AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO. 333-___________
================================================================================
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)
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
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)
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)
-----------------------
Copies of all communications, including all communications sent to
the agent for service, should be sent to:
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
(410) 998-8400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
--------------------------
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: [ ]
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
COMMON STOCK, $.001 PAR VALUE PER SHARE
(INCLUDING THE PREFERRED STOCK PURCHASE
RIGHTS)(2) 1,091,455 $34.8125 $37,996,277.19 $11,514.02
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</TABLE>
(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 July 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.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 11, 1997
1,091,455 Shares
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
This Prospectus relates to 1,091,455 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 July 9, 1997, the closing price of the Common Stock,
as reported in the consolidated reporting system, was $34.25 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 6 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 July __, 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 forwardlooking 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 that
could cause actual results to differ materially from those contemplated in such
forward-looking statements, including those discussed under "Risk Factors."
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
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<PAGE>
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.
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) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
(c) 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;
(d) Current Report on Form 8-K dated October 19, 1996 reporting the
execution of the Agreement and Plan of Merger among the Company, IHS Acquisition
XIX, Inc. and Coram Healthcare Corporation (the "Merger Agreement"), as amended
by Form 8-K/A filed April 11, 1997, reporting the termination of the Merger
Agreement;
(e) 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;
(f) 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;
(g) 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") relating to the Company's
proposed acquisition of RoTech;
(h) 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
(i) 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.
All documents filed by the Company 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
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<PAGE>
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 statements 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.
THE COMPANY
Integrated Health Services, Inc. is one of the nation's leading
providers of postacute 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 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 "preacute" 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 1,100 service locations in 41
states.
The Company's post-acute care network strategy is to provide
cost-effective continuity of care for its patients in multiple settings,
including 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
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<PAGE>
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; (iii) developing subacute care
units; and (iv) forming strategic alliances with health maintenance
organizations, hospital groups and physicians. 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.
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 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 intends to use the home healthcare
setting and the delivery franchise of the 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 a referral base for IHS' other services and healthcare capabilities;
and (iii) provide a cost-effective site for case management and patient
direction.
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 174 geriatric care facilities (118 owned
or leased and 56 managed) 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.
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<PAGE>
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 traditional basic
nursing services, and approximately 3% were derived from management and other
services. On a pro forma basis after giving effect to the acquisition of First
American, for the year ended December 31, 1996, approximately 35% of IHS'
revenues were derived from home health and hospice care, approximately 41% were
derived from subacute and other ancillary services, approximately 21% were
derived from traditional basic nursing home services and the remaining
approximately 3% were derived from management and other services.
The Company was incorporated in March 1986 as a Pennsylvania
corporation and reorganized as a Delaware corporation in November 1986. The
Company's 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, Integrated Health Services, Inc. and its
subsidiaries are referred to herein collectively as "IHS" or the "Company."
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 March 31, 1997, the
Company's total long-term debt, net of current portion, accounted for 65.3% of
its total capitalization (66.7% on a pro forma basis after giving effect to the
issuance of $450 million aggregate principal amount of its 9 1/2% Senior
Subordinated Notes due 2007 and the use of proceeds therefrom to repurchase
approximately $214.9 million of its outstanding senior subordinated notes and to
repay approximately $191 million under its revolving credit facility). The
Company also has significant lease obligations with respect to the facilities
operated pursuant to long-term leases, which aggregated approximately $224.0
million at March 31, 1997. For the year ended December 31, 1996 and the three
months ended March 31, 1996 and 1997, the Company's rent expense was $77.8
million ($77.0 million on a pro forma basis after giving effect to the
acquisition of First American, the sale of IHS' pharmacy division and a majority
interest in its assisted living services division and certain other acquisitions
consummated in 1996), $17.7 million and $24.0 million, respectively. In
addition, the Company 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. The
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<PAGE>
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) the
Company's 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 the Company's 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 the Company for its
operations; (iii) certain of the Company's borrowings bear, and will continue to
bear, variable rates of interest, which expose the Company to increases in
interest rates; and (iv) certain of the Company's 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, the Company's leverage may also adversely affect the Company's ability
to respond to changing business and economic conditions or continue its growth
strategy. There can be no assurance that the Company's operating results will be
sufficient for the payment of the Company's indebtedness. Both Moody's and
Standard & Poors in May 1997 confirmed their ratings of IHS' long-term debt
obligations, but with a negative outlook. Moody's stated that it retained a
negative outlook anticipating that IHS will continue to be an aggressive
acquirer of companies, and that it would view negatively any increase in
leverage. Standard & Poors stated that its ratings reflected the Company's
aggressive transition towards becoming a full service alternate-site healthcare
provider and its limited cash flow relative to its heavy debt burden. If the
Company 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 the
Company finances its activities with additional debt, the Company 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 the Company. See "--Risks Related to Capital Requirements."
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 its 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 that 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
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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, 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 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 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.
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<PAGE>
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 the
Company to focus on obtaining contracts with managed care organizations and to
provide capitated services. IHS 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 the Company require licensure as an insurance company,
there can be no assurance that the Company could obtain or maintain the
necessary licensure, or that the Company would be able to meet any financial
criteria imposed by a state. If the Company was 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
-9-
<PAGE>
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 management 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 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. IHS has recently completed
several major acquisitions, including the First American acquisition, and is
still in the process of integrating those acquired businesses. The Company's
Board of Directors and senior management face a significant challenge in their
efforts to integrate the acquired businesses, including First American. The
dedication of management resources to such integration may detract attention
from the day-to-day business of IHS. 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. 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.
On a pro forma basis, after giving effect to the acquisition of First American
(which derives substantially all its revenue from Medicare), approximately 88%,
89% and 85% of IHS' home healthcare revenues were derived from Medicare in the
year ended December 31, 1996 and the three months ended March 31, 1996 and 1997,
respectively. On a pro forma basis, after giving effect to the First American
acquisition, home nursing services accounted for approximately 97.6%, 97.3% and
92.9%, 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,
the Company 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
-10-
<PAGE>
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. The inability
of IHS to realize operating efficiencies and to 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, have resulted in reduced rates of reimbursement for services
provided by IHS. Aspects of certain healthcare reform 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. See "--Risk of
Adverse Effect of Healthcare Reform." During the years ended December 31, 1994,
1995 and 1996 and the three months ended March 31, 1996 and 1997, the Company
derived approximately 56%, 55%, 60%, 57% and 67%, respectively, of its patient
revenues from Medicare and Medicaid. Substantially all of First American's
revenues are derived from Medicare. On a pro forma basis after giving effect to
the
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<PAGE>
First American acquisition and the sale of a majority interest in its assisted
living division, approximately 69%, 68%, 68% and 67% of the Company's patient
revenues would have been derived from Medicare and Medicaid during the years
ended December 31, 1995 and 1996 and the three months ended March 31, 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.
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
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<PAGE>
contingent payments related to the First American acquisition of $155 million
over a period of five years. Additionally, the May 1997 balanced budget
agreement between the President and Congress contemplates changing Medicare
payments for skilled nursing facilities and home nursing services from a
cost-reimbursement system to a prospective payment system. 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. See "--Risks
Related to Recent Acquisitions" 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. 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 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 the Company, there can
be no assurance that the Company 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
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<PAGE>
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 strategy
of acquiring poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
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 the 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 Medicare 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.
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<PAGE>
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 IHS' 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
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
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<PAGE>
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.
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 July 1, 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.
