As Filed with the Securities and Exchange Commission on December 11, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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10065 Red Run Boulevard, Owings Mills, Maryland 21117, (410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Marshall A. Elkins, Esq., Executive Vice President and General Counsel
Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, (410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications, including all communications sent to the agent
for service, should be sent to:
<TABLE>
<S> <C>
Carl E. Kaplan, Esq. Leslie A. Glew, Esq.
Fulbright & Jaworski L.L.P. Senior Vice President and Associate General Counsel
666 Fifth Avenue Integrated Health Services, Inc.
New York, New York 10103 10065 Red Run Boulevard
(212) 318-3000 Owings Mills, Maryland 21117
(212) 752-5958(FAX) (410) 998-8400
(410) 998-8500(FAX)
</TABLE>
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Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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<PAGE>
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF SHARES
SECURITIES TO BE REGISTERED TO BE REGISTERED
<S> <C>
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(2) ........................... 1,813,434
</TABLE>
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(2) ........................... $29.875 $54,176,340.75 $15,982.02
</TABLE>
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(1) Pursuant to Rule 457(c), the proposed maximum offering price per share and
proposed maximum aggregate offering price have been calculated on the
basis of the average of the high and low sale prices of the Common Stock
as reported on the New York Stock Exchange on December 9, 1997.
(2) The Preferred Stock Purchase Rights, which are attached to the shares of
IHS Common Stock being registered, will be issued for no additional
consideration; no additional registration fee is required.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 11, 1997
PROSPECTUS
1,813,434 SHARES
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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This Prospectus relates to 1,813,434 shares (the "Shares") of Common Stock,
par value $0.001 per share (together with the Preferred Stock Purchase Rights
associated therewith, the "Common Stock"), of Integrated Health Services, Inc.
("IHS" or the "Company") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders." The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On December 9, 1997, the closing price of the Common Stock, as
reported in the NYSE consolidated reporting system, was $29.8125 per share.
The Company will not receive any of the proceeds from sales of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by the
Selling Stockholders (and their donees and pledgees) through ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
---------
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 7 OF THIS PROSPECTUS, FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------
The date of this Prospectus is December , 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the Commission
(File No. 1-12306) pursuant to the Exchange Act is incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997;
(e) The Company's Current Report on Form 8-K dated October 17, 1996
reporting the acquisition of First American Health Care of Georgia, Inc., as
amended by Form 8-K/A filed November 26, 1996 and Amendment No. 1 to Form
8-K/A filed July 11, 1997;
(f) The Company's Current Report on Form 8-K dated October 19, 1996
reporting the execution of the Agreement and Plan of Merger (the "Coram
Merger Agreement") among the Company, IHS Acquisition XIX, Inc. and Coram
Healthcare Corporation ("Coram"), as amended by Form 8-K/A filed April 11,
1997, reporting the termination of the Coram Merger Agreement;
(g) The Company's Current Report on Form 8-K dated May 23, 1997 reporting
the Company's agreement to issue privately an aggregate of $450 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007;
(h) The Company's Current Report on Form 8-K dated May 30, 1997 reporting
(i) the Company's issuance of an aggregate of $450 million principal amount
of 9 1/2% Senior Subordinated Notes due 2007 and (ii) the Company's
acceptance for payment of an aggregate of $114,975,000 principal amount of
its 9 5/8% Senior Subordinated Notes due 2002, Series A and an aggregate of
$99,893,000 principal amount of its 10 3/4% Senior Subordinated Notes due
2004 pursuant to cash tender offers;
(i) The Company's Current Report on Form 8-K dated July 6, 1997 reporting
the execution of the Agreement and Plan of Merger among the Company, IHS
Acquisition XXIV, Inc. and RoTech Medical Corporation
("RoTech");
(j) The Company's Current Report on Form 8-K dated September 9, 1997
reporting the Company's agreement to issue privately an aggregate of $500
million principal amount of its 9 1/4% Senior Subordinated Notes due 2008
(the "9 1/4% Senior Notes");
(k) The Company's Current Report on Form 8-K dated September 15, 1997, as
amended, reporting the Company's $1.75 billion revolving credit and term loan
facility (the "New Credit Facility");
(l) The Company's Current Report on Form 8-K dated September 25, 1997, as
amended, reporting the Company's acquisition of Community Care of America,
Inc. and the Lithotripsy Division of Coram;
(m) The Company's Current Report on Form 8-K dated October 21, 1997, as
amended, reporting the Company's acquisition of RoTech;
(n) The Company's Current Report on Form 8-K dated November 3, 1997, as
amended, reporting the Company's agreement to purchase 139 owned, leased or
managed long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation;
(o) The description of the Company's Common Stock contained in Item 1 of
the Company's Registration Statement on Form 8-A dated September 1, 1993; and
(p) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A dated
September 28, 1995.
3
<PAGE>
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
Shares offered have been sold or which deregisters all Shares then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a previously filed document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be read
together with the information in the documents incorporated by reference.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS MILLS,
MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE PRESIDENT-INVESTOR
RELATIONS, TELEPHONE: (410) 998-8400.
4
<PAGE>
THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care, home
care, skilled nursing facility care and inpatient and outpatient rehabilitation,
hospice and diagnostic services. The Company's post-acute care network is
designed to address the fact that the cost containment measures implemented by
private insurers and managed care organizations and limitations on government
reimbursement of hospital costs have resulted in the discharge from hospitals of
many patients who continue to require medical and rehabilitative care. The
Company's post-acute healthcare system is intended to provide cost-effective
continuity of care for its patients in multiple settings and enable payors to
contract with one provider to provide all of a patient's needs following
discharge from acute care hospitals. The Company believes that its post-acute
care network can be extended beyond post-acute care to also provide "pre-acute"
care, i.e., services to patients which reduce the likelihood of a need for a
hospital stay. IHS' post-acute care network currently consists of approximately
1,900 service locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, using geriatric care
facilities as platforms to provide a wide variety of subacute medical and
rehabilitative services more typically delivered in the acute care hospital
setting and using home healthcare to provide those medical and rehabilitative
services which do not require 24-hour monitoring. To implement its post-acute
care network strategy, the Company has focused on (i) expanding the range of
home healthcare and related services it offers to patients directly in order to
provide patients with a continuum of care throughout their recovery, to better
control costs and to meet the growing desire by payors for one-stop shopping;
(ii) developing market concentration for its post-acute care services in
targeted states due to increasing payor consolidation and the increased
preference of payors, physicians and patients for dealing with only one service
provider; and (iii) developing subacute care units. Given the increasing
importance of managed care in the healthcare marketplace and the continued cost
containment pressures from Medicare, Medicaid and private payors, IHS has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. IHS' strategy is
to become a preferred or exclusive provider of post-acute care services to
managed care organizations and other payors.
In implementing its post-acute care network strategy, the Company has
recently focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the lowest
cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, the
Company in October 1996 acquired (the "First American Acquisition") First
American Health Care of Georgia, Inc. ("First American"), a provider of home
health services, principally home nursing, in 21 states, primarily Alabama,
California, Florida, Georgia, Michigan, Pennsylvania and Tennessee. IHS in
October 1997 acquired RoTech Medical Corporation ("RoTech"), a provider of home
healthcare products and services, with an emphasis on home respiratory, home
medical equipment and infusion therapy, principally to patients in non-urban
areas (the "RoTech Acquisition"). In October 1997, IHS also acquired (the "Coram
Lithotripsy Acquisition") the lithotripsy division (the "Coram Lithotripsy
Division") of Coram, which provides lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. IHS intends to use the home healthcare setting and
the delivery franchise of its home healthcare branch and agency network to (i)
deliver sophisticated care, such as skilled nursing care, home infusion therapy
and rehabilitation, outside the hospital or nursing home; (ii) serve as an entry
point for patients into the IHS post-acute care network; and (iii) provide a
cost-effective site for case management and patient direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS acquired
Community Care of America, Inc. ("CCA"), which develops and operates skilled
nursing facilities in medically underserved rural communities (the
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<PAGE>
"CCA Acquisition"). IHS believes that CCA will broaden its post-acute care
network to include more rural markets and will complement its existing home care
locations in rural markets as well as RoTech's business. In addition, in
November 1997, IHS agreed to acquire from HEALTHSOUTH Corporation
("HEALTHSOUTH") 139 owned, leased or managed long-term care facilities and 12
specialty hospitals, as well as a contract therapy business having over 1,000
contracts and an institutional pharmacy business serving approximately 38,000
beds (the "Proposed Facility Acquisition").
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
the Company believes are generally 30% to 60% below the cost of such care in
acute care hospitals. Because of the high level of specialized care provided,
the Company's MSUs generate substantially higher net revenue and operating
profit per patient day than traditional geriatric care services.
The Company presently operates 216 geriatric care facilities (169 owned or
leased and 47 managed), including the facilities acquired in the CCA Acquisition
(of which 19 facilities are being held for sale), and 158 MSUs located within 84
of these facilities. Specialty medical services revenues, which include all MSU
charges, all revenue from providing rehabilitative therapies, pharmaceuticals,
medical supplies and durable medical equipment to all its patients, all revenue
from its Alzheimer's programs and all revenue from its provision of pharmacy,
rehabilitation therapy, home healthcare, hospice care and similar services to
third-parties, constituted approximately 57%, 65% and 70% of net revenues during
the years ended December 31, 1994, 1995 and 1996, respectively. The Company also
offers a wide range of basic medical services as well as a comprehensive array
of respiratory, physical, speech, occupational and physiatric therapy in all its
geriatric care facilities. For the year ended December 31, 1996, approximately
17% of IHS' revenues were derived from home health and hospice care,
approximately 53% were derived from subacute and other ancillary services,
approximately 27% were derived from basic nursing home services and the
remaining approximately 3% were derived from management and other services. On a
pro forma basis after giving effect to the acquisition of First American and the
RoTech Acquisition, for the year ended December 31, 1996, approximately 44% of
IHS' revenues were derived from home health and hospice care, approximately 36%
were derived from subacute and other ancillary services, approximately 18% were
derived from traditional basic nursing home services and the remaining
approximately 2% were derived from management and other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, the term "IHS" includes Integrated Health
Services, Inc. and its subsidiaries.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus.
RISKS RELATED TO SUBSTANTIAL INDEBTEDNESS
The Company's indebtedness is substantial in relation to its stockholders'
equity. At September 30, 1997, IHS' total long-term debt, including current
portion, accounted for 77.8% of its total capitalization. IHS also has
significant lease obligations with respect to the facilities operated pursuant
to long-term leases, which aggregated approximately $200.3 million at September
30, 1997. For the year ended December 31, 1996 and the nine months ended
September 30, 1997, the Company's rent expense was $77.8 million ($84.5 million
on a pro forma basis after giving effect to the First American Acquisition, the
sale by IHS of a majority interest in its assisted living services subsidiary in
October 1996 (the "ILC Offering"), the sale by IHS of its pharmacy division in
July 1996 (the "Pharmacy Sale"), the CCA Acquisition, the Coram Lithotripsy
Acquisition, the RoTech Acquisition and certain other acquisitions consummated
in 1996 and 1997) and $75.3 million ($81.6 million on a pro forma basis after
giving effect to the CCA Acquisition, the Coram Lithotripsy Acquisition, the
RoTech Acquisition and certain other acquisitions consummated in 1997),
respectively. In addition, IHS is obligated to pay up to an additional $155
million in respect of the acquisition of First American during 2000 to 2004
under certain circumstances, of which $36.1 million has been recorded at
September 30, 1997. The Company's strategy of expanding its specialty medical
services and growing through acquisitions may require additional borrowings in
order to finance working capital, capital expenditures and the purchase price of
any acquisitions. The degree to which the Company is leveraged, as well as its
rent expense, could have important consequences to stockholders, including: (i)
IHS' ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of IHS' cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' indebtedness contains financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. In addition, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS were unable to meet
interest, principal or lease payments, or satisfy financial covenants, it could
be required to seek renegotiation of such payments and/or covenants or obtain
additional equity or debt financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent IHS finances its activities with
additional debt, IHS may become subject to certain additional financial and
other covenants that may restrict its ability to pursue its growth strategy and
to pay dividends on the Common Stock. There can be no assurance that any such
efforts would be successful or timely or that the terms of any such financing or
refinancing would be acceptable to IHS. See "-- Risks Related to Capital
Requirements."
In connection with the offering of the 9 1/4% Senior Notes, Standard &
Poors ("S&P") confirmed its B rating of IHS' other subordinated debt
obligations, but with a negative outlook, and assigned the same rating to the 9
1/4% Senior Notes. S&P stated that the Company's speculative-grade ratings
reflect the Company's aggressive transition toward becoming a full-service
alternate-site healthcare provider, and its limited cash flow relative to its
heavy debt burden. S&P noted that IHS would be greatly challenged to control,
integrate and further expand operations that were only a quarter of their
current size just three years ago, and also noted the continuing uncertainty
with regard to the adequacy of reimburse-
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<PAGE>
ment from government sponsored programs for the indigent and elderly. S&P also
noted that there is the potential that a large debt-financed acquisition could
lead to a ratings downgrade. In November 1997, S&P placed the Company's senior
credit and subordinated debt ratings on CreditWatch with negative implications
due to the Proposed Facility Acquisition. In connection with the offering of the
9 1/4% Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about the
Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the New Credit Facility and the 9 1/4% Senior Notes
positioned the Company to complete sizable acquisition transactions using solely
debt. Moody's further noted that the rating reflects that there are significant
changes underway in the reimbursement of services rendered by IHS, and that the
exact impact of these changes is uncertain.
RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS AND INTERNAL DEVELOPMENT
IHS' growth strategy involves growth through acquisitions and internal
development and, as a result, IHS is subject to various risks associated with
this growth strategy. The Company's planned expansion and growth require that
the Company expand its home healthcare services through the acquisition of
additional home healthcare providers and that the Company acquire, or establish
relationships with, third parties which provide post-acute care services not
currently provided by the Company, that additional MSUs be established in the
Company's existing facilities and that the Company acquire, lease or acquire the
right to manage for others additional facilities in which MSUs can be
established. Such expansion and growth will depend on the Company's ability to
create demand for its post-acute care programs, the availability of suitable
acquisition, lease or management candidates and the Company's ability to finance
such acquisitions and growth. The successful implementation of the Company's
post-acute healthcare system, including the capitation of rates, will depend on
the Company's ability to expand the amount of post-acute care services it offers
directly to its patients rather than through third-party providers. There can be
no assurance that suitable acquisition candidates will be located, that
acquisitions can be consummated, that acquired facilities and companies can be
successfully integrated into the Company's operations, that MSUs can be
successfully established in acquired facilities or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "-- Risks Related to Managed Care Strategy" and "-- Competition."
The successful integration of acquired businesses, including First
American, RoTech, CCA and the Coram Lithotripsy Division and, if the Proposed
Facility Acquisition is consummated, the facilities and other businesses
acquired from HEALTHSOUTH, is important to the Company's future financial
performance. The anticipated benefits from any of these acquisitions may not be
achieved unless the operations of the acquired businesses are successfully
combined with those of the Company in a timely manner. The integration of the
Company's recent acquisitions, including, if the Proposed Facility Acquisition
is consummated, the facilities and other businesses acquired from HEALTHSOUTH,
will require substantial attention from management. The diversion of the
attention of management, and any difficulties encountered in the transition
process, could have a material adverse effect on the Company's operations and
financial results. In addition, the process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have a material
adverse effect on the Company's operations and financial results. There can be
no assurance that the Company will realize any of the anticipated benefits from
its acquisitions. The acquisition of service companies that are not profitable,
or the acquisition of new facilities that result in significant integration
costs and inefficiencies, could also adversely affect the Company's
profitability.
IHS' current and anticipated future growth has placed, and will continue to
place, significant demands on the management, operational and financial
resources of IHS. IHS' ability to manage its growth
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effectively will require it to continue to improve its operational, financial
and management information systems and to continue to attract, train, motivate,
manage and retain key employees. There can be no assurance that IHS will be able
to manage its expanded operations effectively. See "-- Risks Related to Capital
Requirements."
There can be no assurance that the Company will be successful in
implementing its strategy or in responding to ongoing changes in the healthcare
industry which may require adjustments to its strategy. If IHS fails to
implement its strategy successfully or does not respond timely and adequately to
ongoing changes in the healthcare industry, the Company's business, financial
condition and results of operations will be materially adversely affected.
RISKS RELATED TO MANAGED CARE STRATEGY
Managed care payors and traditional indemnity insurers have experienced
pressure from their policyholders to curb or reduce the growth in premiums paid
to such organizations for healthcare services. This pressure has resulted in
demands on healthcare service providers to reduce their prices or to share in
the financial risk of providing care through alternate fee structures such as
capitation or fixed case rates. Given the increasing importance of managed care
in the healthcare marketplace and the continued cost containment pressures from
Medicare and Medicaid, IHS has been restructuring its operations to enable IHS
to focus on obtaining contracts with managed care organizations and to provide
capitated services. The Company believes that its home healthcare capabilities
will be an important component of its ability to provide services under
capitated and other alternate fee arrangements. However, to date there has been
limited demand among managed care organizations for post-acute care network
services, and there can be no assurance that demand for such services will
increase. Further, IHS has limited experience in providing services under
capitated and other alternate fee arrangements and setting the applicable rates.
Accordingly, there can be no assurance that the fees received by IHS will cover
the cost of services provided. If revenue for capitated services is insufficient
to cover the treatment costs, IHS' operating results could be adversely
affected. As a result, the success of IHS' managed care strategy will depend in
large part on its ability to increase demand for post-acute care services among
managed care organizations, to obtain favorable agreements with managed care
organizations and to manage effectively its operating and healthcare delivery
costs through various methods, including utilization management and competitive
pricing for purchased services. Additionally, there can be no assurance that
pricing pressures faced by healthcare providers will not have a material adverse
effect on the Company's business, results of operations and financial condition.
Further, pursuing a strategy focused on risk-sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk-sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the
risk-sharing activities of IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were precluded from providing services under risk-sharing fee
arrangements, its managed care strategy would be adversely affected. See "--
Uncertainty of Government Regulation."
RISKS RELATED TO CAPITAL REQUIREMENTS
IHS' growth strategy requires substantial capital for the acquisition of
additional home healthcare and related service providers and geriatric care
facilities and the establishment of new, and expansion of existing, MSUs. The
effective integration, operation and expansion of the existing businesses will
also require substantial capital. The Company expects to finance new
acquisitions from a combination of funds from operations, borrowings under its
bank credit facility and the issuance of debt and equity securities. IHS may
raise additional capital through the issuance of long-term or short-term
indebtedness or the issuance of additional equity securities in private or
public transactions, at such times as manage-
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ment deems appropriate and the market allows. Any of such financings could
result in dilution of existing equity positions, increased interest and
amortization expense or decreased income to fund future expansion. There can be
no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing businesses and operations can be obtained.
The Company's bank credit facility limits the Company's ability to make
acquisitions, and certain of the indentures under which the Company's
outstanding senior subordinated debt securities were issued limit the Company's
ability to incur additional indebtedness unless certain financial tests are met.
See "-- Risks Related to Substantial Indebtedness."
RISKS RELATED TO RECENT ACQUISITIONS AND THE PROPOSED FACILITY ACQUISITION
IHS has recently completed several major acquisitions, including the
acquisitions of First American, RoTech, CCA and the Coram Lithotripsy Division,
and is still in the process of integrating those acquired businesses. The IHS
Board of Directors and senior management of IHS face a significant challenge in
their efforts to integrate the acquired businesses, including First American,
RoTech, CCA and the Coram Lithotripsy Division and, if the Proposed Facility
Acquisition is consummated, the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management resources to such integration may
detract attention from the day-to-day business of IHS. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with such
activities or that there will not be other material adverse effects of these
integration efforts. Further, there can be no assurance that management's
efforts to integrate the operations of IHS and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
IHS has recently expanded significantly its home healthcare operations.
During the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997, home healthcare accounted for approximately 16.3%, 8.1% and
32.1%, respectively, of IHS' total revenues. On a pro forma basis, after giving
effect to the acquisitions of First American (which derives substantially all
its revenues from Medicare), RoTech, CCA and the Coram Lithotripsy Division,
approximately 70.7%, 76.5% and 65.0% of IHS' home healthcare revenues were
derived from Medicare in the year ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997, respectively. On a pro forma basis, after
giving effect to the acquisitions of First American, RoTech, CCA and the Coram
Lithotripsy Division, home nursing services accounted for approximately 64.2%,
67.0% and 55.1%, respectively, of IHS' home healthcare revenues in these
periods. Medicare has developed a national fee schedule for infusion therapy,
respiratory therapy and home medical equipment which provides reimbursement at
80% of the amount of any fee on the schedule. The remaining 20% is paid by other
third party payors (including Medicaid in the case of "medically indigent"
patients) or patients; with respect to home nursing, Medicare generally
reimburses for the cost (including a rate of return) of providing such services,
up to a regionally adjusted allowable maximum per visit and per discipline with
no fixed limit on the number of visits. There generally is no deductible or
coinsurance. As a result, there is no reward for efficiency, provided that costs
are below the cap, and traditional home healthcare services carry relatively low
margins. However, IHS expects that Medicare will implement a prospective payment
system for home nursing services in the next several years, and implementation
of a prospective payment system will be a critical element to the success of
IHS' expansion into home nursing services. Based upon prior legislative
proposals, IHS believes that a prospective payment system would most likely
provide a healthcare provider a predetermined rate for a given service, with
providers that have costs below the predetermined rate being entitled to keep
some or all of this difference. There can be no assurance that Medicare will
implement a prospective payment system for home nursing services in the next
several years or at all. The implementation of a prospective payment system will
require IHS to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. In addition, the
Balanced Budget Act of 1997, enacted in August 1997, reduces the Medicare
national payment limits for oxygen and oxygen equipment used in home respiratory
therapy by 25% in 1998 and 30% (from 1997 levels) in 1999 and each subsequent
year. Approximately 22% of RoTech's total revenues for the year ended July 31,
1997 were derived from the provision of oxygen services to Medicare patients.
The
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inability of IHS to realize operating efficiencies and provide home healthcare
services at a cost below the established Medicare fee schedule could have a
material adverse effect on IHS' home healthcare operations and its post-acute
care network. See "-- Risk of Adverse Effect of Healthcare Reform."
RISKS RELATED TO HISTORICAL FINANCIAL PERFORMANCE OF FIRST AMERICAN
During the year ended December 31, 1995 and the nine months ended September
30, 1996, First American recorded a net loss of $110.4 million and $36.2
million, respectively. Numerous factors have affected First American's
performance and financial condition prior to its acquisition by IHS, including,
among others, high administrative costs and the settlement of claims for
reimbursement of certain overpayments and unallowable reimbursements under
Medicare (which settlement resulted in a reduction to patient service revenues
of $54.6 million for the year ended December 31, 1995 and $10.4 million for the
nine months ended September 30, 1996). In addition, in February 1996, in
response to the stoppage by the Health Care Financing Administration ("HCFA") of
its bi-weekly periodic interim payments ("PIP") to First American, First
American was forced to declare bankruptcy. In March 1996, the bankruptcy court
ordered HCFA to resume PIP payments to First American. However, the bankruptcy
filing and operation of First American in bankruptcy until its acquisition by
IHS adversely affected the business, results of operations and financial
condition of First American. There can be no assurance that these factors or the
First American bankruptcy will not continue to have an adverse effect on First
American's and IHS' business, financial condition and results of operations in
the future. There can be no assurance that the historical losses incurred by
First American will not continue.
RELIANCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
The Company receives payment for services rendered to patients from private
insurers and patients themselves, from the Federal government under Medicare,
and from the states in which it operates under Medicaid. The healthcare industry
is experiencing a trend toward cost containment, as government and other third
party payors seek to impose lower reimbursement and utilization rates and
negotiate reduced payment schedules with service providers. These cost
containment measures, combined with the increasing influence of managed care
payors and competition for patients, has resulted in reduced rates of
reimbursement for services provided by IHS, which has adversely affected, and
may continue to adversely affect, IHS' margins, particularly in its skilled
nursing and subacute facilities. Aspects of certain healthcare reform proposals,
such as cutbacks in the Medicare and Medicaid programs, reductions in Medicare
reimbursement rates and/or limitations on reimbursement rate increases,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. See "-- Risk of Adverse Effect of Healthcare Reform." During
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997, the Company derived approximately 56%, 55%, 60%,
57% and 66%, respectively, of its patient revenues from Medicare and Medicaid.
On a pro forma basis after giving effect to the acquisitions of First American
(which derives substantially all its revenues from Medicare), RoTech, CCA and
the Coram Lithotripsy Division and the ILC Offering,approximately 66.7%, 67.6%
and 64.2% of the Company's patient revenues have been derived from Medicare and
Medicaid during the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997, respectively.
The sources and amounts of the Company's patient revenues derived from the
operation of its geriatric care facilities and MSU programs are determined by a
number of factors, including licensed bed capacity of its facilities, occupancy
rate, the mix of patients and the rates of reimbursement among payor categories
(private, Medicare and Medicaid). Changes in the mix of the Company's patients
among the private pay, Medicare and Medicaid categories can significantly affect
the profitability of the Company's operations. The Company's cost of care for
its MSU patients generally exceeds regional reimbursement limits established
under Medicare. The success of the Company's MSU strategy will depend in part on
its ability to obtain per diem rate approvals for costs which exceed the
Medicare established per diem rate limits and by obtaining waivers of these
limitations. There can be no assurance that the Company will be able to obtain
the waivers necessary to enable the Company to recover its excess costs.
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Managed care organizations and other third party payors have continued to
consolidate to enhance their ability to influence the delivery of healthcare
services. Consequently, the healthcare needs of a large percentage of the United
States population are provided by a small number of managed care organizations
and third party payors. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate IHS as a preferred provider and/or engage IHS'
competitors as a preferred or exclusive provider, the business of IHS could be
materially adversely affected.
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM
In addition to extensive existing government healthcare regulation, there
are numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services,
including a number of proposals that would significantly limit reimbursement
under Medicare and Medicaid. It is not clear at this time what proposals, if
any, will be adopted or, if adopted, what effect such proposals would have on
the Company's business. Aspects of certain of these healthcare proposals, such
as cutbacks in the Medicare and Medicaid programs, containment of healthcare
costs on an interim basis by means that could include a short-term freeze on
prices charged by healthcare providers, and permitting greater state flexibility
in the administration of Medicaid, could adversely affect the Company. In
addition, there have been proposals to convert the current cost reimbursement
system for home nursing services covered under Medicare to a prospective payment
system. The prospective payment system proposals generally provide for
prospectively established per visit payments to be made for all covered
services, which are then subject to an annual aggregate per episode limit at the
end of the year. Home health agencies that are able to keep their total expenses
per visit during the year below their per episode annual limits will be able to
retain a specified percentage of the difference, subject to certain aggregate
limitations. Such changes could have a material adverse effect on the Company
and its growth strategy. The implementation of a prospective payment system will
require the Company to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. The inability of IHS to
provide home healthcare and/or skilled nursing services at a cost below the
established Medicare fee schedule could have a material adverse effect on IHS'
home healthcare operations, post-acute care network and business generally. The
Balanced Budget Act of 1997, enacted in August 1997, provides, among other
things, for a prospective payment system for home nursing to be implemented for
cost reporting periods beginning on or after October 1, 1999, a reduction in
current cost reimbursement for home healthcare pending implementation of a
prospective payment system, reductions (effective January 1, 1998) in Medicare
reimbursement for oxygen and oxygen equipment for home respiratory therapy and a
shift of the bulk of home health coverage from Part A to Part B of Medicare. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post-acute care network
strategy. IHS expects that there will continue to be numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including proposals that will further limit
reimbursement under Medicare and Medicaid. It is not clear at this time what
proposals, if any, will be adopted or, if adopted, what effect such proposals
will have on IHS' business. See "-- Risks Related to Recent Acquisitions and the
Proposed Facility Acquisition" and "-- Reliance on Reimbursement by Third Party
Payors." There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs will not have an adverse effect on the Company
or that payments under governmental programs will remain at levels comparable to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. Concern about the
potential effects of the proposed reform measures has contributed to the
volatility of prices of securities of companies in healthcare and related
industries, including the Company, and may similarly affect the price of the
Common Stock in the future. See "-- Uncertainty of Government Regulation."
UNCERTAINTY OF GOVERNMENT REGULATION
The Company and the healthcare industry generally are subject to extensive
federal, state and local regulation governing licensure and conduct of
operations at existing facilities, construction of new facilities, acquisition
of existing facilities, additions of new services, certain capital expenditures,
the quality
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of services provided and the manner in which such services are provided and
reimbursement for services rendered. Changes in applicable laws and regulations
or new interpretations of existing laws and regulations could have a material
adverse effect on licensure, eligibility for participation, permissible
activities, operating costs and the levels of reimbursement from governmental
and other sources. There can be no assurance that regulatory authorities will
not adopt changes or new interpretations of existing regulations that could
adversely affect the Company. The failure to maintain or renew any required
regulatory approvals or licenses could prevent the Company from offering
existing services or from obtaining reimbursement. In certain circumstances,
failure to comply at one facility may affect the ability of the Company to
obtain or maintain licenses or approvals under Medicare and Medicaid programs at
other facilities. In addition, in the conduct of its business the Company's
operations are subject to review by federal and state regulatory agencies. In
the course of these reviews, problems are from time to time identified by these
agencies. Although the Company has to date been able to resolve these problems
in a manner satisfactory to the regulatory agencies without a material adverse
effect on its business, there can be no assurance that it will be able to do so
in the future.
Recently effective provisions of the regulations adopted under the Omnibus
Budget Reconciliation Act of 1987 ("OBRA") have implemented stricter guidelines
for annual state surveys of long-term care facilities and expanded remedies
available to HCFA to enforce compliance with the detailed regulations mandating
minimum healthcare standards and may significantly affect the consequences to
the Company if annual or other HCFA facility surveys identify noncompliance with
these regulations. Remedies include fines, new patient admission moratoriums,
denial of reimbursement, federal or state monitoring of operations, closure of
facilities and termination of provider reimbursement agreements. These
provisions eliminate the ability of operators to appeal the scope and severity
of any deficiencies and grant state regulators the authority to impose new
remedies, including monetary penalties, denial of payments and termination of
the right to participate in the Medicare and/or Medicaid programs. The Company
believes these new guidelines may result in an increase in the number of
facilities that will not be in "substantial compliance" with the regulations
and, as a result, subject to increased disciplinary actions and remedies,
including admission holds and termination of the right to participate in the
Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's
acquisition of poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium is expected to last approximately six months, and
implemented rules requiring home healthcare providers to reapply for Medicare
certification every three years. In addition, HCFA will double the number of
detailed audits of home healthcare providers it completes each year and increase
by 25% the number of home healthcare claims it reviews each year. IHS cannot
predict what effect, if any, these new rules will have on IHS' business and the
expansion of its home healthcare operations.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Bills,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these fraud and abuse provisions liberally and
enforce them aggressively. Members of Congress have proposed legislation that
would significantly expand the federal government's involvement in curtailing
fraud and abuse and increase the monetary penalties for violation of these
provisions. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medi-
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care and Medicaid), asset forfeitures and civil and criminal penalties. These
laws vary from state to state, are often vague and have seldom been interpreted
by the courts or regulatory agencies. The Company seeks to structure its
business arrangements in compliance with these laws and, from time to time, the
Company has sought guidance as to the interpretation of such laws; however,
there can be no assurance that such laws ultimately will be interpreted in a
manner consistent with the practices of the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform."
COMPETITION
The healthcare industry is highly competitive and is subject to continuing
changes in the provision of services and the selection and compensation of
providers. The Company competes on a local and regional basis with other
providers on the basis of the breadth and quality of its services, the quality
of its facilities and, to a more limited extent, price. The Company also
competes with other providers in the acquisition and development of additional
facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could adversely impact the business of IHS. There can be no
assurance that IHS will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on IHS' business, financial condition and results of operations.
IHS also competes with various healthcare providers with respect to attracting
and retaining qualified management and other personnel. Any significant failure
by IHS to attract and retain qualified employees could have a material adverse
effect on its business, results of operations and financial condition.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
IHS' Third Restated Certificate of Incorporation and By-laws, as well as
the Delaware General Corporation Law (the "DGCL"), contain certain provisions
that could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of
IHS. These provisions could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. Certain of these
provisions allow IHS to issue, without stockholder approval, preferred stock
having voting rights senior to those of the Common Stock. Other provisions
impose various procedural and other requirements that could make it more
difficult for stockholders to effect
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certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied.
POSSIBLE VOLATILITY OF STOCK PRICE
There may be significant volatility in the market price of the Common
Stock. Quarterly operating results of IHS, changes in general conditions in the
economy, the financial markets or the healthcare industry, or other developments
affecting IHS or its competitors, could cause the market price of the Common
Stock to fluctuate substantially. In addition, in recent years the stock market
and, in particular, the healthcare industry segment, has experienced significant
price and volume fluctuations. This volatility has affected the market price of
securities issued by many companies for reasons unrelated to their operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
initiated against such company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect upon IHS' business, operating results and financial
condition.
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RECENT DEVELOPMENTS
PROPOSED FACILITY ACQUISITION
On November 3, 1997, IHS and HEALTHSOUTH entered into an agreement pursuant
to which IHS agreed to acquire from HEALTHSOUTH 139 owned, leased or managed
long-term care facilities, 12 specialty hospitals, a contract therapy business
having over 1,000 contracts and an institutional pharmacy business serving
approximately 38,000 beds. The businesses being acquired, which had annual
revenues of approximately $925 million for the 12 months ended August 31, 1997,
were acquired by HEALTHSOUTH in its recent acquisition of Horizon/CMS Healthcare
Corporation.
Under the terms of the agreement, IHS will pay $1.15 billion in cash and
assume approximately $100 million in debt. IHS will fund the purchase price with
available cash from term loan borrowings under the New Credit Facility and the
sale of the 9 1/4% Senior Notes and borrowings under the revolving credit
portion of the New Credit Facility. On a pro forma basis after giving effect to
the acquisition of these businesses from HEALTHSOUTH, the RoTech Acquisition and
the Coram Lithotripsy Acquisition, IHS' total debt, including current portion,
accounted for approximately 74% of its total pro forma capitalization as of
September 30, 1997. Consummation of the transaction, which is expected to close
by December 31, 1997, is subject to, among other things, receipt of required
regulatory approvals, consent of IHS' senior lenders and other customary
conditions. IHS has deposited with HEALTHSOUTH $50 million, which amount will be
credited against the purchase price at the closing or retained by HEALTHSOUTH
under certain circumstances if the transaction is not consummated.
There can be no assurance that this transaction will close on these terms,
on different terms or at all.
NEW CREDIT FACILITY
On September 15, 1997, the Company entered into a $1.75 billion revolving
credit and term loan facility with Citibank, N.A., as Administrative Agent, and
certain other lenders (the "New Credit Facility") to replace its existing $700
million revolving credit facility. The New Credit Facility consists of a $750
million term loan facility (the "Term Facility") and a $1 billion revolving
credit facility, including a $100 million letter of credit subfacility and a $10
million swing line subfacility (the "Revolving Facility"). The Term Facility,
all of which was borrowed on September 17, 1997, matures on September 30, 2004
and will be amortized beginning December 31, 1998 as follows: 1998 -- $7.5
million; each of 1999, 2000, 2001 and 2002 -- $7.5 million (payable in equal
quarterly installments); 2003 -- $337.5 million (payable in equal quarterly
installments); and 2004 -- $375 million (payable in equal quarterly
installments). Any unpaid balance will be due on the maturity date. The Term
Facility bears interest at a rate equal to, at the option of IHS, either (i) in
the case of Eurodollar loans, the sum of (x) one and three-quarters percent or
two percent (depending on the ratio of the Company's Debt (as defined in the New
Credit Facility) to earnings before interest, taxes, depreciation, amortization
and rent, pro forma for any acquisitions or divestitures during the measurement
period (the "Debt/EBITDAR Ratio")) and (y) the interest rate in the London
interbank market for loans in an amount substantially equal to the amount of
borrowing and for the period of borrowing selected by IHS or (ii) the sum of (a)
the higher of (1) Citibank, N.A.'s base rate or (2) one percent plus the latest
overnight federal funds rate plus (b) a margin of one-half percent or
three-quarters of one percent (depending on the Debt/EBITDAR Ratio). The Term
Facility can be prepaid at any time in whole or in part without penalty.
The Revolving Facility will reduce to $800 million on September 30, 2001
and $500 million on September 30, 2002, with a final maturity on September 15,
2004; however, the $100 million letter of credit subfacility and $10 million
swing line subfacility will remain at $100 million and $10 million,
respectively, until final maturity. The Revolving Facility bears interest at a
rate equal to, at the option of IHS, either (i) in the case of Eurodollar loans,
the sum of (x) between three-quarters of one percent and one and three-quarters
percent (depending on the Debt/EBITDAR Ratio) and (y) the interest rate in the
London interbank market for loans in an amount substantially equal to the amount
of borrowing and for the period of borrowing selected by IHS or (ii) the sum of
(a) the higher of (1) Citibank, N.A.'s
16
<PAGE>
base rate or (2) one percent plus the latest overnight federal funds rate plus
(b) a margin of between zero percent and one-half percent (depending on the
Debt/EBITDAR Ratio). Amounts repaid under the Revolving Facility may be
reborrowed prior to the maturity date.
The New Credit Facility limits IHS' ability to incur indebtedness or
contingent obligations, to make additional acquisitions, to sell or dispose of
assets, to create or incur liens on assets, to pay dividends, to purchase or
redeem IHS' stock and to merge or consolidate with any other person. In
addition, the New Credit Facility requires that IHS meet certain financial
ratios, and provides the banks with the right to require the payment of all
amounts outstanding under the facility, and to terminate all commitments under
the facility, if there is a change in control of IHS or if any person other than
Dr. Robert N. Elkins, IHS' Chairman and Chief Executive Officer, or a group
managed by Dr. Elkins, owns more than 40% of IHS' stock. The New Credit Facility
is guaranteed by all of IHS' subsidiaries (other than inactive subsidiaries) and
secured by a pledge of all of the stock of substantially all of IHS'
subsidiaries.
The New Credit Facility replaced the Company's $700 million revolving
credit facility (the "Prior Credit Facility"). As a result, the Company recorded
an extraordinary loss on extinguishment of debt of approximately $2.4 million
(net of related tax benefit of approximately $1.5 million) in the third quarter
of 1997 resulting from the write-off of deferred financing costs of $3.9 million
related to the Prior Credit Facility.
RECENT ACQUISITIONS
RoTech Acquisition. On October 21, 1997, IHS acquired RoTech through merger
of a wholly-owned subsidiary of IHS into RoTech (the "RoTech Merger"), with
RoTech becoming a wholly-owned subsidiary of IHS. RoTech provides home
healthcare products and services, with an emphasis on home respiratory, home
medical equipment and infusion therapy, primarily to patients in non-urban
areas. RoTech currently operates 613 home health locations in 35 states and
approximately 26 primary care physicians practices. According to RoTech's
filings with the Commission, RoTech had revenues of $422.7 million, (earnings
before interest, taxes, depreciation and amortization) ("EBITDA") of $108.2
million and net income of $30.8 million for the fiscal year ended July 31, 1997.
Under the terms of the RoTech Merger, holders of RoTech common stock
("RoTech Common Stock") received for each share of RoTech Common Stock 0.5806 of
a share of Common Stock of the Company (the "Exchange Ratio"), having a market
value of $19.16 based on the $33.00 closing price of the Common Stock on October
21, 1997, the effective date of the RoTech Merger. Options to purchase RoTech
Common Stock ("RoTech Options") were converted at the closing into options to
purchase Common Stock of the Company based on the Exchange Ratio. IHS issued
approximately 15,598,400 shares of Common Stock in the RoTech Merger, and
reserved for issuance approximately 1,841,700 shares of Common Stock issuable
upon exercise of RoTech Options. In addition, RoTech's outstanding $110 million
of convertible subordinated debentures (the "RoTech Debentures") became
convertible into approximately 2,433,000 shares of Common Stock of the Company
at a conversion price of $45.21 per share of Common Stock. At October 20, 1997,
IHS had outstanding 26,852,396 shares of Common Stock. At September 30, 1997,
IHS had outstanding options and warrants to purchase approximately 9,000,000
shares of Common Stock, and had reserved for issuance 7,989,275 shares upon
conversion of $258,750,000 principal amount of outstanding convertible
debentures. The RoTech Merger consideration aggregated approximately $514.8
million, substantially all of which will be recorded as goodwill. The
transaction will be treated as a purchase for accounting and financial reporting
purposes.
IHS repaid the $199.7 million of RoTech bank debt assumed in the
transaction with the proceeds of the term loans under its New Credit Facility.
Under the terms of the indenture under which the RoTech Debentures were issued,
RoTech was obligated to offer to repurchase the RoTech Debentures at a purchase
price equal to 100% of the aggregate principal amount thereof immediately
following the RoTech Merger. Holders of $107,836,000 principal amount of the
RoTech Debentures accepted the repurchase offer; $2,164,000 principal amount of
RoTech Debentures, convertible into approximately 47,865 shares of Common Stock,
remains outstanding. IHS used the proceeds of the term loans under its New
Credit Facility and the proceeds from the sale of the 9 1/4% Senior Notes to
make a capital contribution to RoTech in the amount necessary to enable RoTech
to finance the repurchase of the RoTech Debentures.
