, provided it acts in good faith in a manner reasonably expected to
minimize the applicable Loss. Buyer shall give notice to the Principal
Shareholders a reasonable period of time prior to its settlement of any matter
covered by Section 11.2 of this Agreement (other than any matter for which it
shall seek indemnification under Section 11.2(a)(vi) of this Agreement).
11.6 Offsets. Buyer shall be entitled to offset any amounts due to it by
reason of any indemnification claim under this Agreement against any amount
which may then or thereafter become due to any holder of an Allowed Interest
(regardless of whether the holder of such Allowed Interest shall have an
indemnification obligation). Buyer acknowledges that any such offset shall be
applied proportionately to the Allowed Interests by the Estate Representative
based
17
<PAGE>
on the ratio that the amount of the Merger Consideration payable to a holder
bears to the total amount of the Merger Consideration. If Buyer shall be
entitled to indemnification under Section 11.2(a)(vi) above, it shall offset
such indemnification claims against any payments of Merger Consideration as the
same become due prior to proceeding with other indemnification rights.
(b) A new Section 11.7 is hereby added at the end of Article XI as follows:
"11.7 Interest; Net Losses; Other Matters. (a) All liabilities for which
any party is entitled to indemnification under this Agreement shall accrue
interest at the rate of interest Buyer's senior secured lenders charge from time
to time under its revolving credit facility from the date such liability was
paid until the date that recovery of such indemnification amount shall occur.
(b) The amount of any Loss shall be reduced by the amount of any net tax
benefits (after taking into account the amount of recovery received) arising out
of the Loss for which indemnification is sought, the net insurance proceeds the
party being indemnified receives that arise out of the Loss for which
indemnification is sought, and the amount of any recovery for such Loss which,
considered in light of normal practice and in compliance with applicable laws
and regulations, is obtained from Medicare, Medicaid or third party payors with
respect to any period after January 1, 1997.
(c) Insofar as the Losses are for additional taxes due for periods prior to
Closing in respect of the proof of claim the Internal Revenue Service filed for
potential claims of up to approximately $8,100,000, the amount of carryback
permitted (for purposes of calculating such Losses) based on net operating
losses incurred by virtue of the Settlement Agreement or based on post-Closing
periods shall be limited to $3,000,000 in the aggregate.
(d) Buyer agrees that it shall not be entitled to indemnification (other
than pursuant to Section 11.2(a)(vi)) for any Loss to the extent the amount of
such Loss can be, and therefor is, included as a current liability or current
asset reduction in the calculation of Negative Working Capital as determined in
accordance with this Agreement.
(e) Buyer acknowledges (without becoming responsible therefor) that the
Plan provides that if Buyer makes any recovery for contractual claims, including
indemnification, asserted directly against the Principal Shareholders, with the
exception of claims based on any defect in title or ownership of the Allowed
Interests of the Principal Shareholders or adverse claims pertaining thereto, or
claims against the Principal Shareholders under Section 11.2(a)(v) hereof, then
the Principal Shareholders will be entitled to receive from the Estate
Representative reallocation of the Merger Consideration payable at Closing
otherwise payable to the holders of Allowed Interest sufficient to make the
Principal Shareholders whole for the pro rata portion of the recovery Buyer
obtained for which other holders of Allowed Interest would have borne financial
responsibility if the recovery had instead been out of such Contingent Payments.
18
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(c) A new Section 11.11 is added as follows:
11.11 Compliance with Plan. Upon Closing and subject to the terms and
conditions of this Agreement, Buyer undertakes to perform the obligations of
Buyer set forth in the Plan and to cause the Company and the Subsidiaries to
perform the obligations of the Company and its Subsidiaries as set forth in the
Plan.
7. Section 12.1 of the Merger Agreement is hereby amended in its entirety to
read as follows:
"12.1 Termination. The parties obligations to close the transactions
contemplated by this Agreement may be terminated at any time at or prior to the
Closing by:
(a) Buyer, if any condition precedent to Buyer's obligations under
this Agreement has not been satisfied by the Closing Date, or by Buyer as
otherwise provided in this Agreement; or
(b) the Principal Shareholders, if any condition precedent to the
Principal Shareholders' obligations under this Agreement has not been
satisfied by the Closing Date, or by the Principal Shareholders as
otherwise provided in this Agreement; or
(c) the mutual consent of Buyer and the Principal Shareholders; or
(d) Buyer or the Principal Shareholders, if the Closing shall not have
occurred by November 30, 1996.
8. Article XIII is hereby amended by deleting Section 13.2 and deleting all
references to the "Consulting Agreement" in such Article.
9. Article XIV of the Merger Agreement is hereby amended as follows:
(a) Section 14.1 of the Merger Agreement is hereby amended (i) to
acknowledge Buyer's consent to the Company's reimbursement of a portion of the
Principal Shareholders' legal expenses as limited by the Omnibus Agreement, and
(ii) to acknowledge Buyer's consent to payment by the Company in full of the
Company's professional advisors, subject to approval of Company management after
consulting with Buyer's General Counsel (after giving due consideration to his
recommendations) before Closing and subject to approval of the Bankruptcy Court.
(b) Section 14.3 of the Merger Agreement is hereby amended to provide that
the rights and obligations of the Company under this Agreement may, at the
request and with the consent of Buyer, be assigned to, and assumed by, the New
Parent. The rights and obligations of Buyer may not be assigned to, or assumed
by, any other entity unless Buyer provides its irrevocable, unconditional
guaranty to the Estate Representative for payment of the obligations of Buyer
and the Company hereunder, in accordance with and subject to the terms and
conditions of this Agreement.
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(c) Section 14.6 is hereby amended to set forth that all notices and
demands with respect to the Estate Representative shall be delivered to it at
the address provided in the Plan.
(d) A new Section 14.6 is hereby added to the end of Article XIV as
follows:
14.6 Power of Attorney. If a person acting under a power of attorney for a
Principal Shareholder executes and delivers this Agreement on behalf of such
Principal Shareholder, then such Principal Shareholder covenants that, upon
request of Buyer, he or she shall personally execute a copy of this Agreement
and deliver it to Buyer. This covenant shall be deemed to be a material covenant
for purposes of Section 9.2 of this Agreement.
10. Each party hereto represents and warrants to the others that this Amendment
Agreement has been duly authorized and executed by such party as its, his or her
own free act and not under duress of any type, and constitutes the legal, valid
and binding obligation of such party, except to the extent that enforcement may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally, or (b) general
principles of equity.
11. Except as expressly provided in this Amendment Agreement, all other terms,
conditions, provisions, representations, warranties, covenants and obligations
under the Merger Agreement shall remain in full force and effect.
[SIGNATURES ON THE FOLLOWING PAGE]
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed, or caused its
duly authorized representative to execute, this Amendment Agreement as of the
date first above written.
PRINCIPAL SHAREHOLDERS:
/s/ Robert J. Mills
-----------------------------------------
Robert J. Mills
/s/ Margie B. Mills
-----------------------------------------
Margie B. Mills
COMPANY:
FIRST AMERICAN HEALTH CARE OF GEORGIA, INC.
By: /s/ Frank M. Chamberlain
----------------------------
Frank M. Chamberlain
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Marshall A. Elkins
---------------------------
Marshall A. Elkins
NEWCO:
IHS ACQUISITION XIV, INC.
By: /s/ Marshall A. Elkins
---------------------------
Marshall A. Elkins
21