SHARES OF
SHARES OF COMMON
COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
DRIFTWOOD HEALTH CARE MANAGERS ------------- ---------- ------------
- ------------------------------
Driftwood Health Care Managers, Inc. 1 3,000 3,000 0
- ----------
1 The shares sold hereunder represent shares issuable upon exercise of a
Warrant to Purchase Shares of Common Stock issued to Driftwood Health Care
Managers, Inc. ("Driftwood") on July 1, 1992 in connection with the Company's
lease of a skilled nursing home facility owned by Driftwood.
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<PAGE>
SHARES OF
SHARES OF COMMON
COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
------------- ---------- ------------
SIGNATURE HOME CARE, INC. 2
- --------------------------
Alvin R. Albe, Jr. 234 234 0
Donald V. Barrett 690 690 0
Peter E. Bennett 548 548 0
Charles G. Berg 239 239 0
David Monte Blumberg 847 847 0
Carmel Burke Bonesso 10 10 0
Austin Broadhurst, Jr. 156 156 0
Louis Church 580 580 0
Robert A. Day 626 626 0
James deVenny 783 783 0
Robert F. Doviak c/o Dale L. 313 313 0
McCullough, Special Master
Doviak Partners Ltd., Marla Reynolds, 1,409 1,409 0
Agent
Ian J. Dowie 1,566 1,566 0
Escrow Fund 3 166,251 166,251 0
Everen Clearing Corp. Cust. FBO Terry 522 522 0
Martin McGann IRA
Everen Clearing Corp. Cust. FBO 261 261 0
Rhonda Rife McGann IRA
FG-HS 3,915 3,915 0
Alan H. Fishman 391 391 0
Steven J. Gilbert 6,500 6,500 0
Gary Gladstein 704 704 0
Clark Good 42 42 0
James E. Gordon 196 196 0
- --------
2 Shares are being sold hereunder by the former stockholders of Signature
Home Care, Inc. ("Signature"). The shares sold hereunder represent shares
received in exchange for the shares of Signature pursuant to the Stock Purchase
Agreement dated as of August 23, 1996. Pursuant to the terms of such agreement,
additional shares of Common Stock may be issued as a purchase price adjustment
based on an audit of Signature's closing date balance sheet.
3 Represents shares held in escrow to secure any purchase price adjustment
in favor of the Company, any breach of the representations, warranties and
covenants of Signature and the indemnification obligations of Signature under
the Stock Purchase Agreement.
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<PAGE>
SHARES OF
SHARES OF COMMON
COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
------------- ---------- ------------
Ruth Ann Hardisty 10 10 0
Steven D. Holzman 234 234 0
Alex M. Jernigan 391 391 0
Donna Kirk 9 9 0
Michael Kluger 690 690 0
H. C. Kresge 861 861 0
Susan Kresge 113 113 0
Anthony J. LeVecchio 1,384 1,384 0
Gary D. Markoff 234 234 0
Joseph Maturo 64 64 0
Joleen Moden 38 38 0
Cathy Nakashima 9 9 0
John H. Pinder 313 313 0
Steven B. Potter 156 156 0
Robert D. Reed 783 783 0
Gerry M. Ritterman 234 234 0
Samaritan Health System 2,417 2,417 0
Barry A. Schwimmer 234 234 0
Rick A. Short 48 48 0
Elliot Stein, Jr. 234 234 0
Stern Family Partnership 24 24 0
Mark Alexander Thompson 313 313 0
Jerry L. Tomlinson 115 115 0
Beatrice B. Trust, Marc I. Stern, Trustee 210 210 0
Stephen F. Wiggins 239 239 0
Paul S. Wolansky 234 234 0
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<PAGE>
SHARES OF
SHARES OF COMMON
COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
------------- ---------- ------------
MEDIQ MOBILE X-RAY SERVICES, INC. 4
- ----------------------------------
MEDIQ Mobile X-Ray Services, Inc. 203,721 203,721 0
TOTAL REHAB SERVICES 5
- ----------------------
Timothy H. Dacy 61,417 26,191 35,226
Shari Kaplan 8,745 8,745 0
David S. Krause 61,417 26,191 35,226
Bruce Paler 8,745 8,745 0
Ronald Paler 8,745 8,745 0
Total Rehab Services, LLC 13,971 13,971 0
Total Rehab Services 02, LLC 13,971 13,971 0
CAMBRIDGE 6
- ----------
Bank of New York, Trustee for
Annuity Trust under Benefit Plan
of Exxon Corp. and Participating
Affiliates 285 285 0
- ----------
4 The shares sold hereunder represent shares received in exchange for the
assets of MEDIQ Mobile X-Ray Services, Inc., pursuant to the Asset Purchase
Agreement dated as of November 6, 1996. Upon effectiveness of the registration
statement of which this Prospectus is a part, the number of shares to be issued
shall be adjusted to equal that number of shares which have an aggregate fair
market value of $5,200,000, based upon the average closing price of the Common
Stock on the New York Stock Exchange for the 20-business-day period ending on
the day which is two business days prior to such effectiveness. These shares are
pledged as collateral pursuant to a Credit Agreement dated as of October 1, 1996
among MEDIQ/PRN Life Support Services, Inc. as borrower, MEDIQ Incorporated and
PRN Holdings, Inc. as parent guarantors, the initial lenders named therein,
Banque Nationale de Paris, as Administrative Agent and initial issuing bank, and
NationsBank, N.A., as Documentation Agent.
5 The shares sold hereunder represent shares received in exchange for the
assets of Total Rehab Services, LLC and Total Rehab Services 02, LLC pursuant to
the Asset Purchase Agreement dated as of October 23, 1996. Of the 106,559 shares
of Common Stock being registered hereunder, 25,653 are currently held in escrow
to secure indemnification obligations and purchase price adjustments pursuant to
the Asset Purchase Agreement. Purchase price adjustments may be made based on a
review of the closing date balance sheet of the sellers or on the inability of
the Company to enter into a specified management agreement within thirty days of
the closing (or the termination of such agreement), all on the terms set forth
in the Asset Purchase Agreement. Upon effectiveness of the registration
statement of which this Prospectus is a part, the number of shares to be issued
shall be adjusted to equal that number of shares which have an aggregate fair
market value of $2,700,000, based upon the average closing price of the Common
Stock on the New York Stock Exchange for the 30-business-day period ending on
the day which is two business days prior to such effectiveness.
6 Represents shares issuable upon exercise of stock options.
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<PAGE>
SHARES OF
SHARES OF COMMON
COMMON STOCK STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
------------- ---------- ------------
LIFEWAY, INC. 7
- ---------------
Lifeway Partners LLC 8 75,936 75,936 0
Fred McCall-Perez 19,679 19,679 0
RESTORATIVE THERAPY 9
- ---------------------
Synergy Two, Inc. 331,379 331,379 0
ROBERT N. ELKINS 10 3,080,458 154,522 2,925,936
- --------------------
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On July 1, 1992, the Company entered into a Lease Agreement with
Driftwood Health Care Managers, Inc. ("Driftwood"), pursuant to which the
Company agreed to lease a 160-bed skilled nursing home facility located in
Charleston, South Carolina from Driftwood. The lease runs for a term of 10
years, with two additional five-year renewal periods. In addition, the Company
acquired an option to purchase the facility from Driftwood. In connection with
the execution of the lease, the Company issued a Warrant to Purchase Shares of
Common Stock to Driftwood. The 3,000 shares of common stock issuable upon the
exercise of such warrant are being offered hereby.
On September 25, 1996, the Company acquired all of the outstanding
stock of Signature Home Care, Inc., a Delaware corporation which provides home
nursing services, infusion services, respiratory therapy and home medical
equipment in Arizona, Florida, Kansas, New Jersey and Texas as well as
management services to home health providers. The purchase price was $9.2
million, including $4.7 million paid through the issuance of 196,374 shares of
the Company's Common Stock (the "Signature Shares").