17
<PAGE>
Coram Lithotripsy Acquisition. IHS acquired, effective September 30, 1997,
substantially all of the assets of Coram's Lithotripsy Division, which operates
20 mobile lithotripsy units and 13 fixed-site machines in 180 locations in 18
states. The Coram Lithotripsy Division also provides maintenance services to its
own and third-party equipment. Lithotripsy is a non-invasive technique that
utilizes shock waves to disintegrate kidney stones.
IHS paid approximately $131.0 million in cash for the Coram Lithotripsy
Division, including the payment of $1.0 million of intercompany debt to Coram.
The Coram Lithotripsy Division had revenues of $49.0 million and EBITDA of $28.8
million (before minority interest) for the year ended December 31, 1996 and
revenues of $23.9 million and EBITDA of $14.3 million (before minority interest)
for the six months ended June 30, 1997.
IHS has assumed Coram's agreements with its lithotripsy partners, which
contemplate that IHS will acquire the remaining interest in each partnership at
a defined price in the event that legislation is passed or regulations are
adopted or interpreted that would prevent the physician partners from owning an
interest in the partnership and using the partnership's lithotripsy equipment
for the treatment of his or her patients. Coram has represented to IHS that its
partnership arrangements with physicians in its lithotripsy business are in
compliance with current law.
Within the last three years, HCFA released a proposed rule defining the
rate at which ambulatory surgery centers and certain hospitals would be
reimbursed for the technical component of a lithotripsy procedure. This proposed
rule has not been finalized. IHS cannot predict what the final rate for such
reimbursement will be or what effect, if any, the adoption of this proposed rule
would have on lithotripsy revenue and whether this decreased reimbursement rate
will be applied to lithotripsy procedures performed at hospitals, where a
majority of IHS' lithotripsy machines are currently utilized.
CCA Acquisition. On September 25, 1997, the Company acquired, through a
cash tender offer and subsequent merger, CCA for a purchase price of
approximately $34.3 million in cash. In addition, in connection with the CCA
Acquisition IHS repaid approximately $58.5 million of indebtedness assumed in
the CCA Acquisition (including restructuring fees of $4.9 million) with the
proceeds of the term loans under its New Credit Facility and assumed
approximately $27.0 million of indebtedness. CCA develops and operates skilled
nursing facilities in medically underserved rural communities. CCA currently
operates 54 licensed long-term care facilities with 4,450 licensed beds (of
which 19 facilities are being held for sale), one rural healthcare clinic, two
outpatient rehabilitation centers (one of which is being held for sale), one
child day care center and 124 assisted living units within seven of the
facilities which CCA operates. CCA currently operates in Alabama, Colorado,
Florida, Georgia, Iowa, Kansas, Louisiana, Maine, Missouri, Nebraska, Texas and
Wyoming. According to CCA's filings with the Commission, CCA had revenues of
$127.5 million, EBITDA of $2.1 million and a net loss of $18.9 million for the
year ended December 31, 1996 and revenues of $65.5 million, EBITDA of $4.0
million and a net loss of $2.4 million for the six months ended June 30, 1997.
Dr. Robert N. Elkins, Chairman of the Board and Chief Executive Officer of IHS,
beneficially owned approximately 21.0% of CCA's outstanding common stock
(excluding warrants owned by IHS to purchase approximately 13.5% of CCA's common
stock).
OTHER ACQUISITIONS AND DIVESTITURES
The Company continues to acquire and lease additional geriatric care
facilities, enter into new management agreements, acquire rehabilitation, home
healthcare and related service companies and implement its strategy of expanding
the range of related services it offers directly to its patients in order to
serve the full spectrum of patients' post-acute care needs. See "Risk Factors --
Risks Associated with Growth Through Acquisitions and Internal Development."
From January 1 through October 31, 1997, IHS has, in addition to the
acquisitions described above, acquired nine home healthcare companies, five
mobile diagnostic companies and two rehabilitation companies and a home infusion
company. The total cost for these acquisitions was approximately $115.1 million.
In July 1997, IHS sold its remaining 37% interest in its assisted living
services subsidiary pursuant to a cash tender offer. IHS recognized a gain of
approximately $4.6 million during the third quarter of 1997 as a result of this
transaction. IHS has reached agreements-in-principle to purchase three mobile
diagnostic companies
18
<PAGE>
for approximately $8.2 million, eight home health companies for approximately
$52.4 million, a rehabilitation company for approximately $11.1 million and a
lithotripsy company for approximately $11.2 million. IHS has also agreed in
principle to assume leases of three skilled nursing facility companies for $73.1
million. There can be no assurance that any of these pending acquisitions will
be consummated on the proposed terms, on different terms or at all.
In developing its post-acute healthcare system, IHS continuously evaluates
whether owning and operating businesses which provide certain ancillary
services, or contracting with third parties for such services, is more
cost-effective. As a result, the Company is continuously evaluating its existing
operations to determine whether to retain or divest operations. To date, IHS has
divested its pharmacy division and its assisted living services division, and
may divest additional divisions or assets in the future.
SALE OF 9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
On September 11, 1997, IHS sold privately an aggregate of $500 million
principal amount of its 9 1/4% Senior Subordinated Notes due 2008 to Smith
Barney Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Citicorp Securities, Inc. (the "9 1/4% Initial
Purchasers"). The 9 1/4% Senior Notes were subsequently resold by the 9 1/4%
Initial Purchasers pursuant to Rule 144A under the Securities Act. IHS used
approximately $319.5 million of the net proceeds to repay all amounts
outstanding under the Company's Prior Credit Facility. The Company intends to
use the remaining approximately $166.9 million of net proceeds for general
corporate purposes, including working capital.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information as of October 27, 1997
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
AMBULATORY PHARMACEUTICAL SERVICES, INC.(1)
Gigi Jordan .............................. 473,510 473,510 0
APS AMERICA, INC.(2)
Raymond A. Mirra, Jr. .................. 21,730 21,730 0
James Kuo .............................. 14,683 14,683 0
Edward Kramm ........................... 15,270 15,270 0
Sirrom Capital Corporation ............... 7,047 7,047 0
ARCADIA SERVICES, INC.(3)
Dale G. Rands ........................... 356 356 0
Joseph F. Galvin ........................ 356 356 0
Stuart Sinai ........................... 356 356 0
Ronald H. Riback ........................ 356 356 0
James C. Foresman ........................ 356 356 0
Lawrence N. Dudek ........................ 178 178 0
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
Phillip J. Shefferly .............................. 178 178 0
David B. Gunsberg ................................. 178 178 0
David J. Gould and Laura Gould .................. 178 178 0
Howard Zoller and Beth Zoller ..................... 178 178 0
Michael J. Eizelman and Shelley E. Eizelman ...... 178 178 0
Robert J. Sandler ................................. 713 713 0
Herbert J. Graebner .............................. 139,564 139,564 0
Barbara Brewer .................................... 6,303 6,303 0
Leonard Bellinson ................................. 145,261 145,261 0
Lawrence S. Jackier .............................. 356 356 0
Conbet Associates ................................. 16,807 16,807 0
Beth Elaine Lowenstein ........................... 8,403 8,403 0
Rita M. Lord .................................... 6,303 6,303 0
Jill Bader ....................................... 12,605 12,605 0
Charles Bader .................................... 12,605 12,605 0
James C. Foresman and Cheryl A. Busbey ............ 356 356 0
Robert M. Egren ................................. 485 485 0
Morris Rochlin .................................... 12,120 12,120 0
Nicholas J. Pyett ................................. 970 970 0
Lawrence S. Jackier .............................. 357 357 0
Cameron D. Hosner ................................. 10,714 10,714 0
James L. Bellinson .............................. 11,684 11,684 0
Gregory G. Glaesmer .............................. 4,363 4,363 0
Gerald Vargo .................................... 970 970 0
Arcadia Bidco Corporation ........................ 41,348 41,348 0
James L. Bellinson .............................. 22,858 22,858 0
Mark E. Schlussel ................................. 356 356 0
Donald B. Lifton ................................. 356 356 0
Joel M. Shere .................................... 178 178 0
Daniel D. Swanson ................................. 178 178 0
Carol Simon ....................................... 356 356 0
CoreStates Bank, N.A., as Escrow Agent ............ 71,777 71,777 0
Stephen P. Griggs(4) .............................. 1,363,545 750,000 613,545
</TABLE>
- ----------
(1) The shares offered hereby represent shares received in exchange for the
stock of Ambulatory Pharmaceutical Services, Inc. pursuant to the Stock
Purchase Agreement dated as of August 29, 1997.
(2) The shares offered hereby represent shares received in exchange for the
stock of APS America, Inc. pursuant to the Stock Purchase Agreement dated as
of August 29, 1997.
(3) The shares offered hereby represent shares received in exchange for the
stock of Arcadia Services, Inc. ("Arcadia") pursuant to the Agreement and
Plan of Reorganization dated as of July 24, 1997. Of the shares of Common
Stock being registered hereunder, 71,777 are currently being held in escrow
to secure indemnification obligations, accounts receivable with respect to a
litigated matter and merger consideration adjustments pursuant to the
Agreement and Plan of Reorganization. Merger consideration adjustments may
be based on a review of the working capital and long-term liabilities of
Arcadia as of the closing date, all on the terms set forth in the Agreement
and Plan of Reorganization.
(4) The shares offered hereby consist of shares issuable upon exercise of a
warrant (the "Warrant") issued to Mr. Griggs in connection with his entering
into an employment agreement with RoTech upon consummation of the RoTech
Acquisition. Of the 1,363,545 shares beneficially owned by Mr. Griggs, 1,261
are beneficially owned by his wife, 8,402 are beneficially owned by L&G of
Orlando, Inc., 110,372 shares are owned by Mr. Griggs, 493,510 shares are
issuable upon the exercise of options to purchase Common Stock at an average
exercise price of $23.98 per share and 750,000 shares are issuable upon
20
<PAGE>
exercise of the Warrant. The Warrant is exercisable at a price of $33.16 per
share of Common Stock (equal to the average closing sales price of the
Common Stock on the NYSE for the 15 business days prior to the closing date
of the RoTech Acquisition) and vest at the rate of 20% per year beginning on
October 21, 1998 (subject to acceleration upon Mr. Griggs' death or the
occurrence of a change in control of IHS).
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On August 29, 1997, the Company acquired all of the outstanding stock of
Ambulatory Pharmaceutical Services, Inc. ("Ambulatory"), a New Jersey
corporation which provides infusion services, including blood fractions services
and chronic infusion therapies. The purchase price was $34.25 million, including
$16.125 million paid through the issuance of 473,510 shares of the Company's
Common Stock (the "Ambulatory Shares"). The Ambulatory Shares are being offered
hereby.
On August 29, 1997, the Company acquired all of the outstanding stock of
APS America, Inc. ("APS"), a Delaware corporation which provides infusion
services, including blood fractions services and chronic infusion therapies. The
purchase price was $2.0 million, which was paid through the issuance of 58,730
shares of the Company's Common Stock (the "APS Shares"). The APS Shares are
being offered hereby.
On August 29, 1997, the Company acquired through merger all of the
outstanding stock of Arcadia Services, Inc. ("Arcadia"), a Michigan corporation
which provides home health care services, medical staffing services and clerical
and light industrial staffing services. The merger consideration was $18.7
million, which was paid though the issuance of 531,194 shares of the Company's
Common Stock (the "Arcadia Shares"). The Arcadia Shares are being offered
hereby.
On October 21, 1997, the Company acquired all of the outstanding stock of
RoTech. See "Recent Developments -- Recent Acquisitions -- RoTech Acquisition."
In connection with the acquisition of RoTech, the Company issued to Stephen P.
Griggs, President of RoTech, warrants to purchase 750,000 shares of Common
Stock. These shares of Common Stock are being offered hereby.
21
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees and pledgees).
Sales of Shares may be effected from time to time in transactions (which
may include block transactions) on the New York Stock Exchange, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Stockholders have advised the Company that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
The Ambulatory Group has agreed not to sell in excess of 70,000 shares of
Common Stock during any thirty day period and to effect sales solely through
Smith Barney Inc. The APS Group has agreed not to sell in excess of 30,000
shares of Common Stock during any thirty day period and to effect sales solely
through Smith Barney Inc. The Arcadia Group has agreed not to sell in excess of
100,000 shares of Common Stock during any thirty day period and to effect sales
solely through Smith Barney Inc.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the Shares, such Selling
Stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Securities Exchange Act of 1934, as amended,
which Regulation would prohibit, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such distribution
until his participation in that distribution is completed. In addition,
Regulation M under the Exchange Act prohibits, with certain exceptions, any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into with
the Company to indemnification against liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Fulbright & Jaworski
L.L.P., New York, New York. At October 31, 1997, partners of Fulbright &
Jaworski L.L.P. owned an aggregate of 300 shares of Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1995 and 1996 and for each of the years in
the three-year period ended December 31, 1996 have been incorporated by
reference in this Prospectus and elsewhere in the Registration State-
22
<PAGE>
ment in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP refers to changes in accounting methods, in 1995, to adopt Statement of
Financial Accounting Standards No. 121 related to impairment of long-lived
assets and, in 1996, from deferring and amortizing pre-opening costs of Medical
Specialty Units to recording them as expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995, have been incorporated by reference
in this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 1996 and filed with the Commission on
July 11, 1997) in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP contains an explanatory paragraph regarding the uncertainty
with respect to certain contingent payments which may be payable under a
settlement agreement with the Health Care Financing Administration.
The consolidated financial statements of Community Care of America, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated by reference in this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the change in accounting method in
1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
the impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
===================================================== ====================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION 1,813,434
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES SHARES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER INTEGRATED HEALTH
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE SERVICES, INC.
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
</TABLE>
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
COMMON STOCK
PAGE
-----
<S> <C>
Available Information .................. 2
Incorporation of Certain Documents by
Reference .......................... 3
The Company ............................. 5
Risk Factors ............................. 7
-------------------
Recent Developments ...................... 16 PROSPECTUS
-------------------
Use of Proceeds .......................... 19
Selling Stockholders .................... 19
Plan of Distribution .................... 22
Legal Matters .......................... 22
Experts ................................ 22
DECEMBER 10, 1997
===================================================== ====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Shares:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ------------------------------------------------------------------ ----------------
<S> <C>
Registration Fee - Securities and Exchange Commission ...... $ 15,982.02
Legal, accounting and printing fees and expenses ............ 35,000.00 *
Miscellaneous ............................................. 1,017.98 *
-------------
Total ................................................... $ 52,000.00 *
=============
</TABLE>
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may include provisions in its certificate of
incorporation that will relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including a breach of the director's duty of loyalty, acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, the approval of an improper payment of a dividend or an
improper purchase by the corporation of stock or any transaction from which the
director derived an improper personal benefit. The Company's Third Restated
Certificate of Incorporation, as amended, provides that the Company's directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duty, subject to the described exceptions specified by
the DGCL.
Section 145 of the DGCL grants to the Company the power to indemnify each
officer and director of the Company against liabilities and expenses incurred by
reason of the fact that he is or was an officer or director of the Company if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company's Third Restated Certificate of Incorporation, as amended,
and By-laws, as amended, provide for indemnification of each officer and
director of the Company to the fullest extent permitted by the DGCL. In
addition, IHS has entered into indemnity agreements with its directors and
executive officers, a form of which is included as Exhibit 10.72 to IHS's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
The Company has purchased and maintains a directors' and officers' liability
policy for such purposes.
The agreements pursuant to which the Signature Shares, the Mediq Shares,
the Total Rehab Shares and the Lifeway Shares were issued (Exhibits 10.1, 10.2,
10.3 and 10.4, respectively) provide for indemnification by the sellers
thereunder of the Company and its controlling persons, directors and officers
for certain liabilities, including liabilities arising under the Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
5 Opinion of Fulbright & Jaworski L.L.P.
10.1 Stock Purchase Agreement, dated as of August 29, 1997, among the Company, Ambulatory
Pharmaceutical Services, Inc. and Gigi Jordan.
10.2 Stock Purchase Agreement, dated as of August 29, 1997, among the Company, APS America,
Inc., Raymond A. Mirra, Jr., James Kuo, Edward Kramm and Sirrom Capital Corporation.
</TABLE>
II-1
<PAGE>
10.3 Agreement and Plan of Reorganization, dated as of July 24, 1997, among
the Company, Integrated AG Acquisition, Inc., Arcadia Services, Inc. and
the other parties thereto.
10.4 Warrant, dated as of October 21, 1997, issued by the Company to Stephen
P. Griggs.
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 Power of Attorney (included on signature page).
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Owings Mills, State of Maryland on December 10, 1997.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ ROBERT N. ELKINS
------------------------------------
Robert N. Elkins, Chairman of the
Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Elkins, Lawrence P. Cirka and W.
Bradley Bennett, jointly and severally, his true and lawful attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------ ------------------
<S> <C> <C>
/s/ ROBERT N. ELKINS Chairman of the Board and December 10, 1997
- -----------------------------
Chief Executive Officer
(Robert N. Elkins)
(Principal Executive Officer)
/s/ LAWRENCE P. CIRKA President and Director December 10, 1997
- -----------------------------
(Lawrence P. Cirka)
/s/ EDWIN M. CRAWFORD Director December 10, 1997
- -----------------------------
(Edwin M. Crawford )
/s/ KENNETH M. MAZIK Director December 10, 1997
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL Director December 10, 1997
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III Director December 10, 1997
- -----------------------------
(Charles W. Newhall, III)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------- ------------------
<S> <C> <C>
/s/ TIMOTHY F. NICHOLSON Director December 10, 1997
- -----------------------------
(Timothy F. Nicholson)
/s/ JOHN L. SILVERMAN Director December 10, 1997
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG Director December 10, 1997
- -----------------------------
(George H. Strong)
/s/ W. BRADLEY BENNETT Executive Vice President- December 10, 1997
- -----------------------------
Chief Accounting Officer
(W. Bradley Bennett)
(Principal Accounting Officer)
/s/ ELEANOR C. HARDING Executive Vice President- December 10, 1997
- -----------------------------
Finance (Principal Financial
(Eleanor C. Harding)
Officer)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------------------------- ---------
<S> <C> <C>
5 Opinion of Fulbright & Jaworski L.L.P.
10.1 Stock Purchase Agreement, dated as of August 29, 1997, among the
Company, Ambulatory Pharmaceutical Services, Inc. and Gigi Jordan.
10.2 Stock Purchase Agreement, dated as of August 29, 1997, among the
Company, APS America, Inc., Raymond A. Mirra, Jr., James Kuo, Edward
Kramm and Sirrom Capital Corporation.
10.3 Agreement and Plan of Reorganization, dated as of July 24, 1997,
among the Company, Integrated AG Acquisition, Inc., Arcadia Services,
Inc. and the other parties thereto.
10.4 Warrant, dated as of October 21, 1997, issued by the Company to
Stephen P. Griggs.
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Deloitte & Touche L.L.P.
23.3 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 Power of Attorney (included on signature page).
</TABLE>
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), filed by Integrated Health Services, Inc. (the "Company") on behalf
of certain selling stockholders (the "Selling Stockholders") with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, relating
to 1,813,434 shares of Common Stock, $.001 par value (the "Shares"), including
750,000 shares of Common Stock issuable upon exercise of a warrant (the "Warrant
Shares"), to be sold by the Selling Stockholders named therein.
As counsel for the Company, we have examined such corporate records,
documents and such questions of law as we have considered necessary or
appropriate for purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the Shares (other than the Warrant
Shares) to be sold by the Selling Stockholders have been duly and validly
authorized and are legally issued, fully paid and non-assessable and the Warrant
Shares have been duly and validly authorized and, upon exercise of the warrant
and payment of the exercise price therunder, will be legally issued, fully paid
and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the caption "Legal Matters" in
the prospectus contained therein and elsewhere in the Registration Statement and
prospectus. This consent is not to be construed as an admission that we are a
party whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
-----------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 29, 1997
AMONG
INTEGRATED HEALTH SERVICES, INC.
AND
AMBULATORY PHARMACEUTICAL SERVICES, INC.
AND
GIGI JORDAN
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I: SALE AND PURCHASE OF COMPANY STOCK................................. 1
1.1 Sale and Purchase of Company Stock................................ 1
ARTICLE II: PURCHASE PRICE.................................................... 1
2.1 Determination and Payment of Purchase Price....................... 1
2.2 Adjustments to the Purchase Price................................. 2
2.3 Liabilities....................................................... 3
ARTICLE III: IHS STOCK........................................................ 3
3.1 IHS Stock......................................................... 3
ARTICLE IV: THE CLOSING....................................................... 8
4.1 Time and Place of Closing......................................... 8
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SELLER AND
COMPANY.................................................................... 8
5.1 Organization and Standing of the Company.......................... 8
5.2 Absence of Conflicting Agreements................................. 8
5.3 Consents.......................................................... 9
5.4 Company Stock..................................................... 9
5.5 Assets............................................................ 9
5.6 Trademarks........................................................ 9
5.7 Contracts......................................................... 10
5.8 Financial Statements.............................................. 11
5.9 Material Changes.................................................. 11
5.10 Licenses; Permits; Certificates of Need........................... 12
5.11 Title, Condition of Personal Property............................. 12
5.12 Legal Proceedings................................................. 13
5.13 Employees......................................................... 14
5.14 Collective Bargaining, Labor Contracts, Employment Practices, Etc. 14
5.15 ERISA............................................................. 15
5.16 Insurance and Surety Agreements................................... 15
5.17 Relationships..................................................... 16
5.18 Absence of Certain Events......................................... 16
5.19 Compliance with Laws.............................................. 17
5.20 Finders........................................................... 17
5.21 Tax Returns....................................................... 17
5.22 Encumbrances Created by this Agreement............................ 17
5.23 Subsidiaries and Joint Ventures................................... 17
(i)
<PAGE>
5.24 No Untrue Statement............................................... 18
5.25 Medicare and Medicaid Programs.................................... 18
5.26 Leasehold Interests............................................... 18
5.27 Power and Authority............................................... 18
5.28 Binding Effect.................................................... 18
5.29 Questionnaires.................................................... 18
5.30 Questionable Payments............................................. 18
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLER ......................... 19
6.1 Authority......................................................... 19
6.2 Binding Effect.................................................... 19
6.3 Absence of Conflicting Agreements................................. 19
6.4 Consents.......................................................... 19
6.5 Ownership of Company Stock........................................ 19
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 19
7.1 Organization and Standing......................................... 19
7.2 Power and Authority............................................... 20
7.3 Binding Agreement................................................. 20
7.4 Absence of Conflicting Agreements................................. 20
7.5 Consents.......................................................... 20
7.6 Securities and Exchange Commission Filings........................ 20
7.7 Material Changes.................................................. 21
7.8 Finders........................................................... 21
7.9 Capital Stock..................................................... 21
7.10 Compliance with Laws.............................................. 21
7.11 Questionable Payments............................................. 21
8.1 Buyer's Access to Information and Records before Closing.......... 22
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.......................... 22
9.1 Conduct of Business Pending Closing............................... 22
9.2 Negative Covenants of the Company and its Subsidiaries............ 22
9.3 Affirmative Covenants............................................. 23
9.4 Pursuit of Consents and Approvals................................. 24
9.5 Exclusivity....................................................... 24
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS........................ 24
10.1 Representations and Warranties.................................... 24
10.2 Performance of Covenants.......................................... 24
10.3 Delivery of Closing Certificate................................... 25
10.4 Opinion of Counsel................................................ 25
10.5 Legal Matters..................................................... 25
10.6 Authorization Documents........................................... 25
(ii)
<PAGE>
10.7 Material Change................................................... 25
10.8 Approvals......................................................... 25
10.9 Employment Agreement.............................................. 25
10.10 Consents.......................................................... 26
10.11 Estimated Closing Date Balance Sheet.............................. 26
10.12 Company's Subsidiaries and Options................................ 26
10.13 Cost and Expenses................................................. 26
10.14 Resignation of Company Boards of Directors and Officers........... 26
10.15 Affiliated Company................................................ 26
10.16 Other Documents................................................... 26
ARTICLE XI: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS...................... 26
11.1 Representations and Warranties.................................... 26
11.2 Performance of Covenants.......................................... 27
11.3 Delivery of Closing Certificate................................... 27
11.4 Opinion of Counsel................................................ 27
11.5 Legal Matters..................................................... 27
11.6 Authorization Documents........................................... 27
11.7 Employment Agreement.............................................. 27
11.8 Material Change................................................... 27
11.9 Other Documents................................................... 27
ARTICLE XII: SURVIVAL AND INDEMNIFICATION..................................... 27
12.1 Survival of Representations and Warranties........................ 27
12.2 Indemnification by Seller......................................... 28
12.3 Indemnification by Buyer.......................................... 28
12.4 Assertion of Claims............................................... 29
12.6 Control of Defense of Indemnifiable Claims........................ 29
12.7 Restrictions...................................................... 30
12.8 Records........................................................... 31
ARTICLE XIII: TERMINATION..................................................... 31
13.1 Termination....................................................... 31
13.2 Effect of Termination............................................. 31
ARTICLE XIV: MISCELLANEOUS.................................................... 32
14.1 Costs and Expenses................................................ 32
14.2 Performance....................................................... 32
14.3 Benefit and Assignment............................................ 32
14.4 Effect and Construction of this Agreement......................... 32
14.5 Cooperation - Further Assistance.................................. 32
14.6 Notices........................................................... 32
14.7 Waiver, Discharge, Etc............................................ 33
(iii)
<PAGE>
14.8 Rights of Persons Not Parties..................................... 33
14.9 Governing Law..................................................... 33
14.10 Amendments, Supplements, Etc...................................... 34
14.11 Severability...................................................... 34
14.12 Counterparts...................................................... 34
14.13 Arbitration....................................................... 34
14.14 Public Announcements.............................................. 34
</TABLE>
(iv)
<PAGE>
SCHEDULES & EXHIBITS
Schedule 5.3 - Consent List of Seller
Schedule 5.4 - Company Stock
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8(a) - Unaudited Financial Statement
Schedule 5.8(b) - Unaudited Interim Financial Statements
Schedule 5.8(c) - Material Liabilities
Schedule 5.9 - Material Changes
Schedule 5.10 - Licenses, Permits, Certificates of Need
Schedule 5.11(a) - Liens on Personal Property
Schedule 5.11(b) - Leases of Personal Property
Schedule 5.12 - Legal Proceedings
Schedule 5.13 - Employees
Schedule 5.15(b) - Employee Benefit Plans
Schedule 5.15(c) - Employees on Leave of Absence
Schedule 5.16 - Insurance and Surety Agreements
Schedule 5.17 - Relationships
Schedule 5.18 - Absence of Certain Events
Schedule 5.19 - Compliance with Laws
Schedule 5.21 - Tax Returns
Schedule 5.23 - Subsidiaries, Joint Ventures, etc.
Schedule 5.25 - Medicare and Medicaid Programs
Schedule 6.5 - Ownership of Company Stock
Exhibit 5.29 - Questionnaire
Exhibit 10.4 - Opinion of Seller's Counsel
Exhibit 10.9 - Employment Agreement
Exhibit 11.4 - Opinion of Buyer's Counsel
(v)
<PAGE>
--------------------------
STOCK PURCHASE AGREEMENT
--------------------------
This Stock Purchase Agreement (the "Agreement") is made as of
the 29th day of August, 1997, among INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation ("Buyer"), and GIGI JORDAN (the "Seller") and AMBULATORY
PHARMACEUTICAL SERVICES, INC., a New Jersey corporation (the "Company").
WHEREAS, the Company is in the business of providing infusion
services, including without limitation, blood fractions services and chronic
infusion therapies (the "Business" or "Services"); and
WHEREAS, the Seller is the owner or holder of all of the
issued and outstanding shares of the capital stock of the Company (the "Company
Stock"); and
WHEREAS, Buyer wishes to acquire the Company Stock from the
Seller, and the Seller wishes to sell the Company Stock to Buyer, in accordance
with the terms and conditions hereinafter set forth.
NOW, THEREFORE, Seller, Buyer, and Company intending to be
legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF COMPANY STOCK
1.1 SALE AND PURCHASE OF COMPANY STOCK. Subject to the terms and conditions
of this Agreement, at the Closing (as hereinafter defined), Buyer shall acquire
from the Seller, and the Seller shall sell, assign, transfer and convey to
Buyer, the Company Stock. The number of shares of Company Stock (and the class
or series of such shares) being sold by Seller is set forth on Schedule 5.4
hereto.
ARTICLE II: PURCHASE PRICE
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE. Subject to adjustment
pursuant to Section 2.2 hereof, the aggregate purchase price to be paid by Buyer
to the Seller for the Company Stock (the "Purchase Price"), shall be THIRTY-FOUR
MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 ($34,250,000.00) DOLLARS, payable
at the Closing as follows:
(a) EIGHTEEN MILLION ONE HUNDRED TWENTY-FIVE THOUSAND ($18,125,000)
DOLLARS to be paid in cash by wire transfer of immediately available funds;
<PAGE>
(b) SIXTEEN MILLION ONE HUNDRED TWENTY-FIVE THOUSAND ($16,125,000)
DOLLARS by the delivery of newly issued shares of the Common Stock, par value
$.001, of Buyer (the "IHS Stock").
2.2 ADJUSTMENTS TO THE PURCHASE PRICE.
(a) At the Closing, the Company shall deliver a certificate signed by its
Chief Financial Officer certifying the amount of the Company's aggregate working
capital (as defined herein) as of the Closing Date on a consolidated basis (the
"Estimated Closing Date Working Capital"). In the event that the Estimated
Closing Date Working Capital is less than $4,000,000 (the "Minimum Working
Capital"), the Purchase Price payable to the Seller at Closing will be reduced
on a dollar-for-dollar basis by an amount equal to the amount of such deficiency
in cash. For the purposes hereof, "working capital" means the excess of current
assets over current liabilities, as determined in accordance with generally
accepted accounting principles, consistently applied ("GAAP"); provided that
current liabilities shall include any deferred taxes resulting from the
conversion of the Company as of the Closing Date from an S-corporation to a
C-corporation. Additionally, at the Closing, the Company shall deliver to Buyer
the balance sheet of the Company on a consolidated basis dated as of the Closing
Date, certified by the Company's Chief Financial Officer to be his or her best
good faith estimate thereof (the "Estimated Closing Date Balance Sheet"). In the
event that the Estimated Closing Date Balance Sheet discloses that the aggregate
amount of the Company's long-term liabilities as determined in accordance with
GAAP exceeds zero, the Purchase Price payable to the Seller at Closing will be
reduced by an amount equal to the amount of such excess. For the purposes
hereof, "long-term liability" means any liability that would be set forth as a
long-term liability on a balance sheet in accordance with GAAP; provided that
long-term liabilities shall include any deferred taxes resulting from the
conversion of the Company as of the Closing Date from an S-corporation to a
C-corporation, except that in no event will the same deferred tax amount be
included as both a current liability and long-term liability.
(b) As soon as is reasonably practicable, but in any event within ninety
(90) days following the Closing Date, Buyer shall complete a review of the
Company's Estimated Closing Date Balance Sheet. If such review reveals that the
Company's working capital as of the Closing Date was less than the lesser of (i)
the Minimum Working Capital, and (ii) the Estimated Closing Date Working
Capital, the Purchase Price shall be deemed to have been reduced by the amount
of such deficiency, and the Seller shall pay over to Buyer cash in an amount
equal to such deficiency. Furthermore, if such review reveals the aggregate
amount of the Company's long-term liabilities as of the Closing Date exceeded
the greater of (w) zero, or (x) the amount of the Company's long-term
liabilities as indicated on the Estimated Closing Date Balance Sheet, the
Purchase Price shall be deemed to have been reduced by the amount of such
excess, and the Seller shall deliver over to Buyer cash in an amount equal to
such excess. If there shall be any dispute regarding the calculation of the
working capital as of the Closing Date or the amount of long-term liabilities as
of the Closing Date, such dispute shall be submitted to a mutually acceptable
"big six" accounting firm other than KPMG Peat Marwick LLP and Deloitte & Touche
LLP (the "Accountants") for final resolution and the party against whom the
Accountants shall rule shall pay the costs and expenses of the Accountants in
connection therewith.
2
<PAGE>
2.3 LIABILITIES. As of the Closing Date, the Company will not have any
Liabilities other than such long-term liabilities and current liabilities as are
reflected on the Estimated Closing Date Balance Sheet. For purposes of this
Agreement the term "Liability" means any claim, lawsuit, liability, obligation
or debt of any kind or nature whatsoever, whether absolute, accrued, due, direct
or indirect, contingent or liquidated, matured or unmatured, joint or several,
whether or not for a sum certain, whether for the payment of money or for the
performance or observance of any obligation or condition, and whether or not of
a type which would be reflected as a liability on a balance sheet in accordance
with GAAP, including, without limitation (i) malpractice claims asserted by
patients or any other tort claims asserted, claims for breach of contract, or
any claims of any kind asserted by patients, former patients, employees or any
other party that are based on acts or omissions occurring on or before the
Closing Date; (ii) amounts due or that may become due to Medicare or Medicaid or
any other health care reimbursement or payment intermediary on account of
Medicare cost report adjustments or other payment adjustments attributable to
any period on or prior to the Closing Date, or any other form of Medicare or
other health care reimbursement recapture, adjustment or overpayment whatsoever,
including fines and penalties, with respect to any period on or prior to the
Closing Date ("Excess Reimbursement Liabilities"); (iii) any accounts payable or
employment or other taxes; and (iv) accrued but unpaid compensation or other
benefits to any of the Company's employees, agents, consultants or advisers,
including accrued vacation.
ARTICLE III: IHS STOCK
3.1 IHS STOCK. A portion of the Purchase Price equal to SIXTEEN MILLION ONE
HUNDRED TWENTY-FIVE THOUSAND ($16,125,000) DOLLARS shall be payable by means of
the delivery to the Seller of IHS Stock in accordance with the following:
(a) SHARE VALUE. The number of shares of IHS Stock issuable at Closing
pursuant to Section 2.1(b) shall be calculated based upon a price per share of
such stock equal to the average closing NYSE price of such stock for the thirty
(30) trading day period immediately preceding the date which is two (2) trading
days before the Closing Date.
(b) REGISTRATION RIGHTS. Buyer will prepare and use its best efforts to
cause to be filed and declared effective by the Securities and Exchange
Commission (the "Commission") within ninety (90) days following the Closing
Date, a registration statement for the registration under the Securities Act of
1933 (the "Securities Act") of the IHS Stock issued to Seller pursuant to this
Agreement, and Buyer shall maintain the effectiveness of such registration
statement for a period of one (1) year following the date on which it becomes
effective (the "Registration Date"), or until Seller shall not own any of the
IHS Stock issued pursuant to this Agreement, whichever shall occur first, in
each case except to the extent that an exemption from registration would allow
Seller to sell all of her stock without restrictions (other than as set forth in
Section 3.1(d), below) is available.
3
<PAGE>
(c) REGISTRATION EXPENSES. Seller shall not be responsible for, and Buyer
shall bear, all of the reasonable expenses of Buyer related to such registration
including, without limitation, the fees and expenses of Seller's counsel in an
amount of up to $5,000, the fees and expenses of its counsel and accountants,
all of its other costs, fees and expenses incident to the preparation, printing,
registration and filing under the Securities Act of the registration statement
and all amendments and supplements thereto, the cost of furnishing copies of
each preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters, dealers and other purchasers of IHS Stock
and the costs and expenses (including fees and disbursements of its counsel)
incurred in connection with the qualification of IHS Stock under the Blue Sky
laws of various jurisdictions. Buyer, however, shall not be required to pay
underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs or expenses arising out of Seller's or any transferee's failure to comply
with its obligations under this Article III.
(d) RESALE LIMITATIONS. All resales of IHS Stock issued pursuant to this
Agreement shall be effected solely through Smith Barney Inc., as broker, and
sales by Seller and, if any, her transferees of such shares (other than
transferees acquiring shares pursuant to market transactions through Smith
Barney Inc. and in accordance with this subsection (d)), shall not at any time,
in the aggregate, exceed Seventy Thousand (70,000) shares during any thirty (30)
day period.
(e) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Seller with respect to the IHS Stock as provided in this
Section 3.1, Buyer covenants and agrees as follows:
(i) At Buyer's expense, Buyer will keep the registration and
qualification under this Section 3.1 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate until the
Registration Date or for a period of one (1) year following the date on which
the registration becomes effective, in each case except to the extent that an
exemption from registration may be available. Buyer will immediately notify the
Seller, at any time when a prospectus relating to a registration statement under
this Section 3.1 is required to be delivered under the Securities Act, of the
happening of any event known to Buyer as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(ii) Buyer shall furnish the Seller with such number of prospectuses
as shall reasonably be requested.
(iii) Buyer shall take all necessary action which may be required in
qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Seller, provided that Buyer shall not be
obligated to qualify as a foreign corporation or dealer to do business under the
laws of any such jurisdiction.
4
<PAGE>
(iv) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 3.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Buyer shall indemnify the Seller of IHS Stock to be sold pursuant to
the registration statement, their successors and assigns, and each person, if
any, who controls such Seller within the meaning of ss.15 of the Securities Act
or ss.20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), against all
loss, claim, damage expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Securities Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by Buyer or based upon written information
furnished by Buyer filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to Buyer by the Seller expressly for use in such
registration statement, any amendment or supplement thereto or any application,
as the case may be. If any action is brought against the Seller or any
controlling person of the Seller in respect of which indemnity may be sought
against Buyer pursuant to this subsection 3.1(e)(iv), the Seller or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint, notify Buyer in writing of the institution of such action
and Buyer shall assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably satisfactory to
the Seller or such controlling person). The Seller or such controlling person
shall have the right to employ its or her own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the Seller or such
controlling person unless (A) the employment of such counsel shall have been
authorized in writing by Buyer in connection with the defense of such action, or
(B) Buyer shall not have employed counsel to have charge of the defense of such
action, or (C) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to Buyer (in which case, Buyer shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the Seller and/or such controlling person shall
be borne by Buyer. Buyer agrees promptly to notify the Seller of the
commencement of any litigation or proceedings against Buyer or any of its
officers, directors or controlling persons in connection with the resale of IHS
Stock or in connection with such registration statement.
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(v) The Seller of IHS Stock to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify Buyer, its officers and directors and each person, if any, who
controls Buyer within the meaning of ss.15 of the Securities Act or ss.20(a) of
the Exchange Act against all loss, claim, damage, or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Securities Act, the Exchange Act or any other statute, common law or
otherwise, to the extent arising from information furnished by or on behalf of
Seller, or her successors or assigns for specific inclusion in such registration
statement.
(f) NOTICE OF SALE. If the Seller desires to transfer all or any portion of
IHS Stock, the Seller will deliver written notice to Buyer, describing in
reasonable detail her intention to effect the transfer and the manner of the
proposed transfer. If the transfer is to be pursuant to an effective
registration statement as provided herein, the Seller will sell the IHS Stock in
compliance with the disclosure therein and discontinue any offers and sales
thereunder upon notice from Buyer that the registration statement relating to
the IHS Stock being transferred is not "current" until Buyer gives further
notice that offers and sales may be recommenced. In the event of any such notice
from Buyer, Buyer agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in Section 3.1(b) and to give prompt notice to the Seller when the
registration statement has again become current. If the Seller delivers to Buyer
an opinion of counsel reasonably acceptable to Buyer and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Seller will be entitled to transfer IHS Stock in
accordance with the terms of the notice and opinion of their counsel.
(g) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Buyer to take any action pursuant to this Article III that
the Seller shall furnish to the Buyer such information regarding herself, the
IHS Stock held by her, and the intended method of disposition of such securities
as shall be required to effect the registration of her IHS Stock. In that
connection, each transferee of Seller shall be required to represent to the
Buyer that all such information which is given is both complete and accurate in
all material respects. Seller shall deliver to the Buyer a statement in writing
from the beneficial owners of such securities that they bona fide intend to
sell, transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 3.1
is required to be delivered under the Securities Act, of the happening of any
event known to such transferee as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the statements as then existing.
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(h) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be issued
hereunder will be newly issued shares of Buyer. The Seller represents and
warrants to Buyer that the IHS Stock being issued hereunder is being acquired,
and will be acquired, by the Seller for investment for her own account and not
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act or the applicable state securities law; the
Seller acknowledges that the IHS Stock constitutes restricted securities under
Rule 144 promulgated by the Commission pursuant to the Securities Act, and may
have to be held indefinitely, and the Seller agrees that no shares of IHS Stock
may be sold, transferred, assigned, pledged or otherwise disposed of except
pursuant to an effective registration statement or an exemption from
registration under the Securities Act, the rules and regulations thereunder, and
under all applicable state securities laws. The Seller has the knowledge and
experience in financial and business matters, is capable of evaluating the
merits and risks of the investment, and is able to bear the economic risk of
such investment. The Seller has had the opportunity to make inquiries of and
obtain from representatives and employees of Buyer such other information about
Buyer as she deems necessary in connection with such investment. Buyer will file
all Exchange Act reports on a timely basis, including any permitted extensions.