The Signature Shares are being offered hereby.
On November 6, 1996, the Company acquired substantially all the assets,
and assumed certain liabilities, of MEDIQ Mobile X-Ray Services, Inc. ("Mediq"),
which provides portable X-ray, EKG and nutritional services to residents of
nursing homes and other institutions and home care patients and ancillary
services related thereto.
- ----------
7 The shares sold hereunder represent shares received in exchange for the
stock of Lifeway, Inc., pursuant to the Agreement and Plan of Reorganization
dated as of November 8, 1996.
8 Dr. Robert N. Elkins, the Chairman and Chief Executive Officer of IHS,
owns 99% of Lifeway Partners LLC, and his wife owns the remaining 1%. Does not
include shares beneficially owned by Dr. Elkins. See Note 10.
9 The shares sold hereunder represent shares received in exchange for the
assets of Rehab Dynamics, Inc. and Restorative Therapy Limited (which has since
changed its name to Synergy Two, Inc.) pursuant to the Asset Purchase Agreement
dated as of May 20, 1997. Of the 331,379 shares registered hereunder, 8,907 are
currently in escrow to secure purchase price adjustments. Purchase price
adjustments may be made based upon a review of the working capital and long-term
liabilities relating to the purchased assets as of the closing date and based
upon earnings relating to the purchased assets in the year following the
closing, all on the terms set forth in the Asset Purchase Agreement.
10 The shares beneficially owned by Dr. Elkins include 2,850,000 shares
issuable upon exercise of options and 75,936 shares owned by Lifeway Partners
LLC, a Selling Stockholder hereunder. See Note 8 above. The shares sold
hereunder represent shares acquired by Dr. Elkins in the open market.
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<PAGE>
The purchase price was $10.1 million, of which $5.2 million was paid through the
issuance of 203,721 shares of the Company's Common Stock (the "Mediq Shares").
The Company is required to make a contingent payment of up to $2.0 million
through February 2000 unless, prior to February 1, 2000, there is an alteration,
modification or other change in the amount of EKG transportation reimbursement
paid to IHS which has the effect of eliminating or reducing the reimbursement
amount for such services. The Mediq Shares are being offered hereby.
On November 8, 1996, the Company acquired substantially all the assets
of Total Rehab Services, LLC and Total Rehab Services 02, LLC, which provides
respiratory services and contract rehabilitation services, including speech and
language pathology, occupational therapy and physical therapy services, in
Illinois and New York. The purchase price was $8.0 million, including $2.7
million paid through the issuance of 106,559 shares of the Company's Common
Stock (the "Total Rehab Shares"). The Total Rehab Shares are being offered
hereby.
On November 13, 1996, the Company acquired the remaining 90% of
Lifeway, Inc. ("Lifeway"), a physician management and disease management company
in Miami, Florida. The purchase price was $900,000, which was paid through the
issuance of 38,502 shares of the Company's Common Stock (the "Acquisition
Shares"). In connection with the Lifeway acquisition, the Company repaid
outstanding loans to Lifeway from Dr. Robert N. Elkins, the Company's Chairman
and Chief Executive Officer, aggregating $1,125,000 through the issuance of
48,129 shares of the Company's Common Stock (the "Loan Shares"), and issued
8,984 shares of Common Stock in partial payment of a bonus to Mr. McCall-Perez
(the "Bonus Shares" and, together with the Acquisition Shares and the Loan
Shares, the "Lifeway Shares"). Prior to the acquisition, IHS owned 10% of
Lifeway, which interest it acquired in August 1995, and Dr. Elkins beneficially
owned approximately 65% of Lifeway. The Lifeway Shares are being offered hereby.
On June 20, 1997, the Company acquired substantially all the assets,
and assumed certain liabilities, of Rehab Dynamics, Inc. and Restorative Therapy
Limited (which has since changed its name to Synergy Two, Inc.), which provide
contract rehabilitation services, including speech and language pathology,
occupational therapy and physical therapy services, to patients in a variety of
settings. The purchase price was $31.4 million, of which $8.4 million was paid
in cash at the closing, $11.8 million was paid through the issuance of 331,379
shares of the Company's Common Stock (the "Restorative Therapy Shares") and the
remainder is to be paid after determination of any purchase price adjustment due
to earnings relating to the purchased assets in the year following the closing.
The Restorative Therapy Shares are being offered hereby.
Dr. Robert N. Elkins, the Company's Chairman and Chief Executive
Officer, acquired 148,465 shares of Common Stock in open market purchases and
6,057 shares of Common Stock as a gift from his spouse. 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 Signature Group has agreed not to sell in excess of 75,000 shares
of Common Stock during any thirty day period and to effect sales solely through
Smith Barney Inc., Cowen & Co. or PaineWebber Incorporated. Mediq has agreed not
to sell in excess of 100,000 shares of Common Stock during any thirty day
period, until such time as at least 100,000 of the Mediq Shares have been sold,
and to effect sales solely through Smith Barney Inc. The Total Rehab Group has
agreed not to sell in excess of 50,000 shares of Common Stock during any thirty
day period and to effect sales solely through Smith Barney Inc. The Lifeway
Group has agreed to effect sales solely through Smith Barney Inc., and Fred
McCall-Perez has agreed not to transfer any of the Lifeway Shares received by
him for a period of one year following the issuance of such shares. Restorative
Therapy Limited 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
-22-
<PAGE>
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 Marshall A. Elkins,
Executive Vice President and General Counsel of the Company. Mr. Elkins is the
brother of Robert N. Elkins, the Company's Chairman of the Board and Chief
Executive Officer. Mr. Marshall Elkins owns 17,299 shares of Common Stock and
options to purchase 161,535 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 the Registration Statement 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
the Registration Statement from IHS' Current Report on Form 8-K/A (dated October
17, 1996 and filed with the Commission on November 26, 1996), 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.
-23-
<PAGE>
====================================== =====================================
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 OR 1,091,455
REPRESENTATION MUST NOT BE RELIED Shares
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES 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 INTEGRATED HEALTH
SOLICITATION OF AN OFFER TO BUY ANY SERVICES, INC.
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 PROSPEC- TUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION Common Stock
THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
-------------------------------
TABLE OF CONTENTS
PAGE PROSPECTUS
Available Information ..............2
Incorporation of Certain -------------------------------
Documents by Reference .......... 3
The Company ....................... 4
Risk Factors....................... 6
Use of Proceeds................... 16
Selling Stockholders...............16 July 10, 1997
Plan of Distribution...............22
Legal Matters .....................23
Experts............................23
====================================== =====================================
<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:
Registration Fee - Securities and Exchange Commission......$ 11,514.02
Legal and accounting fees and expenses...................... 35,000.00*
Miscellaneous................................................ 3,485.98*
------------
Total ........................................... $ 50,000.00
- ----------
* 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.
<PAGE>
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.
5 - Opinion of Marshall A. Elkins, Esq.
10.1 - Warrant to Purchase Shares of Common Stock, dated as of July
1, 1992, between the Company and Driftwood Health Care
Managers, Inc.
10.2 - Stock Purchase Agreement, dated as of August 23, 1996, among
the Company, Signature Home Care, Inc. and the other parties
thereto.
10.3 - Asset Purchase Agreement, dated as of October 23, 1996, among
the Company, IHS Acquisition XV, Inc., Total Rehab Services,
LLC, Total Rehab Services 02, LLC and the other parties
thereto.