(i) LEGEND. It is understood that, prior to sale of any shares of IHS Stock
pursuant to an effective registration pursuant to subsection (b) above, the
certificates evidencing such shares of IHS Stock shall bear the following (or a
similar) legend (in addition to any legends which may be required in the opinion
of IHS's counsel by the applicable securities laws of any state), and upon sale
of such shares pursuant to such an effective registration, new certificates
shall be issued for the shares sold without such legends except as otherwise
required by law.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR
AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.
(j) CERTAIN TRANSFEREES. Prior to the effective date of registration of the
IHS Stock, no transferee shall transfer any shares of IHS Stock to any person or
entity unless such transferee shall have agreed in writing to be bound by the
provisions applicable to the Seller under this Article III.
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ARTICLE IV: THE CLOSING
4.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement shall be held as promptly as
practicable, but not more than seven (7) business days following the
satisfaction of all conditions precedent specified in this Agreement, including
receipt of all necessary regulatory approvals, unless duly waived by the party
entitled to satisfaction thereof. The Closing shall take place at the offices of
the Buyer, 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."
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SELLER AND
COMPANY
The Company and the Seller hereby jointly and severally represent and
warrant to Buyer as follows (it being understood that, for the purposes of this
Article V, except where the content would otherwise require, "Company" shall be
deemed to refer collectively to the Company and any subsidiaries listed on
Schedule 5.23 and "to the knowledge of the Company" shall be deemed to refer
collectively to the Company's knowledge and the Seller's knowledge):
5.1 ORGANIZATION AND STANDING OF THE COMPANY. The Company and NJ Medical
Corporation are corporations duly organized, validly existing and in good
standing under the laws of the State of New Jersey. Copies of the Company's
Articles of Incorporation and ByLaws, and all amendments thereof to date, have
been delivered to Buyer and are complete and accurate. The Company has the power
and authority to own the property and assets now owned by it and to conduct the
business presently being conducted by it. The Company is qualified to do
business as a foreign corporation in each state where the ownership of its
assets or the conduct of its business renders such qualification necessary.
5.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement including all Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated hereby and thereby
("Transaction Documents") by the Company, nor the performance by Seller and the
Company of the transactions contemplated hereby and thereby, conflicts with, or
constitutes a breach of or a default under (i) the Articles of Incorporation or
By-Laws of the Company; or (ii) any applicable law, rule, judgment, order, writ,
injunction, or decree of any court, currently in effect, provided that the
consents set forth in Schedule 5.3 are obtained prior to the Closing; or (iii)
any applicable rule or regulation of any administrative agency or other
governmental authority currently in effect; or (iv) any material agreement,
indenture, contract or instrument to which the Company is now a party or by
which any of the assets of the Company is bound.
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5.3 CONSENTS. Except as set forth in Schedule 5.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement or any of the
Transaction Documents by the Seller or the Company.
5.4 COMPANY STOCK. Schedule 5.4 sets forth a complete list and description
of the authorized capital stock of the Company and the number of shares issued
and outstanding of each class or series of such capital stock. No shares of the
Company Stock are held in the treasury of the Company. The Seller is the record
owner of all of the issued and outstanding shares of the Company Stock and all
of such stock is duly authorized, validly issued, and fully paid and
non-assessable. On the Closing Date, there will be no preemptive or first
refusal rights to purchase or otherwise acquire from the Company or Seller
shares of capital stock of the Company pursuant to any provision of law or the
Articles of Incorporation or By-Laws of the Company or by agreement or
otherwise. On the Closing Date there shall not be outstanding any warrants,
options, or other rights to subscribe for or purchase from any of the Company
any shares of capital stock of the Company, nor shall there be outstanding any
securities convertible into or exchangeable for such shares.
5.5 ASSETS. As of the Closing Date, the consolidated assets of the Company
(the "Assets") will include its ownership interest in all of its current
operating subsidiaries, as well as all of the tangible and intangible assets
necessary to operate the Business of the Company and its subsidiaries as
presently constituted, including, without limitation, all contract rights,
leasehold interests, fixed and moveable equipment, vehicles, furnishings,
tangible personal property, inventory and supplies (other than inventory,
supplies, and other assets disposed of in the ordinary course of business,
consistent with prior practice), goodwill, trade names, trademarks, all patient
records, books and files, Certificates of Need, Medicare and Medicaid provider
agreements and provider numbers; provider agreements with third party payors,
telephone numbers, and to the extent permitted by law, all permits, licenses and
other governmental approvals. The Assets of the Company as of the Closing Date
shall also include cash, accounts receivable, and prepaid expenses. The Assets
shall not include inventory, supplies and other assets disposed of in the
ordinary course of business, consistent with the prior practice of the Company's
business. The quantities of inventory items included in the Assets are
reasonable in light of the present and anticipated volume of the Company's
business and the inventory is good, usable, merchantable, and salable in the
ordinary course of the Company's business, in each case, as determined by the
Company in good faith and consistent with past practice. The accounts receivable
of the Company are reflected properly on its books and records in accordance
with GAAP, and have been billed or invoiced in the ordinary course of business
consistent with past practice. The Assets are not subject to any Liens (as
defined in Section 5.11), except for Permitted Liens (as defined in Section
5.11).
5.6 TRADEMARKS. Schedule 5.6 sets forth a complete and accurate list of all
trademarks, service marks, or applications for any of the same, copyrights, and
other items of intellectual property that are owned, possessed or used by the
Company. There are no claims or proceedings pending or, to the knowledge of the
Company, overtly threatened against the Company
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asserting that the use of any of the aforementioned properties or rights
infringes the rights of any other person, and, to the knowledge of the Seller
and Company, the Company is not infringing on the intellectual property rights
of any other person.
5.7 CONTRACTS. Schedule 5.7 sets forth a complete and accurate list of all
agreements, contracts and commitments of the following type to which the Company
is a party or by which the Company or any of the Company's assets is bound or as
to which the Company has any outstanding material obligations as of the date
hereof (the "Contracts"):
(a) each contract or agreement for the employment or retention of, or
collective bargaining, severance or termination agreement with, any director,
officer, employee, consultant, agent or group of employees of the Company;
(b) each profit sharing, thrift, bonus, incentive, deferred compensation,
stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other similar plan, agreement or arrangement;
(c) each agreement or arrangement for the purchase or sale of any of the
Company's assets, properties or rights outside the ordinary course of business
(by purchase or sale of assets, purchase or sale of stock, merger or otherwise)
which is currently in effect which involves consideration of more than $25,000;
(d) each contract currently in effect which contains any provisions
requiring the Company to indemnify or act for, or guarantee the obligation of,
any other person or entity;
(e) each agreement restricting the Company from conducting business
anywhere in the world;
(f) each partnership or joint venture contract or similar arrangement or
agreement which involves a sharing of profits or future payments with respect to
the Company's business or any portion thereof;
(g) each licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency, purchasing, supply, and rebate or other
similar contract, arrangement or commitment which involves consideration of more
than $15,000;
(h) each contract under which the Company performs the Services;
(i) each lease of real property; or
(j) any other agreement not made in the ordinary and normal course of
business which involves consideration of more than $15,000.
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Except as indicated on Schedule 5.7, each of the Contracts was entered into
and requires performance in the ordinary course of business and is in full force
and effect. The Company is not in material default under any Contract and there
has not been asserted, either by or against the Company under any Contract, any
written notice of default, set-off or claim of default. To the knowledge of the
Company, the parties to the Contracts other than the Company are not in material
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 material default or material breach under
any Contract. All amounts payable under the Contracts are, or will at the
Closing Date, be on a current basis. Except as set forth on Schedule 5.7, the
change of control in the Company to Buyer will not be deemed an assignment of,
or require consent under, any Contract.
5.8 FINANCIAL STATEMENTS.
(a) The unaudited consolidated balance sheet of the Company as of
December 31, 1996, and the related statements of operations for the year then
ended, annexed hereto as Schedule 5.8(a) (the "Unaudited Financial Statement"),
presents fairly in all material respects the financial condition and results of
operations of the Company at and for the period then ended specified and were
prepared in accordance with GAAP.
(b) The unaudited consolidated monthly statements of operations of the
Company for each calendar month since January 1, 1997, and the unaudited
consolidated balance sheet of the Company as of July 31, 1997, annexed hereto as
Schedule 5.8(b) (the "Unaudited Interim Financial Statements"), present fairly
in all material respects the financial condition and results of operations of
the Company at and for the periods therein specified (except for normal year-end
adjustments and such statements do not contain footnote disclosure) and were
prepared in accordance with GAAP.
(c) Except as set forth on Schedule 5.8(c) or as expressly set forth on
the Unaudited Interim Financial Statements, the Company has no material
non-recurring or extraordinary income or expense reduction not identified
therein or 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 whether or not required by GAAP to be reflected on a
consolidated balance sheet and/or the notes thereto, except for current trade
payables incurred since the date of the Unaudited Interim Financial Statements
in the ordinary course of business consistent with past practice.
5.9 MATERIAL CHANGES. Except as noted on Schedule 5.9, between the date of
the Unaudited Financial Statement and the date of this Agreement, there has not
been any material adverse change in the condition (financial or otherwise) of
the Company or any damage or destruction of any of the Company's Assets or its
place of business by fire or other casualty, whether or not covered by
insurance, and during such period of time the Company has conducted its business
in the ordinary and normal course. Seller has identified and communicated to
Buyer all material information with respect to this transaction.
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5.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 5.10 sets forth a
description of (a) all material licenses and other governmental or other
regulatory permits, authorizations or approvals required for the operation of
the Company's business that are now in effect, including all certificates of
occupancy issued with respect to the Company's business; and (b) all
Certificates of Need issued with respect to the Company and its subsidiaries
that are now in effect (a "License" and collectively, the "Licenses"). The
Licenses constitute all of the material governmental, quasi-governmental and
regulatory licenses, permits and authorizations necessary to the operation of
the businesses of the Company and its subsidiaries as they are operated on the
date hereof. The Company has delivered to Buyer copies of all of the Licenses.
The Company and its subsidiaries own, possess or otherwise have the exclusive
legal right to use the Licenses (subject to the terms thereof) , free and clear
of all liens, pledges, claims or other encumbrances of any nature whatsoever.
The Company is not in material default under any such License, and the Company
and its subsidiaries have not received any notice of any material default or any
other material claim or proceeding relating to any such License. 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 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 5.10; or (b) subject to any investigation,
cancellation, impairment, limitation, order, complaint, proceeding, or
suspension nor is such threatened or pending. No Seller, director or officer,
employee or former employee of the Company, or any person, firm or corporation
other than the Company owns or has any proprietary, financial or other interest,
direct or indirect (other than through the Company), in whole or in part in any
of the Licenses.
5.11 TITLE, CONDITION OF PERSONAL PROPERTY.
(a) Except for the liens listed and described on Schedule 5.11(a), the
Company has good and marketable title to all of the personal property owned by
the Company located at its places of business or used in connection with the
operation of its businesses, subject to no mortgage, security interest, pledge,
lien, claim, encumbrance or charge, or restraint on transfer whatsoever (the
"Liens") other than Permitted Liens (as defined below) and except for personal
property leased by the Company as set forth on Schedule 5.11(b). No other person
has any right to the use or possession of any of such property which is owned
and, except as set forth on Schedule 5.11(a), no currently effective financing
statement with respect to such personal property has been filed under the
Uniform Commercial Code in any jurisdiction, and the Company has not signed any
such financing statement or any security agreement authorizing any secured party
thereunder to file any such financing statement. All of such personal property
comprising equipment, improvements, furniture and other tangible personal
property in use by the Company, whether owned or leased, is in good operating
condition and repair, subject to normal wear and tear, and is sufficient to
enable the Company to operate its business in a manner consistent with its
operation during the immediately preceding twelve (12) months.
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(b) Except as set forth on Schedule 5.11(b), no tangible personal property
used by the Company in connection with the operation of its business is subject
to a lease, conditional sale or similar arrangement. The Company has delivered
to Buyer a complete and correct copy of each of the leases and other agreements
listed on Schedule 5.11(b). The Company has a valid leasehold interest in all of
the property covered by any leases included on Schedule 5.11(b). All of said
personal property leases are valid, binding and enforceable in accordance with
their respective terms and are in full force and effect, subject to bankruptcy,
insolvency, and other similar laws or equitable principles affecting the
enforcement of creditors rights generally. The Company is not in material
default under any of such leases and there has not been asserted, either by or
against the Company under any of such leases, any written notice of default,
set-off, or claim of default. To the best knowledge of Seller and the Company,
the parties to such leases other than the Company are not in default of their
respective obligations under any of such leases, and there has not occurred any
event which with the passage of time or giving of notice (or both) would
constitute such a default or breach under any of such leases.
(c) "Permitted Liens" shall mean:
(i) carriers', warehouseman's, mechanics, materialmen's, repairmen's or
other like liens arising in the ordinary course of business which are (i) not
overdue for a period of more than 30 days or (ii) which are being contested in
good faith and by appropriate proceedings, provided that if such contest shall
continue for more than 30 days, the amount thereof shall be bonded or properly
reserved against at the end of such 30-day period;
(ii) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of like nature incurred in the
ordinary course of business;
(iii) rights of lessors under leases set forth on Schedule 5.11(b);
(iv) pledges or deposits in connection with worker's compensation,
unemployment insurance, and other social security legislation;
(v) taxes not yet due or those taxes being contested.
5.12 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.12, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of the Company, overtly threatened
against or affecting the Company, or the Company's ability to consummate the
transactions contemplated herein, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind.
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5.13 EMPLOYEES. Attached hereto as Schedule 5.13 is the payroll report of
the Company dated as of August 10, 1997, indicating the names, positions, and
compensation of each of its employees. All of such information is materially
correct as of such date and there has been no material changes since then. To
the knowledge of Seller and Company, none of the employees, while in the employ
of the Company, has ever had his or her professional license or certification
denied, suspended, revoked, terminated, or voluntarily relinquished under threat
of disciplinary action, or has ever been restricted in any way from performing
the duties he or she is to provide for the Company, and there is no proceeding
pending, or threatened, pursuant to which any of the foregoing may occur.
5.14 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT 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 employees nor any
strike or material labor disturbance by such employees affecting the Company's
business and, to the knowledge of the Company, there is no indication that such
a change, strike or labor disturbance is threatened. The Company's employees are
not represented by any labor union or similar organization and the Company has
no reason to believe that there are pending or threatened any activities, the
purpose of which is to achieve such representation, of all or some of the
Company's employees. Except as set forth on Schedule 5.7 or Schedule 5.15(b),
the Company has no collective bargaining or other labor contracts, employment
contracts, pension, profit-sharing, retirement, insurance, bonus, deferred
compensation or other employee benefit plans, agreements or arrangements with
respect to their employees. The Company is in material compliance with the
requirements prescribed by all Federal, state and local statutes, orders and
governmental rules and regulations ("Government Requirements") applicable to any
of the employee benefit plans, agreements and arrangements identified on
Schedule 5.7 and Schedule 5.15(b), including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Immigration
Reform and Control Act, the Worker Adjustment and Retraining Notification Act of
1988, any such Government Requirements respecting employment determination,
equal opportunity, affirmative action, employee privacy, wrongful or unlawful
termination, workers' compensation, occupational safety and health requirements,
labor management relations and unemployment insurance, or related matters and
there are no threatened or pending claims relating thereto, in each case. In the
event of termination of employment of an employee of the Company, the Company
will not, after the Closing, pursuant to any agreement with Seller or the
Company or by reason of any representation made or plan adopted by Seller or the
Company prior to the Closing, be liable to any employee of the Company for
so-called "severance pay", parachute payments or any other similar payments or
benefits, including, without limitation, post-employment healthcare (other than
pursuant to the continuation health care provisions of Section 4980B of the
Internal Revenue Code of 1986, as amended or Section 601 through 608 of ERISA
("COBRA")), insurance benefits, accrued vacation and sick days, except as
properly accrued for on the Estimated Closing Date Balance Sheet in accordance
with GAAP.
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5.15 ERISA.
(a) The Company does not maintain or make contributions to and have not
at any time in the past maintained or made contributions to, any employee
benefit plan which is subject to the minimum funding standards of ERISA. The
Company does not now maintain or make contributions to, and has not at any time
in the past maintained or made contributions to, any multi-employer plan subject
to the terms of the Multi-employer Pension Plan Amendment Act of 1980 (the
"Multi-employer Act").
(b) Schedule 5.15(b) sets forth each severance agreement, and each plan,
agreement or arrangement, bonus plan, deferred compensation agreement, employee
pension, profit sharing, savings or retirement plan, group life, health, or
accident insurance or other employee benefit plan, agreement, arrangement or
commitment, including, without limitation, any commitment arising under
severance, holiday, vacation, Christmas or other bonus plans (including, but not
limited to, "employee benefit plans", as defined in Section 3(3) of ERISA
maintained by the Company for any employees of the Company, or with respect to
which the Company has liability with respect to any employees of the Company, or
make or have an obligation to make contributions on behalf of employees of the
Company ("Plans").
(c) Schedule 5.15(c) identifies all employees of the Company on leave of
absence eligible to receive health benefits, as required by COBRA. Notice of the
availability of COBRA coverage has been provided to all employees of the Company
on leave of absence entitled thereto, and all persons electing such coverage are
being (or have been, if applicable) provided such coverage.
5.16 INSURANCE AND SURETY AGREEMENTS. Schedule 5.16 contains a true and
accurate list of: (a) all policies of fire, liability and other forms of
insurance held or owned by the Company (including but not limited to medical
malpractice 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, including a brief description of the
character of the bond or agreement and the name of the surety or indemnifying
party. Schedule 5.16 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 and of any claims made thereunder during the past two years.
Such policies are owned by and payable solely to the Company, and said policies
or renewals or replacements thereof will be outstanding and duly in force at the
Closing Date. All insurance policies listed on Schedule 5.16 are in full force
and effect, all premiums due on or before the Closing Date have been or will be
paid, financed or accrued on or before the Closing Date. The Company has not
been advised by any of its insurance carriers of an intention to terminate or
modify any such policies other than under circumstances where the Company has
received a commitment for a replacement policy, nor has the Company failed to
comply with any of the material conditions contained in any such policies.
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5.17 RELATIONSHIPS. Except as disclosed on Schedule 5.17 hereto, the Seller
has not and no partner or any affiliate of Seller has, or at any time within the
last two (2) years has had, a material ownership interest in any business,
corporate or otherwise, that is a party to, or in any property that is the
subject of, business relationships or arrangements of any kind relating to the
operation of the Company or its businesses.
5.18 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.18, since
the date of the Unaudited Financial Statement, the Company has not, and from the
date of this Agreement through the Closing Date the Company will not have:
(a) sold, assigned or transferred any of their assets or properties,
except in the ordinary course of business;
(b) mortgaged, pledged or subjected to any lien, pledge, mortgage,
security interest, conditional sales contract or other encumbrance of any nature
whatsoever, other than a Permitted Lien, any of the Company's assets;
(c) made or suffered any termination of any Services contract;
(d) sold or assigned, or made or suffered any termination of any
Contract, or made or suffered any modification or amendment of any Contract
except for terminations, modifications and amendments of Contracts made in the
ordinary course of business consistent with past practice and which would not
adversely affect earnings or otherwise be material, and the Seller and Company
have not received notice (written or oral) and have no knowledge that any
Contract has been terminated or will be terminated or modified or amended (as
aforesaid);
(e) except in the ordinary course of business, or otherwise as necessary
to comply with any applicable minimum wage law, increased the salaries or other
compensation of any of their employees, or made any increase in, or any
additions to, other benefits to which any of such employees may be entitled;
(f) failed to pay or discharge when due any liabilities, the failure to
pay or discharge which has caused or will cause any actual damage or give rise
to the risk of a loss to the Company;
(g) changed any of the accounting principles followed by the Company or
the methods of applying such principles; and
(h) entered into any transaction other than in the ordinary course of
business involving consideration in excess of $15,000.
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5.19 COMPLIANCE WITH LAWS. The Company is in compliance in all material
respects with all Governmental Requirements (as defined herein). Except for
notices of non-compliance as to which the Company has taken corrective action
acceptable to the applicable governmental agency, and as set forth in Schedule
5.19, the Company has not, within the period of twelve months preceding the date
of this Agreement, received any written notice that the Company or any of the
Assets fail to comply in any material respect with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of any Federal, state, local or other governmental agency
having jurisdiction over their businesses ("Governmental Requirements"). The
Company shall report to Buyer, within five (5) business days after receipt
thereof, any written notices that the Company is not in compliance in any
material respect with any of the foregoing.
5.20 FINDERS. No broker or finder has acted for the Seller 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
in respect thereof based in any way on agreements, understandings or
arrangements with the Seller or the Company.
5.21 TAX RETURNS.
(a) Except as set forth in Schedule 5.21, (i) all Tax (as defined below)
returns, statements, reports and forms or extensions with respect thereto
required to be filed with any Federal, state, local or other governmental
department or court or other authority having jurisdiction over it
("Governmental Authority") on or before the Closing Date by or on behalf of the
Company (collectively, the "Tax Returns"), have been or will be timely filed on
or before the Closing Date in accordance in all material respects with all
applicable Governmental Requirements; and (ii) the Company has timely paid all
Taxes payable by them.
(b) For purposes of this Agreement, "Tax" means any net income, gross
income, sales, use, franchise, personal, employment, pension or real property
tax.
5.22 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery of
this Agreement, or any of the Company's Transaction Documents, does not, and the
consummation of the transactions contemplated hereby or thereby will not, create
any liens or other encumbrances on any of the Company's assets in favor of third
parties.
5.23 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.23 sets forth a complete
list of all subsidiaries, joint ventures and partnerships in which the Company
is a record or beneficial owner. All of the issued and outstanding capital stock
of the subsidiaries listed on Schedule 5.23 hereto is owned of record or
beneficially by the Company or by one of the listed subsidiaries on Schedule
5.23.
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5.24 NO UNTRUE STATEMENT. The representations and warranties made pursuant
to this Agreement taken as a whole do not contain any untrue statement of
material fact or omit to state a material fact necessary, in light of the
circumstance under which it was made, in order to make the representations not
misleading in any material respect.
5.25 MEDICARE AND MEDICAID PROGRAMS. The Company, to the extent necessary
to conduct its business in a manner consistent with past practice, is qualified
for participation in the Medicare and Medicaid programs. Except as reflected on
Schedule 5.25, (a) neither the Seller nor the Company has received any notice of
recoupment with respect to the Company's operations from the Medicare or
Medicaid programs, or any other third party reimbursement source, (b) there is
no basis for the assertion after the Closing Date of any such recoupment claim
against Buyer, Company or Seller which arose out of any transactions on the part
of the Company prior to the Closing or against Seller for which Buyer will be
liable, and (c) to the knowledge of Seller and the Company, no Medicare and
Medicaid investigation, survey or audit is pending, threatened or imminent with
respect to the operation of the Company prior to the Closing.
5.26 LEASEHOLD INTERESTS. Each of the Company and its subsidiaries has
valid leasehold interests in all real property, subject to leases, identified on
Schedule 5.7(i), free and clear of all liens, claims, charges and encumbrances
of any kind whatsoever, except for Permitted Liens.
5.27 POWER AND AUTHORITY. The Company has all requisite power and authority
to execute, deliver and perform this Agreement, and as of the Closing, the
Company and Seller will have all requisite power and authority to execute and
deliver the Transaction Documents required to be delivered by each party to the
Buyer at the Closing.
5.28 BINDING EFFECT. This Agreement and all Transaction Documents executed
by the Company constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms.
5.29 QUESTIONNAIRES. The health care law questionnaire heretofore delivered
to the Company by Buyer (the "Questionnaire") will be attached hereto as Exhibit
5.29 and will as of the Closing Date have been accurately completed and will not
contain any material misstatement of any fact and will not omit any fact that
would have to be stated in order not to render any response to such
questionnaire materially misleading.
5.30 QUESTIONABLE PAYMENTS. The Company nor any shareholder, director,
officer, controlling person or employee of Company, and no affiliate of any
Company, (a) has used any corporate funds of Company to make any illegal or
unlawful payment to any officer, employee, representative, agent of any
government, or to any political party or official thereof, including, without
limitation, any of same that would violate the Foreign Corrupt Practices Act of
1977, as amended; or (b) has made or received any illegal payment, bribe,
kickback, political contribution or other similar questionable payment for any
referrals or recommendations or otherwise in connection with the operation of
the Company's business.
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ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to Buyer as follows:
6.1 AUTHORITY. Seller has the full legal power and authority to make,
execute, deliver and perform this Agreement and the Transaction Documents. Such
execution, delivery, performance and consummation has been duly authorized by
all necessary action, corporate or otherwise, on the part of Seller, and any
necessary consents of holders of indebtedness of Seller have been obtained.
6.2 BINDING EFFECT. This Agreement and all Transaction Documents executed
by Seller constitute the legal, valid and binding obligations of the Seller,
enforceable against Seller in accordance with their respective terms.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by Seller nor the performance
by Seller of the transactions contemplated hereby and thereby conflicts with, or
constitutes a breach of or a default under (i) any law, rule, judgment, order,
writ, injunction, or decree of any court currently in effect applicable to
Seller, or (ii) any rule or regulation of any administrative agency or other
governmental authority currently in effect applicable to Seller, or (iii) any
material agreement, indenture, contract or instrument to which such party is now
a party or by which any of the assets of Seller is bound.
6.4 CONSENTS. No authorization, consent, approval, license, exemption by,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary in connection with the execution, delivery and performance of this
Agreement or any of the Transaction Documents by Seller.
6.5 OWNERSHIP OF COMPANY STOCK. Except as disclosed on Schedule 6.5 hereto,
Seller is the lawful record and beneficial owner of all of the Company Stock
shown as owned by Seller in Schedule 5.4, with good and indefeasible title
thereto, free and clear of all liens and encumbrances, claims and other charges
thereon of any kind. Seller has the full legal power to transfer and deliver
such Company Stock in accordance with this Agreement, and delivery of such
Company Stock to Buyer pursuant hereto will convey good and indefeasible title
thereto, free and clear of all liens and encumbrances, claims and other charges
thereon or any kind. The shares of Company Stock indicated on Schedule 5.4 as
being owned by the Seller constitute all of the issued and outstanding shares of
the capital stock of the Company.
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and the Seller as follows:
7.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
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7.2 POWER AND AUTHORITY. Buyer has the corporate power and authority to
execute, deliver and perform this Agreement, and as of the Closing, Buyer will
have the corporate power and authority to execute and deliver the Transaction
Documents required to be delivered by it to the Seller at the Closing.
7.3 BINDING AGREEMENT. This Agreement and all Transaction Documents
executed by Buyer constitute the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms.
7.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by Buyer nor the performance
by the Buyer of the transactions contemplated hereby and thereby conflicts with,
or constitutes a breach of or a default under (i) the formation documents of the
Buyer, or (ii) any law, rule, judgment, order, writ, injunction, or decree of
any court currently in effect applicable to Buyer, or (iii) any rule or
regulation of any administrative agency or other governmental authority
currently in effect applicable to Buyer, or (iv) any material agreement,
indenture, contract or instrument to which the Buyer is now a party or by which
any of the assets of the Buyer is bound.
7.5 CONSENTS. No authorization, consent, approval, license, exemption by,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary in connection with the execution, delivery and performance of this
Agreement or any of the Transaction Documents by Buyer.
7.6 SECURITIES AND EXCHANGE COMMISSION FILINGS. Buyer has made available to
the Seller a correct and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Buyer with the Commission on
or after January 1, 1997 (the "SEC Documents"), which are all the documents
(other than preliminary material) that Buyer was thereon required to file with
the SEC on or after January 1, 1997. As of their respective dates, none of the
SEC Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statements or omissions
of a material fact necessary so as not to render the statements therein
misleading, in light of the circumstances under which they were made, and the
SEC Documents complied when filed in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as the case
may be. The financial statements of the Buyer included in the SEC Documents
complied in all material respects with the then applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with GAAP during the periods
involved (except as may have been indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q promulgated by the SEC)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the Buyer
and its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
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7.7 MATERIAL CHANGES. Since the Form 10-Q (as defined below), there has not
been any material adverse change in the condition (financial or otherwise) of
the Buyer or any material damage or destruction of any of the Buyer's material
assets or its place of business by fire or other casualty, whether or not
covered by insurance, and during such period of time the Buyer has conducted its
business in the ordinary and normal course. Buyer is willing to make itself
available to identify and communicate to Seller all material information with
respect to any fact or condition that is reasonably likely to adversely affect
the future prospects (financial or otherwise) of the Buyer.
7.8 FINDERS. No broker or finder has acted for the Buyer 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 in respect
thereof based in any way on agreements, understandings or arrangements with the
Buyer.
7.9 CAPITAL STOCK. Buyer's Form 10-Q filed with the Commission with respect
to the fiscal quarter ended June 30, 1997 (the "Form 10-Q"), sets forth a true
and complete description of the authorized and outstanding shares of capital
stock of Buyer as of such date. All outstanding shares of IHS Stock are validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Buyer has duly authorized and reserved for issuance the IHS Stock, and, when
issued in accordance with the terms of Article III, the IHS Stock will be
validly issued, fully paid and nonassessable and free and clear of preemptive
rights, liens, encumbrances, claims and other charges thereon.
7.10 COMPLIANCE WITH LAWS. The Buyer is in compliance in all material
respects with all Governmental Requirements (as defined in Section 5.19) except
where the failure to be in compliance could reasonably be expected to have a
material adverse effect on the Buyer and its subsidiaries collectively. Except
for notices of non-compliance as to which the Buyer has taken corrective action
acceptable to the applicable governmental agency or which would not reasonably
be expected to have a material adverse effect on the Buyer and its subsidiaries
collectively, the Buyer has not, within the period of twelve months preceding
the date of this Agreement, received any written notice that the Buyer or any of
the assets fail to comply in any material respect with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of any Federal, state, local or other governmental agency
having jurisdiction over their businesses.
7.11 QUESTIONABLE PAYMENTS. Neither the Buyer nor any shareholder,
director, officer, controlling person or employee of Buyer, and no affiliate of
Buyer, (a) has used any corporate funds of Buyer to make any illegal or unlawful
payment to any officer, employee, representative, agent of any government, or to
any political party or official thereof, including, without limitation, any of
same that would violate the Foreign Corrupt Practices Act of 1977, as amended;
or (b) has made or received any illegal payment, bribe, kickback, political
contribution or other similar questionable payment for any referrals or
recommendations or otherwise in connection with the operation of the Buyer's
business which could reasonably be expected to have a material adverse effect on
the Buyer and its subsidiaries collectively.
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ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE OTHER
PARTIES
8.1 BUYER'S ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to the
Closing Date, Buyer may make, or cause to be made, such investigation of the
Company's (it being understood that, for the purpose of this Article VIII,
"Company" shall be deemed to refer collectively to the Company and its
subsidiaries listed on Schedule 5.23) financial and legal condition as Buyer
deems necessary or advisable to familiarize itself with the Company and/or
matters relating to its history or operation. The Company shall permit Buyer and
its authorized representatives (including legal counsel and accountants), to
have full access to the Company's books and records upon reasonable notice and
during normal business hours, and the Company will furnish, or cause to be
furnished, to Buyer such financial and operating data and other information and
copies of documents with respect to the Company's products, services, operations
and assets as Buyer shall from time to time reasonably request. The documents to
which Buyer shall have access shall include, but not be limited to, the
Company's tax returns and related work papers since their inception; and the
Company shall make, or cause to be made, extracts thereof as Buyer or their
representatives may request from time to time to enable Buyer and their
representatives to investigate the affairs of the Company and the accuracy of
the representations and warranties made in this Agreement. The Company shall
cause their accountants to cooperate with Buyer and to disclose the results of
audits relating to the Company and to produce the working papers relating
thereto. Without limiting any of the foregoing, it is agreed that Buyer will
have full access to any and all agreements between and among the previous and
current shareholders regarding their ownership of shares or the management or
operation of the Company.
8.2 SELLER'S AND COMPANY'S ACCESS TO INFORMATION AND RECORDS BEFORE
CLOSING. Prior to the Closing Date, Buyer shall make available to Seller and
Company any public information related to the Buyer and provide access to the
senior management of Buyer.
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
9.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement
and the Closing, the Company and its subsidiaries shall maintain their existence
and shall conduct their businesses in the customary and ordinary course of
business consistent with past practice.
9.2 NEGATIVE COVENANTS OF THE COMPANY AND ITS SUBSIDIARIES. Without the
prior written approval of Buyer, neither the Company nor any of its subsidiaries
shall, between the date hereof and the Closing:
(a) cause or permit to occur any of the events or occurrences described
in Section 5.18 (Absence of Certain Events) of this Agreement;
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(b) dissolve, merge or enter into a share exchange with or into any other
entity;
(c) enter into any contract or agreement with any union or other
collective bargaining representative representing any employees without the
prior written consent of Buyer, which consent shall not be unreasonably
withheld;
(d) sell off any Assets other than in the ordinary course of business; or
(e) make any change to their by-laws or articles of incorporation.
9.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, the
Company and each of its subsidiaries shall:
(a) maintain their businesses in substantially the same state of repair,
order and condition as on the date hereof consistent with past practices,
reasonable wear and tear or loss by casualty excepted;
(b) maintain in full force and effect all material Licenses currently in
effect with respect to their businesses unless such License is no longer
necessary for the operation of the Company and its subsidiaries;
(c) maintain in full force and effect the insurance policies and binders
currently in effect, or the replacements thereof, including without limitation
those listed on Schedule 5.16;
(d) utilize their reasonable efforts to preserve intact the present
business organization of the Company and its subsidiaries; keep available the
services of the Company's and its subsidiaries' present employees and agents;
and maintain the Company's and its subsidiaries' relations and goodwill with
suppliers, employees, affiliated medical personnel and any others having
business relating to the Company and its subsidiaries;
(e) maintain all of the books and records in accordance with their past
practices;
(f) comply in all material respects with all provisions of the Contracts
listed in Schedule 5.7 and with any other material agreements that the Company
and its subsidiaries have entered into in the ordinary course of business since
the date of this Agreement, and comply in all material respects with the
provisions of all material laws, rules and regulations applicable to the
Company's and its subsidiaries' businesses;
(g) cause to be paid when due, all taxes, assessments and charges or
levies imposed upon them or on any of their properties for which they are
required to withhold and pay over, other than their being contested in good
faith;
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(h) promptly advise Buyer in writing of the threat or commencement
against the Company and its subsidiaries of any claim, action, suit or
proceeding, arbitration or investigation or any other event that would
materially adversely affect the operations, properties, assets or prospects of
the Company and its subsidiaries; and
(i) notify the Buyer in writing of any event involving the Company and
its subsidiaries which has had or may be reasonably expected to have a material
adverse effect on the business or financial condition of the Company and its
subsidiaries or may involve the loss of contracts which involve revenues of more
than $50,000 per year individually or $250,000 per year in the aggregate with
any of the Company's or its subsidiaries' customers.
9.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing, Buyer shall
use its reasonable efforts to obtain all consents and approvals of governmental
agencies and all other parties necessary for the lawful consummation of the
transactions contemplated hereby and the lawful use, occupancy and enjoyment of
the Company's and its subsidiaries' businesses by Buyer in accordance herewith
("Required Approvals"). The Company and its subsidiaries shall cooperate with
and use their reasonable efforts to assist Buyer in obtaining all such
approvals.
9.5 EXCLUSIVITY. Until the earlier of Closing or the termination of this
Agreement pursuant to Section 13.1, the Company nor Seller, nor any of their
respective affiliates, representatives or brokers shall enter into any
agreement, commitment or understanding with respect to, or engage in any
discussions or negotiations directly or indirectly with, or encourage or respond
to any solicitations from, any other party with respect to the sale, lease or
management of any of the Assets, or in respect of the sale of any shares of
capital stock in the Company.
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligations to consummate the purchase of the Company Stock is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Buyer in writing. Upon
failure of any of the following conditions, Buyer may terminate this Agreement
pursuant to and in accordance with Article XIII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Company and Seller made pursuant to 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 a
representation made as of a specified date shall be true and accurate in all
material respects as of that date) except to the extent affected by the
transactions herein contemplated.
10.2 PERFORMANCE OF COVENANTS. The Seller and the Company shall have
performed or complied in all material respects with their respective agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or at the Closing.
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10.3 DELIVERY OF CLOSING CERTIFICATE. The Seller and the Company shall have
executed and delivered to Buyer a certificate of its president, dated the
Closing Date, upon which Buyer may rely, certifying that the conditions
contemplated by Sections 10.1 and 10.2 applicable to it have been satisfied.
10.4 OPINION OF COUNSEL. Seller and the Company shall have delivered to
Buyer an opinion, dated the Closing Date, of their counsel, in substantially the
form attached hereto as Exhibit 10.4.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
10.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a certificate of
the Secretary or other officer of the Company certifying as of the Closing Date
a copy of Resolutions of their Boards of Directors authorizing their execution
and full performance of the Transaction Documents and the incumbency of its
respective officers.
10.7 MATERIAL CHANGE. Since the date of the Unaudited Financial Statement
there shall not have been any material adverse change in the condition
(financial or otherwise) of the assets, properties or operations of the Company
and its subsidiaries.
10.8 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, cancellation or termination of any material
lease, contract, commitment, agreement, license, easement, right or other
authorization with respect to the Company's and its subsidiaries' businesses,
other than as disclosed or approved hereunder, or (ii) shall impose on the Buyer
any material condition or provision or requirement with respect to the Company's
and its subsidiaries' businesses or their operation that is more restrictive
than or different from the conditions imposed upon such operation prior to
Closing.
10.9 EMPLOYMENT AGREEMENT. Gigi Jordan shall have executed and delivered to
Buyer her employment agreement in the form of Exhibit 10.9 hereto (the
"Employment Agreement").
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10.10 CONSENTS. Buyer shall have received the written consent to assignment
from each of those parties with whom the Company or its subsidiaries has a
Contract as listed on Schedule 5.7, where such consent is required by reason of
the change of control of the Company and its subsidiaries contemplated under
this Agreement.
10.11 ESTIMATED CLOSING DATE BALANCE SHEET. Seller and Company shall have
delivered the Estimated Closing Date Balance Sheet to Buyer.
10.12 COMPANY'S SUBSIDIARIES AND OPTIONS. Each of the subsidiaries of the
Company as of the Closing Date will be one hundred (100%) percent owned by the
Company and there shall not be outstanding as of the Closing Date any options,
warrants or rights for the purchase of any capital stock of the subsidiaries of
the Company.
10.13 COST AND EXPENSES. The Seller shall have paid all costs, fees and
expenses (including without limitation, filing fees, transfer taxes, stamp
taxes, legal fees and broker, audit and appraisal fees) incurred by the Company
or any of its subsidiaries in connection with the transactions contemplated by
this Agreement.
10.14 RESIGNATION OF COMPANY BOARDS OF DIRECTORS AND OFFICERS. Each
director and officer of the Company and each of its subsidiaries shall have
submitted his or her resignation to be effective no later than the Closing Date.
10.15 AFFILIATED COMPANY. Buyer shall have closed its acquisition
simultaneously with APS America, Inc. and each of their respective shareholders.
10.16 OTHER DOCUMENTS. The Seller and the Company shall have furnished
Buyer with all other documents, certificates and other instruments required to
be furnished to Buyer by the Seller and the Company pursuant to the terms
hereof.
ARTICLE XI: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Seller's obligation to consummate the sale of the Company Stock is subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Seller in writing. Upon
failure of any of the following conditions, Seller may terminate this Agreement
pursuant to and in accordance with Article XIII herein:
11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer 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 a representation made as of a specified date
shall be true and accurate in all material respects as of that date) except to
the extent affected by the transactions herein contemplated.
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11.2 PERFORMANCE OF COVENANTS. Buyer shall have performed or complied with
each of its agreements and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing.
11.3 DELIVERY OF CLOSING CERTIFICATE. Buyer shall have delivered to Seller
a certificate of an executive vice president of Buyer dated the Closing Date
upon which Seller can rely, certifying that the conditions contemplated by
Sections 11.1 and 11.2 applicable to it have been satisfied.
11.4 OPINION OF COUNSEL. Buyer shall have delivered to Seller an opinion,
dated the Closing Date, of Blass & Driggs, Esqs., counsel for Buyer, in the form
attached as Exhibit 11.4.
11.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
11.6 AUTHORIZATION DOCUMENTS. Seller shall have received a certificate of
the Secretary or other officer of Buyer certifying a copy of Resolutions of the
Board of Directors of Buyer authorizing Buyer's execution and full performance
of the Transaction Documents and the incumbency of the officers of Buyer.
11.7 EMPLOYMENT AGREEMENT. The Buyer shall have entered into the Employment
Agreement with Gigi Jordan.
11.8 MATERIAL CHANGE. Since the Form 10-Q, there shall not have been any
material adverse change in the condition (financial or otherwise) of the assets,
properties or operations of Buyer.
11.9 OTHER DOCUMENTS. Buyer shall have furnished Seller with all documents,
certificates and other instruments required to be furnished to Seller by Buyer
pursuant to the terms hereof.
ARTICLE XII: SURVIVAL AND INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Absent fraud, all
representations and warranties made by each party in this Agreement and in each
Schedule and Transaction Document shall survive the Closing Date and for a
period of one (1) year after the Closing, notwithstanding any investigation at
any time made by or on behalf of the other party, provided that the
representations and warranties contained in Section 5.30 (Questionable
Payments), Section 5.25 (Medicare and Medicaid) and Section 5.21 (Tax), shall
survive until thirty (30) days after the applicable period of limitations for
audits by the applicable Governmental Authority shall
27
<PAGE>
have expired, including extensions for any necessary appeals. All
representations and warranties related to any claim asserted in writing prior to
the expiration of the applicable survival period shall survive (but only with
respect to such claim) until such claim shall be resolved and payment in respect
thereof, if any is owing, shall be made.
12.2 INDEMNIFICATION BY SELLER. The Seller (and the Company unless there
shall be a Closing) shall indemnify and defend Buyer and hold it harmless
against and with respect to any and all damage, loss, liability, deficiency,
cost and expense (including, without limitation, reasonable attorney's fees and
expenses) (all of the foregoing hereinafter collectively referred to as "Loss")
resulting from:
(a) any inaccuracy in any representation or certification, or breach of
any warranty, made by the Seller or Company pursuant to this Agreement; or
(b) the breach of any covenant or undertaking made by the Seller or
Company in this Agreement; or
(c) the ownership or operation of the Company or its subsidiaries or its
business or assets prior to the Closing Date, including, without limitation, (i)
any Excess Reimbursement Liabilities (as defined in Section 2.4); (ii) any Taxes
resulting from the operation of the business of the Company or ownership of any
of the Assets for any period ending on or before the Closing Date; (iii) any
Loss arising out of the noncompliance of the Company with COBRA or any like
statute; (iv) any claim of the type that would be covered by a standard
liability insurance policy, including without limitation, professional
liability, malpractice, general liability, automobile liability, worker's
compensation or employer's liability insurance, arising out of the operation of
the Company's business prior to the Closing Date, including payments of any
deductibles applicable to the aforesaid policies; (v) any Loss arising out of
the OIG investigation of the Company and its subsidiaries pursuant to the OIG's
subpoena of the Company, dated August 19, 1997; and (vi) any and all actions,
suits, proceedings, demands, assessments, judgments, settlements (to the extent
approved by the Company, such approval not to be unreasonably withheld, delayed
or conditioned), costs and legal expenses incident to any of the foregoing; but
excluding current liabilities and long-term liabilities that are reflected on
the Estimated Closing Date Balance Sheet or that otherwise are taken into
account in any adjustment to the Purchase Price under Section 2.2; or
(d) any failure on the part of the Company or any Seller to be in
compliance with applicable legal requirements for any License relating to the
Company's business in the State of Connecticut, or the failure to obtain any
necessary consent, or to give any required notice, in connection with the change
of control hereunder affecting the Connecticut Licenses.
12.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend Seller and
hold them harmless against and with respect to any and all Loss resulting from:
(a) any inaccuracy in any representation or certification, or breach of
any warranty, made by Buyer pursuant to this Agreement; or
28
<PAGE>
(b) the breach of any covenant or undertaking made by Buyer in this
Agreement; or
(c) the ownership or operation of the Company or its subsidiaries or its
business or assets on and after the Closing Date.
12.4 ASSERTION OF CLAIMS. Any claims for indemnification under Sections
12.2(a) or 12.3(a) must be asserted by written notice by a date which is no
later than one (1) year following the Closing Date, except that any claim based
upon a breach of the representations and warranties contained in Section 5.30
(Questionable Payments), Section 5.25 (Medicare and Medicaid) or Section 5.21
(Tax) may be asserted until thirty (30) days after the applicable period of
limitations for audits by the applicable Governmental Authority shall have
expired, including extensions for any necessary appeals.
12.5 INDEMNITY BASKET. Notwithstanding any other provision of this Article
XII, no claim for indemnification made under Sections 12.2(a) or 12.3(a) shall
be made unless and until Buyer or Seller, as the case may be, has incurred Loss
in excess of Fifty Thousand ($50,000) Dollars in the aggregate, in which case,
the party seeking indemnification shall be entitled to assert claims including
such initial Fifty Thousand ($50,000) Dollars.
12.6 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS.
(a) Each indemnified party (each, an "Indemnitee") shall give the
indemnifying party (the "Indemnitor") prompt notice of each claim for which it
seeks indemnification. Failure to give such prompt notice shall not relieve any
Indemnitor of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages the Indemnitor demonstrates it has
suffered resulting from a failure to receive prompt notice hereunder. The
Indemnitors shall be entitled to participate in the defense of such claim. If at
any time the Indemnitor acknowledges in writing that the claim is fully
indemnifiable by it under this Agreement, and, if requested by the Indemnitee,
the Indemnitor posts adequate bond or security, the Indemnitor shall have the
right to assume control of the defense (but not the settlement) of such claim at
its own expense; unless (i) Indemnitee shall have been authorized in writing by
the Indemnitor to defend such action with counsel of its own choice in
connection with the defense of such action, or (ii) the Indemnitor shall not
have employed counsel to have charge of the defense of such action within twenty
(20) days after the date of notice of the claim for which indemnification is
sought is given to the Indemnitor or (iii) the Indemnitor shall have failed to
undertake and reasonably pursue the defense of such action, or (iv) the
Indemnitee shall have reasonably concluded that there may be material defenses
available to it or them which are different from or additional to those
available to the Indemnitor. If any event described in clauses (i) through (iv)
above shall occur, then the Indemnitor shall not have the right to direct the
defense of such action on behalf of the Indemnitee with counsel of its own
choice, and the reasonable fees and expenses of the Indemnitee shall be borne by
the Indemnitor, provided that such counsel shall be reasonably acceptable to the
Indemnitor. If the Indemnitors do assume control of the defense
29
<PAGE>
of any such claim in accordance with the foregoing, then: (x) the Indemnitor
shall not defend the claim for which indemnification is being sought in any
manner that would likely have a material adverse effect on the Indemnitee or on
any relationship that the Indemnitee may have with any customers, vendors,
suppliers or others, and (y) the Indemnitee shall not settle such claim without
the written consent of the Indemnitor, which consent shall not be unreasonably
withheld, delayed or conditioned. Nothing contained in this Section 12.6 shall
prevent either party from assuming control of the defense and/or settling any
claim against it for which indemnification is not sought under this Agreement.
(b) Notwithstanding anything to the contrary contained in this Agreement,
if there shall be any claim for Excess Reimbursement Liabilities with respect to
which Buyer shall be seeking indemnification, Buyer will have the sole right to
contest or appeal such claim (using at least the same standard of care as it
would apply to contests or appeals with respect to reimbursement liabilities in
general) in accordance with its customary procedures diligently and in good
faith. Buyer may, in its sole and absolute discretion, at any time discontinue
any such contest or appeal or enter into a settlement with respect thereto prior
to the final determination thereof (a "Final Determination"); provided, however,
that if it intends to discontinue or settle any such appeal or contest prior to
Final Determination, then it must provide Seller with reasonable prior written
notice of such intent and of the current status of the appeal or contest or
proposed settlement, and will consult with Seller in good faith with respect
thereto.
12.7 RESTRICTIONS.
(a) From and after the Closing Date, the Seller shall not disclose,
directly or indirectly, to any person outside of Buyer's employ without the
express authorization of the Buyer, any patient lists, customer lists, pricing
strategies, customer files, or patient files and records of the Company and its
subsidiaries, any proprietary data or trade secrets owned by the Company and its
subsidiaries or any financial or other information about the Company and its
subsidiaries not then in the public domain; provided, however, that Seller shall
be permitted to make such disclosures as may be required by law or by a court or
governmental authority.
(b) After the Closing Date, the Seller shall not engage or participate in
any effort or act to induce any of the customers, physicians, suppliers,
associates, employees or independent contractors of the Company and its
subsidiaries to cease doing business, or their association or employment, with
the Company and its subsidiaries.
(c) Seller shall not, for a period of five (5) years after the Closing
Date, directly, or indirectly, for or on behalf of himself or herself or any
other person, firm, entity or other enterprise, be employed by, be a director or
manager of, act as a consultant for, be a partner in, have a proprietary
interest in, give advice to, loan money to or otherwise associate with, in a
business fashion, any person, enterprise, partnership, association, corporation,
joint venture or other entity which is directly or indirectly in the business of
owning, operating or managing any entity of any type, licensed or unlicensed,
which, anywhere within the United States, (i) is engaged in or provides
30
<PAGE>
the Services, (ii) compounds or dispenses pharmaceutical admixtures for
intravenous therapies to patients at sites other than hospitals, (iii) provides
medical supplies, equipment or non-professional services usually and customarily
associated with the provision of intravenous therapies to patients, or (iv)
provides professional nursing services usually and customarily rendered with the
provision of intravenous therapies, provided that nothing in this Section
12.7(c) shall restrict any Seller form having any involvement with a nursing
agency business.
(d) The Seller acknowledges that the restrictions contained in this
Section 12.7 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, Seller agrees that upon the violation by
her of any of the restrictions contained in this Section 12.7, Buyer shall be
entitled 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 proceeding, 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.
12.8 RECORDS. On the Closing Date, Seller and Company shall deliver, or
cause to be delivered, to Buyer all records and files not then in Buyer's
possession relating to the operations of the Company and its subsidiaries.
ARTICLE XIII: TERMINATION
13.1 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,
including without limitation those conditions set forth in Article X hereof,
have not been satisfied by the Closing Date;
(b) Seller, if any condition precedent to the obligations of Seller or
the Company hereunder, including without limitation those conditions set forth
in Article XI hereof, have not been satisfied by the Closing Date; or
(c) the mutual consent of Buyer and Seller.
13.2 EFFECT OF TERMINATION. If a party terminates this Agreement because
one of its conditions precedent has not been fulfilled, or if this Agreement is
terminated by mutual consent, this Agreement shall become null and void without
any liability of any party to the other; provided, however, that if such
termination is by reason of the breach by any party of any of its
representations, warranties or obligations under this Agreement, the other party
shall be entitled to be indemnified for any Losses incurred by it by reason
thereof in accordance with Article XII hereof (and for such purposes such
Article XII shall survive the termination of this Agreement). Further, nothing
in this Section 13.2 shall affect Buyer's right to specific performance of the
obligations of the Company and Seller at Closing hereunder.
31
<PAGE>
ARTICLE XIV: MISCELLANEOUS
14.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Buyer and Seller shall bear their own costs and expenses in
connection with this Agreement and the transactions contemplated hereby;
provided, however, that no such costs and expenses shall be charged to the
Company and its subsidiaries.
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, or
other remedy, the prevailing party shall be entitled to its reasonable
attorneys' fees.
14.3 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to the benefit
of each party hereto and its successors and proper assigns. Neither Buyer nor
Seller may assign its interest under this Agreement to any other person or
entity without the prior written consent of the other party; provided, however,
that Buyer may assign its rights, duties and obligations hereunder to one or
more subsidiaries or affiliates of Buyer; and further provided that in the
instance of such assignment Buyer shall guaranty the performance of its assignee
hereunder.
14.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
Exhibits and Schedules hereto 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. From time to time, as and when
reasonably requested by Buyer after the Closing, the other parties will (at the
expense of the Buyer) 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 requested or necessary to
carry out the intent and purposes of this Agreement.
14.6 NOTICES. All notices 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 within five
(5) days when sent by certified or registered mail, postage prepaid, or on the
next business day if sent for next day delivery by a nationally recognized
overnight courier, in either case, properly addressed to the party or parties
entitled to receive such notice at the address stated below:
32
<PAGE>
If to the Company: Ambulatory Pharmaceutical Services, Inc.
2932 North Atlantic Boulevard
Fort Lauderdale, FL 33308
Attn: Gigi Jordan
If to the Seller: Gigi Jordan
2932 North Atlantic Boulevard
Fort Lauderdale, FL 33308
with a copy to: Alexander Bono, Esq.
Blank, Rome, Comisky & McCauley
2000 One Logan Square
Philadelphia, PA 19103
If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian K. Davidson
Elizabeth B. Kelly
cc: Marshall A. Elkins, General Counsel
with a copy to: Michael S. Blass, Esq.
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
14.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
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 New York, disregarding any rules
relating to the choice or conflict of laws.
33
<PAGE>
14.10 AMENDMENTS, SUPPLEMENTS, ETC. At any time before or after the
execution and delivery of this Agreement by the parties hereto, this Agreement
may be amended or supplemented by additional agreements, articles or
certificates, as may be mutually determined by the parties 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 covenants, terms or
conditions hereof or thereof. This Agreement may not be amended except by an
instrument in writing signed by each of the parties.
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 12.7 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 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall together
constitute one and the same instrument.
14.13 ARBITRATION. Any dispute or controversy between any of the parties
hereto pertaining to the performance or interpretation of this Agreement shall
be settled by binding arbitration pursuant to the rules of the American
Arbitration Association. The cost of such proceeding shall be shared equally by
all parties thereto, and each such party shall bear its own costs incurred as a
result of its participation in any such arbitration.
14.14 PUBLIC ANNOUNCEMENTS. Any general public announcements or similar
media publicity with respect to this Agreement or the transactions contemplated
herein shall be at such time and in such manner as Buyer and Seller shall
determine; provided that nothing herein shall prevent either party, upon as much
prior notice as shall be possible under the circumstances to the other, from
making such written announcements as such party's counsel may consider advisable
in order to satisfy the party's legal and contractual obligations in such
regard.
[SIGNATURES ON THE FOLLOWING PAGE]
34
<PAGE>
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.
COMPANY:
AMBULATORY PHARMACEUTICAL
SERVICES, INC.
WITNESS:
By: By: /s/ Gigi Jordan
------------------------------- ---------------------------------
Its: President
SELLER:
WITNESS:
By: /s/ Gigi Jordan
------------------------------- ---------------------------------
Gigi Jordan
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:/s/
---------------------------------
Executive Vice President
Corporate Development
35
-----------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 29, 1997
AMONG
INTEGRATED HEALTH SERVICES, INC.
AND
APS AMERICA, INC.
AND
RAYMOND A. MIRRA, JR.,
JAMES KUO,
EDWARD KRAMM,
AND
SIRROM CAPITAL CORPORATION
-----------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I: SALE AND PURCHASE OF COMPANY STOCK.................................1
1.1 Sale and Purchase of Company Stock...........................1
ARTICLE II: PURCHASE PRICE....................................................1
2.1 Determination and Payment of Purchase Price..................1
2.2 Adjustments to the Purchase Price............................2
2.3 Liabilities..................................................3
ARTICLE III: IHS STOCK........................................................3
3.1 IHS Stock....................................................3
ARTICLE IV: THE CLOSING.......................................................8
4.1 Time and Place of Closing....................................8
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND
COMPANY...............................................................8
5.1 Organization and Standing of the Company.....................8
5.2 Absence of Conflicting Agreements............................8
5.3 Consents.....................................................9
5.4 Company Stock................................................9
5.5 Assets.......................................................9
5.6 Trademarks..................................................10
5.7 Contracts...................................................10
5.8 Financial Statements........................................11
5.9 Material Changes............................................12
5.10 Licenses; Permits; Certificates of Need.....................12
5.11 Title, Condition of Personal Property.......................12
5.12 Legal Proceedings...........................................14
5.13 Employees...................................................14
5.14 Collective Bargaining, Labor Contracts, Employment
Practices, Etc..............................................14
5.15 ERISA.......................................................15
5.16 Insurance and Surety Agreements.............................15
5.17 Relationships...............................................16
5.18 Absence of Certain Events...................................16
5.19 Compliance with Laws........................................17
5.20 Finders.....................................................17
5.21 Tax Returns.................................................17
5.22 Encumbrances Created by this Agreement......................17
5.23 Subsidiaries and Joint Ventures.............................17
(i)
<PAGE>
5.24 No Untrue Statement.........................................17
5.25 Medicare and Medicaid Programs..............................18
5.26 Leasehold Interests.........................................18
5.27 Power and Authority.........................................18
5.28 Binding Effect..............................................18
5.29 Questionnaires..............................................18
5.30 Questionable Payments.......................................18
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLERS .......................19
6.1 Authority...................................................19
6.2 Binding Effect..............................................19
6.3 Absence of Conflicting Agreements...........................19
6.4 Consents....................................................19
6.5 Ownership of Company Stock..................................19
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER.........................19
7.1 Organization and Standing...................................19
7.2 Power and Authority.........................................20
7.3 Binding Agreement...........................................20
7.4 Absence of Conflicting Agreements...........................20
7.5 Consents....................................................20
7.6 Material Changes............................................20
7.7 Finders.....................................................20
7.8 Capital Stock...............................................20
7.10 Compliance with Laws........................................21
7.11 Questionable Payments.......................................21
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE OTHER
PARTIES..............................................................21
8.1 Buyer's Access to Information and Records before Closing....21
8.2 Sellers' and Company's Access to Information and Records
Before Closing..............................................22
ARTICLE IX: OBLIGATIONS OF THE PARTIES (OTHER THAN SIRROM) UNTIL
CLOSING..............................................................22
9.1 Conduct of Business Pending Closing.........................22
9.2 Negative Covenants of the Company and its Subsidiaries......22
9.3 Affirmative Covenants.......................................22
9.4 Pursuit of Consents and Approvals...........................23
9.5 Exclusivity.................................................24
(ii)
<PAGE>
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.......................24
10.1 Representations and Warranties..............................24
10.2 Performance of Covenants....................................24
10.3 Delivery of Closing Certificate.............................24
10.4 Opinion of Counsel..........................................24
10.5 Legal Matters...............................................24
10.6 Authorization Documents.....................................25
10.7 Material Change.............................................25
10.8 Approvals...................................................25
10.9 Employment Agreement........................................25
10.10 Consents....................................................25
10.11 Estimated Closing Date Balance Sheet........................25
10.12 Company's Subsidiaries and Options..........................25
10.13 Cost and Expenses...........................................26
10.14 Resignation of Company Boards of Directors and Officers.....26
10.15 Affiliated Company..........................................26
10.16 Lien Releases...............................................26
10.17 Other Documents.............................................26
ARTICLE XI: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.....................26
11.1 Representations and Warranties..............................26
11.2 Performance of Covenants....................................26
11.3 Delivery of Closing Certificate.............................26
11.4 Opinion of Counsel..........................................27
11.5 Legal Matters...............................................27
11.6 Authorization Documents.....................................27
11.7 Employment Agreement........................................27
11.8 Material Change.............................................27
11.9 Other Documents.............................................27
ARTICLE XII: SURVIVAL AND INDEMNIFICATION....................................27
12.1 Survival of Representations and Warranties..................27
12.2 Indemnification by Sellers..................................27
12.3 Indemnification by Buyer....................................28
12.4 Assertion of Claims.........................................28
12.5 Indemnity Basket............................................29
12.6 Control of Defense of Indemnifiable Claims..................29
12.7 Restrictions................................................30
12.8 Records.....................................................31
ARTICLE XIII: TERMINATION....................................................31
13.1 Termination.................................................31
13.2 Effect of Termination.......................................31
(iii)
<PAGE>
ARTICLE XIV: MISCELLANEOUS...................................................31
14.1 Costs and Expenses..........................................31
14.2 Performance.................................................31
14.3 Benefit and Assignment......................................32
14.4 Effect and Construction of this Agreement...................32
14.5 Cooperation - Further Assistance............................32
14.6 Notices.....................................................32
14.7 Waiver, Discharge, Etc......................................33
14.8 Rights of Persons Not Parties...............................33
14.9 Governing Law...............................................34
14.10 Amendments, Supplements, Etc................................34
14.11 Severability................................................34
14.12 Counterparts................................................34
14.13 Arbitration.................................................34
14.14 Public Announcements........................................34
(iv)
<PAGE>
SCHEDULES & EXHIBITS
Schedule 2.1(b) - Allocation among Sellers
Schedule 5.3 - Consent List of Sellers
Schedule 5.4 - Company Stock
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8(a) - Unaudited Financial Statement
Schedule 5.8(b) - Unaudited Interim Financial Statements
Schedule 5.8(c) - Material Liabilities
Schedule 5.9 - Material Changes
Schedule 5.10 - Licenses, Permits, Certificates of Need
Schedule 5.11(a) - Liens on Personal Property
Schedule 5.11(b) - Leases of Personal Property
Schedule 5.12 - Legal Proceedings
Schedule 5.13 - Employees
Schedule 5.15 (b) - Employee Benefit Plans
Schedule 5.15 (c) - Employees on Leave of Absence
Schedule 5.16 - Insurance and Surety Agreements
Schedule 5.17 - Relationships
Schedule 5.18 - Absence of Certain Events
Schedule 5.19 - Compliance with Laws
Schedule 5.21 - Tax Returns
Schedule 5.23 - Subsidiaries, Joint Ventures, etc.
Schedule 5.25 - Medicare and Medicaid Programs
Schedule 6.5 - Ownership of Company Stock
Exhibit 5.29 - Questionnaire
Exhibit 10.4 - Opinion of Sellers' Counsel
Exhibit 10.9 - Employment Agreement
Exhibit 11.4 - Opinion of Buyer's Counsel
(v)
<PAGE>
--------------------------
STOCK PURCHASE AGREEMENT
--------------------------
This Stock Purchase Agreement (the "Agreement") is made as of the 29th day
of August, 1997, among SIRROM CAPITAL CORPORATION ("Sirrom"), RAYMOND A. MIRRA,
JR., JAMES KUO, and EDWARD KRAMM (the said individuals, together with Sirrom,
being collectively referred to herein as the "Sellers", and each individually,
the "Seller"), and INTEGRATED HEALTH SERVICES, INC., a Delaware corporation
("Buyer"), and APS AMERICA, INC., a Delaware corporation (the "Company").
WHEREAS, the Company is in the business of providing infusion services,
including without limitation, blood fractions services and chronic infusion
therapies (the "Business" or "Services"); and
WHEREAS, the Sellers are the owners or holders of all of the issued and
outstanding shares of the capital stock of the Company (the "Company Stock");
and
WHEREAS, Buyer wishes to acquire the Company Stock from the Sellers, and
the Sellers wish to sell the Company Stock to Buyer, in accordance with the
terms and conditions hereinafter set forth.
NOW, THEREFORE, Sellers, Buyer, and Company intending to be legally bound,
agree as follows:
ARTICLE I: SALE AND PURCHASE OF COMPANY STOCK
1.1 SALE AND PURCHASE OF COMPANY STOCK. Subject to the terms and conditions
of this Agreement, at the Closing (as hereinafter defined), Buyer shall acquire
from the Sellers, and the Sellers shall sell, assign, transfer and convey to
Buyer, the Company Stock. The number of shares of Company Stock (and the class
or series of such shares) being sold by each Seller is set forth on Schedule 5.4
hereto.
ARTICLE II: PURCHASE PRICE
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE.
(A) Subject to adjustment pursuant to Section 2.2 hereof, the aggregate
purchase price to be paid by Buyer to the Sellers for the Company Stock (the
"Purchase Price"), shall be TWO MILLION AND 00/100 (2,000,000.00) DOLLARS,
payable at the Closing by the delivery of newly issued shares of the Common
Stock, par value $.001, of Buyer (the "IHS Stock").
<PAGE>
(B) The Purchase Price payable to the Sellers at the Closing, after
taking into account the adjustments in Section 2.2, below, shall be allocated
among the Sellers on the basis set forth on Schedule 2.1(b).
2.2 ADJUSTMENTS TO THE PURCHASE PRICE.
(A) At the Closing, the Company shall deliver a certificate signed by its
Chief Financial Officer certifying the amount of the Company's aggregate working
capital (as defined herein) as of the Closing Date on a consolidated basis (the
"Estimated Closing Date Working Capital"). In the event that the Estimated
Closing Date Working Capital is less than zero (the "Minimum Working Capital"),
the Purchase Price payable to the Sellers at Closing will be reduced on a
dollar-for-dollar basis by an amount equal to the amount of such deficiency in
cash. For the purposes hereof, "working capital" means the excess of current
assets over current liabilities, as determined in accordance with generally
accepted accounting principles, consistently applied ("GAAP"); provided that
current liabilities shall include any deferred taxes resulting from the
conversion of the Company as of the Closing Date from an S-corporation to a
C-corporation. Additionally, at the Closing, the Company shall deliver to Buyer
the balance sheet of the Company on a consolidated basis dated as of the Closing
Date, certified by the Company's Chief Financial Officer to be his or her best
good faith estimate thereof (the "Estimated Closing Date Balance Sheet"). In the
event that the Estimated Closing Date Balance Sheet discloses that the aggregate
amount of the Company's long-term liabilities as determined in accordance with
GAAP exceeds zero, the Purchase Price payable to the Sellers at Closing will be
reduced by an amount equal to the amount of such excess. For the purposes
hereof, "long-term liability" means any liability that would be set forth as a
long-term liability on a balance sheet in accordance with GAAP; provided that
long-term liabilities shall include any deferred taxes resulting from the
conversion of the Company as of the Closing Date from an S-corporation to a
C-corporation, except that in no event will the same deferred tax amount be
included as both a current liability and long-term liability.
(B) As soon as is reasonably practicable, but in any event within ninety
(90) days following the Closing Date, Buyer shall complete a review of the
Company's Estimated Closing Date Balance Sheet. If such review reveals that the
Company's working capital as of the Closing Date was less than the lesser of (i)
the Minimum Working Capital, and (ii) the Estimated Closing Date Working
Capital, the Purchase Price shall be deemed to have been reduced by the amount
of such deficiency, and the Sellers shall pay over to Buyer cash in an amount
equal to such deficiency. Furthermore, if such review reveals the aggregate
amount of the Company's long-term liabilities as of the Closing Date exceeded
the greater of (w) zero, or (x) the amount of the Company's long-term
liabilities as indicated on the Estimated Closing Date Balance Sheet, the
Purchase Price shall be deemed to have been reduced by the amount of such
excess, and the Sellers shall deliver over to Buyer cash in an amount equal to
such excess. If there shall be any dispute regarding the calculation of the
working capital as of the Closing Date or the amount of long-term liabilities as
of the Closing Date, such dispute shall be submitted to a mutually acceptable
"big six" accounting firm other than KPMG Peat Marwick LLP and Deloitte & Touche
LLP (the "Accountants") for final resolution and the party against whom the
Accountants shall rule shall pay the costs and expenses of the Accountants in
connection therewith.
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2.3 LIABILITIES. As of the Closing Date, the Company will not have any
Liabilities other than such long-term liabilities and current liabilities as are
reflected on the Estimated Closing Date Balance Sheet. For purposes of this
Agreement the term "Liability" means any claim, lawsuit, liability, obligation
or debt of any kind or nature whatsoever, whether absolute, accrued, due, direct
or indirect, contingent or liquidated, matured or unmatured, joint or several,
whether or not for a sum certain, whether for the payment of money or for the
performance or observance of any obligation or condition, and whether or not of
a type which would be reflected as a liability on a balance sheet in accordance
with GAAP, including, without limitation (i) malpractice claims asserted by
patients or any other tort claims asserted, claims for breach of contract, or
any claims of any kind asserted by patients, former patients, employees or any
other party that are based on acts or omissions occurring on or before the
Closing Date; (ii) amounts due or that may become due to Medicare or Medicaid or
any other health care reimbursement or payment intermediary on account of
Medicare cost report adjustments or other payment adjustments attributable to
any period on or prior to the Closing Date, or any other form of Medicare or
other health care reimbursement recapture, adjustment or overpayment whatsoever,
including fines and penalties, with respect to any period on or prior to the
Closing Date ("Excess Reimbursement Liabilities"); (iii) any accounts payable or
employment or other taxes; and (iv) accrued but unpaid compensation or other
benefits to any of the Company's employees, agents, consultants or advisers,
including accrued vacation.
ARTICLE III: IHS STOCK
3.1 IHS STOCK. The entire Purchase Price equal to TWO MILLION ($2,000,000)
DOLLARS shall be payable by means of the delivery to the Sellers of IHS Stock in
accordance with the following:
(A) SHARE VALUE. The number of shares of IHS Stock issuable at Closing
pursuant to Section 2.1(b) shall be calculated based upon a price per share of
such stock equal to the average closing NYSE price of such stock for the thirty
(30) trading day period immediately preceding the date which is two (2) trading
days before the Closing Date.
(B) REGISTRATION RIGHTS. Buyer will prepare and use its best efforts to
cause to be filed and declared effective by the Securities and Exchange
Commission (the "Commission") within ninety (90) days following the Closing
Date, a registration statement for the registration under the Securities Act of
1933 (the "Securities Act") of the IHS Stock issued to Sellers pursuant to this
Agreement, and Buyer shall maintain the effectiveness of such registration
statement for a period of one (1) year following the date on which it becomes
effective (the "Registration Date"), or until no Seller shall own any of the IHS
Stock issued pursuant to this Agreement, whichever shall occur first, in each
case except to the extent that an exemption from registration would allow
Sellers to sell all of their stock without restrictions (other than as set forth
in Section 3.1(d), below) is available.
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(C) REGISTRATION EXPENSES. Sellers shall not be responsible for, and
Buyer shall bear, all of the reasonable expenses of Buyer related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. Buyer, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs or expenses arising out of Sellers' or any transferee's failure to comply
with its obligations under this Article III.
(D) RESALE LIMITATIONS. All resales of IHS Stock issued pursuant to this
Agreement shall be effected solely through Smith Barney Inc., as broker, and
sales by Sellers and, if any, their transferees of such shares (other than
transferees acquiring shares pursuant to market transactions through Smith
Barney Inc. and in accordance with this subsection (d)), shall not at any time,
in the aggregate, exceed Thirty Thousand (30,000) shares during any thirty (30)
day period.
(E) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Sellers with respect to the IHS Stock as provided in this
Section 3.1, Buyer covenants and agrees as follows:
(I) At Buyer's expense, Buyer will keep the registration and
qualification under this Section 3.1 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate until the
Registration Date or for a period of one (1) year following the date on which
the registration becomes effective, in each case except to the extent that an
exemption from registration may be available. Buyer will immediately notify the
Sellers, at any time when a prospectus relating to a registration statement
under this Section 3.1 is required to be delivered under the Securities Act, of
the happening of any event known to Buyer as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(II) Buyer shall furnish the Sellers with such number of prospectuses
as shall reasonably be requested.
(III) Buyer shall take all necessary action which may be required in
qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Sellers, provided that Buyer shall not be
obligated to qualify as a foreign corporation or dealer to do business under the
laws of any such jurisdiction.
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(IV) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 3.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Buyer shall indemnify the Sellers of IHS Stock to be sold pursuant
to the registration statement, their successors and assigns, and each person, if
any, who controls such Sellers within the meaning of ss.15 of the Securities Act
or ss.20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), against all
loss, claim, damage expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Securities Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by Buyer or based upon written information
furnished by Buyer filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to Buyer by any of the Sellers expressly for use in such
registration statement, any amendment or supplement thereto or any application,
as the case may be. If any action is brought against the Sellers or any
controlling person of the Sellers in respect of which indemnity may be sought
against Buyer pursuant to this subsection 3.1(e)(iv), the Sellers or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint, notify Buyer in writing of the institution of such action
and Buyer shall assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably satisfactory to
the Sellers or such controlling person). The Sellers or such controlling person
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of the Sellers or
such controlling person unless (A) the employment of such counsel shall have
been authorized in writing by Buyer in connection with the defense of such
action, or (B) Buyer shall not have employed counsel to have charge of the
defense of such action, or (C) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to Buyer (in which case,
Buyer shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events the fees and expenses
of not more than one additional firm of attorneys for the Sellers and/or such
controlling person shall be borne by Buyer. Buyer agrees promptly to notify the
Sellers of the commencement of any litigation or proceedings against Buyer or
any of its officers, directors or controlling persons in connection with the
resale of IHS Stock or in connection with such registration statement.
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(V) The Sellers of IHS Stock to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify Buyer, its officers and directors and each person, if any, who
controls Buyer within the meaning of ss.15 of the Securities Act or ss.20(a) of
the Exchange Act against all loss, claim, damage, or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Securities Act, the Exchange Act or any other statute, common law or
otherwise, to the extent arising from information furnished by or on behalf of
such Sellers, or their successors or assigns for specific inclusion in such
registration statement.
(F) NOTICE OF SALE. If the Sellers desire to transfer all or any portion
of IHS Stock, the Sellers will deliver written notice to Buyer, describing in
reasonable detail their intention to effect the transfer and the manner of the
proposed transfer. If the transfer is to be pursuant to an effective
registration statement as provided herein, the Sellers will sell the IHS Stock
in compliance with the disclosure therein and discontinue any offers and sales
thereunder upon notice from Buyer that the registration statement relating to
the IHS Stock being transferred is not "current" until Buyer gives further
notice that offers and sales may be recommenced. In the event of any such notice
from Buyer, Buyer agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in Section 3.1(e) and to give prompt notice to the Sellers when the
registration statement has again become current. If the Sellers deliver to Buyer
an opinion of counsel reasonably acceptable to Buyer and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Sellers will be entitled to transfer IHS Stock in
accordance with the terms of the notice and opinion of their counsel.
(G) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Buyer to take any action pursuant to this Article III that
the Sellers shall furnish to the Buyer such information regarding themselves,
the IHS Stock held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of their IHS Stock.
In that connection, each transferee of any Seller shall be required to represent
to the Buyer that all such information which is given is both complete and
accurate in all material respects. Such Sellers shall deliver to the Buyer a
statement in writing from the beneficial owners of such securities that they
bona fide intend to sell, transfer or otherwise dispose of such securities. Each
transferee will, severally, promptly notify IHS at any time when a prospectus
relating to a registration statement covering such transferee's shares under
this Section 3.1 is required to be delivered under the Securities Act, of the
happening of any event known to such transferee as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the statements as then existing.
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(H) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be issued
hereunder will be newly issued shares of Buyer. The Sellers represent and
warrant to Buyer that the IHS Stock being issued hereunder is being acquired,
and will be acquired, by the Sellers for investment for their own accounts and
not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act or the applicable state securities law;
the Sellers acknowledge that the IHS Stock constitutes restricted securities
under Rule 144 promulgated by the Commission pursuant to the Securities Act, and
may have to be held indefinitely, and the Sellers agree that no shares of IHS
Stock may be sold, transferred, assigned, pledged or otherwise disposed of
except pursuant to an effective registration statement or an exemption from
registration under the Securities Act, the rules and regulations thereunder, and
under all applicable state securities laws. The Sellers have the knowledge and
experience in financial and business matters, are capable of evaluating the
merits and risks of the investment, and are able to bear the economic risk of
such investment. The Sellers have had the opportunity to make inquiries of and
obtain from representatives and employees of Buyer such other information about
Buyer as it deems necessary in connection with such investment. Buyer will file
all Exchange Act Reports on a timely basis, including any permitted extensions.
(I) LEGEND. It is understood that, prior to sale of any shares of IHS
Stock pursuant to an effective registration pursuant to subsection (b) above,
the certificates evidencing such shares of IHS Stock shall bear the following
(or a similar) legend (in addition to any legends which may be required in the
opinion of IHS's counsel by the applicable securities laws of any state), and
upon sale of such shares pursuant to such an effective registration, new
certificates shall be issued for the shares sold without such legends except as
otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES
ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT.
(J) CERTAIN TRANSFEREES. Prior to the effective date of registration of
the IHS Stock, no transferee shall transfer any shares of IHS Stock to any
person or entity unless such transferee shall have agreed in writing to be bound
by the provisions applicable to the Sellers under this Article III.
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ARTICLE IV: THE CLOSING
4.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement shall be held as promptly as
practicable, but not more than seven (7) business days following the
satisfaction of all conditions precedent specified in this Agreement, including
receipt of all necessary regulatory approvals, unless duly waived by the party
entitled to satisfaction thereof. The Closing shall take place at the offices of
the Buyer, 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."
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND
COMPANY
The Company and the Sellers (other than Sirrom) hereby jointly and
severally represent and warrant to Buyer as follows (it being understood that,
for the purposes of this Article V, except where the context would otherwise
require "Company" shall be deemed to refer collectively to the Company and any
subsidiaries listed on Schedule 5.23 and "to the knowledge of the Company" shall
be deemed to refer collectively to the Company's knowledge and the Sellers'
knowledge):
5.1 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 Delaware. Copies of the Company's Articles of Incorporation and
By-Laws, and all amendments thereof to date, have been delivered to Buyer and
are complete and accurate. The Company has the power and authority to own the
property and assets now owned by it and to conduct the business presently being
conducted by it. The Company is qualified to do business as a foreign
corporation in each state where the ownership of its assets or the conduct of
its business renders such qualification necessary.
5.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement including all Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated hereby and thereby
("Transaction Documents") by Sellers and the Company, nor the performance by
Sellers and the Company of the transactions contemplated hereby and thereby,
conflicts with, or constitutes a breach of or a default under (i) the Articles
of Incorporation or By-Laws of the Company; or (ii) any applicable law, rule,
judgment, order, writ, injunction, or decree of any court, currently in effect,
provided that the consents set forth in Schedule 5.3 are obtained prior to the
Closing; or (iii) any applicable rule or regulation of any administrative agency
or other governmental authority currently in effect; or (iv) any material
agreement, indenture, contract or instrument to which the Company is now a party
or by which any of the assets of the Company is bound.
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5.3 CONSENTS. Except as set forth in Schedule 5.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement or any of the
Transaction Documents by any of the Sellers or the Company.
5.4 COMPANY STOCK. Schedule 5.4 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 stock, and the identity of
each Seller of the Company, in each case indicating the class and number of
shares held. No shares of the Company Stock are held in the treasury of the
Company. The Sellers are the record owners of all of the issued and outstanding
shares of the Company Stock and all of such stock is duly authorized, validly
issued, and fully paid and non-assessable. On the Closing Date, there will be no
preemptive or first refusal rights to purchase or otherwise acquire from the
Company or Sellers shares of capital stock of the Company pursuant to any
provision of law or the Articles of Incorporation or By-Laws of the Company or
by agreement or otherwise. On the Closing Date there shall not be outstanding
any warrants, options, or other rights to subscribe for or purchase from any of
the Company any shares of capital stock of the Company, nor shall there be
outstanding any securities convertible into or exchangeable for such shares. The
shares of Company Stock indicated on Schedule 5.4 as being owned by the Sellers
constitute all of the issued and outstanding shares of the capital stock of the
Company.
5.5 ASSETS. As of the Closing Date, the consolidated assets of the Company
(the "Assets") will include its ownership interest in all of its current
operating subsidiaries, as well as all of the tangible and intangible assets
necessary to operate the Business of the Company and its subsidiaries as
presently constituted, including, without limitation, all contract rights,
leasehold interests, fixed and moveable equipment, vehicles, furnishings,
tangible personal property, inventory and supplies (other than inventory,
supplies, and other assets disposed of in the ordinary course of business,
consistent with prior practice), goodwill, trade names, trademarks, all patient
records, books and files, Certificates of Need, Medicare and Medicaid provider
agreements and provider numbers, provider agreements with third party payors,
telephone numbers, and to the extent permitted by law, all permits, licenses and
other governmental approvals. The Assets of the Company as of the Closing Date
shall also include cash, accounts receivable, and prepaid expenses. The Assets
shall not include inventory, supplies and other assets disposed of in the
ordinary course of business, consistent with the prior practice of the Company's
business. The quantities of inventory items included in the Assets are
reasonable in light of the present and anticipated volume of the Company's
business and the inventory is good, usable, merchantable, and salable in the
ordinary course of the Company's business, in each case, as determined by the
Company in good faith and consistent with past practice. The accounts receivable
of the Company are reflected properly on its books and records in accordance
with GAAP, and have been billed or invoiced in the ordinary course of business
consistent with past practice. The Assets are not subject to any Liens (as
defined in Section 5.11), except for Permitted Liens (as defined in Section
5.11).
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5.6 TRADEMARKS. Schedule 5.6 sets forth a complete and accurate list of all
trademarks, service marks, or applications for any of the same, copyrights, and
other items of intellectual property that are owned, possessed or used by the
Company. There are no claims or proceedings pending or, to the knowledge of the
Company, overtly threatened against the Company asserting that the use of any of
the aforementioned properties or rights infringes the rights of any other
person, and, to the knowledge of any of the Sellers and Company, the Company is
not infringing on the intellectual property rights of any other person.
5.7 CONTRACTS. Schedule 5.7 sets forth a complete and accurate list of all
agreements, contracts and commitments of the following type to which the Company
is a party or by which the Company or any of the Company's assets is bound or as
to which the Company has any outstanding material obligations as of the date
hereof (the "Contracts"):
(A) each contract or agreement for the employment or retention of, or
collective bargaining, severance or termination agreement with, any director,
officer, employee, consultant, agent or group of employees of the Company;
(B) each profit sharing, thrift, bonus, incentive, deferred compensation,
stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other similar plan, agreement or arrangement;
(C) each agreement or arrangement for the purchase or sale of any of the
Company's assets, properties or rights outside the ordinary course of business
(by purchase or sale of assets, purchase or sale of stock, merger or otherwise)
which is currently in effect which involves consideration of more than $25,000;
(D) each contract currently in effect which contains any provisions
requiring the Company to indemnify or act for, or guarantee the obligation of,
any other person or entity;
(E) each agreement restricting the Company from conducting business
anywhere in the world;
(F) each partnership or joint venture contract or similar arrangement or
agreement which involves a sharing of profits or future payments with respect to
the Company's business or any portion thereof;
(G) each licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency, purchasing, supply, and rebate or other
similar contract, arrangement or commitment which involves consideration of more
than $15,000;
(H) each contract under which the Company performs the Services which
involves consideration of more than $15,000;
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(I) each lease of real property; or
(J) any other agreement not made in the ordinary and normal course of
business which involves consideration of more than $15,000.