10.4 - Asset Purchase Agreement, dated as of November 6, 1996, among
MEDIQ Mobile X-Ray Services, Inc., MEDIQ Incorporated and
Symphony Diagnostic Services No. 1, Inc.
10.5 - Agreement and Plan of Reorganization, dated as of November 8,
1996, among the Company, IHS Acquisition XXI, Inc., Lifeway,
Inc. and the other parties thereto.
10.6 - Asset Purchase Agreement, dated as of May 20, 1997, among the
Company, Symphony Rehab Dynamics, Inc., Symphony Restorative
Therapy Limited, Rehab Dynamics, Inc., Restorative Therapy
Limited and the other parties thereto.
23.1 - Consents of KPMG Peat Marwick LLP.
23.2 - Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 - Power of Attorney (included on signature page).
II-2
<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
II-3
<PAGE>
(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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonably 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 July 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.
Signature Title Date
Chairman of the Board
and Chief Executive Officer
/s/ Robert N. Elkins (Principal Executive Officer) July 10, 1997
- ------------------------------
(Robert N. Elkins)
/s/ Lawrence P. Cirka President and Director July 10, 1997
- ------------------------------
(Lawrence P. Cirka)
<PAGE>
/s/ Edwin M. Crawford Director July 10, 1997
- ------------------------------
(Edwin M. Crawford)
/s/ Kenneth M. Mazik Director July 10, 1997
- ------------------------------
(Kenneth M. Mazik)
/s/ Robert A. Mitchell Director July 10, 1997
- ------------------------------
(Robert A. Mitchell)
/s/ Charles W. Newhall, III Director July 10, 1997
- ------------------------------
(Charles W. Newhall, III)
/s/ Timothy F. Nicholson Director July 10, 1997
- ------------------------------
(Timothy F. Nicholson)
/s/ John L. Silverman Director July 10, 1997
- ------------------------------
(John L. Silverman)
/s/ George H. Strong Director July 10, 1997
- ------------------------------
(George H. Strong)
Executive Vice President-
Chief Accounting Officer
(Principal Accounting
/s/ W. Bradley Bennett Officer) July 10, 1997
- ------------------------------
(W. Bradley Bennett)
Executive Vice
President-Finance
(Principal Financial
/e/ Eleanor C. Harding Officer) July 10, 1997
- ------------------------------
(Eleanor C. Harding)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- -------- ----------- --------
<S> <C> <C>
5 Opinion of Marshall Elkins, Esq.
10.1 Warrant to Purchase Shares of Common Stock, dated as of July 1, 1992,
between the Company and Driftwood Health Care Managers, Inc.
10.2 Stock Purchase Agreement, dated as of August 23, 1996, among the
Company, Signature Home Care, Inc. and the other parties thereto.
10.3 Asset Purchase Agreement, dated as of October 23, 1996, among the
Company, IHS Acquisition XV, Inc., Total Rehab Services, LLC, Total
Rehab Services 02, LLC and the other parties thereto.
10.4 Asset Purchase Agreement, dated as of November 6, 1996, among MEDIQ
Mobile X-Ray Services, Inc., MEDIQ Incorporated and Symphony
Diagnostic Services No. 1, Inc.
10.5 Agreement and Plan of Reorganization, dated as of November 8, 1996,
among the Company, IHS Acquisition XXI, Inc., Lifeway, Inc. and the
other parties thereto.
10.6 Asset Purchase Agreement, dated as of May 20, 1997, among the Company,
Symphony Rehab Dynamics, Inc., Symphony Restorative Therapy Limited,
Rehab Dynamics, Inc., Restorative Therapy Limited and the other
parties thereto.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 Power of Attorney (see signature page).
</TABLE>
Exhibit 5
July 10, 1997
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs:
I refer to the Registration Statement on Form S-3 (the "Registration
Statement") to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), on behalf of Integrated Health
Services, Inc. (the "Company"), relating to 1,091,455 shares of the Company's
Common Stock, $.001 par value (the "Shares"), to be sold by certain Selling
Stockholders named therein.
I am Executive Vice President and General Counsel of the Company. As
counsel for the Company, I have examined such corporate records, documents and
such questions of law as I have considered necessary or appropriate for the
purposes of this opinion and, upon the basis of such examination, advise you
that in my opinion the Shares to be sold by the Selling Stockholders have been
duly and validly authorized and are legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading "Legal
Matters" in the Registration Statement. This consent is not to be construed as
an admission that I am a person whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
Very truly yours,
/s/ Marshall A. Elkins
Marshall A. Elkins
Executive Vice President and
General Counsel
WARRANT TO PURCHASE SHARES OF COMMON STOCK
FROM
INTEGRATED HEALTH SERVICES, INC.
JULY 1, 1992
<PAGE>
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, AND, MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT,
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
INTEGRATED HEALTH SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, Driftwood Health Care
Managers, Inc., a South Carolina corporation ("Driftwood"), is entitled to
purchase, pursuant to the terms hereof, three thousand (3,000) shares of Common
Stock, par value $.001 per share (the "Common Stock") of Integrated Health
Services, Inc., a Delaware corporation (the "Company"), at a purchase price of
$20.00 per share. As partial consideration for the execution and delivery of
this Warrant, Driftwood has delivered and paid to the Company an aggregate of
$3.00 ($.001 per share of Common Stock).
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be
exercised, and the Common Stock covered hereby (the "Warrant Shares") may be
purchased, are as follows:
1.1. Exercise. This Warrant may be exercised in whole or in
part at any time after July 1, 1994, but in no case may this Warrant be
exercised at any time after the earliest to occur of the following: (a) July 1,
1999 or (b) the closing of the Company's sale of all or substantially all of its
assets or the acquisition of the Company by another entity or group by means of
a merger, sale or exchange of shares, or other transaction as a result of which
shareholders of the Company immediately prior to such acquisition possess a
minority of the voting power of the acquiring entity or the Company (if it is
the surviving entity).
<PAGE>
1.2. Purchase Price. The purchase price for the Warrant Shares
to be issued upon exercise of this Warrant shall be $20.00 per Warrant Share,
subject to adjustments as set forth below.
1.3. Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of subscription attached hereto
as Exhibit A, to the Company at its principal offices and (b) the delivery of
the purchase price by certified check or bank draft payable to the Company's
order, in immediately available funds for the number of shares for which the
purchase rights hereunder are being exercised, or delivery of the purchase price
by any other form of consideration approved by the Company's Board of Directors.
1.4. Issuance of Warrant Shares. In the event the purchase
rights evidenced by this Warrant are exercised, in whole or in part, a
certificate or certificates for the purchased shares shall be issued to
Driftwood as soon as practicable. In the event the purchase rights evidenced by
this Warrant are exercised in part, the Company shall also issue to Driftwood a
new warrant representing the unexercised purchase rights.
2. CERTAIN ADJUSTMENTS
2.1. Stock Dividends; Split or Subdivision of Shares. If at
any time while this Warrant remains outstanding and unexpired, the Company
should effect a split or subdivision of the outstanding shares of Common Stock
or pay a dividend with respect to the Common Stock payable in shares of Common
Stock, then:
(a) the purchase price shall be reduced, concurrently
with such issuance, to a price determined by (i) multiplying such price by the
number of shares of Common Stock outstanding immediately prior to such issuance,
and (ii) dividing the result by the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the actual number of such
additional shares of Common Stock so issued, in the case of any such dividend,
immediately after the close of business on the record date for determining the
holders of any class of securities entitled to receive such dividend, or in the
case of any such subdivision, at the close of business on the date immediately
prior to the date upon which such corporate action becomes effective. In either
case the number of additional shares of Common Stock deemed to have been issued
shall be the difference between the number of outstanding shares of Common Stock
outstanding immediately before such dividend or subdivision and the number of
shares of Common Stock outstanding immediately thereafter; and
(b) the number of shares of Common Stock issuable
upon exercise of this Warrant shall be increased to the product obtained by
multiplying the number of Warrant Shares purchasable immediately prior to such
purchase price adjustment by a fraction (i) the numerator of which shall be the
purchase price immediately prior to such
-3-
<PAGE>
adjustment, and (ii) the denominator of which shall be the purchase price
immediately after such adjustment.