Except as indicated on Schedule 5.7, each of the Contracts was entered into
and requires performance in the ordinary course of business and is in full force
and effect. The Company is not in material default under any Contract and there
has not been asserted, either by or against the Company under any Contract, any
written notice of default, set-off or claim of default. To the knowledge of the
Company, the parties to the Contracts other than the Company are not in material
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 material default or material breach under
any Contract. All amounts payable under the Contracts are, or will at the
Closing Date, be on a current basis. Except as set forth on Schedule 5.7, the
change of control in the Company to Buyer will not be deemed an assignment of,
or require consent under, any Contract.
5.8 FINANCIAL STATEMENTS.
(A) The unaudited consolidated balance sheet of the Company as of
December 31, 1996, and the related statements of operations for the year then
ended, annexed hereto as Schedule 5.8(a) (the "Unaudited Financial Statement"),
presents fairly in all material respects the financial condition and results of
operations of the Company at and for the period then ended specified and were
prepared in accordance with GAAP.
(B) The unaudited consolidated monthly statements of operations and cash
flows of the Company for each calendar month since January 1, 1997, and the
unaudited consolidated Balance Sheet of the Company as of July 31, 1997, annexed
hereto as Schedule 5.8(b) (the "Unaudited Interim Financial Statements"),
present fairly in all material respects the financial condition and results of
operations of the Company at and for the periods therein specified (except for
normal year-end adjustments and such statements do not contain footnote
disclosure) and were prepared in accordance with GAAP.
(C) Except as set forth on Schedule 5.8(c) or as expressly set forth on
the Unaudited Interim Financial Statements, the Company has no material
non-recurring or extraordinary income or expense reduction not identified
therein or 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 whether or not required by GAAP to be reflected on a
consolidated balance sheet and/or the notes thereto, except for current trade
payables incurred since the date of the Unaudited Interim Financial Statements
in the ordinary course of business consistent with past practice.
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5.9 MATERIAL CHANGES. Except as noted on Schedule 5.9, between the date of
the Unaudited Financial Statement and the date of this Agreement, there has not
been any material adverse change in the condition (financial or otherwise) of
the Company or any damage or destruction of any of the Company's Assets or its
place of business by fire or other casualty, whether or not covered by
insurance, and during such period of time the Company has conducted its business
in the ordinary and normal course. Sellers have identified and communicated to
Buyer all material information with respect to this transaction.
5.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 5.10 sets forth a
description of (a) all material licenses and other governmental or other
regulatory permits, authorizations or approvals required for the operation of
the Company's business that are now in effect, including all certificates of
occupancy issued with respect to the Company's business; and (b) all
Certificates of Need issued with respect to the Company and its subsidiaries
that are now in effect; (a "License" and collectively, the "Licenses"). The
Licenses constitute all of the material governmental, quasi-governmental and
regulatory licenses, permits and authorizations necessary to the operation of
the businesses of the Company and its subsidiaries as they are operated on the
date hereof. The Company has delivered to Buyer copies of all of the Licenses.
The Company and its subsidiaries own, possess or otherwise have the exclusive
legal right to use the Licenses (subject to the terms thereof), free and clear
of all liens, pledges, claims or other encumbrances of any nature whatsoever.
The Company is not in material default under any such License, and the Company
and its subsidiaries have not received any notice of any material default or any
other material claim or proceeding relating to any such License. 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 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 5.10; or (b) subject to any investigation,
cancellation, impairment, limitation, order, complaint, proceeding, or
suspension nor is such threatened or pending. No Seller, director or officer,
employee or former employee of the Company, or any person, firm or corporation
other than the Company owns or has any proprietary, financial or other interest,
direct or indirect (other than through the Company), in whole or in part in any
of the Licenses.
5.11 TITLE, CONDITION OF PERSONAL PROPERTY.
(A) Except for the liens listed and described on Schedule 5.11(a), the
Company has good and marketable title to all of the personal property owned by
the Company and located at their places of business or used in connection with
the operation of its businesses, subject to no mortgage, security interest,
pledge, lien, claim, encumbrance or charge, or restraint on transfer whatsoever
(the "Liens") other than Permitted Liens (as defined below) and except for
personal property leased by the Company as set forth on Schedule 5.11(b). No
other person has any right to the use or possession of any of such property
which is owned and, except as set forth on Schedule 5.11(a), no currently
effective financing statement with respect to such personal property has been
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filed under the Uniform Commercial Code in any jurisdiction, and the Company has
not signed any such financing statement or any security agreement authorizing
any secured party thereunder to file any such financing statement. All of such
personal property comprising equipment, improvements, furniture and other
tangible personal property in use by the Company, whether owned or leased, is in
good operating condition and repair, subject to normal wear and tear, and is
sufficient to enable the Company to operate its business in a manner consistent
with its operation during the immediately preceding twelve (12) months.
(B) Except as set forth on Schedule 5.11(b), no tangible personal
property used by the Company in connection with the operation of its business is
subject to a lease, conditional sale or similar arrangement. The Company has
delivered to Buyer a complete and correct copy of each of the leases and other
agreements listed on Schedule 5.11(b). The Company has a valid leasehold
interest in all of the property covered by any leases included on Schedule
5.11(b). All of said personal property leases are valid, binding and enforceable
in accordance with their respective terms and are in full force and effect,
subject to bankruptcy, insolvency, and other similar laws or equitable
principles affecting the enforcement of creditors rights generally. The Company
is not in material default under any of such leases and there has not been
asserted, either by or against the Company under any of such leases, any written
notice of default, set-off, or claim of default. To the best knowledge of
Sellers and the Company, the parties to such leases other than the Company are
not in default of their respective obligations under any of such leases, and
there has not occurred any event which with the passage of time or giving of
notice (or both) would constitute such a default or breach under any of such
leases.
(C) "Permitted Liens" shall mean:
(I) carriers', warehouseman's, mechanics, materialmen's, repairmen's
or other like liens arising in the ordinary course of business which are (i) not
overdue for a period of more than 30 days or (ii) which are being contested in
good faith and by appropriate proceedings, provided that if such contest shall
continue for more than 30 days, the amount thereof shall be bonded or properly
reserved against at the end of such 30-day period;
(II) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of like nature incurred in
the ordinary course of business;
(III) rights of lessors under leases set forth on Schedule 5.11(b);
(IV) pledges or deposits in connection with worker's compensation,
unemployment insurance, and other social security legislation.
(V) taxes not yet due or those taxes being contested.
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5.12 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.12, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of the Company, overtly threatened
against or affecting the Company, or the Company's ability to consummate the
transactions contemplated herein, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind.
5.13 EMPLOYEES. Attached hereto as Schedule 5.13 is the payroll report of
the Company dated as of August 10, 1997, indicating the names, positions, and
compensation of each of its employees. All of such information is materially
correct as of such date and there has been no material change since then. To the
knowledge of Sellers and Company, none of the employees, while in the employ of
the Company, has ever had his or her professional license or certification
denied, suspended, revoked, terminated, or voluntarily relinquished under threat
of disciplinary action, or has ever been restricted in any way from performing
the duties he or she is to provide for the Company, and there is no proceeding
pending, or threatened, pursuant to which any of the foregoing may occur.
5.14 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT 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 employees nor any
strike or material labor disturbance by such employees affecting the Company's
business and, to the knowledge of the Company, there is no indication that such
a change, strike or labor disturbance is threatened. The Company's employees are
not represented by any labor union or similar organization and the Company has
no reason to believe that there are pending or threatened any activities, the
purpose of which is to achieve such representation, of all or some of the
Company's employees. Except as set forth on Schedule 5.7 or Schedule 5.15(b),
the Company has no collective bargaining or other labor contracts, employment
contracts, pension, profit-sharing, retirement, insurance, bonus, deferred
compensation or other employee benefit plans, agreements or arrangements with
respect to their employees. The Company is in material compliance with the
requirements prescribed by all Federal, state and local statutes, orders and
governmental rules and regulations ("Government Requirements") applicable to any
of the employee benefit plans, agreements and arrangements identified on
Schedule 5.7 and Schedule 5.15(b), including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Immigration
Reform and Control Act, the Worker Adjustment and Retraining Notification Act of
1988, any such Government Requirements respecting employment determination,
equal opportunity, affirmative action, employee privacy, wrongful or unlawful
termination, workers' compensation, occupational safety and health requirements,
labor management relations and unemployment insurance, or related matters and
there are no threatened or pending claims relating thereto, in each case. In the
event of termination of employment of an employee of the Company, the Company
will not, after the Closing, pursuant to any agreement with any Seller or the
Company or by reason of any representation made or plan adopted by any Seller or
the Company prior to the Closing, be liable to any employee of the Company for
so-called "severance pay", parachute payments or any other similar payments or
benefits, including, without limitation, post-employment healthcare (other than
pursuant to the continuation health care provisions of Section 4980B of the
Internal Revenue Code of 1986, as amended or Section 601 through 608 of ERISA
("COBRA")), insurance benefits, accrued vacation and sick days, except as
properly accrued for on the Estimated Closing Date Balance Sheet in accordance
with GAAP.
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5.15 ERISA.
(A) The Company does not maintain or make contributions to and have not
at any time in the past maintained or made contributions to, any employee
benefit plan which is subject to the minimum funding standards of ERISA. The
Company does not now maintain or make contributions to, and has not at any time
in the past maintained or made contributions to, any multi-employer plan subject
to the terms of the Multi-employer Pension Plan Amendment Act of 1980 (the
"Multi-employer Act").
(B) Schedule 5.15(b) sets forth each severance agreement, and each plan,
agreement or arrangement, bonus plan, deferred compensation agreement, employee
pension, profit sharing, savings or retirement plan, group life, health, or
accident insurance or other employee benefit plan, agreement, arrangement or
commitment, including, without limitation, any commitment arising under
severance, holiday, vacation, Christmas or other bonus plans (including, but not
limited to, "employee benefit plans", as defined in Section 3(3) of ERISA
maintained by the Company for any employees of the Company, or with respect to
which the Company has liability with respect to any employees of the Company, or
make or have an obligation to make contributions on behalf of employees of the
Company ("Plans").
(C) Schedule 5.15(c) identifies all employees of the Company on leave of
absence eligible to receive health benefits, as required by COBRA. Notice of the
availability of COBRA coverage has been provided to all employees of the Company
on leave of absence entitled thereto, and all persons electing such coverage are
being (or have been, if applicable) provided such coverage.
5.16 INSURANCE AND SURETY AGREEMENTS. Schedule 5.16 contains a true and
accurate list of: (a) all policies of fire, liability and other forms of
insurance held or owned by the Company (including but not limited to medical
malpractice 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, including a brief description of the
character of the bond or 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 and of any claims made thereunder during the past two years.
Such policies are owned by and payable solely to the Company, and said policies
or renewals or replacements thereof will be outstanding and duly in force at the
Closing Date. All insurance policies listed on Schedule 5.16 are in full force
and effect, all premiums due on or before the Closing Date have been or will be
paid, financed or accrued on or before the Closing Date. The Company has not
been advised by any of its insurance carriers of an intention to terminate or
modify any such policies other than under circumstances where the Company has
received a commitment for a replacement policy, nor has the Company failed to
comply with any of the material conditions contained in any such policies.
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5.17 RELATIONSHIPS. Except as disclosed on Schedule 5.17 hereto, none of
the Sellers and no controlling Seller, partner or any affiliate of any Seller
has, or at any time within the last two (2) years has had, a material ownership
interest in any business, corporate or otherwise, that is a party to, or in any
property that is the subject of, business relationships or arrangements of any
kind relating to the operation of the Company or its businesses.
5.18 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.18, since
the date of the Unaudited Financial Statement, the Company has not, and from the
date of this Agreement through the Closing Date the Company will not have:
(A) sold, assigned or transferred any of their assets or properties,
except in the ordinary course of business;
(B) mortgaged, pledged or subjected to any lien, pledge, mortgage,
security interest, conditional sales contract or other encumbrance of any nature
whatsoever, other than a Permitted Lien, any of the Company's assets;
(C) made or suffered any termination of any Services contract;
(D) sold or assigned, or made or suffered any termination of any
Contract, or made or suffered any modification or amendment of any Contract
except for terminations, modifications and amendments of Contracts made in the
ordinary course of business consistent with past practice and which would not
adversely affect earnings or otherwise be material, and the Sellers and Company
have not received notice (written or oral) and have no knowledge that any
Contract has been terminated or will be terminated or modified or amended (as
aforesaid);
(E) except in the ordinary course of business, or otherwise as necessary
to comply with any applicable minimum wage law, increased the salaries or other
compensation of any of their employees, or made any increase in, or any
additions to, other benefits to which any of such employees may be entitled;
(F) failed to pay or discharge when due any liabilities, the failure to
pay or discharge which has caused or will cause any actual damage or give rise
to the risk of a loss to the Company;
(G) changed any of the accounting principles followed by the Company or
the methods of applying such principles; and
(H) entered into any transaction other than in the ordinary course of
business involving consideration in excess of $15,000.
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5.19 COMPLIANCE WITH LAWS. The Company is in compliance in all material
respects with all Governmental Requirements (as defined herein). Except for
notices of non-compliance as to which the Company has taken corrective action
acceptable to the applicable governmental agency, and as set forth in Schedule
5.19, the Company has not, within the period of twelve months preceding the date
of this Agreement, received any written notice that the Company or any of the
Assets fail to comply in any material respect with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of any Federal, state, local or other governmental agency
having jurisdiction over their businesses ("Governmental Requirements"). The
Company shall report to Buyer, within five (5) business days after receipt
thereof, any written notices that the Company is not in compliance in any
material respect with any of the foregoing.
5.20 FINDERS. No broker or finder has acted for the Sellers 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
in respect thereof based in any way on agreements, understandings or
arrangements with the Sellers or the Company.
5.21 TAX RETURNS.
(A) Except as set forth in Schedule 5.21, (i) all Tax (as defined below)
returns, statements, reports and forms or extensions with respect thereto
required to be filed with any Federal, state, local or other governmental
department or court or other authority having jurisdiction over it
("Governmental Authority") on or before the Closing Date by or on behalf of the
Company (collectively, the "Tax Returns"), have been or will be timely filed on
or before the Closing Date in accordance in all material respects with all
applicable Governmental Requirements; and (ii) the Company has timely paid all
Taxes payable by them.
(B) For purposes of this Agreement, "Tax" means any net income, gross
income, sales, use, franchise, personal, employment, pension or real property
tax.
5.22 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery of
this Agreement, or any of the Company's Transaction Documents, does not, and the
consummation of the transactions contemplated hereby or thereby will not, create
any liens or other encumbrances on any of the Company's assets in favor of third
parties.
5.23 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.23 sets forth a complete
list of all subsidiaries, joint ventures and partnerships in which the Company
is a record or beneficial owner. All of the issued and outstanding capital stock
of the subsidiaries listed on Schedule 5.23 hereto is owned of record or
beneficially by the Company or by one of the listed subsidiaries on Schedule
5.23.
5.24 NO UNTRUE STATEMENT. The representations and warranties made pursuant
to this Agreement taken as a whole do not contain any untrue statement of
material fact or omit to state a material fact necessary, in light of the
circumstance under which it was made, in order to make the representations not
misleading in any material respect.
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5.25 MEDICARE AND MEDICAID PROGRAMS. The Company, to the extent necessary
to conduct its business in a manner consistent with past practice, is qualified
for participation in the Medicare and Medicaid programs. Except as reflected on
Schedule 5.25, (a) no Seller or the Company has received any notice of
recoupment with respect to the Company's operations from the Medicare or
Medicaid programs, or any other third party reimbursement source, (b) there is
no basis for the assertion after the Closing Date of any such recoupment claim
against Buyer, Company or any Seller which arose out of any transactions on the
part of the Company prior to the Closing or against any Seller for which Buyer
will be liable, and (c) to the knowledge of Sellers and the Company, no Medicare
and Medicaid investigation, survey or audit is pending, threatened or imminent
with respect to the operation of the Company prior to the Closing.
5.26 LEASEHOLD INTERESTS. Each of the Company and its subsidiaries has
valid leasehold interests in all real property, subject to leases identified on
Schedule 5.7(i), free and clear of all liens, claims, charges and encumbrances
of any kind whatsoever, except for Permitted Liens.
5.27 POWER AND AUTHORITY. The Company has all requisite power and authority
to execute, deliver and perform this Agreement, and as of the Closing, the
Company and Sellers will have all requisite power and authority to execute and
deliver the Transaction Documents required to be delivered by each party to the
Buyer at the Closing.
5.28 BINDING EFFECT. This Agreement and all Transaction Documents executed
by the Company constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms.
5.29 QUESTIONNAIRES. The health care law questionnaire heretofore delivered
to the Company by Buyer (the "Questionnaire") will be attached hereto as Exhibit
5.29 and will as of the Closing Date have been accurately completed and will not
contain any material misstatement of any fact and will not omit any fact that
would have to be stated in order not to render any response to such
questionnaire materially misleading.
5.30 QUESTIONABLE PAYMENTS. The Company nor any shareholder, director,
officer, controlling person or employee of Company, and no affiliate of any
Company, (a) has used any corporate funds of Company to make any illegal or
unlawful payment to any officer, employee, representative, agent of any
government, or to any political party or official thereof, including, without
limitation, any of same that would violate the Foreign Corrupt Practices Act of
1977, as amended; or (b) has made or received any illegal payment, bribe,
kickback, political contribution or other similar questionable payment for any
referrals or recommendations or otherwise in connection with the operation of
the Company's business.
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ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Sellers, each as to himself, hereby severally represents and
warrants to Buyer as follows:
6.1 AUTHORITY. Such Seller has the full legal power and authority to make,
execute, deliver and perform this Agreement and the Transaction Documents. Such
execution, delivery, performance and consummation has been duly authorized by
all necessary action, corporate or otherwise, on the part of such Sellers, and
any necessary consents of holders of indebtedness of such Seller have been
obtained.
6.2 BINDING EFFECT. This Agreement and all Transaction Documents executed
by such Seller constitute the legal, valid and binding obligations of Seller,
enforceable against such Seller in accordance with their respective terms.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by such Seller nor the
performance by such Seller of the transactions contemplated hereby and thereby
conflicts with, or constitutes a breach of or a default under (i) any law, rule,
judgment, order, writ, injunction, or decree of any court currently in effect
applicable to such Seller, or (ii) any rule or regulation of any administrative
agency or other governmental authority currently in effect applicable to such
Seller, or (iii) any material agreement, indenture, contract or instrument to
which such party is now a party or by which any of the assets of such Seller is
bound.
6.4 CONSENTS. No authorization, consent, approval, license, exemption by,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary in connection with the execution, delivery and performance of this
Agreement or any of the Transaction Documents by such Seller.
6.5 OWNERSHIP OF COMPANY STOCK. Except as disclosed on Schedule 6.5 hereto,
such Seller is the lawful record and beneficial owners of all of the Company
Stock shown as owned by such Seller in Schedule 5.4, with good and indefeasible
title thereto, free and clear of all liens and encumbrances, claims and other
charges thereon of any kind. Such Seller has the full legal power to transfer
and deliver such Company Stock in accordance with this Agreement, and delivery
of such Company Stock to Buyer pursuant hereto will convey good and indefeasible
title thereto, free and clear of all liens and encumbrances, claims and other
charges thereon or any kind.
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and the Sellers as follows:
7.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
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7.2 POWER AND AUTHORITY. Buyer has the corporate power and authority to
execute, deliver and perform this Agreement, and as of the Closing, Buyer will
have the corporate power and authority to execute and deliver the Transaction
Documents required to be delivered by it to the Sellers at the Closing.
7.3 BINDING AGREEMENT. This Agreement and all Transaction Documents
executed by Buyer constitute the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms.
7.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by Buyer nor the performance
by the Buyer of the transactions contemplated hereby and thereby conflicts with,
or constitutes a breach of or a default under (i) the formation documents of the
Buyer, or (ii) any law, rule, judgment, order, writ, injunction, or decree of
any court currently in effect applicable to Buyer, or (iii) any rule or
regulation of any administrative agency or other governmental authority
currently in effect applicable to Buyer, or (iv) any material agreement,
indenture, contract or instrument to which the Buyer is now a party or by which
any of the assets of the Buyer is bound.
7.5 CONSENTS. No authorization, consent, approval, license, exemption by,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary in connection with the execution, delivery and performance of this
Agreement or any of the Transaction Documents by Buyer.
7.6 MATERIAL CHANGES. Since the Form 10-Q (as defined below), there has not
been any material adverse change in the condition (financial or otherwise) of
the Buyer or any material damage or destruction of any of the Buyer's material
assets or its place of business by fire or other casualty, whether or not
covered by insurance, and during such period of time the Buyer has conducted its
business in the ordinary and normal course. Buyer is willing to make itself
available to identify and communicate to Sellers all material information with
respect to any fact or condition that is reasonably likely to adversely affect
the future prospects (financial or otherwise) of the Buyer.
7.7 FINDERS. No broker or finder has acted for the Buyer 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 in respect
thereof based in any way on agreements, understandings or arrangements with the
Buyer.
7.8 CAPITAL STOCK. Buyer's Form 10-Q filed with the Commission with respect
to the fiscal quarter ended June 30, 1997 (the "Form 10-Q"), sets forth a true
and complete description of the authorized and outstanding shares of capital
stock of Buyer as of such date. All outstanding shares of IHS Stock are validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Buyer has duly authorized and reserved for issuance the IHS Stock, and, when
issued in accordance with the terms of Article III, the IHS Stock will be
validly issued, fully paid and nonassessable and free and clear of preemptive
rights, liens, encumbrances, claims and other charges thereon.
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7.10 COMPLIANCE WITH LAWS. The Buyer is in compliance in all material
respects with all Governmental Requirements (as defined in Section 5.19) except
where the failure to be in compliance could reasonably be expected to have a
material adverse effect on the Buyer and its subsidiaries collectively. Except
for notices of non-compliance as to which the Buyer has taken corrective action
acceptable to the applicable governmental agency or which would not reasonably
be expected to have a material adverse effect on the Buyer and its subsidiaries
collectively, the Buyer has not, within the period of twelve months preceding
the date of this Agreement, received any written notice that the Buyer or any of
the assets fail to comply in any material respect with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of any Federal, state, local or other governmental agency
having jurisdiction over their businesses.
7.11 QUESTIONABLE PAYMENTS. Neither the Buyer nor any shareholder,
director, officer, controlling person or employee of Buyer, and no affiliate of
Buyer, (a) has used any corporate funds of Buyer to make any illegal or unlawful
payment to any officer, employee, representative, agent of any government, or to
any political party or official thereof, including, without limitation, any of
same that would violate the Foreign Corrupt Practices Act of 1977, as amended;
or (b) has made or received any illegal payment, bribe, kickback, political
contribution or other similar questionable payment for any referrals or
recommendations or otherwise in connection with the operation of the Buyer's
business which could reasonably be expected to have a material adverse effect on
the Buyer and its subsidiaries collectively.
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE OTHER
PARTIES
8.1 BUYER'S ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to the
Closing Date, Buyer may make, or cause to be made, such investigation of the
Company's (it being understood that, for the purpose of this Article VIII,
"Company" shall be deemed to refer collectively to the Company and its
subsidiaries listed on Schedule 5.23) financial and legal condition as Buyer
deems necessary or advisable to familiarize itself with the Company and/or
matters relating to its history or operation. The Company shall permit Buyer and
its authorized representatives (including legal counsel and accountants), to
have full access to the Company's books and records upon reasonable notice and
during normal business hours, and the Company will furnish, or cause to be
furnished, to Buyer such financial and operating data and other information and
copies of documents with respect to the Company's products, services, operations
and assets as Buyer shall from time to time reasonably request. The documents to
which Buyer shall have access shall include, but not be limited to, the
Company's tax returns and related work papers since their inception; and the
Company shall make, or cause to be made, extracts thereof as Buyer or their
representatives may request from time to time to enable Buyer and their
representatives to investigate the affairs of the Company and the accuracy of
the representations and warranties made in this Agreement. The Company shall
cause their accountants to cooperate with Buyer and to disclose the results of
audits relating to the Company and to produce the working papers relating
thereto. Without limiting any
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of the foregoing, it is agreed that Buyer will have full access to any and all
agreements between and among the previous and current shareholders regarding
their ownership of shares or the management or operation of the Company.
8.2 SELLERS' AND COMPANY'S ACCESS TO INFORMATION AND RECORDS BEFORE
CLOSING. Prior to the Closing Date, Buyer shall make available to Sellers and
Company any public information related to Buyer and provide access to the senior
management of Buyer.
ARTICLE IX: OBLIGATIONS OF THE PARTIES (OTHER THAN SIRROM) UNTIL
CLOSING
9.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement
and the Closing, the Company and its subsidiaries shall maintain their existence
and shall conduct their businesses in the customary and ordinary course of
business consistent with past practice.
9.2 NEGATIVE COVENANTS OF THE COMPANY AND ITS SUBSIDIARIES. Without the
prior written approval of Buyer, neither the Company nor any of its subsidiaries
shall, between the date hereof and the Closing:
(A) cause or permit to occur any of the events or occurrences described
in Section 5.18 (Absence of Certain Events) of this Agreement;
(B) dissolve, merge or enter into a share exchange with or into any other
entity;
(C) enter into any contract or agreement with any union or other
collective bargaining representative representing any employees without the
prior written consent of Buyer, which consent shall not be unreasonably
withheld;
(D) sell off any Assets other than in the ordinary course of business; or
(E) make any change to their by-laws or articles of incorporation.
9.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, the
Company and each of its subsidiaries shall:
(A) maintain their businesses in substantially the same state of repair,
order and condition as on the date hereof consistent with past practices,
reasonable wear and tear or loss by casualty excepted;
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(B) maintain in full force and effect all material Licenses currently in
effect with respect to their businesses unless such License is no longer
necessary for the operation of the Company and its subsidiaries;
(C) maintain in full force and effect the insurance policies and binders
currently in effect, or the replacements thereof, including without limitation
those listed on Schedule 5.16;
(D) utilize their reasonable efforts to preserve intact the present
business organization of the Company and its subsidiaries; keep available the
services of the Company's and its subsidiaries' present employees and agents;
and maintain the Company's and its subsidiaries' relations and goodwill with
suppliers, employees, affiliated medical personnel and any others having
business relating to the Company and its subsidiaries;
(E) maintain all of the books and records in accordance with their past
practices;
(F) comply in all material respects with all provisions of the Contracts
listed in Schedule 5.7 and with any other material agreements that the Company
and its subsidiaries have entered into in the ordinary course of business since
the date of this Agreement, and comply in all material respects with the
provisions of all material laws, rules and regulations applicable to the
Company's and its subsidiaries' businesses;
(G) cause to be paid when due, all taxes, assessments and charges or
levies imposed upon them or on any of their properties for which they are
required to withhold and pay over other than their being contested in good
faith;
(H) promptly advise Buyer in writing of the threat or commencement
against the Company and its subsidiaries of any claim, action, suit or
proceeding, arbitration or investigation or any other event that would
materially adversely affect the operations, properties, assets or prospects of
the Company and its subsidiaries;
(I) notify the Buyer in writing of any event involving the Company and
its subsidiaries which has had or may be reasonably expected to have a material
adverse effect on the business or financial condition of the Company and its
subsidiaries or may involve the loss of contracts which involve revenues of more
than $15,000 per year individually or $100,000 per year in the aggregate with
any of the Company's or its subsidiaries' customers; and
9.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing, Buyer shall
use its reasonable efforts to obtain all consents and approvals of governmental
agencies and all other parties necessary for the lawful consummation of the
transactions contemplated hereby and the lawful use, occupancy and enjoyment of
the Company's and its subsidiaries' businesses by Buyer in accordance herewith
("Required Approvals"). The Company and its subsidiaries shall cooperate with
and use their reasonable efforts to assist Buyer in obtaining all such
approvals.
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9.5 EXCLUSIVITY. Until the earlier of Closing or the termination of this
Agreement pursuant to Section 13.1, the Company nor any Seller, nor any of their
respective affiliates, representatives or brokers shall enter into any
agreement, commitment or understanding with respect to, or engage in any
discussions or negotiations directly or indirectly with, or encourage or respond
to any solicitations from, any other party with respect to the sale, lease or
management of any of the Assets, or in respect of the sale of any shares of
capital stock in the Company.
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligations to consummate the purchase of the Company Stock is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Buyer in writing. Upon
failure of any of the following conditions, Buyer may terminate this Agreement
pursuant to and in accordance with Article XIII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Company and Sellers made pursuant to 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 a
representation made as of a specified date shall be true and accurate in all
material respects as of that date) except to the extent affected by the
transactions herein contemplated.
10.2 PERFORMANCE OF COVENANTS. Each of the Sellers and the Company shall
have performed or complied in all material respects with their respective
agreements and covenants required by this Agreement to be performed or complied
with by it prior to or at the Closing.
10.3 DELIVERY OF CLOSING CERTIFICATE. Each of the Sellers and the Company
shall have executed and delivered to Buyer a certificate of its president, dated
the Closing Date, upon which Buyer may rely, certifying that the conditions
contemplated by Sections 10.1 and 10.2 applicable to it have been satisfied.
10.4 OPINION OF COUNSEL. Each Seller (other than Sirrom) and the Company
shall have delivered to Buyer an opinion, dated the Closing Date, of their
counsel, in substantially the form attached hereto as Exhibit 10.4.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
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10.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a certificate of
the Secretary or other officer of the Company certifying as of the Closing Date
a copy of Resolutions of its Board of Directors authorizing its execution and
full performance of the Transaction Documents and the incumbency of its
officers.
10.7 MATERIAL CHANGE. Since the date of the Unaudited Financial Statement
there shall not have been any material adverse change in the condition
(financial or otherwise) of the assets, properties or operations of the Company
and its subsidiaries.
10.8 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, cancellation or termination of any material
lease, contract, commitment, agreement, license, easement, right or other
authorization with respect to the Company's and its subsidiaries' businesses,
other than as disclosed or approved hereunder, or (ii) shall impose on the Buyer
any material condition or provision or requirement with respect to the Company's
and its subsidiaries' businesses or their operation that is more restrictive
than or different from the conditions imposed upon such operation prior to
Closing.
10.9 EMPLOYMENT AGREEMENT. Raymond A. Mirra, Jr. shall have executed and
delivered to Buyer his employment agreement in the form of Exhibit 10.9 hereto
(the "Employment Agreement").
10.10 CONSENTS. Buyer shall have received the written consent to assignment
from each of those parties with whom the Company or its subsidiaries has a
Contract as listed on Schedule 5.7, where such consent is required by reason of
the change of control of the Company and its subsidiaries contemplated under
this Agreement.
10.11 ESTIMATED CLOSING DATE BALANCE SHEET. Sellers (other than Sirrom) and
Company shall have delivered the Estimated Closing Date Balance Sheet to Buyer.
10.12 COMPANY'S SUBSIDIARIES AND OPTIONS. Each of the subsidiaries of the
Company as of the Closing Date will be one hundred (100%) percent owned by the
Company and there shall not be outstanding as of the Closing Date any options,
warrants or rights for the purchase of any capital stock of the subsidiaries of
the Company.
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10.13 COST AND EXPENSES. The Sellers (other than Sirrom) shall have paid
all costs, fees and expenses (including without limitation, filing fees,
transfer taxes, stamp taxes, legal fees and broker, audit and appraisal fees)
incurred by the Company or any of its subsidiaries in connection with the
transactions contemplated by this Agreement.
10.14 RESIGNATION OF COMPANY BOARDS OF DIRECTORS AND OFFICERS. Each
director and officer of the Company and each of its subsidiaries shall have
submitted his or her resignation to be effective no later than the Closing Date.
10.15 AFFILIATED COMPANY. Buyer shall have closed its acquisition
simultaneously with Ambulatory Pharmaceutical Services, Inc. and each of its
respective shareholders.
10.16 LIEN RELEASES. Healthcare Partners Funding, Inc. and Sirrom Capital
shall each have released their liens against the assets of the Company and its
subsidiaries and the Company shall have delivered to Buyer such releases and UCC
termination statements necessary to evidence that such releases have occurred.
10.17 OTHER DOCUMENTS. The Sellers (other than Sirrom) and the Company
shall have furnished Buyer with all other documents, certificates and other
instruments required to be furnished to Buyer by the Sellers and the Company
pursuant to the terms hereof.
ARTICLE XI: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
Sellers' obligation to consummate the sale of the Company Stock is subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Sellers in writing. Upon
failure of any of the following conditions, Sellers may terminate this Agreement
pursuant to and in accordance with Article XIII herein:
11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer 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 a representation made as of a specified date
shall be true and accurate in all material respects as of that date) except to
the extent affected by the transactions herein contemplated.
11.2 PERFORMANCE OF COVENANTS. Buyer shall have performed or complied with
each of its agreements and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing.
11.3 DELIVERY OF CLOSING CERTIFICATE. Buyer shall have delivered to Sellers
a certificate of an executive vice president of Buyer dated the Closing Date
upon which Sellers can rely, certifying that the conditions contemplated by
Sections 11.1 and 11.2 applicable to it have been satisfied.
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11.4 OPINION OF COUNSEL. Buyer shall have delivered to Sellers an opinion,
dated the Closing Date, of Blass & Driggs, Esqs., counsel for Buyer, in the form
attached as Exhibit 11.4.
11.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
11.6 AUTHORIZATION DOCUMENTS. Sellers shall have received a certificate of
the Secretary or other officer of Buyer certifying a copy of Resolutions of the
Board of Directors of Buyer authorizing Buyer's execution and full performance
of the Transaction Documents and the incumbency of the officers of Buyer.
11.7 EMPLOYMENT AGREEMENT. The Buyer shall have entered into the Employment
Agreement with Raymond A. Mirra, Jr.
11.8 MATERIAL CHANGE. Since the Form 10-Q, there shall not have been any
material adverse change in the condition (financial or otherwise) of the assets,
properties or operations of Buyer.
11.9 OTHER DOCUMENTS. Buyer shall have furnished Sellers with all
documents, certificates and other instruments required to be furnished to
Sellers by Buyer pursuant to the terms hereof.
ARTICLE XII: SURVIVAL AND INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Absent fraud, all
representations and warranties made by each party in this Agreement and in each
Schedule and Transaction Document shall survive the Closing Date and for a
period of one (1) year after the Closing, notwithstanding any investigation at
any time made by or on behalf of the other party, provided that the
representations and warranties contained in Section 5.30 (Questionable
Payments), Section 5.25 (Medicare and Medicaid) and Section 5.21 (Tax), shall
survive until thirty (30) days after the applicable period of limitations for
audits by the applicable Governmental Authority shall have expired, including
extensions for any necessary appeals. All representations and warranties related
to any claim asserted in writing prior to the expiration of the applicable
survival period shall survive (but only with respect to such claim) until such
claim shall be resolved and payment in respect thereof, if any is owing, shall
be made.
12.2 INDEMNIFICATION BY SELLERS. The Sellers (and the Company unless there
shall be a Closing), jointly and severally, shall indemnify and defend Buyer and
hold it harmless against and with respect to any and all damage, loss,
liability, deficiency, cost and expense (including, without limitation,
reasonable attorney's fees and expenses) (all of the foregoing hereinafter
collectively referred to as "Loss") resulting from any of the following,
provided that, for the purpose of this Section 12.2, "Sellers" shall not include
Sirrom Capital Corporation:
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(A) any inaccuracy in any representation or certification, or breach of
any warranty, made by the Sellers or Company pursuant to this Agreement; or
(B) the breach of any covenant or undertaking made by the Sellers or
Company in this Agreement; or
(C) the ownership or operation of the Company or its subsidiaries or its
business or assets prior to the Closing Date, including, without limitation, (i)
any Excess Reimbursement Liabilities (as defined in Section 2.4); (ii) any Taxes
resulting from the operation of the business of the Company or ownership of any
of the Assets for any period ending on or before the Closing Date; (iii) any
Loss arising out of the noncompliance of the Company with COBRA or any like
statute; (iv) any claim of the type that would be covered by a standard
liability insurance policy, including without limitation, professional
liability, malpractice, general liability, automobile liability, worker's
compensation or employer's liability insurance, arising out of the operation of
the Company's business prior to the Closing Date, including payments of any
deductibles applicable to the aforesaid policies; and (v) any and all actions,
suits, proceedings, demands, assessments, judgments, settlements (to the extent
approved by the Company, such approval not to be unreasonably withheld, delayed
or conditioned), costs and legal expenses incident to any of the foregoing; but
excluding current liabilities and long-term liabilities that are reflected on
the Estimated Closing Date Balance Sheet or that otherwise are taken into
account in any adjustment to the Purchase Price under Section 2.2.
12.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend Sellers and
hold them harmless against and with respect to any and all Loss resulting from:
(A) any inaccuracy in any representation or certification, or breach of
any warranty, made by Buyer pursuant to this Agreement; or
(B) the breach of any covenant or undertaking made by Buyer in this
Agreement; or
(C) the ownership or operation of the Company or its subsidiaries or its
business or assets on and after the Closing Date.
12.4 ASSERTION OF CLAIMS. Any claims for indemnification under Sections
12.2(a) or 12.3(a) must be asserted by written notice by a date which is no
later than one (1) year following the Closing Date, except that any claim based
upon a breach of the representations and warranties contained in Section 5.30
(Questionable Payments), Section 5.25 (Medicare and Medicaid) or Section 5.21
(Tax) may be asserted until thirty (30) days after the applicable period of
limitations for audits by the applicable Governmental Authority shall have
expired, including extensions for any necessary appeals.
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12.5 INDEMNITY BASKET. Notwithstanding any other provisions of this Article
XII, no claim for indemnification made under Sections 12.2(a) or 12.3(a) shall
be made unless and until Buyer or Sellers, as the case may be, have incurred
Loss in excess of Fifty Thousand ($50,000) Dollars in the aggregate, in which
case, the party seeking indemnification shall be entitled to assert claims
including such initial Fifty Thousand ($50,000) Dollars.
12.6 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS.
(A) Each indemnified party (each, an "Indemnitee") shall give the
indemnifying party (the "Indemnitor") prompt notice of each claim for which it
seeks indemnification. Failure to give such prompt notice shall not relieve any
Indemnitor of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages the Indemnitor demonstrates it has
suffered resulting from a failure to receive prompt notice hereunder. The
Indemnitors shall be entitled to participate in the defense of such claim. If at
any time the Indemnitor acknowledges in writing that the claim is fully
indemnifiable by it under this Agreement, and, if requested by the Indemnitee,
the Indemnitor posts adequate bond or security, the Indemnitor shall have the
right to assume control of the defense (but not the settlement) of such claim at
its own expense; unless (i) Indemnitee shall have been authorized in writing by
the Indemnitor to defend such action with counsel of its own choice in
connection with the defense of such action, or (ii) the Indemnitor shall not
have employed counsel to have charge of the defense of such action within twenty
(20) days after the date of notice of the claim for which indemnification is
sought is given to the Indemnitor or (iii) the Indemnitor shall have failed to
undertake and reasonably pursue the defense of such action, or (iv) the
Indemnitee shall have reasonably concluded that there may be material defenses
available to it or them which are different from or additional to those
available to the Indemnitor. If any event described in clauses (i) through (iv)
above shall occur, then the Indemnitor shall not have the right to direct the
defense of such action on behalf of the Indemnitee with counsel of its own
choice, and the reasonable fees and expenses of the Indemnitee shall be borne by
the Indemnitor, provided that such counsel shall be reasonably acceptable to the
Indemnitor. If the Indemnitors do assume control of the defense of any such
claim in accordance with the foregoing, then: (x) the Indemnitor shall not
defend the claim for which indemnification is being sought in any manner that
would likely have a material adverse effect on the Indemnitee or on any
relationship that the Indemnitee may have with any customers, vendors, suppliers
or others, and (y) the Indemnitee shall not settle such claim without the
written consent of the Indemnitor, which consent shall not be unreasonably
withheld, delayed or conditioned. Nothing contained in this Section 12.6 shall
prevent either party from assuming control of the defense and/or settling any
claim against it for which indemnification is not sought under this Agreement.
(B) Notwithstanding anything to the contrary contained in this Agreement,
if there shall be any claim for Excess Reimbursement Liabilities with respect to
which Buyer shall be seeking indemnification, Buyer will have the sole right to
contest or appeal such claim (using at least the same standard of care as it
would apply to contests or appeals with respect to reimbursement liabilities in
general) in accordance with its customary procedures diligently and in good
faith. Buyer may, in its sole and absolute discretion, at any time
29
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discontinue any such contest or appeal or enter into a settlement with respect
thereto prior to the final determination thereof (a "Final Determination");
provided, however, that if it intends to discontinue or settle any such appeal
or contest prior to Final Determination, then it must provide Sellers with
reasonable prior written notice of such intent and of the current status of the
appeal or contest or proposed settlement, and will consult with Sellers in good
faith with respect thereto.
12.7 RESTRICTIONS.
(A) From and after the Closing Date, none of the Sellers shall disclose,
directly or indirectly, to any person outside of Buyer's employ without the
express authorization of the Buyer, any patient lists, customer lists, pricing
strategies, customer files, or patient files and records of the Company and its
subsidiaries, any proprietary data or trade secrets owned by the Company and its
subsidiaries or any financial or other information about the Company and its
subsidiaries not then in the public domain; provided, however, that Sellers
shall be permitted to make such disclosures as may be required by law or by a
court or governmental authority.
(B) After the Closing Date, none of the Sellers shall engage or
participate in any effort or act to induce any of the customers, physicians,
suppliers, associates, employees or independent contractors of the Company and
its subsidiaries to cease doing business, or their association or employment,
with the Company and its subsidiaries.
(C) No Seller (which, for the purposes of this Section 12.7(c) shall be
deemed not to include Sirrom) shall, for a period of five (5) years after the
Closing Date, directly, or indirectly, for or on behalf of himself or herself or
any other person, firm, entity or other enterprise, be employed by, be a
director or manager of, act as a consultant for, be a partner in, have a
proprietary interest in, give advice to, loan money to or otherwise associate
with, in a business fashion, any person, enterprise, partnership, association,
corporation, joint venture or other entity which is directly or indirectly in
the business of owning, operating or managing any entity of any type, licensed
or unlicensed, which , anywhere within the United States, (i) is engaged in or
provides the Services , (ii) compounds or dispenses pharmaceutical admixtures
for intravenous therapies to patients at sites other than hospitals, (iii)
provides medical supplies, equipment or non-professional services usually and
customarily associated with the provision of intravenous therapies to patients,
or (iv) provides professional nursing services usually and customarily rendered
with the provision of intravenous therapies, provided that nothing in this
Section 12.7(c) shall restrict any Seller from having any involvement with a
nursing agency business.
(D) The Sellers acknowledge that the restrictions contained in this
Section 12.7 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, Sellers agree that upon the violation by
any of them of any of the restrictions contained in this Section 12.7, Buyer
shall be entitled 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 proceeding, 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.
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12.8 RECORDS. On the Closing Date, Sellers and Company shall deliver, or
cause to be delivered, to Buyer all records and files not then in Buyer's
possession relating to the operations of the Company and its subsidiaries.
ARTICLE XIII: TERMINATION
13.1 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,
including without limitation those conditions set forth in Article X hereof,
have not been satisfied by the Closing Date;
(B) Sellers, if any condition precedent to the obligations of any Seller
or the Company hereunder, including without limitation those conditions set
forth in Article XI hereof, have not been satisfied by the Closing Date; or
(C) the mutual consent of Buyer and Sellers.
13.2 EFFECT OF TERMINATION. If a party terminates this Agreement because
one of its conditions precedent has not been fulfilled, or if this Agreement is
terminated by mutual consent, this Agreement shall become null and void without
any liability of any party to the other; provided, however, that if such
termination is by reason of the breach by any party of any of its
representations, warranties or obligations under this Agreement, the other party
shall be entitled to be indemnified for any Losses incurred by it by reason
thereof in accordance with Article XII hereof (and for such purposes such
Article XII shall survive the termination of this Agreement). Further, nothing
in this Section 13.2 shall affect Buyer's right to specific performance of the
obligations of the Company and Sellers at Closing hereunder.
ARTICLE XIV: MISCELLANEOUS
14.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Buyer and Sellers shall bear their own costs and expenses in
connection with this Agreement and the transactions contemplated hereby;
provided, however, that no such costs and expenses shall be charged to the
Company and its subsidiaries; and provided further that the reasonable costs and
expenses of Sirrom shall be borne by the remaining Sellers.
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, or
other remedy, the prevailing party shall be entitled to its reasonable
attorneys' fees.
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14.3 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to the benefit
of each party hereto and its successors and proper assigns. Neither Buyer nor
Sellers may assign their interests under this Agreement to any other person or
entity without the prior written consent of the other parties; provided,
however, that Buyer may assign its rights, duties and obligations hereunder to
one or more subsidiaries or affiliates of Buyer; and further provided that in
the instance of such assignment Buyer shall guaranty the performance of its
assignee hereunder.
14.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
Exhibits and Schedules hereto 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. From time to time, as and when
reasonably requested by Buyer after the Closing, the other parties will (at the
expense of the Buyer) 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 requested or necessary to
carry out the intent and purposes of this Agreement.
14.6 NOTICES. All notices 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 within five
(5) days when sent by certified or registered mail, postage prepaid, or on the
next business day if sent for next day delivery by a nationally recognized
overnight courier, in either case, properly addressed to the party or parties
entitled to receive such notice at the address stated below:
If to the Company: APS America, Inc.
9812 Pflum Road
Lenexa, Kansas 66215
If to the Sellers: Raymond A. Mirra, Jr.
2932 North Atlantic Boulevard
Fort Lauderdale, FL 33308
James Kuo
890 Wises Mill Road
Philadelphia, PA 19128
Ted Kramm
8909 W. 131st Street
Overland Park, Kansas 66213
32
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John Harrison
Sirrom Capital
500 Church Street, Suite 200
Nashville, TN 37219
with a copy to: Alexander Bono, Esq.
Blank, Rome, Comisky & McCauley
2000 Logan Square
Philadelphia, PA 19103
Attn: J. Patrick Murphy
J. Patrick Murphy
Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanoogo, TN 37402
If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian K. Davidson
Elizabeth B. Kelly
cc: Marshall A. Elkins, General Counsel
with a copy to: Michael S. Blass, Esq.
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
14.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
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.
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14.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, disregarding any
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 by the parties hereto, this Agreement
may be amended or supplemented by additional agreements, articles or
certificates, as may be mutually determined by the parties 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 covenants, terms or
conditions hereof or thereof. This Agreement may not be amended except by an
instrument in writing signed by each of the parties.
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 12.7 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 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall together
constitute one and the same instrument.
14.13 ARBITRATION. Any dispute or controversy between any of the parties
hereto pertaining to the performance or interpretation of this Agreement shall
be settled by binding arbitration pursuant to the rules of the American
Arbitration Association. The cost of such proceeding shall be shared equally by
all parties thereto, and each such party shall bear its own costs incurred as a
result of its participation in any such arbitration.
14.14 PUBLIC ANNOUNCEMENTS. Any general public announcements or similar
media publicity with respect to this Agreement or the transactions contemplated
herein shall be at such time and in such manner as Buyer and Raymond A. Mirra,
Jr. shall determine; provided that nothing herein shall prevent either party,
upon as much prior notice as shall be possible under the circumstances to the
other, from making such written announcements as such party's counsel may
consider advisable in order to satisfy the party's legal and contractual
obligations in such regard.
[SIGNATURES ON THE FOLLOWING PAGE]
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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.
COMPANY:
APS AMERICA, INC.
WITNESS:
By:/s/ By:/s/
---------------------------- -----------------------------
Its: President
SELLERS:
WITNESS:
By:/s/ /s/
---------------------------- --------------------------------
Raymond A. Mirra, Jr.
WITNESS:
By: /s/
---------------------------- --------------------------------
James Kuo
WITNESS:
By:/s/ /s/
---------------------------- --------------------------------
Edward Kramm
SIRROM CAPITAL CORPORATION
By:/s/
-----------------------------
Its:
----------------------------
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:/s/
-----------------------------
Executive Vice President
Corporate Development
35
---------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JULY 24, 1997
AMONG
INTEGRATED HEALTH SERVICES, INC.,
INTEGRATED AG ACQUISITION, INC.
AND
ARCADIA SERVICES, INC.
AND
HERBERT GRAEBNER
AND
LEONARD BELLINSON
AND
COMMITTEE
---------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I: MERGER..............................................................1
1.1 Merger.......................................................1
1.2 Taking of Necessary Action...................................2
ARTICLE II: CONVERSION.........................................................2
2.1 Conversion of Stock..........................................2
2.2 Adjustments to the Merger Consideration......................3
2.3 General Escrow...............................................4
2.4 Arizona Litigation and Arizona Escrow........................6
2.5 Assets.......................................................7
2.6 Liabilities..................................................7
ARTICLE III: IHS STOCK........................................................8
3.1 IHS Stock....................................................8
ARTICLE IV: THE CLOSING......................................................13
4.1 Time and Place of Closing...................................13
4.2 Filings at Closing..........................................13
4.3 Effective Time..............................................13
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SELLERS AND ARCADIA..................................................13
5.1 Organization and Standing of Arcadia........................13
5.2 Absence of Conflicting Agreements...........................14
5.3 Consents....................................................14
5.4 Arcadia Stock...............................................14
5.5 Assets......................................................14
5.6 Trademarks..................................................15
5.7 Contracts...................................................15
5.8 Financial Statements........................................16
5.9 Material Changes............................................17
5.10 Licenses; Permits; Certificates of Need.....................17
5.11 Title, Condition of Personal Property.......................18
5.12 Legal Proceedings...........................................19
5.13 Employees...................................................19
5.14 Collective Bargaining, Labor Contracts, Employment
Practices, Etc..............................................19
5.15 ERISA.......................................................20
5.16 Insurance and Surety Agreements.............................21
5.17 Relationships...............................................21
(i)
<PAGE>
5.18 Absence of Certain Events...................................21
5.19 Compliance with Laws........................................23
5.20 Finders.....................................................23
5.21 Tax Returns.................................................24
5.22 Encumbrances Created by this Agreement......................24
5.23 Subsidiaries and Joint Ventures.............................24
5.24 No Untrue Statement.........................................24
5.25 Medicare and Medicaid Programs..............................24
5.26 Leasehold Interests.........................................24
5.27 Power and Authority.........................................25
5.28 Binding Effect..............................................25
5.29 Questionnaires..............................................25
5.30 Questionable Payments.......................................25
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SELLERS
....................................................................25
6.1 Authority...................................................25
6.2 Binding Effect..............................................25
6.3 Absence of Conflicting Agreements...........................25
6.4 Consents....................................................26
6.5 Ownership of Arcadia Stock..................................26
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO
....................................................................26
7.1 Organization and Standing...................................26
7.2 Power and Authority.........................................26
7.3 Binding Agreement...........................................26
7.4 Absence of Conflicting Agreements...........................27
7.5 Consents....................................................27
7.6 Securities and Exchange Commission Filings..................27
7.7 Capital Stock...............................................27
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING ARCADIA AND ITS
SUBSIDIARIES.........................................................28
8.1 Access to Information and Records before Closing............28
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.........................28
9.1 Conduct of Business Pending Closing.........................28
9.2 Negative Covenants of Arcadia and its Subsidiaries..........28
9.3 Affirmative Covenants.......................................29
9.4 Pursuit of Consents and Approvals...........................30
9.5 Exclusivity.................................................30
(ii)
<PAGE>
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.......................30
10.1 Representations and Warranties..............................30
10.2 Performance of Covenants....................................30
10.3 Delivery of Closing Certificate.............................31
10.4 Opinion of Counsel..........................................31
10.5 Legal Matters...............................................31
10.6 Authorization Documents.....................................31
10.7 Material Change.............................................31
10.8 Approvals...................................................31
10.9 Consents....................................................31
10.10 Estimated Closing Date Balance Sheet........................31
10.11 Real Property Consents......................................32
10.12 Arcadia's Subsidiaries and Options..........................32
10.13 Board Approvals.............................................32
10.14 Hart-Scott-Rodino...........................................32
10.15 Employment Agreements.......................................32
10.16 Required Transactions.......................................32
10.17 Termination of Non-Retained Agreements......................32
10.18 Escrow Agreements...........................................32
10.19 Termination of Certain Contracts............................33
10.20 Grayrose....................................................33
10.21 Stock Certificates..........................................33
10.22 Dissenter's Rights..........................................33
10.23 Captive Insurance...........................................33
10.24 Other Documents.............................................33
ARTICLE XI: CONDITIONS PRECEDENT TO PRINCIPAL SELLERS' OBLIGATIONS...........33
11.1 Representations and Warranties..............................33
11.2 Performance of Covenants....................................33
11.3 Delivery of Closing Certificate.............................34
11.4 Opinion of Counsel..........................................34
11.5 Legal Matters...............................................34
11.6 Authorization Documents.....................................34
11.7 H-S-R Filings...............................................34
11.8 Employment Agreements.......................................34
11.9 Escrow Agreements...........................................34
11.10 Other Documents.............................................34
ARTICLE XII: SURVIVAL AND INDEMNIFICATION....................................34
12.1 Survival of Representations and Warranties..................34
12.2 Indemnification by Shareholders and/or Principal Sellers....35
12.3 Indemnification by Buyer....................................36
(iii)
<PAGE>
12.4 Assertion of Claims.........................................36
12.5 Indemnity Basket and Cap....................................36
12.6 Control of Defense of Indemnifiable Claims..................37
12.7 Restrictions................................................37
12.8 Records.....................................................38
12.9 Buyer's Affirmative Covenants...............................38
12.10 Dissenters' Rights..........................................38
12.11 Special Provisions with Regard to Indemnification of
Representations and Warranties..............................39
ARTICLE XIII: TERMINATION....................................................39
13.1 Termination.................................................39
13.2 Effect of Termination.......................................40
ARTICLE XIV: CASUALTY, RISK OF LOSS...........................................40
14.1 Casualty, Risk of Loss......................................40
ARTICLE XV: MISCELLANEOUS....................................................40
15.1 Costs and Expenses..........................................40
15.2 Performance.................................................40
15.3 Benefit and Assignment......................................41
15.4 Effect and Construction of this Agreement...................41
15.5 Cooperation - Further Assistance............................41
15.6 Notices.....................................................41
15.7 Waiver, Discharge, Etc......................................42
15.8 Rights of Persons Not Parties...............................42
15.9 Governing Law...............................................42
15.10 Amendments, Supplements, Etc................................43
15.11 Severability................................................43
15.12 Counterparts................................................43
15.13 Arbitration.................................................43
15.14 Public Announcements........................................43
(iv)
<PAGE>
SCHEDULES & EXHIBITS
Schedule 2.1(b) - Allocation among Shareholders
Schedule 2.6 - Assumed Liabilities
Schedule 5.3 - Consent List of Principal Sellers
Schedule 5.4 - Arcadia Stock
Schedule 5.5 - Liens on Assets
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8(a) - Audited Financial Statement
Schedule 5.8(b) - Monthly Financial Statements
Schedule 5.8(c) - March 31 Balance Sheets
Schedule 5.8(d) - Material Liabilities
Schedule 5.9 - Material Changes
Schedule 5.10 - Licenses, Permits, Certificates of Need
Schedule 5.11(a) - Liens on Personal Property
Schedule 5.11(b) - Leases of Personal Property
Schedule 5.12 - Legal Proceedings
Schedule 5.13 - Employees
Schedule 5.15(b) - Employee Benefit Plans
Schedule 5.15(c) - Employees on Leave of Absence
Schedule 5.16 - Insurance and Surety Agreements
Schedule 5.17 - Relationships
Schedule 5.18 - Absence of Certain Events
Schedule 5.19 - Compliance with Laws
Schedule 5.21 - Tax Returns
Schedule 5.23 - Subsidiaries, Joint Ventures, etc.
Schedule 5.25 - Medicare and Medicaid Programs
Schedule 5.26 - Leasehold Interests
Schedule 7.5 - Consent List of Buyer
Exhibit A - Plan of Merger
Exhibit 2.3 - Escrow Agreement
Exhibit 2.4 - Arizona Litigation Escrow Agreement
Exhibit 5.29 - Questionnaire
Exhibit 10.4 - Opinion of Shareholders' Counsel
Exhibit 10.15 - Employment Agreements
Exhibit 11.4 - Opinion of Buyer's Counsel
(v)
<PAGE>
--------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
--------------------------------------
This Agreement and Plan of Reorganization (the "Agreement") is made as of
the 24th day of July, 1997, among INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation ("Buyer"), INTEGRATED AG ACQUISITION, INC., a Delaware corporation
("Newco"), HERBERT GRAEBNER and LEONARD BELLINSON (collectively, the "Principal
Sellers" and individually, the "Principal Seller") and the Principal Sellers in
their collective capacity as the "Committee" and ARCADIA SERVICES, INC. a
Michigan corporation ("Arcadia").
WHEREAS, Newco is a subsidiary of Buyer; and
WHEREAS, Arcadia is in the business of providing home health care services
and medical staffing services and Arcadia's wholly-owned subsidiary, Grayrose,
Inc. ("Grayrose") is in the business of providing clerical and light industrial
staffing services; and
WHEREAS, the Principal Sellers are the owners or holders of a majority of
the issued and outstanding shares of the capital stock of Arcadia; and
WHEREAS, all owners or holders of the issued and outstanding shares of the
capital stock of Arcadia (the "Shareholders") (the "Arcadia Stock") will be
authorizing the Committee to act as their agent for the purpose of taking any
action under this Agreement; and
WHEREAS, the Shareholders and the Boards of Directors of Buyer, Newco, and
Arcadia deem it advisable to merge Newco with and into Arcadia (the "Merger")
pursuant to this Agreement and the Plan of Merger annexed as Exhibit A hereto
(the "Plan of Merger"); and
WHEREAS, pursuant to the Merger, all shares of Arcadia Stock will be
converted into the right to receive the Merger Consideration (as defined in
Section 2.1(a) of this Agreement).
NOW, THEREFORE, Principal Sellers, Committee, Buyer, Newco and Arcadia
intending to be legally bound, 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 IV, below), Newco shall be
merged with and into Arcadia and the separate existence of Newco shall cease.
<PAGE>
1.2 TAKING OF NECESSARY ACTION. Prior to and after the Effective Time of
Merger, subject to the provisions of this Agreement, each of the Shareholders,
Buyer, Newco, and Arcadia shall take all such action as may be necessary or
appropriate in order to effect the Merger as contemplated hereunder. In case at
any time after the Effective Time of Merger any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest Buyer with
full title to Arcadia Stock, the parties shall take all such necessary action.
ARTICLE II: CONVERSION
2.1 CONVERSION OF STOCK. At the Effective Time of Merger:
(A) the shares of Arcadia Stock which are 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 that number of shares
of the common stock, par value $.001, of Buyer ("IHS Stock") determined as of
the Closing Date in accordance with Section 3.1(a) as shall have an aggregate
value, and subject to adjustment pursuant to Section 2.2 hereof, of EIGHTEEN
MILLION SEVEN HUNDRED THOUSAND AND 00/100 ($18,700,000.00) DOLLARS (the "Merger
Consideration"); provided that the aggregate Merger Consideration shall be
reduced by an amount equal to that portion of the Merger Consideration which is
allocable to any shares of Arcadia Stock as to which the holder of such shares
has exercised his or her dissenter's rights under the Michigan Business
Corporation Act. Each of the Shareholders whose shares are converted into the
Merger Consideration (other than those who have exercised dissenter's rights as
aforesaid) shall receive a portion of the Merger Consideration as shall be equal
to the aggregate Merger Consideration multiplied by a fraction, the numerator of
which is the number of shares of Arcadia Stock owned by such Shareholder
immediately prior to the Effective Time of Merger, and the denominator of which
is the total number of shares of Arcadia Stock that are issued and outstanding
immediately prior to the Effective Time of Merger.
(B) 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
Arcadia.
(C) at the Effective Time of Merger, each holder of a certificate
theretofore evidencing outstanding shares of Arcadia Stock, upon surrender of
such certificate, shall be entitled to receive in exchange therefor his or her
proportionate share of the Merger Consideration, calculated pursuant to Section
2.1(a) above, represented by the certificate or certificates so surrendered.
Until so surrendered, each such outstanding certificate which, prior to the
Effective Time of Merger, represented shares of Arcadia Stock, will be deemed to
evidence the right to receive the proportionate share of Merger Consideration
represented by such certificate or certificates. Upon the surrender of such
certificates, they shall be duly canceled.
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<PAGE>
(D) Immediately after the Effective Time of Merger, Buyer, as the sole
shareholder of Newco, upon surrender of stock certificate(s) evidencing
outstanding shares of Newco, shall be entitled to receive in exchange therefor a
certificate representing the shares of Arcadia Stock, calculated on a one-to-one
basis. Until so surrendered, each such certificate which, prior to the Effective
Time of Merger, represented the outstanding shares of Newco stock will be deemed
to evidence such shares of Arcadia Stock. Upon the surrender of such
certificate(s), they shall be duly canceled.
2.2 ADJUSTMENTS TO THE MERGER CONSIDERATION.
(A) At the Closing, Arcadia shall deliver a certificate signed by its
Chief Financial Officer certifying his best good faith estimate of Arcadia's
aggregate working capital (as defined herein) as of the Closing Date on a
consolidated basis (the "Estimated Closing Date Working Capital"). In the event
that the Estimated Closing Date Working Capital is less than $791,000 (the
"Minimum Working Capital"), the Merger Consideration payable to the Shareholders
at Closing will be reduced on a dollar-for-dollar basis by an amount equal to
the amount of such deficiency. If the Estimated Closing Date Working Capital
exceeds the Minimum Working Capital, the Merger Consideration payable to the
Shareholders at Closing will be increased by an amount equal to the excess above
the Minimum Working Capital, payable in IHS Stock. For the purposes hereof,
"working capital" means the excess of current assets over current liabilities,
as determined in accordance with generally accepted accounting principles,
consistently applied ("GAAP"); provided that any prepayment obligation related
to any accounts receivable factoring arrangements entered into by Arcadia or any
of its subsidiaries as of or prior to the Closing Date will be included as a
current liability in the calculation of working capital; provided further that
any waiver of the Shareholders' debt shall be treated as a reduction of current
assets in the calculation of working capital; provided further the Shareholders
will have reserved $809,000 for the Arizona Receivables (as defined in Section
2.4, below) and $50,000 for the Arizona Litigation (as defined in Section 2.4,
below) on the Estimated Closing Date Balance Sheets; provided further all assets
and liabilities associated with the Mutual Indemnity (Bermuda) Limited captive
insurance (the "Captive Insurance") will be excluded in the calculation of
working capital on the Estimated Closing Date Balance Sheet; provided further
all obligations related to terminations of employment agreements with Arcadia or
its subsidiaries shall be treated as current liabilities in the calculation of
working capital on the Estimated Closing Date Balance Sheet and; provided
further any liabilities and obligations, other than Assumed Liabilities, must be
reflected as current liabilities to the extent and only to the extent they are
reflected on the Estimated Closing Date Balance Sheet. Additionally, at the
Closing, Arcadia shall deliver to Buyer the balance sheet of Arcadia on a
consolidated basis dated as of the Closing Date, certified by Arcadia's Chief
Financial Officer to be his best good faith estimate thereof (the "Estimated
Closing Date Balance Sheet"). In the event that the Estimated Closing Date
Balance Sheet discloses that the aggregate amount of Arcadia's long-term
liabilities as determined in accordance with GAAP exceeds $1,300,000 (the
"Maximum Long-Term Liabilities"), the Merger Consideration payable to the
Shareholders at Closing will be reduced by an amount equal to the amount of such
excess. For the purposes hereof, "long-term liability" means any liability that
would be set forth as a long-term liability on a balance sheet in accordance
with GAAP, excluding any liabilities specifically classified as current
liabilities in this Section 2.2(a).
3
<PAGE>
(B) As soon as is reasonably practicable, but in any event within ninety
(90) days following the Closing Date, Buyer shall complete a review (the
"Post-Closing Review") of Arcadia's Estimated Closing Date Balance Sheet. The
Merger Consideration, after giving effect to any adjustments made at the Closing
pursuant to Section 2.2(a), above, (the "Adjusted Merger Consideration"), shall
be subject to further adjustment based upon the Post-Closing Review indicating
that the aggregate working capital of Arcadia as of the Closing Date (the
"Actual Working Capital") was different from the Estimated Closing Date Working
Capital, then the parties shall make such payments to each other as shall result
in the Merger Consideration being the amount that it would have been had the
Actual Working Capital been used at Closing in lieu of the Estimated Closing
Date Working Capital. Any increase to the Adjusted Merger Consideration shall be
in IHS Stock by Buyer to Shareholders, and if the Adjusted Merger Consideration
is reduced, then the Escrowee (as defined below) shall deliver over to Buyer
shares of IHS Stock having a value determined in accordance with Section
2.3(a)(vii), below, equal to such deficiency. In the event the deficiency
exceeds the Escrow Deposit (as defined below) held by Escrowee, the Principal
Sellers shall refund to Buyer the amount of such deficiency in IHS Stock valued
in accordance with Section 2.3(a)(vii), below. Furthermore, if the Post-Closing
Review reveals the aggregate amount of Arcadia's long-term liabilities as of the
Closing Date exceeded the greater of (w) Maximum Long-Term Liabilities, or (x)
the amount of Arcadia's long-term liabilities as indicated on the Estimated
Closing Date Balance Sheet, the Merger Consideration shall be deemed to have
been reduced by the amount of such excess, and the Escrowee shall deliver over
to Buyer IHS Stock having a value equal to such excess. In the event the amount
of such excess is greater than the Escrow Deposit held by Escrowee, the
Principal Sellers shall be jointly and severally obligated to refund to Buyer
the amount of such excess in IHS Stock. The value of any IHS Stock to be
distributed to the Buyer from the Escrowee will be as set forth in Section
2.3(a)(vii), below. If there shall be any dispute regarding the calculation of
the working capital as of the Closing Date or the amount of long-term
liabilities as of the Closing Date, such dispute shall be submitted to a
mutually agreed upon "big six" accounting firm other than KPMG Peat Marwick LLP
or Coopers & Lybrand LLP (the "Accountants") for final resolution and the party
against whom the Accountants shall rule shall pay the costs and expenses of the
Accountants in connection therewith. Principal Sellers will have reasonable
access to such records as are necessary for the calculation of the working
capital in connection with the Post- Closing Review.
2.3 GENERAL ESCROW.
(A) At the Closing, pursuant to an Escrow Agreement to be entered into by
the parties substantially in the form and substance of Exhibit 2.3, a portion of
the Merger Consideration as shall be equal in value to ONE MILLION FIVE HUNDRED
THOUSAND ($1,500,000) DOLLARS (the "Escrow Deposit") based upon the valuation
described in Section 3.1(a), below, shall be delivered by Buyer, on behalf of
the Shareholders, to CoreStates Bank, N.A. as escrow agent (the "Escrowee"). The
Principal Sellers shall be designated by the Shareholders as Shareholders'
Committee under the Escrow Agreement, to take any and all action, and to give
any and all notices, on behalf of the Shareholders under the Escrow Agreement.
Subject to the provisions of this Section 2.3, $1,000,000 (less any amounts
offset for claims pursuant to Section 2.3(a)(i) and (ii)) shall be released to
the Shareholders one (1) year following
4
<PAGE>
the Closing Date (the "General Indemnification Fund"). The balance of the Escrow
Deposit shall continue to be held solely to indemnify against Excess
Reimbursement Liabilities (as defined below) and shall be released to the
Shareholders three (3) years following the Closing Date. The Escrow Deposit
shall be held and disbursed by the Escrowee in accordance with the following:
(I) In the event that the Shareholders become obligated to remit IHS
Stock back to Buyer pursuant to the post-Closing adjustments set forth in
Section 2.2(b), the Escrowee shall release to Buyer that portion of the Escrow
Deposit as shall have a value equal to the amount by which the Merger
Consideration is so reduced.
(II) In the event that the Buyer becomes entitled to indemnification
pursuant to Section 12.2, the Escrowee shall release to Buyer that portion of
the Escrow Deposit as shall be equal in value to such indemnification.
(III) If no claim for indemnification on the part of Buyer remains
outstanding upon the expiration of one (1) year following the Closing Date, any
remaining General Indemnification Fund (less any amounts offset for claims
pursuant to Section 2.3(a)(i) and (ii)) shall be released to the Shareholders.
(IV) If any claim for indemnification on the part of Buyer does remain
outstanding upon the expiration of one (1) year following the Closing Date, then
any General Indemnification Fund (less any amounts offset for claims pursuant to
Section 2.3(a)(i) and (ii)) (including all accrued interest thereon) remaining
(after resolution of the outstanding claim and payment in respect thereof, if
any is owing, shall be made), shall be released to the Shareholders promptly
after resolution of such claim.
(V) If no claim for indemnification on the part of Buyer in connection
with Excess Reimbursement Liabilities (as defined below) remains outstanding
upon the expiration of three (3) years following the Closing Date, then any
remaining Escrow Deposit then held by the Escrowee shall first be used to pay
off any attorney's fees and expenses in connection with indemnification pursuant
to Section 12.2, below, properly chargeable, and then any remaining Escrow
Deposit shall be released to the Shareholders.
(VI) If any claim for indemnification on the part of Buyer in
connection with Excess Reimbursement Liabilities remains outstanding upon the
expiration of three (3) years following the Closing Date, then any Escrow
Deposit (including all accrued interest thereon) remaining (after resolution of
the outstanding claim and payment in respect thereof, if any is owing, shall be
made) shall first be used to pay off any attorney's fees and expenses in
connection with Excess Reimbursement Liabilities, properly chargeable, and then
any remaining Escrow Deposit shall be released to the Shareholders promptly
after resolution of such claim.
5
<PAGE>
(VII) The value of any IHS Stock to be distributed to Buyer from the
Escrow Deposit shall be calculated based upon the average closing NYSE price of
such stock for its thirty (30) business day period immediately preceding the
date of such distribution.
(B) The costs, fees and expenses of the Escrowee shall be borne equally
by Buyer, on the one hand, and the Shareholders, on the other hand.
2.4 ARIZONA LITIGATION AND ARIZONA ESCROW.
(A) At the Closing, pursuant to an Escrow Agreement to be entered into by
the parties substantially in the form and substance of Exhibit 2.4, a portion of
the Merger Consideration as shall be equal in value to EIGHT HUNDRED AND NINE
THOUSAND ($809,000) DOLLARS (the "Arizona Escrow Deposit") based upon the
valuation described in Section 3.1(a), below, shall be delivered by Buyer, on
behalf of the Shareholders, to Escrowee. The Principal Sellers shall be
designated by the Shareholders as Shareholders' Committee under the Escrow
Agreement, to take any and all action, and to give any and all notices, on
behalf of the Shareholders under such Escrow Agreement. The Arizona Escrow
Deposit shall be held and disbursed by the Escrowee in accordance with the
following:
(I) To the extent Buyer is able to collect any proceeds from Arcadia's
accounts receivable with respect to the matter currently in litigation in
Maricopa County, Arizona (the "Arizona Receivables"), the Buyer shall instruct
the Escrowee to distribute from the Arizona Escrow Deposit to the Shareholders
such portion which equals the amount of Arizona Receivables actually collected
by Buyer. Said distribution from the Arizona Escrow Deposit shall be paid first
in shares of IHS Stock (to the extent available) and then in cash, with the form
of such payment to be in the discretion of the Shareholders.
(II) Upon the expiration of eighteen (18) months following the Closing
Date, any remaining Arizona Escrow Deposit (including all accrued interest
thereon) (less any amounts previously distributed to the Shareholders pursuant
to Section 2.4(a)(i), above), shall be released to Buyer.
(III) The value of any IHS Stock to be distributed to Shareholders
from the Arizona Escrow Deposit shall be calculated based upon the average
closing NYSE price of such stock for its thirty (30) business day period
immediately preceding the date of such distribution.
(B) The costs, fees and expenses of the Escrowee shall be borne equally
by Buyer, on the one hand, and the Shareholders, on the other hand.
(C) Upon the expiration of eighteen (18) months following the Closing
Date and the release of any remaining Arizona Escrow Deposit to Buyer, then, in
such event, Buyer agrees to assign all of its rights and interests under and to
the Arizona Receivables to a liquidating trust for the benefit of the
Shareholders in order to facilitate the Shareholders' efforts with respect to
litigation concerning the Arizona Receivables (the "Arizona Litigation").
6
<PAGE>
(D) Principal Sellers shall have the exclusive right to direct the
collection efforts regarding the Arizona Receivables and the Arizona Litigation;
provided; Buyer will not incur any attorneys' fees, costs and expenses in excess
of $50,000 in connection with the Arizona Receivables and the Arizona
Litigation; and provided further Buyer shall only provide reasonable access to
Arcadia and its resources, including its employees.
2.5 ASSETS. As of the Closing Date, the consolidated assets of Arcadia (the
"Assets") will include its ownership interests in all of its current operating
subsidiaries, as well as all of the tangible and intangible assets necessary to
operate the businesses of Arcadia and its subsidiaries as presently constituted,
including, without limitation, all contract rights, leasehold interests, fixed
and moveable equipment, vehicles, furnishings, tangible personal property,
inventory and supplies (other than inventory, supplies, and other assets
disposed of in the ordinary course of business, consistent with prior practice),
goodwill, trade names, trademarks, all patient records, books and files,
Certificates of Need, Medicare and Medicaid provider agreements and numbers,
provider agreements with third party payors, investments in affiliate offices,
telephone numbers, and to the extent permitted by law, all permits, licenses and
other governmental approvals. The Assets of Arcadia as of the Closing Date shall
also include cash, accounts receivable, and prepaid expenses.
2.6 LIABILITIES. As of the Closing Date, Arcadia shall only have such
liabilities which (i) are reflected as a liability on the Estimated Closing Date
Balance Sheet in accordance with GAAP, and (ii) arise under those certain
contracts (the "Retained Contracts") set forth on Schedule 2.6, specifically
assumed by Buyer and assigned by the Principal Sellers to Buyer, with respect
to, and only with respect to, services to be rendered or goods to be supplied to
or benefits to be conferred upon Buyer solely after the Closing Date
(collectively, the "Assumed Liabilities"). Liabilities and obligations under
such Retained Contracts that have accrued, or the performance of which is due,
on or prior to the Closing, all liabilities and obligations under all other
Contracts (as defined below) or which are in payment or consideration for any
excluded assets, and any other claim, lawsuit, liability, obligation or debt of
any kind or nature whatsoever, whether absolute, accrued, due, direct or
indirect, contingent or liquidated, matured or unmatured, joint or several,
whether or not for a sum certain, whether for the payment of money or for the
performance or observance of any obligation or condition, and whether or not of
a type which would be reflected as a liability on a balance sheet in accordance
with GAAP, including, without limitation, (i) malpractice claims asserted by
patients or any other tort claims asserted, claims for breach of contract, or
any claims of any kind asserted by patients, former patients, employees or any
other party that are based on acts or omissions occurring on or before the
Closing Date to the extent not covered by insurance; (ii) amounts due or that
may become due to Medicare or Medicaid or any other health care reimbursement or
payment intermediary on account of Medicare cost report adjustments or other
payment adjustments attributable to any period on or prior to the Closing Date,
or any other form of Medicare or other health care reimbursement recapture,
adjustment or overpayment whatsoever, including fines and penalties, with
respect to any period on or prior to the Closing Date ("Excess Reimbursement
Liabilities"); (iii) any accounts payable or employment or other taxes; and (iv)
accrued but unpaid compensation or other benefits to any
7
<PAGE>
of Arcadia's or its subsidiaries' employees, agents, consultants or advisers,
including accrued vacation, shall remain the sole responsibility of the
Principal Sellers and shall be paid or performed on or prior to the Closing
Date, unless such liabilities shall have been properly accrued for on the
Estimated Closing Date Balance Sheet.
ARTICLE III: IHS STOCK
3.1 IHS STOCK. The entire Merger Consideration equal to EIGHTEEN MILLION
SEVEN HUNDRED THOUSAND ($18,700,000.00) DOLLARS shall be payable by means of the
delivery to the Shareholders of newly issued shares of the Common Stock, par
value $.001, of Buyer (the "IHS Stock") in accordance with the following:
(A) SHARE VALUE. The number of shares of IHS Stock issuable at Closing
(the "Closing Date Share Count") pursuant to Section 2.1(b) shall be calculated
based upon a price per share of such stock equal to the average closing NYSE
price of such stock for the thirty (30) trading day period immediately preceding
the date which is two (2) trading days before the Closing Date.
(B) REGISTRATION RIGHTS. Buyer will use its best efforts to cause to be
prepared, filed and declared effective by the Securities and Exchange Commission
(the "Commission") within ninety (90) days following the Closing Date, a
registration statement for the registration under the Securities Act of 1933
(the "Securities Act") of the IHS Stock issued to Shareholders pursuant to this
Agreement, including the shares issuable under Section 3.1(c) in respect of any
re-calculation of the Closing Date Share Count, and Buyer shall maintain the
effectiveness of such registration statement for a period of one (1) year
following the date on which it becomes effective (the "Registration Date"), or
until no Shareholder shall own any of the IHS Stock issued pursuant to this
Agreement, whichever shall occur first, in each case except to the extent that
an exemption from registration may be available.
(C) SHARE ADJUSTMENT. Upon registration of the IHS Stock as provided
above, the number of shares deliverable as part of the Merger Consideration
under Section 2.1(a) hereof shall be re-calculated based upon the average
closing NYSE price of IHS Stock for the 30- trading day period immediately
preceding the Registration Date. If the number of shares as recalculated under
this subsection (the "Adjusted Share Count") exceeds the Closing Date Share
Count, the Buyer promptly shall deliver over to the Shareholders an additional
number of shares of IHS Stock as shall be equal to the amount of such excess,
and such additional shares shall be included in the aforementioned registration
statement by means of a post-effective amendment thereto. If the Closing Date
Share Count exceeds the Adjusted Share Count, the Shareholders promptly will
return to the Buyer that number of shares of IHS Stock as shall be equal to such
excess.
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(D) REGISTRATION EXPENSES. Shareholders shall not be responsible for, and
Buyer shall bear, all of the reasonable expenses of Buyer related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. Buyer, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs or expenses arising out of Shareholder's or any transferee's failure to
comply with its obligations under this Article III.
(E) RESALE LIMITATIONS. All resales of IHS Stock issued pursuant to this
Agreement shall be effected solely through Smith Barney Inc., as broker, and
sales by the Shareholders and, if any, their transferees of such shares, shall
not at any time, in the aggregate, exceed One Hundred Thousand (100,000) shares
during any thirty (30) trading day period.
(F) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Shareholders with respect to the IHS Stock as provided in
this Section 3.1, Buyer covenants and agrees as follows:
(I) At Buyer's expense, Buyer will keep the registration and
qualification under this Section 3.1 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for so long as
the Shareholders own any of the IHS Stock except to the extent that an exemption
from registration may be available. Buyer will immediately notify the
Shareholders, at any time when a prospectus relating to a registration statement
under this Section 3.1 is required to be delivered under the Securities Act, of
the happening of any event known to Buyer as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(II) Buyer shall furnish the Shareholders with such number of
prospectuses as shall reasonably be requested.
(III) Buyer shall take all necessary action which may be required in
qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Shareholders, provided that Buyer shall not be
obligated to qualify as a foreign corporation or dealer to do business under the
laws of any such jurisdiction.
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(IV) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 3.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Buyer shall indemnify the Shareholders of IHS Stock to be sold
pursuant to the registration statement, their successors and assigns, and each
person, if any, who controls such Shareholders within the meaning of ss.15 of
the Securities Act or ss.20(a) of the Securities Exchange Act of 1934 ("Exchange
Act"), against all loss, claim, damage expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute, common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in such registration statement executed by Buyer or
based upon written information furnished by Buyer filed in any jurisdiction in
order to qualify IHS Stock under the securities laws thereof or filed with the
Commission, any state securities commission or agency, NYSE or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to Buyer by any of the
Shareholders expressly for use in such registration statement, any amendment or
supplement thereto or any application, as the case may be. If any action is
brought against the Shareholders or any controlling person of the Shareholders
in respect of which indemnity may be sought against Buyer pursuant to this
subsection 3.1(f)(iv), the Shareholders or such controlling person shall within
thirty (30) days after the receipt thereby of a summons or complaint, notify
Buyer in writing of the institution of such action and Buyer shall assume the
defense of such actions, including the employment and payment of fees and
expenses of counsel (reasonably satisfactory to the Shareholders or such
controlling person). The Shareholders or such controlling person shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Shareholders or such
controlling person unless (A) the employment of such counsel shall have been
authorized in writing by Buyer in connection with the defense of such action, or
(B) Buyer shall not have employed counsel to have charge of the defense of such
action, or (C) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to Buyer (in which case, Buyer shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the Shareholders and/or such controlling person
shall be borne by Buyer. Except as expressly provided in the previous sentence,
in the event that Buyer shall not previously have assumed the defenses of any
such action or claim, Buyer shall not thereafter be liable to the Shareholders
or such controlling person in investigating, preparing or defending any such
action or claim. Buyer agrees promptly to notify the Shareholders of the
commencement or any litigation or proceedings against Buyer or any of its
officers, directors or controlling persons in connection with the resale of IHS
Stock or in connection with such registration statement.
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(V) The Shareholders of IHS Stock to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify Buyer, its officers and directors and each person, if
any, who controls Buyer within the meaning of ss.15 of the Securities Act or
ss.20(a) of the Exchange Act against all loss, claim, damage, or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or any other statute, common
law or otherwise, arising from information furnished by or on behalf of such
Shareholders, or their successors or assigns in writing for specific inclusion
in such registration statement.