2.2. Mergers, Consolidations or Sale of Assets. If at any time
there shall be a capital reorganization of the Company (other than a
combination, reclassification, exchange or subdivision of Warrant Shares
otherwise provided for herein), or a merger or consolidation of the Company with
or into another corporation in which the Company is not the surviving
corporation, or the sale of the Company's properties and assets as, or
substantially as, an entirety to any other person or entity, then, as a part of
such reorganization, merger, consolidation or sale, lawful provision shall be
made so that Driftwood shall be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
purchase price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation or sale, to which a holder of the Warrant Shares
deliverable upon exercise of this Warrant would have been entitled under the
provisions of the agreement in such reorganization, merger, consolidation or
sale if this Warrant had been exercised immediately before that reorganization,
merger, consolidation or sale.
2.3. Reclassification. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the Warrant Shares into the same or a different number of securities of
any other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares immediately prior to
such subdivision, combination, reclassification or other change.
2.4. Combination of Shares. If at any time while this Warrant
remains outstanding and unexpired, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock, then:
(a) the purchase price shall be correspondingly
increased to a price determined by (i) multiplying such purchase price by the
number of shares of Common Stock outstanding immediately prior to such issuance,
and (ii) dividing the result by the number of shares of Common Stock outstanding
immediately after such combination; and
(b) the number of shares of Common Stock issuable
upon exercise of this Warrant shall be decreased to the product obtained by
multiplying the number of Warrant Shares purchasable immediately prior to such
purchase price adjustment by a fraction (i) the numerator of which shall be the
purchase price immediately prior to such adjustment, and (ii) the denominator of
which shall be the purchase price immediately after such adjustment.
2.5. Certificate as to Adjustments. In the case of each
adjustment or readjustment of the purchase price pursuant to this Section 2, the
Company will promptly compute such adjustment or readjustment in accordance with
the terms hereof and cause a
-4-
<PAGE>
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based to be delivered to
the holder of this Warrant. The Company shall, upon the written request at any
time of the holder of this Warrant, furnish or cause to be furnished to such
holder a certificate setting forth:
(a) such adjustments and readjustments;
(b) the purchase price at the time in effect; and
(c) the number of shares of Warrant Shares and the
amount, if any, of other property at the time receivable upon the exercise of
this Warrant.
3. FRACTIONAL SHARES
No fractional shares shall be issued in connection with any
exercise of this Warrant. In lieu of the issuance of such fractional share, the
Company shall make a cash payment equal to the then fair market value of such
fractional share as determined by the Company's Board of Directors.
4. RESERVATION OF COMMON STOCK
The Company shall at all times during the period within which
the rights represented by this Warrant may be exercised, reserve and keep
available a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.
5. PRIVILEGE OF STOCK OWNERSHIP
Prior to the exercise of this Warrant, Driftwood shall not be
entitled, by virtue of holding this Warrant, to any rights of a shareholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of shareholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by applicable law.
6. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
the holder hereof to purchase the Warrant Shares, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the purchase price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
-5-
<PAGE>
7. TRANSFERS AND EXCHANGES
7.1. Transfer of this Warrant. Subject to compliance with
applicable securities laws, this Warrant and all rights hereunder are
transferrable in whole or in part by Driftwood upon the prior written consent of
the Company. Any such transfer shall be recorded on the books of the Company
upon the surrender of this Warrant, properly endorsed, to the Company at its
principal offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the several holders one or more appropriate
new warrants.
7.2. Endorsement of this Warrant. Each holder agrees that this
Warrant when endorsed in blank shall be negotiable and that when so endorsed the
holder may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner for all purposes and as the person entitled to
exercise the purchase rights evidenced hereby; provided, however, that until
such time as the transfer is recorded on the books of the Company, the Company
may treat the registered holder of this Warrant as the absolute owner.
7.3. New Warrants. All new warrants issued in connection with
transfers, exchanges or partial exercises shall be identical in form and
provision to this Warrant except as to the number of shares.
8. PAYMENT OF TAXES
The Company shall pay all expenses in connection with, and all
taxes and other governmental charges (other than any thereof on, based on, or
measured by, the net income of the holder thereof) that may be imposed in
respect of, the issue or delivery of the Warrant Shares. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for shares of the Warrant
Shares in any name other than that of Driftwood, and in such case, the Company
shall not be required to issue or deliver any stock certificate until such tax
or other charge has been paid or it has been established to the Company's
satisfaction that no such tax or other charge is due.
9. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall be binding upon
the Company and Driftwood and their respective successors and assigns.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF THIS WARRANT
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in case of loss, theft or destruction,
-6-
<PAGE>
of indemnity or security reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
11. RESTRICTED SECURITIES
The holder understands that this Warrant and the Warrant
Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933 or an applicable exemption from
registration. In this connection, the holder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resales of this Warrant and the Warrant Shares purchased
hereunder.
12. SATURDAYS, SUNDAYS, HOLIDAYS
If the last or appointed day for the taking of any action or
the expiration of any right required or granted herein shall be a Saturday or
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised, except as to the purchase price, on the next succeeding day
not a legal holiday.
IN WITNESS WHEREOF, the parties have caused this Warrant to be
duly executed on this 1st day of July, 1992.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ William J. Krystopowicz
---------------------------
Name: William J. Krystopowicz
------------------------
Title: Senior Vice President
-----------------------
RECEIVED AND ACKNOWLEDGED this
1st day of July, 1992
DRIFTWOOD HEALTH CARE MANAGERS, INC.
By: /s/ Calvin D. Lipscomb
------------------------------
Name: Calvin D. Lipscomb
----------------------------
Title: President
---------------------------
-----------------------------
STOCK PURCHASE AGREEMENT
Dated as of August 23, 1996
among
INTEGRATED HEALTH SERVICES, INC.
and
SELLING SHAREHOLDERS
and
SIGNATURE HOME CARE, INC.