(G) NOTICE OF SALE. If the Shareholders desire to transfer all or any
portion of IHS Stock, the Shareholders will deliver written notice to Buyer,
describing in reasonable detail their intention to effect the transfer and the
manner of the proposed transfer. If the transfer is to be pursuant to an
effective registration statement as provided herein, the Shareholders will sell
the IHS Stock in compliance with the disclosure therein and discontinue any
offers and sales thereunder upon notice from Buyer that the registration
statement relating to the IHS Stock being transferred is not "current" until
Buyer gives further notice that offers and sales may be recommenced. In the
event of any such notice from Buyer, Buyer agrees to file expeditiously such
amendments to the registration statement as may be necessary to bring it current
during the period specified in Section 3.1(b) and to give prompt notice to the
Shareholders when the registration statement has again become current. If the
Shareholders deliver to Buyer an opinion of counsel reasonably acceptable to
Buyer and its counsel and to the effect that the proposed transfer of IHS Stock
may be made without registration under the Securities Act, the Shareholders,
will be entitled to transfer IHS Stock in accordance with the terms of the
notice and opinion of their counsel.
(H) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Buyer to take any action pursuant to this Article III that
the Shareholders shall furnish to the Buyer such information regarding
themselves, the IHS Stock held by them, and the intended method of disposition
of such securities as shall be required to effect the registration of their IHS
Stock. In that connection, each transferee of any Shareholder shall be required
to represent to the Buyer that all such information which is given is both
complete and accurate in all material respects. Such Shareholders shall deliver
to the Buyer a statement in writing from the beneficial owners of such
securities that they bona fide intend to sell, transfer or otherwise dispose of
such securities. Each transferee will, severally, promptly notify IHS at any
time when a prospectus relating to a registration statement covering such
transferee's shares under this Section 3.1 is required to be delivered under the
Securities Act, of the happening of any event known to such transferee as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the statements as then existing.
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(I) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be issued
hereunder will be newly issued shares of Buyer. The Shareholders represent and
warrant to Buyer that the IHS Stock being issued hereunder is being acquired,
and will be acquired, by the Shareholders for investment for their own accounts
and not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act or the applicable state securities law;
the Shareholders acknowledge that the IHS Stock constitutes restricted
securities under Rule 144 promulgated by the Commission pursuant to the
Securities Act, and may have to be held indefinitely, and the Shareholders agree
that no shares of IHS Stock may be sold, transferred, assigned, pledged or
otherwise disposed of except pursuant to an effective registration statement or
an exemption from registration under the Securities Act, the rules and
regulations thereunder, and under all applicable state securities laws. The
Shareholders have the knowledge and experience in financial and business
matters, are capable of evaluating the merits and risks of the investment, and
are able to bear the economic risk of such investment. The Shareholders have had
the opportunity to make inquiries of and obtain from representatives and
employees of Buyer such other information about Buyer as it deems necessary in
connection with such investment.
(J) LEGEND. It is understood that, prior to sale of any shares of IHS
Stock pursuant to an effective registration pursuant to subsection (b) above,
the certificates evidencing such shares of IHS Stock shall bear the following
(or a similar) legend (in addition to any legends which may be required in the
opinion of IHS's counsel by the applicable securities laws of any state), and
upon sale of such shares pursuant to such an effective registration, new
certificates shall be issued for the shares sold without such legends except as
otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES
ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT.
(K) CERTAIN TRANSFEREES. Prior to the effective date of registration of
the IHS Stock, no transferee shall transfer any shares of IHS Stock to any
person or entity unless such transferee shall have agreed in writing to be bound
by the provisions applicable to the Shareholders under this Article III.
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ARTICLE IV: THE CLOSING
4.1 TIME AND PLACE OF CLOSING. The Closing under this Agreement (the
"Closing") shall be held as promptly as practicable, but not more than seven (7)
business days following the satisfaction of all conditions precedent specified
in this Agreement, including receipt of all necessary regulatory approvals,
unless duly waived by the party entitled to satisfaction thereof. The Closing
shall take place at the offices of the Buyer, 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." Subject to the conditions set forth
herein, at the Closing (a) the Shareholders shall deliver for cancellation one
or more stock certificates representing the shares of Arcadia Stock duly
endorsed, or accompanied by one or more stock powers duly endorsed, and (b)
Buyer, as agent for Arcadia, shall, subject to Sections 2.3 and 2.4, deliver to
the Shareholders the Merger Consideration pursuant to Section 2.1(a) hereof.
4.2 FILINGS AT CLOSING. At the Closing Date, Buyer and Arcadia shall cause
the Plan of Merger or such other certificate as required to be filed in
accordance with the Michigan Business Corporation Act and Delaware General
Corporation Law, and each of the Shareholders, Buyer and Arcadia shall take any
and all lawful actions to cause the Merger to become effective.
4.3 EFFECTIVE TIME. Subject to the terms and conditions set forth herein,
including receipt of all required regulatory approvals, the Merger shall become
effective at the time the Plan of Merger or such other certificate as required
by the Michigan Secretary of State and the Delaware Secretary of State is made
effective (the "Effective Time of Merger").
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SELLERS AND ARCADIA
Arcadia and the Principal Sellers hereby jointly and severally represent
and warrant to Buyer and Newco as follows (it being understood that, for the
purposes of this Article V, "Arcadia" shall be deemed to refer collectively to
Arcadia and any subsidiaries listed on Schedule 5.23):
5.1 ORGANIZATION AND STANDING OF ARCADIA. Arcadia is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan. Copies of Arcadia's Articles of Incorporation and By-Laws, and all
amendments thereof to date, have been delivered to Buyer and are complete and
correct. Arcadia has the power and authority to own the properties and assets
now owned by it and to conduct the businesses presently being conducted by it.
Arcadia is qualified to do business as a foreign corporation in each state where
the ownership of its assets or the conduct of its businesses make such
qualification necessary.
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5.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement including all Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated hereby and thereby
("Transaction Documents") by Principal Sellers and Arcadia, nor the performance
by Principal Sellers and Arcadia of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default under (i) the
Articles of Incorporation or By-Laws of Arcadia; or (ii) any applicable law,
rule, judgment, order, writ, injunction, or decree of any court, currently in
effect, provided that the consents set forth in Schedule 5.3 are obtained prior
to the Closing; or (iii) any applicable rule or regulation of any administrative
agency or other governmental authority currently in effect; or (iv) any
agreement, indenture, contract or instrument to which Arcadia is now a party or
by which any of the assets of Arcadia is bound.
5.3 CONSENTS. Except as set forth in Schedule 5.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement or any of the
Transaction Documents by any of the Principal Sellers or Arcadia.
5.4 ARCADIA STOCK. Schedule 5.4 sets forth a complete list and description
of the authorized capital stock of Arcadia, the number of shares issued and
outstanding of each class or series of such capital stock, and the identity of
each Shareholder of Arcadia, in each case indicating the class and number of
shares held. No shares of Arcadia Stock are held in the treasury of Arcadia. The
Shareholders are the record owners of all of Arcadia Stock and all of such stock
is duly authorized, validly issued, and fully paid and non-assessable. Arcadia
will, as of the Closing Date, be the sole shareholder of Grayrose. On the
Closing Date, there will be no preemptive or first refusal rights to purchase or
otherwise acquire shares of capital stock of Arcadia pursuant to any provision
of law or the Articles of Incorporation or By-Laws of Arcadia or by agreement or
otherwise. On the Closing Date there shall not be outstanding any warrants,
options, or other rights to subscribe for or purchase from Arcadia any shares of
capital stock of Arcadia, nor shall there be outstanding any securities
convertible into or exchangeable for such shares.
5.5 ASSETS. As of the Closing, the consolidated Assets of Arcadia will
include all of the tangible and intangible assets necessary to operate the
businesses of Arcadia as presently constituted, including, without limitation,
cash and accounts receivable; provided, however, that Assets shall not include
inventory, supplies and other assets disposed of in the ordinary course of
business, consistent with the prior practice of Arcadia's businesses. The
quantities of inventory items included in the Assets are reasonable in light of
the present and anticipated volume of Arcadia's businesses and the inventory is
good, usable, merchantable, and salable in the ordinary course of Arcadia's
businesses, in each case, as determined by Arcadia in good faith and consistent
with past practice. The accounts receivable of Arcadia are reflected properly on
their books and records in accordance with GAAP, and have been billed or
invoiced in the ordinary course of business consistent with past practice. The
Assets are not subject to any liens or encumbrances, except as set forth on
Schedule 5.5.
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5.6 TRADEMARKS. Schedule 5.6 sets forth a complete and accurate list of all
trademarks, service marks, or applications for any of the same, copyrights, and
other items of intellectual property that are owned, possessed or used by
Arcadia. There are no claims or proceedings pending or, to the knowledge of
Arcadia, overtly threatened against Arcadia asserting that the use of any of the
aforementioned properties or rights infringes the rights of any other person,
and, to the knowledge of any of the Principal Sellers and Arcadia, Arcadia is
not infringing on the intellectual property rights of any other person.
5.7 CONTRACTS. Schedule 5.7 sets forth a complete and correct list of all
agreements, contracts and commitments of the following type to which Arcadia is
a party or by which Arcadia or any of Arcadia's assets is bound and as to which
Arcadia has any outstanding material obligations as of the date hereof (the
"Contracts"):
(A) each contract or agreement for the employment or retention of, or
collective bargaining, severance or termination agreement with, any director,
officer, employee, consultant, agent or group of employees of Arcadia;
(B) each profit sharing, thrift, bonus, incentive, deferred compensation,
stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other similar plan, agreement or arrangement;
(C) each agreement or arrangement for the sale of Arcadia's assets,
properties or rights outside the ordinary course of business (by sale of assets,
sale of stock, merger or otherwise) which is currently in effect;
(D) each contract currently in effect which contains any provisions
requiring Arcadia to indemnify or act for, or guarantee the obligation of, any
other person or entity;
(E) each agreement restricting Arcadia from conducting business anywhere
in the world;
(F) each partnership or joint venture contract or similar arrangement or
agreement which is likely to involve a sharing of profits or future payments
with respect to Arcadia's businesses or any portion thereof;
(G) each licensing, distributor, dealer, affiliate, sales or
manufacturer's representative, agency or other similar contract, arrangement or
commitment;
(H) each contract under which Arcadia performs home health care services,
medical staffing or clerical staffing services which involves consideration of
at least $15,000;
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(I) each contract under which Grayrose performs clerical and light
industrial staffing services which involves consideration of at least $15,000;
or
(J) any other agreement not made in the ordinary and normal course of
business which involves consideration of more than $50,000.
Except as indicated on Schedule 5.7, each of the Contracts was entered into
and requires performance in the ordinary course of business and is in full force
and effect. Arcadia is not in material default under any Contract and there has
not been asserted, either by or against Arcadia under any Contract, any written
notice of default, set-off or claim of default. To the knowledge of Arcadia, the
parties to the Contracts other than Arcadia are not in material 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 material default or material breach under any Contract. All amounts
payable under the Contracts are, or will at the Closing Date, be on a current
basis or properly accrued for on the Estimated Closing Date Balance Sheet in
accordance with GAAP.
Notwithstanding the foregoing, Buyer acknowledges that it has been informed
by Arcadia that Arcadia has agreements with certain of its affiliates in
geographic areas in which Buyer already is conducting business. Buyer agrees to
assume any and all liability and be responsible for any claim or loss which may
occur as a result of the violation after the Closing Date by Buyer or Arcadia,
or any of their respective subsidiaries, of any exclusive territorial rights
contained in any such affiliate agreements, and that Arcadia shall have no
obligation to Buyer nor be deemed in breach or violation of any representation,
warranty or covenant hereunder or otherwise under this Agreement as a direct
result of such marketplace overlap.
5.8 FINANCIAL STATEMENTS.
(A) The audited consolidated balance sheet of Arcadia and Grayrose as of
June 30, 1995 and the draft audited consolidated balance sheet of Arcadia and
Grayrose as of June 30, 1996, and the related statements of operations for the
years then ended, annexed hereto as Schedule 5.8(a) (the "Audited Financial
Statements"), present fairly in all material respects the financial condition
and results of operations of Arcadia and Grayrose at and for the period therein
specified and were prepared in accordance with GAAP.
(B) The unaudited consolidated monthly balance sheets of Arcadia and
Grayrose for each calendar month since June 30, 1996 and the related statements
of operations for the periods then ended, annexed hereto as Schedule 5.8(b),
present fairly in all material respects the financial condition and results of
operations of Arcadia and Grayrose at and for the periods therein specified and
were prepared in accordance with GAAP.
(C) The unaudited consolidated balance sheets of Arcadia and Grayrose as
of March 31, 1997 (the "March 31 Balance Sheets"), and the related statements of
operations for the nine-month period then ended, annexed hereto as Schedule
5.8(c), present fairly in all material respects the financial condition and
results of operations of Arcadia and Grayrose at and for the periods therein
specified and were prepared in accordance with GAAP.
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(D) Except as set forth on Schedule 5.8(d) or as expressly set forth on
the March 31 Balance Sheets, Arcadia and Grayrose have no material non-recurring
or extraordinary income or expense reduction not identified therein or 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 whether
or not required by GAAP to be reflected in a corporate balance sheet and/or the
notes thereto.
5.9 MATERIAL CHANGES. Except as noted on Schedule 5.9, between the date of
the March 31 Balance Sheets 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 Arcadia or any damage or destruction of any
of Arcadia's Assets or their places of business by fire or other casualty,
whether or not covered by insurance, and during such period of time Arcadia has
conducted its businesses only in the ordinary and normal course. Principal
Sellers have identified and communicated to Buyer all material information with
respect to any fact or condition that is reasonably likely to adversely affect
the future prospects (financial or otherwise) of Arcadia.
5.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 5.10 sets forth a
description of (a) all licenses and other governmental or other regulatory
permits, authorizations or approvals required for the operation of Arcadia's
businesses that are now in effect, including all certificates of occupancy
issued with respect to Arcadia's businesses; (b) all Certificates of Need issued
with respect to Arcadia's and its subsidiaries that are now in effect; and (c)
each other license, permit, or other authorization that is necessary for the
operation of Arcadia's businesses (a "License" and collectively, the
"Licenses"). The Licenses constitute all of the governmental, quasi-governmental
and regulatory licenses, permits and authorizations necessary to the operation
of the businesses of Arcadia and its subsidiaries as they are operated on the
date hereof. Arcadia has delivered to Buyer copies of all of the Licenses.
Arcadia and its subsidiaries own, possess or otherwise have the exclusive legal
right to use the Licenses, free and clear of all liens, pledges, claims or other
encumbrances of any nature whatsoever. Arcadia is not in material default under
any such License, and Arcadia and its subsidiaries have not received any notice
of any material default or any other material claim or proceeding relating to
any such License. Each License is in full force and effect, and neither Arcadia
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 Arcadia or any of its 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 5.10; or (b) subject to any
investigation, cancellation, impairment, limitation, order, complaint,
proceeding, or suspension nor is such threatened or pending. No conditions not
generally applicable to home health agencies requiring changes in the operation
of Arcadia or any of its subsidiaries have been imposed, formally or informally,
by any License issuer during the past twenty-four (24) months.
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No Principal Seller, director or officer, employee or former employee of
Arcadia, or any person, firm or corporation other than Arcadia owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part in any of the Licenses.
5.11 TITLE, CONDITION OF PERSONAL PROPERTY.
(A) Except for the security interests listed and described on Schedule
5.11(a), Arcadia has good and marketable title to, or valid and subsisting
leasehold interests in, all of the personal property located at their places of
business or used in connection with the operation of their businesses, subject
to no mortgage, security interest, pledge, lien, claim, encumbrance or charge,
or restraint on transfer whatsoever other than Permitted Liens (as defined
below). No other person has any right to the use or possession of any of such
property which is owned and, except as set forth on Schedule 5.11(a), no
currently effective financing statement with respect to such personal property
has been filed under the Uniform Commercial Code in any jurisdiction, and
Arcadia has not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
All of such personal property comprising equipment, improvements, furniture and
other tangible personal property in use by Arcadia, whether owned or leased, is
in good operating condition and repair, subject to normal wear and tear, and is
sufficient to enable Arcadia to operate its businesses in a manner consistent
with their operation during the immediately preceding twelve (12) months.
(B) Except as set forth on Schedule 5.11(b), no tangible personal
property used by Arcadia in connection with the operation of its businesses is
subject to a lease, conditional sale, security interest or similar arrangement.
Arcadia has delivered to Buyer a complete and correct copy of each of the leases
and other agreements listed on Schedule 5.11(b). All of said personal property
leases are valid, binding and enforceable in accordance with their respective
terms and are in full force and effect. Arcadia is not in material default under
such leases and there has not been asserted, either by or against Arcadia under
any of such leases, any written notice of default, set-off, or claim of default.
To the best knowledge of Principal Sellers and Arcadia, the parties to such
leases other than Arcadia are not in default of their respective obligations
under any of such leases, and there has not occurred any event which with the
passage of time or giving of notice (or both) would constitute such a default or
breach under any of such leases.
(C) "Permitted Liens" shall mean:
(I) carriers', warehouseman's, mechanics, materialmen's, repairmen's
or other like liens arising in the ordinary course of business which are (i) not
overdue for a period of more than 30 days or (ii) which are being contested in
good faith and by appropriate proceedings, provided that if such contest shall
continue for more than 30 days, the amount thereof shall be bonded or properly
reserved against at the end of such 30-day period;
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(II) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of like nature incurred in
the ordinary course of business;
(III) rights of lessors under leases set forth on Schedule 5.11(b);
(IV) pledges or deposits in connection with worker's compensation,
unemployment insurance, and other social security legislation; and
(V) rights of creditors pursuant to Schedule 5.5.
5.12 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.12, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of Arcadia, overtly threatened
against or affecting Arcadia, or Arcadia's ability to consummate the
transactions contemplated herein, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind.
5.13 EMPLOYEES. Arcadia has previously furnished Buyer with a payroll
listing dated May 31, 1997 indicating the names, positions, and compensation of
each of their employees. All of such information is materially correct as of
such date and there has been no material change since May 31, 1997. To the
knowledge of Principal Sellers and Arcadia, none of the employees, while in the
employ of Arcadia, has ever had his or her professional license or certification
denied, suspended, revoked, terminated, or voluntarily relinquished under threat
of disciplinary action, or has ever been restricted in any way from performing
the duties he or she is to provide for Arcadia, and there is no proceeding
pending, or threatened, pursuant to which any of the foregoing may occur.
5.14 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PRACTICES, ETC.
During the two years prior to the Closing Date, there has been no material
adverse change in the relationship between Arcadia and its employees or
affiliates nor any strike or material labor disturbance by such employees
affecting Arcadia's businesses and, to the knowledge of Arcadia, there is no
indication that such a change, strike or labor disturbance is likely. Arcadia's
employees or affiliates are not represented by any labor union or similar
organization and Arcadia has no reason to believe that there are pending or
threatened any activities, the purpose of which is to achieve such
representation, of all or some of Arcadia's employees or affiliates. Except as
set forth on Schedule 5.7 or Schedule 5.15(b), Arcadia has no collective
bargaining or other labor contracts, employment contracts, pension,
profit-sharing, retirement, insurance, bonus, deferred compensation or other
employee benefit plans, agreements or arrangements with respect to their
employees. Arcadia is in material compliance with the requirements prescribed by
all Federal, state and local statutes, orders and governmental rules and
regulations ("Government Requirements") applicable to any of the employee
benefit plans, agreements and arrangements identified on Schedule 5.7 and
Schedule 5.15(b), including, without limitation, the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA"), the Immigration
Reform and Control Act, the Worker Adjustment and Retraining Notification Act of
1988, any such Government Requirements respecting employment determination,
equal opportunity, affirmative action, employee privacy, wrongful or unlawful
termination, workers' compensation, occupational safety and health requirements,
labor management relations and unemployment insurance, or related matters and
there are no threatened or pending claims relating thereto, in each case. Except
as set forth on Schedule 5.7(a), in the event of termination of employment of an
employee of Arcadia, Arcadia will not, after the Closing, pursuant to any
agreement with any Shareholder or Arcadia or by reason of any representation
made or plan adopted by any Shareholder or Arcadia prior to the Closing, be
liable to any employee of Arcadia for so-called "severance pay", parachute
payments or any other similar payments or benefits, including, without
limitation, post- employment healthcare (other than pursuant to the continuation
health care provisions of Section 4980B of the Internal Revenue Code of 1986, as
amended or Section 601 through 608 of ERISA ("COBRA")) or insurance benefits,
and accrued vacation and sick days or properly accrued for on the Estimated
Closing Date Balance Sheet in accordance with GAAP.
5.15 ERISA.
(A) Arcadia does not maintain or make contributions to and have not at
any time in the past maintained or made contributions to, any employee benefit
plan which is subject to the minimum funding standards of ERISA. Arcadia does
not now maintain or make contributions to, and has not at any time in the past
maintained or made contributions to, any multi-employer plan subject to the
terms of the Multi-employer Pension Plan Amendment Act of 1980 (the
"Multi-employer Act").
(B) Schedule 5.15(b) sets forth each severance agreement, and each plan,
agreement, arrangement or plan, bonus plan, deferred compensation agreement,
employee pension, profit sharing, savings or retirement plan, group life,
health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, any commitment arising
under severance, holiday, vacation, Christmas or other bonus plans (including,
but not limited to, "employee benefit plans", as defined in Section 3(3) of
ERISA maintained by Arcadia for any employees of Arcadia, or with respect to
which Arcadia has liability with respect to any employees of Arcadia, or make or
have an obligation to make contributions on behalf of employees of Arcadia
("Plans").
(C) Schedule 5.15(c) identifies all employees of Arcadia on leave of
absence eligible to receive health benefits, as required by COBRA. Notice of the
availability of COBRA coverage has been provided to all employees of Arcadia on
leave of absence entitled thereto, and all persons electing such coverage are
being (or have been, if applicable) provided such coverage.
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5.16 INSURANCE AND SURETY AGREEMENTS. Schedule 5.16 contains a true and
correct list of: (a) all policies of fire, liability and other forms of
insurance held or owned by Arcadia (including but not limited to medical
malpractice 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 Arcadia, including a brief description of the
character of the bond or agreement and the name of the surety or indemnifying
party. Schedule 5.16 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 and of any claims made thereunder during the past two years.
Such policies are owned by and payable solely to Arcadia, and said policies or
renewals or replacements thereof will be outstanding and duly in force at the
Closing Date. All insurance policies listed on Schedule 5.16 are in full force
and effect, all premiums due on or before the Closing Date have been or will be
paid, financed or accrued on or before the Closing Date, Arcadia has not been
advised by any of their insurance carriers of an intention to terminate or
modify any such policies other than under circumstances where Arcadia has
received a commitment for a replacement policy, nor has Arcadia failed to comply
with any of the material conditions contained in any such policies.
5.17 RELATIONSHIPS. Except as disclosed on Schedule 5.17 hereto, no
Shareholder and no controlling Principal Seller, partner or any affiliate of any
Shareholder has, or at any time within the last two (2) years has had, a
material ownership interest in any business, corporate or otherwise, that is a
party to, or in any property that is the subject of, business relationships or
arrangements of any kind relating to the operation of Arcadia or its businesses.
5.18 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.18, since
the date of the March 31 Balance Sheets, Arcadia has not, and from the date of
this Agreement through the Closing Date Arcadia will not have:
(A) except for the sale of its joint venture interest in C.R.K. Computer
Services ("C.R.K.") (provided, in such event, the proceeds of such sale of
C.R.K. will be included in the working capital of Arcadia), sold, assigned or
transferred any of its assets or properties, other than in the ordinary course
of business;
(B) mortgaged, pledged or subjected to any lien, pledge, mortgage,
security interest, conditional sales contract or other encumbrance of any nature
whatsoever, other than a Permitted Lien, any of Arcadia's assets;
(C) made or suffered any termination of any home health care services
contract or any medical, clerical and light industrial staffing services
contract;
(D) made or suffered any amendment or termination of any other contract,
commitment, instrument or agreement involving consideration or liability in
excess of $25,000;
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(E) except in the ordinary course of business consistent with past
practices, or otherwise as necessary to comply with any applicable minimum wage
law, increased the salaries or other compensation of any of their employees, or
made any increase in, or any additions to, other benefits to which any of such
employees may be entitled;
(F) failed to pay or discharge when due any liabilities, the failure to
pay or discharge which has caused or will cause any actual damage or give rise
to the risk of a loss to Arcadia;
(G) changed any of the accounting principles followed by Arcadia or the
methods of applying such principles;
(H) except for the acquisition of two agencies located in Grand Rapids,
Michigan and Lansing, Michigan, entered into any transaction other than in the
ordinary course of business involving consideration in excess of $50,000;
(I) dissolved, merged or entered into a share exchange with or into any
other entity;
(J) entered into any contract or agreement with union or other collective
bargaining representative representing any employees or affiliates without the
prior written consent of Buyer, which consent shall not be unreasonably
withheld;
(K) made any change to its by-laws or articles of incorporation;
(L) failed to maintain its businesses in substantially the same state of
repair, order and condition as on the date hereof, reasonable wear and tear or
loss by casualty excepted;
(M) failed to maintain in full force and effect all Licenses currently in
effect with respect to its businesses unless such License is no longer necessary
for the operation of Arcadia;
(N) failed to maintain in full force and effect the insurance policies
and binders currently in effect, or the replacements thereof, including without
limitation those listed on Schedule 5.16;
(O) failed to preserve intact the present business organizations of
Arcadia; failed to keep available the services of Arcadia's present employees,
affiliates and agents necessary to the proper functioning of the businesses of
Arcadia; and failed to maintain Arcadia's relations and goodwill with suppliers,
employees, affiliates, affiliated medical personnel and any others having
business relating to Arcadia and where such relationships are necessary to the
proper functioning of the businesses of Arcadia;
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(P) failed to maintain all of the books and records in accordance with
their past practices;
(Q) failed to comply in all respects with all provisions of the Contracts
listed in Schedule 5.7 and with any other material agreements that Arcadia has
entered into in the ordinary course of business since the March 31 Balance
Sheets, and failed to comply in all respects with the provisions of all material
laws, rules and regulations applicable to Arcadia's businesses;
(R) failed to pay when due, all taxes, assessments and charges or levies
imposed upon them or on any of their properties for which they have been
required to be withheld or paid over;
(S) failed to promptly advise Buyer in writing of the threat or
commencement against Arcadia of any claim, action, suit or proceeding,
arbitration or investigation or any other event that would materially adversely
affect the operations, properties, assets or prospects of Arcadia; and
(T) failed to notify the Buyer in writing of any event involving Arcadia
which has had or may be reasonably expected to have a material adverse effect on
the business or financial condition of Arcadia or may involve the loss of
contracts with any of Arcadia's customers.
5.19 COMPLIANCE WITH LAWS. Arcadia is in compliance with all Governmental
Requirements (as defined herein). Except for notices of non-compliance as to
which Arcadia has taken corrective action acceptable to the applicable
governmental agency, and as set forth in Schedule 5.19, Arcadia has not, within
the period of twenty-four months preceding the date of this Agreement, received
any written notice that Arcadia or the Assets fail to comply in any material
respect with any applicable Federal, state, local or other governmental laws or
ordinances, or any applicable order, rule or regulation of any Federal, state,
local or other governmental agency having jurisdiction over their businesses
("Governmental Requirements"). Arcadia shall report to Buyer, within five (5)
business days after receipt thereof, any written notices that Arcadia is not in
compliance in any material respect with any of the foregoing.
5.20 FINDERS. No broker or finder has acted for the Shareholders or Arcadia
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
in respect thereof based in any way on agreements, understandings or
arrangements with the Shareholders or Arcadia.
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5.21 TAX RETURNS.
(A) Except as set forth in Schedule 5.21, (i) all Tax (as defined below)
returns, statements, reports and forms or extensions with respect thereto
required to be filed with any Federal, state, local or other governmental
department or court or other authority having jurisdiction over it
("Governmental Authority") on or before the Closing Date by or on behalf of
Arcadia (collectively, the "Tax Returns"), have been or will be timely filed on
or before the Closing Date in accordance in all materials respects with all
applicable Governmental Requirements; and (ii) Arcadia has timely paid all Taxes
payable by them.
(B) For purposes of this Agreement, "Tax" means any net income, gross
income, sales, use, franchise, personal, employment, or real property tax.
5.22 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery of
this Agreement, or any of Arcadia's Transaction Documents, does not, and the
consummation of the transactions contemplated hereby or thereby will not, create
any liens or other encumbrances on any of Arcadia's assets in favor of third
parties.
5.23 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.23 sets forth a complete
list of all subsidiaries, joint ventures and partnerships in which Arcadia is a
record or beneficial owner. All of the issued and outstanding capital stock of
the subsidiaries listed on Schedule 5.23 hereto is owned of record or
beneficially by Arcadia or by one of the listed subsidiaries on Schedule 5.23.
5.24 NO UNTRUE STATEMENT. None of the representations and warranties made
pursuant to this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary, in light of the circumstance under
which it was made, in order to make any such representation not misleading in
any material respect.
5.25 MEDICARE AND MEDICAID PROGRAMS. Arcadia is qualified for participation
in the Medicare and Medicaid programs. Except as reflected on Schedule 5.25, (a)
no Principal Seller nor Arcadia has received any notice of recoupment with
respect to Arcadia's operations from the Medicare or Medicaid programs, or any
other third party reimbursement source, (b) there is no basis for the assertion
after the Closing Date of any such recoupment claim against Buyer which arose
out of any transactions on the part of Arcadia prior to the Closing or against
any Principal Seller for which Buyer will be liable, and (c) to the knowledge of
Principal Sellers and Arcadia, no Medicare and Medicaid investigation, survey or
audit is pending, threatened or imminent with respect to the operation of
Arcadia prior to the Closing.
5.26 LEASEHOLD INTERESTS. Schedule 5.26 hereto sets forth a complete and
correct list of all leases pursuant to which Arcadia or any of its subsidiaries
leases real property. Each of Arcadia and its 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. Arcadia has
provided access to the Buyer to complete and correct copies of the leases
identified in Schedule 5.26.
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5.27 POWER AND AUTHORITY. Arcadia and Principal Sellers have all requisite
power and authority to execute, deliver and perform this Agreement, and as of
the Closing, Arcadia and Principal Sellers will have all requisite power and
authority to execute and deliver the Transaction Documents required to be
delivered by each party to the Buyer at the Closing.
5.28 BINDING EFFECT. This Agreement and all Transaction Documents executed
by Arcadia and Principal Sellers constitute the legal, valid and binding
obligations of such party, enforceable against such party in accordance with
their respective terms.
5.29 QUESTIONNAIRES. The health care law questionnaire heretofore delivered
to Arcadia by Buyer (the "Questionnaire") will be attached hereto as Exhibit
5.29 and will as of the Closing Date have been fully and accurately completed
and will not contain any material misstatement of any fact and will not omit any
fact that would have to be stated in order not to render any response to such
questionnaire materially misleading.
5.30 QUESTIONABLE PAYMENTS. Arcadia nor any shareholder, director, officer,
controlling person or employee of Arcadia, and no affiliate of Arcadia, (a) has
used any corporate funds of Arcadia to make any illegal or unlawful payment to
any officer, employee, representative, agent of any government, or to any
political party or official thereof, including, without limitation, any of same
that would violate the Foreign Corrupt Practices Act of 1977, as amended; or (b)
has made or received any illegal payment, bribe, kickback, political
contribution or other similar questionable payment for any referrals or
recommendations or otherwise in connection with the operation of Arcadia's
businesses.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SELLERS
Each of the Principal Sellers, each as to himself, hereby severally
represents and warrants to Buyer and Newco as follows:
6.1 AUTHORITY. Such Principal Seller has the full legal power and authority
to make, execute, deliver and perform this Agreement and the Transaction
Documents. Such execution, delivery, performance and consummation has been duly
authorized by all necessary action, corporate or otherwise, on the part of such
Principal Sellers, and any necessary consents of holders of indebtedness of such
Principal Seller have been obtained.
6.2 BINDING EFFECT. This Agreement and all Transaction Documents executed
by such Principal Seller constitute the legal, valid and binding obligations of
such party, enforceable against such Principal Seller in accordance with their
respective terms.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by such Principal Seller nor
the performance by such Principal Seller of the transactions contemplated hereby
and thereby conflicts with, or
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constitutes a breach of or a default under (i) any law, rule, judgment, order,
writ, injunction, or decree of any court currently in effect applicable to such
Principal Seller, or (ii) any rule or regulation of any administrative agency or
other governmental authority currently in effect applicable to such Principal
Seller, or (iii) any agreement, indenture, contract or instrument to which such
party is now a party or by which any of the assets of such Principal Seller is
bound.
6.4 CONSENTS. No authorization, consent, approval, license, exemption by,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary in connection with the execution, delivery and performance of this
Agreement or any of the Transaction Documents by such Principal Seller.
6.5 OWNERSHIP OF ARCADIA STOCK. Shareholders are the lawful record and
beneficial owners of all of Arcadia Stock shown as owned by Shareholders in
Schedule 5.4, with good and marketable title thereto, free and clear of all
liens and encumbrances, claims and other charges thereon of any kind. Such
Shareholders have the full legal power to transfer and deliver such Arcadia
Stock in accordance with this Agreement, and delivery of such Arcadia Stock to
Buyer pursuant hereto will convey good and marketable title thereto, free and
clear of all liens and encumbrances, claims and other charges thereon or any
kind. The shares of Arcadia Stock indicated on Schedule 5.4 as being owned by
the Shareholders constitute all of the issued and outstanding shares of the
capital stock of Arcadia. On the Closing Date there shall not be outstanding any
warrants, options, or other rights to subscribe for or purchase from Arcadia any
shares of capital stock of Arcadia, nor shall there be outstanding any
securities convertible into or exchangeable for such shares.
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO
Buyer and Newco jointly and severally represent and warrant to Arcadia and
the Principal Sellers as follows:
7.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
7.2 POWER AND AUTHORITY. Buyer and Newco each have the corporate power and
authority to execute, deliver and perform this Agreement, and as of the Closing,
Buyer and Newco will have the corporate power and authority to execute and
deliver the Transaction Documents required to be delivered by them to the
Principal Sellers at the Closing.
7.3 BINDING AGREEMENT. This Agreement has been duly executed and delivered
by Buyer and Newco. This Agreement is, and when executed and delivered by Buyer
and Newco at the Closing each of the Transaction Documents executed by Buyer and
Newco will be, the legal, valid and binding obligations of Buyer and Newco,
enforceable against Buyer and Newco in accordance with their respective terms.
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7.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Transaction Documents by Buyer and Newco nor the
performance by the Buyer and Newco of the transactions contemplated hereby and
thereby conflicts with, or constitutes a breach of or a default under (i) the
formation documents of the Buyer and Newco, or (ii) any law, rule, judgment,
order, writ, injunction, or decree of any court currently in effect applicable
to Buyer and Newco, provided that the consents set forth in Schedule 7.5 are
obtained prior to the Closing, or (iii) any rule or regulation of any
administrative agency or other governmental authority currently in effect
applicable to Buyer and Newco, or (iv) any agreement, indenture, contract or
instrument to which the Buyer or Newco is now a party or by which any of the
assets of the Buyer or Newco is bound.
7.5 CONSENTS. Except as set forth on Schedule 7.5, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement or any of the
Transaction Documents by Buyer and Newco.
7.6 SECURITIES AND EXCHANGE COMMISSION FILINGS. Buyer has made available to
the Principal Sellers a correct and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by Buyer with the
Commission on or after January 1, 1996 (the "SEC Documents"), which are all the
documents (other than preliminary material) that Buyer was required to file with
the SEC on or after January 1, 1996. As of their respective dates, none of the
SEC Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statements or omissions
of a material fact necessary so as not to render the statements therein
misleading, in light of the circumstances under which they were made, and the
SEC Documents complied when filed in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as the case
may be. The financial statements of the Buyer included in the SEC Documents
complied in all material respects with the then applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with GAAP during the periods
involved (except as may have been indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q promulgated by the SEC)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the Buyer
and its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
7.7 CAPITAL STOCK. Buyer's Form 10-Q filed with the Commission with respect
to the fiscal quarter ended March 31, 1997 (the "Form 10-Q"), sets forth a true
and complete description of the authorized and outstanding shares of capital
stock of Buyer as of such date. All outstanding shares of IHS Stock are validly
issued, fully paid and non-assessable and not subject to preemptive rights.
Buyer has duly authorized and reserved for issuance the IHS Stock, and, when
issued in accordance with the terms of Article III, the IHS Stock will be
validly issued, fully paid and nonassessable and free and clear of preemptive
rights, liens, encumbrances, claims and other charges thereon.
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ARTICLE VIII: INFORMATION AND RECORDS CONCERNING ARCADIA AND
ITS SUBSIDIARIES
8.1 ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to the Closing
Date, Buyer may make, or cause to be made, such investigation of Arcadia's (it
being understood that, for the purpose of this Article VIII, "Arcadia" shall be
deemed to refer collectively to Arcadia and its subsidiaries listed on Schedule
5.23) financial and legal condition as Buyer deems necessary or advisable to
familiarize itself with Arcadia and/or matters relating to its history or
operations. Arcadia shall permit Buyer and its authorized representatives
(including legal counsel and accountants), to have full access to Arcadia's
books and records upon reasonable notice and during normal business hours, and
Arcadia will furnish, or cause to be furnished, to Buyer such financial and
operating data and other information and copies of documents with respect to
Arcadia's products, services, operations and assets as Buyer shall from time to
time reasonably request. The documents to which Buyer shall have access shall
include, but not be limited to, Arcadia's tax returns and related work papers
since their inception; and Arcadia shall make, or cause to be made, extracts
thereof as Buyer or their representatives may request from time to time to
enable Buyer and their representatives to investigate the affairs of Arcadia and
the accuracy of the representations and warranties made in this Agreement.
Arcadia shall cause its accountants to cooperate with Buyer and to disclose the
results of audits relating to Arcadia and to produce the working papers relating
thereto. Without limiting any of the foregoing, it is agreed that Buyer will
have full access to any and all agreements between and among the previous and
current shareholders regarding their ownership of shares or the management or
operation of Arcadia.
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
9.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement
and the Closing, Arcadia and its subsidiaries shall maintain their existence and
shall conduct their businesses in the customary and ordinary course of business
consistent with past practice.
9.2 NEGATIVE COVENANTS OF ARCADIA AND ITS SUBSIDIARIES. Without the prior
written approval of Buyer, neither Arcadia nor any of its subsidiaries shall,
between the date hereof and the Closing:
(A) cause or permit to occur any of the events or occurrences described
in Section 5.18 (Absence of Certain Events) of this Agreement;
(B) dissolve, merge or enter into a share exchange with or into any other
entity;
(C) enter into any contract or agreement with any union or other
collective bargaining representative representing any employees or affiliates
without the prior written consent of Buyer, which consent shall not be
unreasonably withheld;
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(D) sell off any Assets other than in the ordinary course of business; or
(E) make any change to their by-laws or articles of incorporation.
9.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, Arcadia
and each of its subsidiaries shall:
(A) maintain their businesses in substantially the same 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 all Licenses currently in effect
with respect to their businesses unless such License is no longer necessary for
the operation of Arcadia and its subsidiaries;
(C) maintain in full force and effect the insurance policies and binders
currently in effect, or the replacements thereof, including without limitation
those listed on Schedule 5.16;
(D) utilize their reasonable efforts to preserve intact the present
business organization of Arcadia and its subsidiaries; keep available the
services of Arcadia's and its subsidiaries' present employees, affiliates and
agents; and maintain Arcadia's and its subsidiaries' relations and goodwill with
suppliers, employees, affiliates, affiliated medical personnel and any others
having business relating to Arcadia and its subsidiaries;
(E) maintain all of the books and records in accordance with their past
practices;
(F) comply in all respects with all provisions of the Contracts listed in
Schedule 5.7 and with any other material agreements that Arcadia and its
subsidiaries have entered into in the ordinary course of business since the date
of this Agreement, and comply in all respects with the provisions of all
material laws, rules and regulations applicable to Arcadia's and its
subsidiaries' businesses;
(G) cause to be paid when due, all taxes, assessments and charges or
levies imposed upon them or on any of their properties for which they are
required to withhold and pay over;
(H) promptly advise Buyer in writing of the threat or commencement
against Arcadia or its subsidiaries or affiliates of any claim, action, suit or
proceeding, arbitration or investigation or any other event that would
materially adversely affect the operations, properties, assets or prospects of
Arcadia or its subsidiaries or affiliates;
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(I) notify the Buyer in writing of any event involving Arcadia or its
subsidiaries or affiliates which has had or may be reasonably expected to have a
material adverse effect on the business or financial condition of Arcadia or its
subsidiaries or affiliates or may involve the loss of contracts with Arcadia's
or its subsidiaries' customers; and
(J) provide monthly financial statements of Arcadia and its subsidiaries
within twenty (20) days of the month end prepared in accordance with GAAP and
consistent with past practices.