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I: SALE AND PURCHASE OF COMPANY SECURITIES......................................................1
1.1 Sale and Purchase of Company Securities................................................1
ARTICLE II: PURCHASE PRICE..............................................................................1
2.1 Determination and Payment of Purchase Price............................................1
2.2 Adjustments to the Aggregate Gross Purchase Price......................................3
2.3 Escrow.................................................................................5
2.4 Appointment of Sellers' Committee......................................................6
2.5 Committee Duties; Power of Attorney....................................................6
2.6 Actions of the Committee...............................................................7
2.7 Assets and Liabilities.................................................................7
ARTICLE III: IHS STOCK..................................................................................8
3.1 IHS Stock..............................................................................8
ARTICLE IV: THE CLOSING................................................................................12
4.1 Time and Place of Closing.............................................................12
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND
COMPANY.................................................................................................12
5.1 Organization and Standing of the Company..............................................13
5.2 Absence of Conflicting Agreements.....................................................13
5.3 Consents..............................................................................13
5.4 Capital Stock.........................................................................13
5.5 Assets and Liabilities................................................................14
5.6 Trademarks............................................................................14
5.7 Contracts.............................................................................14
5.8 Financial Statements..................................................................15
5.9 Material Changes......................................................................16
5.10 Licenses; Permits; Certificates of Need...............................................16
5.11 Title, Condition of Personal Property.................................................17
5.12 Legal Proceedings.....................................................................18
5.13 Employees.............................................................................18
5.14 Collective Bargaining, Labor Contracts, Employment Practices, Etc.....................19
5.15 ERISA.................................................................................19
5.16 Insurance and Surety Agreements.......................................................20
5.17 Relationships.........................................................................20
5.18 Absence of Certain Events.............................................................20
5.19 Compliance with Laws..................................................................21
(i)
<PAGE>
5.20 Finders...............................................................................22
5.21 Tax Returns...........................................................................22
5.22 Encumbrances Created by this Agreement................................................22
5.23 Subsidiaries and Joint Ventures.......................................................22
5.24 No Untrue Statement...................................................................22
5.25 Medicare and Medicaid Programs........................................................22
5.26 Leasehold Interests...................................................................23
5.27 Power and Authority...................................................................23
5.28 Binding Effect........................................................................23
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLERS .................................................23
6.1 Organization and Standing.............................................................23
6.2 Authority.............................................................................23
6.3 Binding Effect........................................................................23
6.4 Absence of Conflicting Agreements.....................................................24
6.5 Consents..............................................................................24
6.6 Ownership of Company Securities.......................................................24
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER...................................................24
7.1 Organization and Standing.............................................................24
7.2 Power and Authority...................................................................24
7.3 Binding Agreement.....................................................................25
7.5 Capital Stock.........................................................................25
7.6 Absence of Conflicting Agreements.....................................................25
7.7 Consents..............................................................................26
7.8 Litigation............................................................................26
7.9 Investment Representation.............................................................26
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE COMPANY AND
ITS SUBSIDIARIES........................................................................................26
8.1 Access to Information and Records before Closing......................................26
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING...................................................27
9.1 Conduct of Business Pending Closing...................................................27
9.2 Negative Covenants of the Company and its Subsidiaries................................27
9.3 Affirmative Covenants.................................................................27
9.4 Pursuit of Consents and Approvals.....................................................29
9.5 Exclusivity...........................................................................29
9.6 Solicitation of Stockholders..........................................................29
9.7 Line of Credit........................................................................29
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.................................................29
10.1 Representations and Warranties........................................................30
10.2 Performance of Covenants..............................................................30
10.3 Delivery of Closing Certificate.......................................................30
(ii)
<PAGE>
10.4 Opinion of Counsel....................................................................30
10.5 Legal Matters.........................................................................30
10.6 Authorization Documents...............................................................30
10.7 Material Change.......................................................................30
10.8 Approvals.............................................................................30
10.9 Consents..............................................................................31
10.10 Closing Date Balance Sheet............................................................31
10.11 Resignation of Company and its Subsidiaries' Boards of Directors......................31
10.12 Additional Sellers....................................................................31
10.13 Hart-Scott-Rodino Act.................................................................31
10.14 Samaritan Joint Venture Agreements....................................................31
10.15 Real Property Consents................................................................31
10.17 Other Documents.......................................................................32
ARTICLE XI: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS...............................................32
11.1 Representations and Warranties........................................................32
11.2 Performance of Covenants..............................................................32
11.3 Delivery of Closing Certificate.......................................................32
11.4 Opinion of Counsel....................................................................32
11.5 Legal Matters.........................................................................32
11.6 Authorization Documents...............................................................32
11.7 Other Documents.......................................................................32
ARTICLE XII: OBLIGATIONS OF THE PARTIES AFTER CLOSING...................................................33
12.1 Survival of Representations and Warranties............................................33
12.2 Indemnification by Sellers............................................................33
12.3 Indemnification by Buyer..............................................................33
12.4 Assertion of Claims...................................................................34
12.5 Liability Cap.........................................................................34
12.6 Control of Defense of Indemnifiable Claims............................................34
12.7 Restrictions..........................................................................35
12.8 Records...............................................................................36
12.9 Audit.................................................................................36
12.10 Appraisal Rights......................................................................36
ARTICLE XIII: TERMINATION..............................................................................37
13.1 Termination...........................................................................37
13.2 Effect of Termination.................................................................37
ARTICLE XIV: MISCELLANEOUS.............................................................................37
14.1 Costs and Expenses....................................................................37
14.2 Performance...........................................................................37
14.3 Benefit and Assignment................................................................37
14.4 Effect and Construction of this Agreement.............................................38
14.5 Cooperation - Further Assistance......................................................38
(iii)
<PAGE>
14.6 Notices...............................................................................38
14.7 Waiver, Discharge, Etc................................................................39
14.8 Rights of Persons Not Parties.........................................................39
14.9 Governing Law.........................................................................39
14.10 Amendments, Supplements, Etc..........................................................39
14.11 Severability..........................................................................39
14.12 Counterparts..........................................................................40
(iv)
</TABLE>
<PAGE>
SCHEDULES & EXHIBITS
Schedule 2.1(a) - Calculation of Fully Diluted Shares Outstanding
Schedule 5.3 - Consent List of Sellers
Schedule 5.4 - Capital Stock
Schedule 5.5(a) - Accounts Payable Aging
Schedule 5.5(b) - Liens
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8(a) - Audited Financial Statements
Schedule 5.8(b) - Unaudited Interim Financial Statements
Schedule 5.8(c) - Material Liabilities
Schedule 5.8(d) - Financial Statement Adjustments
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 6.6 - Ownership of Company Securities
Exhibit A - Class A Redemption Price
Exhibit 2.3 - Escrow Agreement
Exhibit 10.4 - Opinion of Sellers' Counsel
Exhibit 11.4 - Opinion of Buyer's Counsel
(v)
<PAGE>
--------------------------
STOCK PURCHASE AGREEMENT
--------------------------
This Stock Purchase Agreement (the "Agreement") is made as of
the 23rd day of August, 1996, among INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation ("Buyer"), and SIGNATURE HOME CARE, INC., a Delaware corporation
(the "Company"), and each of the holders of capital stock, warrants and stock
options of the Company whose signatures appear at the end of this Agreement
(collectively, the "Sellers" and individually, the "Seller").
WHEREAS, the Sellers are the owners or holders of issued and
outstanding shares of the common, Class A, and Class B stock of the Company and
of the outstanding warrants and stock options of the Company (collectively, the
"Company Securities"); and
WHEREAS, Buyer wishes to acquire the Company Securities from
Sellers, and Sellers wish to sell the Company Securities to Buyer, in accordance
with the terms and conditions hereinafter set forth.
WHEREAS, this Agreement is initially being executed by Sellers
owning an aggregate of approximately fifty-one (51%) percent of the Company
Securities and it is contemplated that prior to the Closing hereunder, Sellers
owning an aggregate of at least ninety (90%) percent of the Company Securities
shall have executed and delivered this Agreement to Buyer.
NOW, THEREFORE, Sellers, Buyer, and Company intending to be
legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF COMPANY SECURITIES
1.1 Sale and Purchase of Company Securities. Subject to the
terms and conditions of this Agreement, at the Closing (as hereinafter defined),
Buyer shall acquire from Sellers, and Sellers shall sell, assign, transfer and
convey to Buyer, the Company Securities. The number of shares of Company
Securities (and the class or series of such shares) being sold by each Seller is
set forth on Schedule 5.4 hereto. The Company Securities to be sold by the
Sellers hereunder shall include each of the Signature Options (as defined below)
and Signature Warrants (as defined below) owned by such Sellers, notwithstanding
that the purchase price payable in respect of such options and warrants pursuant
to the provisions of Section 2.1 may be zero.
ARTICLE II: PURCHASE PRICE
2.1 Determination and Payment of Purchase Price.
<PAGE>
(a) For the purposes hereof, the following terms
shall be defined as indicated
below:
(i) "Aggregate Net Purchase Price" means
the Aggregate Gross Purchase Price, plus the aggregate exercise prices of all
Signature Warrants and Signature Options, minus (A) the amount of any adjustment
under Section 2.2, (B) the Class A Redemption Price, (C) any Class B Stock
dividends payable through the Closing to the extent not paid by the Company as
of the Closing Date, and (D) any amounts owed to New Jersey Partners in
connection with that certain Purchase Agreement dated January 1, 1994 by and
among the Company and the four New Jersey Partners named therein to the extent
not paid by the Company as of the Closing Date.
(ii) "Aggregate Gross Purchase Price" means
Sixteen Million Five Hundred Thousand ($16,500,000.00) Dollars.
(iii) "Class A Redemption Price" means an
amount determined pursuant to Exhibit A hereto.
(iv) "Class A Stock" means the Class A
Stock, par value $1.00 per share, of the Company.
(v) "Class B Stock" means the Class B Stock,
par value $1.00 per share, of the Company.
(vi) "Fully Diluted Shares" means the
aggregate number of shares of Signature Common Stock that would be outstanding
as of the Closing assuming the exercise of all of the Signature Warrants and
Signature Options (if the Per Share Purchase Price exceeds the Net Exercise
Value) and the conversion of all of the Class B Stock.
(vii) "Net Exercise Value" means, as to any
Signature Warrant or Signature Option, an amount equal to the Per Share Purchase
Price multiplied by the number of shares for which such Signature Warrant or
Signature Option is exercisable as of the Closing Date, and reduced by the
aggregate exercise price of the unexercised portion of such Signature Warrant or
Signature Option.
(viii) "Per Share Purchase Price" means the
Aggregate Net Purchase Price divided by the Fully Diluted Shares.
(ix) "Signature Common Stock" means the
common stock, par value $.01 per share, of the Company.
2
<PAGE>
(x) "Signature Option" means any option
outstanding under the Company's Amended and Restated 1992 Option and Restricted
Stock Plan as of the Closing for the purchase of Signature Common Stock.
(xi) "Signature Warrant" means any warrant
outstanding as of the Closing for the purchase of Signature Common Stock.
(b) At the Closing, Buyer shall pay to the Sellers
and the Sellers shall accept, the following amounts in full payment for the
Company Securities:
(i) Purchase of Signature Common Stock. Each
share of Signature Common Stock owned by a Seller, and all rights existing with
respect thereto, shall be exchanged for that number of shares of IHS Stock as
shall be equal in value to 51% of the Per Share Purchase Price, and an amount of
cash equal to 49% of the Per Share Purchase Price (as defined below).
(ii) Purchase of Class A Stock. Each share
of Class A Stock, par value $1.00 per share ("Class A Stock"), owned by a Seller
and all rights existing with respect thereto, shall be exchanged for that number
of shares of IHS Stock as shall be equal in value to 51% of the Class A
Redemption Price, and an amount of cash equal to 49% of the Class A Redemption
Price.
(iii) Purchase of Class B Stock. Each share
of Class B Stock owned by a Seller, and all rights existing with respect
thereto, shall be exchanged for the that number of shares of IHS Stock as shall
be equal to 35.7% and an amount of cash equal to 34.3% of the Per Share Purchase
Price.
(iv) Purchase of Signature Warrants. Each
Signature Warrant and all rights existing with respect thereto, shall be
exchanged for that number of shares of IHS Stock as shall be equal in value to
51% of the Net Exercise Value of such Signature Warrant and an amount of cash
equal to 49% of the Net Exercise Value of such Signature Warrant.
(v) Purchase of Signature Options. Each
Signature Option to purchase Signature Common, and all rights existing with
respect thereto, shall be exchanged for that number of shares of IHS Stock as
shall be equal in value to 51% of the Net Exercise Value of such Signature
Option and an amount of cash equal to 49% percent of the Net Exercise Value of
such Signature Option.
(c) The value of of IHS Stock for the purposes of
subsection (b), above, shall be determined in accordance with Section 3.1(a).
2.2 Adjustments to the Aggregate Gross Purchase Price.
3
<PAGE>
(a) At the Closing, the Company shall deliver to
Buyer the balance sheet of the Company dated as of the Closing Date on a
consolidated basis, certified by the Company's Chief Financial Officer (the
"Closing Date Balance Sheet"). The Aggregate Gross Purchase Price payable to the
Sellers shall be reduced if the Closing Date Balance Sheet discloses that the
amount by which current liabilities, minus current assets, plus long-term
liabilities (excluding minority interests), minus property and equipment before
depreciation, plus $7,700,000 exceeds $3,200,000 (the "Purchase Price Adjustment
Amount"). In such event, the Aggregate Gross Purchase Price payable to the
Sellers at the Closing shall be reduced on a dollar-for-dollar basis by the
amount of the Purchase Price Adjustment Amount. For purposes hereof, current
assets, current liabilities, long-term liabilities and property and equipment
shall be determined on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied.
(b) As soon as is reasonably practicable, but in
any event within ninety (90) days following the Closing Date, Buyer shall
complete and deliver to the Sellers an audit of the Company's Closing Date
Balance Sheet. If such audit reveals that the Purchase Price Adjustment Amount
based on such audit was greater than the Purchase Price Adjustment Amount as
indicated on the Closing Date Balance Sheet, the Aggregate Gross Purchase Price
shall be deemed to have been reduced by the amount of such excess, and the
Sellers shall refund from the Escrow Fund to Buyer the amount of such excess, in
cash and/or IHS Stock as selected by Sellers. If such audit reveals that the
Purchase Price Adjustment Amount based on such audit was less than the Purchase
Price Adjustment Amount per the Closing Date Balance Sheet, the Aggregate Gross
Purchase Price shall be deemed to have been increased by the amount of such
deficiency, and the Buyer shall pay to Sellers the amount of such deficiency, in
the respective combinations of cash and IHS Stock as set forth in Section
2.1(b). In the event that the Sellers choose to effect any reduction of the
Aggregate Gross Purchase Price under Section 2.2(b) by means of a return of IHS
Stock, the number of shares to be so returned shall be calculated based upon the
valuation of the IHS Stock at Closing as set forth in Section 3.1(b) below. If
Sellers dispute the calculation of the Purchase Price Adjustment Amount as of
the Closing Date, such dispute shall be resolved in accordance with the
following:
(i) Within sixty (60) days after delivery to
Sellers of the audit, the Sellers may deliver to Buyer a written report (the
"Sellers' Report") prepared by an independent accounting firm selected by the
Sellers (the "Sellers' Accountants") advising Buyer either that Sellers'
Accountants (A) agree with the audit, or (B) deem that one or more adjustments
are required. The costs and expenses of the services of the Sellers' Accountants
shall be borne by the Sellers. If Buyer shall concur with the adjustments
proposed by the Sellers' Accountants, or if Buyer shall not object thereto in
writing delivered to the Sellers within (30) days after Buyer's receipt of the
Sellers' Report, the audit as submitted by Buyer (as so adjusted as provided in
such Sellers' Report) shall become final and shall not be subject to further
review, challenge or adjustment absent fraud. If the Sellers do not submit a
Sellers' Report within the 60-day period provided herein, then the audit as
submitted by Buyer shall become final and shall not be subject to further
review, challenge or adjustment absent fraud.