9.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing, Buyer shall
use its reasonable efforts to obtain all consents and approvals of governmental
agencies and all other parties necessary for the lawful consummation of the
transactions contemplated hereby and the lawful use, occupancy and enjoyment of
Arcadia's and its subsidiaries' businesses by Buyer in accordance herewith
("Required Approvals"). Arcadia and its subsidiaries shall cooperate with and
use their reasonable efforts to assist Buyer in obtaining all such approvals.
9.5 EXCLUSIVITY. Until the earlier of Closing or the termination of this
Agreement pursuant to Section 13.1, neither Arcadia nor any Shareholder, nor any
of their respective affiliates, shall enter into any agreement, commitment or
understanding with respect to, or engage in any discussions or negotiations
directly or indirectly with, or encourage or respond to any solicitations from,
any other party with respect to the sale, lease or management of any of the
Assets, or in respect of the sale of any shares of capital stock in Arcadia.
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's and Newco's obligations to consummate the Merger are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any one or more of which may be waived by Buyer or Newco in writing. Upon
failure of any of the following conditions, Buyer and Newco may terminate this
Agreement pursuant to and in accordance with Article XIII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Arcadia and Principal Sellers made pursuant to 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. Each of the Principal Sellers and Arcadia
shall have performed or complied in all material respects with their respective
agreements and covenants required by this Agreement to be performed or complied
with by it prior to or at the Closing.
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10.3 DELIVERY OF CLOSING CERTIFICATE. Each of the Principal Sellers and
Arcadia shall have executed and delivered to Buyer a certificate of its
president, dated the Closing Date, upon which Buyer and Newco may rely,
certifying that the conditions contemplated by Sections 10.1 and 10.2 applicable
to it have been satisfied.
10.4 OPINION OF COUNSEL. Each Principal Seller and Arcadia shall have
delivered to Buyer and Newco an opinion, dated the Closing Date, of their
counsel, in substantially the form attached hereto as Exhibit 10.4.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
10.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a certificate of
the Secretary or other officer of Arcadia certifying as of the Closing Date a
copy of resolutions of the Shareholders and of Arcadia's board of directors
authorizing Arcadia's execution and full performance of the Transaction
Documents and the incumbency of Arcadia's respective officers.
10.7 MATERIAL CHANGE. Since the date of the March 31 Balance Sheets there
shall not have been any material adverse change in the condition (financial or
otherwise) of the assets, properties or operations of Arcadia and its
subsidiaries.
10.8 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, cancellation or termination of any material
lease, contract, commitment, agreement, license, easement, right or other
authorization with respect to Arcadia's and its subsidiaries' businesses, other
than as disclosed or approved hereunder, or (ii) shall impose on the Buyer or
Newco any material condition or provision or requirement with respect to
Arcadia's and its subsidiaries' businesses or their operation that is more
restrictive than or different from the conditions imposed upon such operation
prior to Closing.
10.9 CONSENTS. Buyer shall have received the written consent to assignment
for each of the Retained Contracts set forth on Schedule 2.6, where such consent
is required by reason of the change of control of Arcadia and its subsidiaries
contemplated under this Agreement.
10.10 ESTIMATED CLOSING DATE BALANCE SHEET. Principal Sellers and Arcadia
shall have delivered the Estimated Closing Date Balance Sheet to Buyer.
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10.11 REAL PROPERTY CONSENTS. Arcadia and the Principal Sellers shall have
used their best efforts to obtain the written consent to assignment of each
landlord with whom Arcadia or any of its subsidiaries has a lease of real
property which, by its terms, requires consent in the event of a change of
control of Arcadia, and the written consent of such landlords shall have been
received by the Buyer. Alternatively, Arcadia and Principal Sellers shall have
delivered a waiver from each such landlord of any provision contained in any of
such leases which would require the landlord's consent upon any change of the
voting stock of the tenant. Buyer shall have received notice from the Principal
Sellers by the Closing Date, identifying any landlord that has not given any
necessary consent as of such date.
10.12 ARCADIA'S SUBSIDIARIES AND OPTIONS. Each of the subsidiaries of
Arcadia as of the Closing Date will be one hundred (100%) percent owned by
Arcadia and there shall not be outstanding as of the Closing Date any options,
warrants or rights for the purchase of any capital stock of Arcadia or its
subsidiaries or any obligations to grant or issue any options, warrants or
rights for the purchase of any capital stock of Arcadia or its subsidiaries.
10.13 BOARD APPROVALS. The Buyer will have received all necessary Board of
Director approvals.
10.14 HART-SCOTT-RODINO. All applicable filings ("H-S-R Filings") shall
have been made and all applicable waiting periods shall have expired or been
terminated under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the
"H-S-R Act").
10.15 EMPLOYMENT AGREEMENTS. Cameron Hosner, James Bellinson, Gary
Dabkowski, Herbert Graebner and Leonard Bellinson shall have terminated their
existing employment agreements and any ongoing obligations thereunder. James
Bellinson shall have executed and delivered to Buyer his employment agreement
and Cathy Sparling shall have executed and delivered to Buyer her amended
employment agreement, upon such terms and conditions as shall be mutually
acceptable to the parties in the form of Exhibit 10.15 hereto (the "Employment
Agreements").
10.16 REQUIRED TRANSACTIONS. Arcadia shall have consummated the acquisition
of two agencies located in Grand Rapids, Michigan and Lansing, Michigan. Also,
Arcadia will have transferred to a liquidating trust for the benefit of the
Shareholders its joint venture interest in C.R.K. and such liquidating trust
shall have assumed all of Arcadia's liabilities in connection with Arcadia's
joint venture interest in C.R.K.
10.17 TERMINATION OF NON-RETAINED AGREEMENTS. All Contracts, other than the
Retained Contracts, shall have been terminated, as well as any ongoing
obligations thereunder.
10.18 ESCROW AGREEMENTS. The Principal Sellers, on behalf of the
Shareholders, shall have executed and delivered each of the Escrow Agreements in
the form of Exhibits 2.3 and 2.4.
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10.19 TERMINATION OF CERTAIN CONTRACTS. All plans, agreements and
arrangements set forth on Schedule 5.7(b), except the Longevity Award Program,
shall have been terminated.
10.20 GRAYROSE. Grayrose shall be a wholly-owned subsidiary of Arcadia.
10.21 STOCK CERTIFICATES. Shareholders shall have delivered to Buyer all
stock certificates representing Arcadia Stock duly endorsed in blank.
10.22 DISSENTER'S RIGHTS. All dissenting shares of Arcadia Stock, if any,
shall not constitute in the aggregate more than one (1%) percent of the total
issued and outstanding shares of Arcadia Stock.
10.23 CAPTIVE INSURANCE. Shareholders shall have used their best efforts to
sell to an A-rated insurance carrier all liabilities and obligations, including
but not limited to Incurred But Not Recorded liabilities in connection with
worker's compensation claims that are processed through the Captive Insurance.
In the event the Shareholders are unable to sell said liabilities in connection
with the Capture Insurance to an A-rated insurance carrier by the Closing Date,
Shareholders shall increase the Escrow Deposit referenced in Section 2.3 to such
amount that is mutually satisfactory to Buyer and Principal Sellers.
10.24 OTHER DOCUMENTS. The Principal Sellers and Arcadia shall have
furnished Buyer and Newco with all other documents, certificates and other
instruments required to be furnished to Buyer and Newco by the Principal Sellers
and Arcadia pursuant to the terms hereof.
ARTICLE XI: CONDITIONS PRECEDENT TO PRINCIPAL SELLERS'
OBLIGATIONS
Principal Sellers' 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 may be waived by Principal Sellers in writing. Upon
failure of any of the following conditions, Principal Sellers may terminate this
Agreement pursuant to and in accordance with Article XIII herein:
11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer and Newco in this Agreement shall be true 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.
11.2 PERFORMANCE OF COVENANTS. Buyer and Newco shall have performed or
complied with each of its agreements and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
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11.3 DELIVERY OF CLOSING CERTIFICATE. Buyer and Newco shall have delivered
to Principal Sellers a certificate of an executive or senior vice president of
Buyer and Newco dated the Closing Date upon which Principal Sellers can rely,
certifying that the conditions contemplated by Sections 11.1 and 11.2 applicable
to it have been satisfied.
11.4 OPINION OF COUNSEL. Buyer and Newco shall have delivered to Principal
Sellers an opinion, dated the Closing Date, of Blass & Driggs, Esqs., counsel
for Buyer and Newco, in the form attached as Exhibit 11.4.
11.5 LEGAL MATTERS. No preliminary or permanent injunction or other order
(including a temporary restraining order) of any governmental authority which
prevents the consummation of the transactions contemplated by this Agreement
shall have been issued and remain in effect.
11.6 AUTHORIZATION DOCUMENTS. Principal Sellers shall have received a
certificate of the Secretary or other officer of Buyer and Newco certifying as
of the Closing Date a copy of resolutions of their respective boards of
directors authorizing their execution and full performance of the Transaction
Documents and the incumbency of their officers.
11.7 H-S-R FILINGS. The H-S-R Filing shall have been made and all
applicable waiting periods shall have expired or been terminated under the H-S-R
Act.
11.8 EMPLOYMENT AGREEMENTS. The Buyer shall have entered into the
Employment Agreements with James Bellinson and Cathy Sparling.
11.9 ESCROW AGREEMENTS. Buyer shall have executed and delivered each of the
Escrow Agreements in the form of Exhibits 2.3 and 2.4.
11.10 OTHER DOCUMENTS. Buyer and Newco shall have furnished Principal
Sellers with all documents, certificates and other instruments required to be
furnished to Principal Sellers by Buyer and Newco pursuant to the terms hereof.
ARTICLE XII: SURVIVAL AND INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by each party in this Agreement and in each Schedule and
Transaction Document shall survive the Closing Date and for a period of one (1)
year after the Closing, notwithstanding any investigation at any time made by or
on behalf of the other party, provided that the representations and warranties
contained in Section 5.25 (Medicare and Medicaid) and Section 5.21 (Tax), shall
survive until thirty (30) days after the applicable period of limitations for
audits by the applicable Governmental Authority shall have expired, including
extensions for any necessary appeals. All representations and warranties related
to any claim asserted in writing prior to the expiration of the applicable
survival period shall survive (but only with respect to such claim) until such
claim shall be resolved and payment in respect thereof, if any is owing, shall
be made.
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12.2 INDEMNIFICATION BY SHAREHOLDERS AND/OR PRINCIPAL SELLERS. The
Shareholders and/or Principal Sellers (as set forth herein) shall indemnify and
defend Buyer and hold it harmless against and with respect to any and all
damage, loss, liability, deficiency, cost and expense (including, without
limitation, reasonable attorney's fees and expenses) (all of the foregoing
hereinafter collectively referred to as "Loss") resulting from:
(A) any inaccuracy in any representation or certification, or breach of
any warranty, made by any of the Principal Sellers or Arcadia pursuant to this
Agreement; or
(B) the breach of any covenant or undertaking by any of the Principal
Sellers or Arcadia contained in this Agreement which survives the Closing and is
not waived by Buyer at or prior to the Closing; or
(C) the ownership or operation of Arcadia or its subsidiaries or their
business or assets prior to the Closing Date, including, without limitation, (i)
any Excess Reimbursement Liabilities (as defined in Section 2.6); (ii) any Taxes
resulting from the operation of the businesses of Arcadia or ownership of any of
the Assets for any period ending on or before the Closing Date; (iii) any Loss
arising out of the noncompliance of Arcadia with COBRA or any like statute; (iv)
any Loss arising out of the failure to receive the refund claim within nine (9)
months following the Closing Date (the "Nine-Month Period") and/or any
recoupment of any part of the refund claim associated with the income tax carry
back provision through the period set forth in Section 12.4, below; provided in
the event Arcadia receives any part of the refund claim after the Nine-Month
Period, Buyer shall reimburse Shareholders for such portion of the refund claim
received by Arcadia to the extent Shareholders had indemnified Buyer for any
Loss pursuant to this Section 12.2(c)(iv); (v) any Loss arising out of the sale
of Arcadia's ownership interest in Arcadia Hospice, Inc. to William Beaumont
Hospital; (vi) any Loss arising out of the transfer of Arcadia's joint venture
interest in C.R.K. to a liquidating trust for the benefit of the Shareholders;
(vii) any Loss arising out of the Captive Insurance; (viii) any claim of the
type that would be covered by a standard liability insurance policy, including,
without limitation, professional liability, malpractice, general liability,
automobile liability, worker's compensation or employer's liability insurance,
arising out of the operation of Arcadia's businesses prior to the Closing Date,
including payments of any deductibles applicable to the aforesaid policies, to
the extent not covered by any existing insurance policy; and (ix) any and all
actions, suits, proceedings, demands, assessments, judgments, settlements (to
the extent approved by Arcadia, such approval not to be unreasonably withheld,
delayed or conditioned), costs and legal expenses incident to any of the
foregoing; but excluding current liabilities and long-term liabilities that are
reflected on the Estimated Closing Date Balance Sheet or that otherwise are
taken into account in any adjustment to the Merger Consideration under Section
2.2; or
(D) any prepayment penalty, premium, or other fees which may become
payable by Arcadia by reason of the termination by Arcadia after the Closing
Date of its factoring lines with NPFII-W, Inc.
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Any claim for indemnification sought against the Shareholders shall be
expressly limited to the Escrow Deposit. If the amount of Loss is equal to or
less than $1,500,000, Buyer shall first offset such amount from the Escrow
Deposit. If the Escrow Deposit is insufficient to cover such Loss, then the
Principal Sellers, jointly and severally, will indemnify and hold harmless Buyer
for the remaining amount of the Loss subject to the indemnity cap referred to in
Section 12.5.
(E) To the extent not otherwise satisfied by the General Indemnification
Fund, the Principal Sellers will each personally indemnify Buyer for any Loss in
an amount up to $200,000 (in an aggregate amount up to $400,000) in connection
with the McClain, McWilliams and Brown matters listed on Schedule 5.12 (the
"Litigation Matters"). Such indemnification by Principal Sellers pursuant to
this Section 12.2(e) shall only apply to Loss arising from punitive damages not
otherwise covered by insurance. Furthermore, such indemnification pursuant to
this Section 12.2(e) shall not be subject to the indemnity basket and cap
referenced in Section 12.5, below. Additionally, Buyer's right to
indemnification under this Section 12.2(e) shall survive until thirty (30) days
after the applicable statute of limitations for commencing any legal proceedings
arising out of the applicable Litigation Matter shall have lapsed. The total
aggregate obligations of the Principal Sellers shall not exceed $400,000
pursuant to this Section 12.2(e).
12.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend
Shareholders and hold them harmless against and with respect to any and all Loss
resulting from:
(A) any inaccuracy in any representation or certification, or breach of
any warranty, made by Buyer pursuant to this Agreement; or
(B) the breach of any covenant or undertaking by Buyer which survives the
Closing and is not waived by Principal Sellers or Arcadia at or prior to the
Closing; or
(C) the ownership or operation of Arcadia or its subsidiaries or their
business or assets on or after the Closing Date.
12.4 ASSERTION OF CLAIMS. Any claims for indemnification under Sections
12.2(a) or 12.3(a) must be asserted by written notice by a date which is no
later than one (1) year following the Closing Date, except that any claim based
upon a breach of the representations and warranties contained in Section 5.25
(Medicare and Medicaid) or Section 5.21 (Tax) may be asserted until thirty (30)
days after the applicable period of limitations for audits by the applicable
Governmental Authority shall have expired, including extensions for any
necessary appeals.
12.5 INDEMNITY BASKET AND CAP. Notwithstanding any other provision of this
Article XII, no claim for indemnification made under Sections 12.2(a) or 12.3(a)
shall be made unless and until Buyer or Shareholders/Principal Sellers, as the
case may be, have incurred Loss in excess of One Hundred Thousand ($100,000)
Dollars in the aggregate, in which case, the party seeking indemnification shall
be entitled to assert claims including such initial One Hundred Thousand
($100,000) Dollars. The maximum aggregate liability for any Loss arising from
claims for indemnification pursuant to Sections 12.2(a) or 12.3(a) (excluding
any Loss arising from
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fraud, Tax liability, and Excess Reimbursement Liabilities) of the Principal
Sellers or Buyer, respectively, for indemnification hereunder shall not exceed
an amount equal to Fourteen Million Two Hundred Fifty Thousand ($14,250,000)
Dollars.
12.6 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS. Any party seeking
indemnification under this Agreement (an "Indemnitee") shall give each party
from whom indemnification is sought (an "Indemnitor") prompt written notice of
the claim for which it seeks indemnification. Failure of the Indemnitee to give
such prompt notice shall not relieve an Indemnitor of its indemnification
obligation, provided that such indemnification obligation shall be reduced by
any damages suffered by the Indemnitor resulting from a failure to give prompt
notice hereunder. All Indemnitors shall be entitled to participate in the
defense of such claim. If at any time the Indemnitor acknowledges in writing
that the claim is fully Indemnifiable under this Agreement, it shall have the
right to assume total control of the defense of such claim (other than claims in
connection with Excess Reimbursement Liabilities or Section 5.25 which it shall
not control but be entitled to participate in) at its own expense. If all
Indemnitors do not assume total control of the defense of any such claim (or in
the case of claims in connection with Excess Reimbursement Liabilities or
Section 5.25), the Indemnitee agrees not to settle such claim without the
written consent of all Indemnitors which consent shall not be unreasonably
withheld. Nothing contained in this Section 12.6 shall prevent either party from
assuming total control of the defense and/or settling any claim against it for
which indemnification is not sought under this Agreement.
12.7 RESTRICTIONS.
(A) From and after the Closing Date, none of the Principal Sellers shall
disclose, directly or indirectly, to any person outside of Buyer's employ
without the express authorization of the Buyer, any patient lists, customer
lists, pricing strategies, customer files, or patient files and records of
Arcadia and its subsidiaries, any proprietary data or trade secrets owned by
Arcadia and its subsidiaries or any financial or other information about Arcadia
and its subsidiaries not then in the public domain; provided, however, that
Principal Sellers shall be permitted to make such disclosures as may be required
by law or by a court or governmental authority.
(B) After the Closing Date, none of the Principal Sellers shall engage or
participate in any effort or act to induce any of the customers, physicians,
suppliers, associates, employees, affiliates, or independent contractors of
Arcadia and its subsidiaries to cease doing business, or their association or
employment, with Arcadia and its subsidiaries.
(C) No Principal Seller shall, for a period of five (5) years after the
Closing Date, directly, or indirectly, for or on behalf of himself or herself or
any other person, firm, entity or other enterprise, be employed by, be a
director or manager of, act as a consultant for, be a partner in, have a
proprietary interest in, give advice to, loan money to or otherwise associate
with, in a business fashion, any person, enterprise, partnership, association,
corporation, joint venture or other entity which is directly or indirectly in
the business of owning, operating
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or managing any entity of any type, licensed or unlicensed, which is engaged in
or provides home health care and medical, clerical and light industrial staffing
services or in any way competes with Arcadia or its subsidiaries anywhere within
the counties where Arcadia or its subsidiaries currently operate.
(D) The Principal Sellers acknowledge that the restrictions contained in
this Section 12.7 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 Sellers agree that
upon the violation by any of them of any of the restrictions contained in this
Section 12.7, Buyer shall be entitled 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 proceeding, 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.
Notwithstanding the foregoing, for purposes of this Section 12.7, any
advertisement prepared for and disseminated to the public in general, which
advertises the services of the Principal Sellers not otherwise in violation of
this Section 12.7 or advertises the need for services to be supplied to the
Principal Sellers, shall not be deemed to be an inducement or solicitation with
respect to any such patients, physicians, suppliers, employees, affiliates or
independent contractors.
12.8 RECORDS. On the Closing Date, Principal Sellers and Arcadia shall
deliver, or cause to be delivered, to Buyer all records and files not then in
Buyer's possession relating to the operations of Arcadia and its subsidiaries.
12.9 BUYER'S AFFIRMATIVE COVENANTS.
(A) Buyer agrees to pay an amount up to $100,000 (which amount will be
accrued for on the Estimated Closing Date Balance Sheet) for attorney's fees,
costs and expenses in connection with the Arizona Litigation.
(B) Buyer agrees to retain Steven Graebner in its employ for a minimum
period of one (1) year following the Closing Date at his current salary level.
12.10 DISSENTERS' RIGHTS. In the event that any holder of Arcadia Stock
asserts dissenter's rights with respect to the Merger under the Michigan
Business Corporation Act, the Shareholders, jointly and severally, shall
indemnify and hold harmless Buyer from and against (i) any amount which becomes
payable to such holder by Arcadia in satisfaction of such dissenter rights, to
the extent that such amount exceeds the Merger Consideration that would have
been payable to such holder had such holder not exercised his or her dissenter's
rights, and (ii) any costs or expenses, including reasonable attorneys fees,
incurred by Arcadia in investigating or litigating such dissenters' rights;
provided, however, that as a condition to the recovery of
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attorneys fees and expenses, Buyer shall provide prompt notice to the Principal
Sellers of any exercise of dissenters' rights and will permit Shareholders a
reasonable opportunity to select and direct counsel for Arcadia in respect of
the investigation and litigation of such rights. The provisions of Section 12.5
shall not apply to any claim for indemnification under this Section 12.10.
12.11 SPECIAL PROVISIONS WITH REGARD TO INDEMNIFICATION OF REPRESENTATIONS
AND WARRANTIES. Buyer hereby acknowledges that in connection with the
indemnification by the Principal Sellers of representations and warranties
contained in this Agreement, that their ability to provide such indemnification
is dependent in part upon the availability of the books and records maintained
by Arcadia up and through the Closing Date. It is therefore a condition to the
indemnification obligations of the Principal Sellers with respect to
representations and warranties contained herein, that Buyer preserve and make
available through the entire indemnification period, all records maintained by
Arcadia up to the Closing Date. In addition, it is hereby acknowledged that
certain Medicare and Medicaid cost reports for the year ended June 30, 1997, and
for the stub period from June 30, 1997 through the Closing Date will be prepared
and filed subsequent to the Closing Date (the "Cost Reports"). The
indemnification obligations of the Principal Sellers pursuant to this Agreement
necessarily include matters set forth in the Cost Reports. Buyer hereby agrees
that it is necessary and appropriate that the Principal Sellers be permitted to
examine and provide consultation on the Cost Reports in a timely manner prior to
the time they are submitted to the respective agencies. It is therefore agreed
that as a condition to providing indemnification to Buyer for the period covered
by the Cost Reports, that the Principal Sellers consent to the contents of the
Cost Reports which consent will not be unreasonably withheld or delayed.
ARTICLE XIII: TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time at or prior
to the Closing by:
(A) Buyer or Newco, if any condition precedent to Buyer's or Newco's
obligations hereunder, including without limitation those conditions set forth
in Article X hereof, have not been satisfied by the Closing Date or pursuant to
Section 14.1 if any portion of the Assets is damaged or destroyed as a result of
fire, other casualty or for any reason whatsoever;
(B) Principal Sellers, if any condition precedent to the obligations of
any Principal Seller or Arcadia hereunder, including without limitation those
conditions set forth in Article XI hereof, have not been satisfied by the
Closing Date; or
(C) the mutual consent of Buyer, Newco and Principal Sellers.
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13.2 EFFECT OF TERMINATION. If a party terminates this Agreement because
one of its conditions precedent has not been fulfilled, or if this Agreement is
terminated by mutual consent, or if it is terminated pursuant to Section 14.1,
this Agreement shall become null and void without any liability of any party to
the other; provided, however, that if such termination is by reason of the
breach by any party of any of its representations, warranties or obligations
under this Agreement, the other party shall be entitled to be indemnified for
any Losses incurred by it by reason thereof in accordance with Article XII
hereof (and for such purposes such Article XII shall survive the termination of
this Agreement). Further, nothing in this Section 13.2 shall affect Buyer's
right to specific performance of the obligations of Arcadia and Principal
Sellers at Closing hereunder.
ARTICLE XIV: CASUALTY, RISK OF LOSS
14.1 CASUALTY, RISK OF LOSS. Arcadia and Principal Sellers shall bear the
risk of all loss or damage to any of the Assets from all causes which occur
prior to the Closing. If at any time prior to the Closing any portion of the
Assets is damaged or destroyed as a result of fire, other casualty or for any
reason whatsoever, Arcadia and Principal Sellers shall immediately give notice
thereof to Buyer. Buyer shall have the right, in its sole and absolute
discretion, within ten (10) days of receipt of such notice, to (1) elect not to
proceed with the Closing and terminate this Agreement, or (2) proceed to Closing
and consummate the transactions contemplated hereby and receive any and all
insurance proceeds received or receivable by any Principal Seller or Arcadia on
account of any such casualty. Nothing contained in this Section 14.1 shall limit
or adversely affect the right of Buyer to receive indemnification for any Losses
incurred by either of them by reason of any breach by any Principal Seller or
Arcadia of any representation, warranty or obligation under this Agreement in
accordance with Section 12.2 hereof (and for such purposes such Section 12.2
shall survive the termination of this Agreement).
ARTICLE XV: MISCELLANEOUS
15.1 COSTS AND EXPENSES. Except for Buyer bearing all of the fees for the
H-S-R Filings and as expressly otherwise provided in this Agreement, Buyer,
Newco and Principal Sellers shall bear their own costs and expenses in
connection with this Agreement and the transactions contemplated hereby;
provided, however, that no such costs and expenses shall be charged to Arcadia
and its subsidiaries.
15.2 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, or
other remedy, the prevailing party shall be entitled to its reasonable
attorneys' fees.
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15.3 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to the benefit
of each party hereto and its successors and proper assigns. Buyer and Newco may
not assign their interests under this Agreement to any other person or entity
without the prior written consent of Principal Sellers; provided, however, that
Buyer and Newco may assign their rights, duties and obligations hereunder to one
or more subsidiaries or affiliates of Buyer; and further provided that in the
instance of such assignment Buyer shall guaranty the performance of its assignee
hereunder.
15.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
Exhibits and Schedules hereto 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.
15.5 COOPERATION - FURTHER ASSISTANCE. From time to time, as and when
reasonably requested by any party hereto after the Closing, 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 requested or
necessary to carry out the intent and purposes of this Agreement, and to vest in
Buyer good title to, possession of and control of all of the Assets.
15.6 NOTICES. All notices 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 within five
(5) days when sent by certified or registered mail, postage prepaid, or on the
next business day if sent for next day delivery by a nationally recognized
overnight courier, in either case, properly addressed to the party or parties
entitled to receive such notice at the address stated below:
If to Arcadia: Herbert Graebner
33 Boulder Lane
Bloomfield Hills, MI 48304
Leonard Bellinson
7403 Via De Fortuna
Carlsbad, CA 92009
If to the Principal Sellers
and the Committee: Herbert Graebner
33 Boulder Lane
Bloomfield Hills, MI 48304
41
<PAGE>
Leonard Bellinson
7403 Via De Fortuna
Carlsbad, CA 92009
with a copy to: Lawrence S. Jackier, Esq.
Michael J. Eizelman, Esq.
Jackier, Gould, Bean, Upfal, Eizelman & Goldman
1533 North Woodward Avenue, Suite 250
Bloomfield Hills, MI 48304
If to Newco: Integrated AG Acquisition, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian K. Davidson
Elizabeth B. Kelly
cc: Marshall A. Elkins, General Counsel
If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian K. Davidson
Elizabeth B. Kelly
cc: Marshall A. Elkins, General Counsel
with a copy to: Michael S. Blass, Esq.
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
15.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
15.8 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.
15.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, disregarding any rules
relating to the choice or conflict of laws.
42
<PAGE>
15.10 AMENDMENTS, SUPPLEMENTS, ETC. At any time before or after the
execution and delivery of this Agreement by the parties hereto, this Agreement
may be amended or supplemented by additional agreements, articles or
certificates, as may be mutually determined by the parties 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 covenants, terms or
conditions hereof or thereof. 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. This
Agreement may not be amended except by an instrument in writing signed by each
of the parties.
15.11 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 12.7 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.
15.12 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall together
constitute one and the same instrument.
15.13 ARBITRATION. Any dispute or controversy between any of the parties
hereto pertaining to the performance or interpretation of this Agreement shall
be settled by binding arbitration pursuant to the rules of the American
Arbitration Association. The cost of such proceeding shall be shared equally by
all parties thereto, and each such party shall bear its own costs incurred as a
result of its participation in any such arbitration.
15.14 PUBLIC ANNOUNCEMENTS. Following the execution of this Agreement, any
general public announcements or similar media publicity with respect to this
Agreement or the transactions contemplated herein shall be at such time and in
such manner as Buyer shall determine; provided that nothing herein shall prevent
either party, upon as much prior notice as shall be possible under the
circumstances to the other, from making such written announcements as such
party's counsel may consider advisable in order to satisfy the party's legal and
contractual obligations in such regard.
[SIGNATURES ON THE FOLLOWING PAGE]
43
<PAGE>
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.
ARCADIA:
WITNESS: ARCADIA SERVICES, INC.
By:/s/ By:/s/
---------------------------- ---------------------------------
James Bellinson
Its: President
WITNESS: PRINCIPAL SELLERS:
By:/s/ /s/
------------------------- ------------------------------------
Herbert Graebner
WITNESS:
By:/s/ /s/
------------------------- ------------------------------------
Leonard Bellinson
WITNESS: COMMITTEE
(on behalf of Shareholders):
By:/s/ /s/
------------------------- ------------------------------------
Herbert Graebner
WITNESS:
By:/s/ /s/
------------------------- ------------------------------------
Leonard Bellinson
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:/s/
---------------------------------
Executive Vice President
Corporate Development
NEWCO:
INTEGRATED AG ACQUISITION, INC.
By:/s/
---------------------------------
Executive Vice President
44
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") WILL BE ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR HYPOTHECATED
UNTIL SUCH SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
OTHER APPLICABLE SECURITIES LAWS, OR IN THE OPINION OF COUNSEL TO THE COMPANY IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
WARRANT AGREEMENT
-----------------
WARRANT AGREEMENT dated as of October 21, 1997, executed by INTEGRATED
HEALTH SERVICES, INC., a Delaware corporation (the "Company"), for the benefit
of Stephen P. Griggs (the "Holder").
The Company and the Holder wish to set forth the terms and conditions
whereby the Holder will have the option to purchase shares of the $.001 par
value common stock of the Company (the "Stock"). Accordingly, in consideration
of the mutual covenants and agreements contained herein and in that certain
Employment Agreement (the "Employment Agreement") dated as of the date hereof
between RoTech Medical Corporation, a subsidiary of the Company, and the Holder,
and intending to be legally bound hereby, the Company and the Holder hereby
agree as follows:
1. Grant of the Warrant. Subject to the terms and conditions set forth in
this Agreement and any adjustment required by Section 6 below, the Company
grants to Holder the warrant (the "Warrant") to purchase all or any part of
750,000 shares of the Stock (the "Warrant Shares") for the purchase price of
$33.16 per Warrant Share. The Company shall cause the Warrant Shares to be
registered pursuant to an S-3 registration statement.
2. Term of the Warrant. The Warrant granted hereunder shall expire at 5:00
p.m., Eastern Standard Time on the date which is on the tenth anniversary of the
date hereof (the "Expiration Time").
3. Restrictions on Exercisability. Unless accelerated, in the sole
discretion of the Company, or except as specifically provided otherwise herein,
the Warrant will become exercisable in accordance with the following vesting
schedule: the Warrant shall become exercisable with respect to twenty percent
(20%) of the Warrant Shares on October 22 of each year, commencing in 1998,
until the Warrant has become exercisable with respect to all of the Warrant
Shares; provided, however, that if Holder shall die during the term of his
employment with the Company, or if a Change of Control (as hereinafter defined)
shall occur, the Warrant shall become fully exercisable. For purposes hereof, a
"Change of Control" of the Company shall mean the occurrence of any of the
following events: (a) any party or two or more parties acting in concert shall
have acquired beneficial ownership, directly or indirectly, of, or shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their acquisition of,
control over, Stock of the Company representing 25% or more of the combined
voting power of all Stock of the Company, or (b) during any period of up to 24
consecutive months, commencing after the date hereof, individuals who at the
beginning of such 24-month period were directors of the Company (together with
any new director whose election by the Company's Board of Directors or whose
nomination for election by the Company's shareholders was approved by a vote of
at least fifty-one percent (51%) of the directors then still in office who
either were directors at the beginning
<PAGE>
of such period or whose election or nomination for election was previously so
approved) cease to constitute a majority of the directors of the Company then in
office. As used herein, "beneficial ownership" shall have the meaning provided
in Rule 13d-3 promulgated pursuant to the Securities Exchange Act of 1934, as
amended.
4. Exercise of the Warrant. Subject to the restrictions set forth in
Section 3 above, the Holder may exercise the Warrant with respect to all or any
portion of the Warrant Shares at any time or from time to time prior to the
Expiration Time by tendering to the Company payment in full of the purchase
price for the Warrant Shares then being purchased together with written notice
to the Company of such exercise that sets forth the following, as applicable:
(a) if not yet registered as set forth in paragraph 1 above, an
acknowledgment that the Warrant Shares are being purchased for investment and
not for distribution or resale (other than a distribution or resale which, in
the opinion of counsel reasonably satisfactory to the Company, may be made
without violating the provisions of the Securities Act of 1933, as amended (the
"Act"), or any other applicable federal or state securities laws); and
(b) if not yet registered as at forth in paragraph 1 above, an
acknowledgment that Holder understands that the Warrant Shares are "restricted
securities" within the meaning of Rule 144 promulgated by the Securities and
Exchange Commission, that the Warrant Shares have not been registered under the
Act or any other applicable federal or state securities laws and must be held
indefinitely unless they are subsequently registered under such Act and all
applicable laws or an exemption from registration is available therefrom, and
that the Company is under no obligation to register the Warrant Shares under the
Act or any other applicable securities laws or to take any action which would
make available to the Holder any exemption from such registration.
The Company shall issue a stock certificate bearing an
appropriate legend, if applicable, representing the Warrant Shares then being
purchased upon the actual receipt by the Company of any such written notice and
payment; provided, however, that if the listing, registration or qualification
of the Warrant Shares then being purchased upon any securities exchange or under
any federal or state law or the consent and approval of any governmental
regulatory body shall be required in connection with the purchase of Warrant
Shares then being purchased by such Holder, the Company shall not be obligated
to issue or deliver a certificate representing such Warrant Shares unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained. Holder shall have no rights as a stockholder of the
Company with respect to his Warrant Shares then being purchased until the date
on which a stock certificate representing such Warrant Shares has been issued to
the Holder. The Warrant granted hereunder shall expire with respect to any
Warrant Shares as to which Holder has not exercised the Warrant on or before the
Expiration Time.
5. Transfer of the Warrant. The Warrant may be exercised only by the Holder
or by the Holder's heirs, personal representatives and executors in the event of
such Holder's death, and neither the Warrant nor any interest or right therein
shall be subject to or liable for any debts, contracts or engagements of the
Holder or be subject to disposition by transfer, alienation, pledge,
encumbrance, assignment or any other means, whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy).
- 2 -
<PAGE>
6. Adjustment.
(a) If the number of shares of issued and outstanding Stock changes at
any time on or before the Expiration Time as a result of any recapitalization,
stock split, stock dividend or other change in the capital structure of the
Company, the number of Warrant Shares covered by the Warrant shall be increased
or decreased in direct proportion to such change in the number of shares of
issued and outstanding Stock and the per share purchase price of such Warrant
Shares shall be adjusted accordingly so that it is the substantial equivalent of
the purchase price prior to such change.
(b) If the Company is merged into, or consolidated with, another
company, or another company is merged into the Company, or in the case of a sale
or conveyance to another company of the property of the Company as an entirety
on or before the Expiration Time, the Company shall provide in the agreement for
such merger, consolidation or sale that the Warrant is fully vested as of the
date that the merger, consolidation or sale is consummated, and the surviving or
new company shall grant to the Holder under substantially the same terms and
conditions as are contained in this Agreement the option to acquire for a
purchase price adjusted as provided in Section 6(a) above that number and class
of shares in the surviving or new company into which the shares of the Stock
then subject to this Warrant would have been converted or exchanged if the
Warrant had been exercised prior to the effective date of the merger or
consolidation.
7. Taxes. All amounts which, under federal, state or local law, are
required to be withheld from the amount reportable as taxable income with
respect to the exercise of this Warrant shall be so withheld by the Company.
Whenever the Company proposes or is required to issue or transfer shares of the
Stock hereunder, the Company shall have the right to require Holder to remit to
the Company an amount sufficient to satisfy any federal, state or local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares of the Stock.
8. Miscellaneous.
(a) Notices. All notices to the Company provided for in this Agreement
shall be in writing and shall either be hand-delivered, sent by registered or
certified mail, or delivered by a nationally recognized overnight delivery
service to the following address (or such other address as may be designated by
notice duly given in the manner provided herein):
Marc B. Levin
Integrated Health Services, Inc.
Owings Mills Corporate Campus
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Any such notice, including but not limited to notices and tenders under Section
4 hereof, shall be deemed delivered (i) when hand delivered, or (ii) three (3)
business days after the date deposited in the U.S. registered or certified mail,
addressed as provided above.
- 3 -
<PAGE>
(b) Integration; Modification. This Agreement between the Company and
Holder constitute the entire understanding and agreement between the Company and
the Holder regarding the subject matter hereof and supersede all prior
negotiations and agreements, whether oral or written, between the Company and
Holder with respect to the subject matter of this Agreement. This Agreement may
not be modified except by a written agreement signed by the Holder and a duly
authorized officer of the Company.
(c) Severability. In the event of the invalidity or unenforceability
of any part or provision of this Agreement, such invalidity or unenforceability
shall not affect the validity or enforceability of any other part or provision
of this Agreement, and the remainder of this Agreement shall continue in full
force and effect in accordance with its terms.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MARYLAND.
(e) Arbitration. Any controversy arising out of, or relating to, this
Agreement, or any breach hereof, shall be settled by binding arbitration before
a single arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association In Baltimore, Maryland, or in any other place
the parties shall mutually agree, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
(f) Headings. The headings and paragraphs have been included herein
for convenience only and shall not be considered in interpreting this Agreement.
(g) Binding Effect. This Agreement shall be binding upon the Company
and shall inure to the benefit of the Company and Holder and their respective
heirs, legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Agreement as of the date first above written.
Attest: INTEGRATED HEALTH SERVICES, INC.
By:
- ------------------ ------------------
Its: Executive Vice President
------------------------
- 4 -
<PAGE>
DATE:
-------------
Marc B. Levin
Executive Vice President
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Re: Notice of Exercise
Dear Mr. Levin:
With respect to the exercise of an option to purchase _________ shares of
common stock of Integrated Health Services, Inc. (the "Warrant Shares") at a
purchase price of $33.16 per share, the notice of which is hereby given and the
payment of which is hereby enclosed, I hereby make the following acknowledgments
and representations:
(a) the Warrant Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel reasonably satisfactory to the Company, may be made without
violating the provisions of the Securities Act of 1933, as amended (the "Act"),
or any other applicable securities laws); and
(b) the undersigned understands that the Warrant Shares are
"restricted securities" within the meaning of Rule 144 promulgated by the
Securities and Exchange Commission, that the Warrant Shares have not been
registered under the Act or any other applicable securities laws and must be
held indefinitely unless they are subsequently registered under such Act and
applicable laws or an exemption from registration is available and that the
Company is under no obligation to register the Warrant Shares under the Act or
any other applicable securities laws or to take any action which would make
available to the Holder any exemption from such registration.
-------------------------
Stephen P. Griggs
(Holder)
- 5 -
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Integrated Health Services, Inc.:
We consent to the use of our report dated March 24, 1997 relating to the
consolidated financial statements of Integrated Health Services, Inc. and
subsidiaries, incorporated by reference herein, our report dated October 17,
1996 relating to the consolidated financial statements of First American Health
Care of Georgia, Inc. and subsidiaries, incorporated by reference herein, and
our report dated April 14, 1997 relating to the consolidated financial
statements of Community Care of America, Inc. and subsidiaries, incorporated by
reference herein, and to the reference to our firm under the heading "Experts"
in the registration statement.
Our report dated March 24, 1997 refers to changes in accounting methods, in
1995, to adopt Statement of Financial Accounting Standards No. 121 relating to
impairment of long-lived assets and, in 1996, from deferring and amortizing
pre-opening costs of medical specialty units to recording them as expenses when
incurred. Our report dated October 17, 1996 contains an explanatory paragraph
regarding the uncertainty with respect to certain contingent payments which may
be payable under a settlement agreement with the Health Care Financing
Administration. Our report dated April 14, 1997 refers to the change in
accounting method in 1996 to adopt Statement of Financial Accounting Standards
No. 121 relating to impairment of long-lived assets.
KPMG Peat Marwick LLP
Baltimore, Maryland
December 8, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the Incorporation by references in this registration
statement on Form S-3 of Integrated Health Services, Inc. (IHS) of our report
dated September 18, 1997 (October 21, 1997 as to Note 1), appearing in the
Annual Report on Form 10-K of RoTech Medical Corporation for the year ended July
31, 1997, which report appears in the Form 8-K, dated October 21, 1997, as
amended, of IHS, and to the reference to us under the heading experts in the
registration statement.
Deloitte & Touche LLP
Orlando, Florida
December 8, 1997