4
<PAGE>
(ii) In the event that the Sellers submit a
Sellers' Report and Buyer disagrees with the Sellers' Report, and Buyer and the
Sellers' Accountants are unable to resolve the disagreements set forth in such
report within thirty (30) days after the date of the Sellers' Report, then such
disagreements shall be referred to a recognized firm of independent certified
public accountants experienced in auditing home health care companies and
selected by mutual agreement of the Sellers and Buyer (or if the parties cannot
agree on such selection, then a "big six" accounting firm selected by lot) (the
"Settlement Accountants"), and the determination of the Settlement Accountants
shall be final and shall not be subject to further review, challenge or
adjustment absent fraud. The Settlement Accountants shall use their best efforts
to reach a determination not more than forty-five (45) days after such referral.
The costs and expenses of the services of the Settlement Accountants shall be
paid by Buyer if it is determined that there will be any adjustment to the
audit; otherwise, if there is no adjustment, such costs and expenses of the
Settlement Accountants shall be paid by Sellers.
(c) In the event that the Arizona Physicians IPA
capitated contract (the "APIPA Contract") with the Company is not renewed prior
to December 31, 1996 upon terms favorable to the Company, the Aggregate Gross
Purchase Price shall be reduced by One Million ($1,000,000.00) Dollars (the
"APIPA Penalty"). The Sellers shall refund the APIPA Penalty from the Escrow
Fund to Buyer in cash and/or IHS Stock as selected by Sellers. For purposes
hereof, the renewal of the APIPA Contract shall be deemed favorable to the
Company if the renewal contract is on substantially similar terms as the
existing contract except that it shall include the following terms:
(i) the APIPA Contract shall include
provisions for revenue adjustments for material changes in utilization;
(ii) the capitation rates stated in the
renewal of the APIPA Contract are, at a minimum, equal to the HIDA rates for the
periods applicable to the APIPA Contract; and
(iii) the APIPA Contract is renewed for a
two-year period.
2.3 Escrow. At the Closing, pursuant to an Escrow Agreement to
be entered into by the parties substantially in the form of Exhibit 2.3, a
portion of the IHS Stock included in the Aggregate Net Purchase Price as shall
be equal to one-half of the Aggregate Net Purchase Price, based upon the
valuation described in Section 3.1(a), below, but in the event that the
Aggregate Net Purchase Price is below Nine Million Five Hundred Thousand
($9,500,000.00) Dollars, such portion of the IHS Stock to be held in escrow
shall be equal to Four Million ($4,000,000.00) Dollars (the "Escrow Fund"),
shall be delivered over to AMERICAN STOCK TRANSFER & TRUST COMPANY, as escrow
agent (the "Escrowee"), and shall be held and disbursed by the Escrowee in
accordance with the following:
5
<PAGE>
(i) In the event that the Sellers become
obligated to remit shares back to Buyer pursuant to the post-Closing adjustments
set forth in Sections 2.2(b) and 2.2(c), the Escrowee shall release to Buyer
that portion of the Escrow Fund as shall have a value equal to the amount by
which the Aggregate Gross Purchase Price is so reduced, calculated based upon
the valuation of the IHS Stock at Closing as set forth in Section 3.1(a), below.
The number of shares of IHS Stock to be delivered to each Seller at Closing
shall be reduced by such Seller's proportional ownership interest in the Company
Securities;
(ii) In the event that the Buyer becomes
entitled to indemnification pursuant to Section 12.2 or to payment for breach of
representations and warranties or breach of covenants hereunder, the Buyer shall
first utilize the Escrow Fund as a source of indemnification or of payment for
breach of representations and warranties or breach of covenants hereunder and
the Escrowee shall release to Buyer as selected by Sellers cash or that number
of shares of the Escrow Fund as shall be equal in value to such indemnification
or payment based upon a price per share of such stock as calculated at Closing.
Such Escrow Fund shall serve as an exclusive source of indemnification or
payment for all Loss (as defined in Section 12.2) other than Loss resulting from
Excess Reimbursement Liabilities (as defined in Section 2.7), any breach of the
representations and warranties contained in Section 5.25 (Medicare and Medicaid
Programs), and the audit or assessment of taxes by the Federal, state or local
tax authority;
(iii) If no claim for indemnification on the
part of Buyer remains outstanding upon the expiration of one (1) year following
the Closing Date (the "Escrow Period"), any remaining Escrow then held by the
Escrowee shall be released to the Sellers on a pro rata basis in accordance with
each Seller's relative ownership of the Company Securities as of the Closing
Date.
2.4 Appointment of Sellers' Committee. Sellers, by execution
of this Agreement, hereby appoint a committee (the "Committee") for the purpose
of taking certain actions on behalf of the Sellers under this Agreement as
described below. Such committee shall consist of three (3) persons. The
Committee shall initially consist of James Crews, Michael Kluger and Steven
Gilbert, but shall include any successor as chosen by Sellers holding at least a
majority of the Fully Diluted Shares.
2.5 Committee Duties; Power of Attorney.
(a) The Committee (acting pursuant to the affirmative
agreement of a majority of the members thereof) is hereby appointed and
constituted agent and attorney-in-fact by each Seller, for and on behalf of such
Seller: to execute the Escrow Agreement; to give and receive notices and
communications hereunder and under the Escrow Agreement; to authorize delivery
to Buyer of IHS Stock or cash from the Escrow Fund in satisfaction of claims by
Buyer; to object to such deliveries; to agree to, negotiate, enter into
settlements and compromises of, and comply with orders of courts and awards of
arbitrators with respect to such claims; and to take
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all actions necessary or appropriate in the judgment of the Committee for the
accomplishment of the foregoing and in furtherance of this Agreement. Any member
of the Committee may resign upon thirty (30) days notice to the parties to this
Agreement. Such Committee member may be replaced by the Sellers from time to
time upon not less than (5) days' prior written notice to Buyer; provided that
the member may not be replaced unless holders of at least a majority of the
Fully Diluted Shares agree to such replacement. No bond shall be required of the
Committee, and the Committee members shall receive no compensation for their
services except as provided in Section 2.4(b). Notice or communications to or
from the Committee shall constitute notice to or from each of the Sellers.
(b) No member of the Committee or their affiliates
shall be personally liable for his or her service in such capacity to Buyer and
the Sellers for any act done or omitted hereunder as a Committee member while
acting in good faith. The Sellers shall jointly and severally indemnify each
Committee member and hold each Committee member harmless against, any loss,
liability or expense incurred without bad faith on the part of the Committee
member and arising out of or in connection with the acceptance or administration
of the Committee member's duties hereunder. The Committee shall be entitled to
direct, immediately prior to the termination of the Escrow Period, the Escrowee
to deliver cash and/or IHS Stock held in the Escrow Fund for any Seller to such
Committee members to satisfy such Seller's obligations pursuant to the preceding
sentence; provided, however, that the Committee shall have such right only to
the extent that the Escrow Fund exceeds any amount of such funds reasonably
sufficient to satisfy any unsatisfied claims for Loss hereunder.
2.6 Actions of the Committee. The Sellers hereby authorize the
Committee to sign the Escrow Agreement on behalf of the Sellers. A decision,
act, consent or instruction of the Committee (acting by the affirmative
agreement of a majority of the members thereof) shall constitute a decision of
all the Sellers, and shall be final, binding and conclusive upon each of the
Sellers, and the Escrowee and Buyer may rely upon any decision, act, consent or
instruction of the Committee as being the decision, act, consent or instruction
of each and all of the Sellers. The Escrowee and Buyer are hereby relieved from
any liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Committee. Although the Committee
shall not be obligated to obtain instructions from the Sellers prior to any
decision, act, consent or instruction, if, and to the extent that, the Committee
receives any written instructions from the holders of a majority of the Fully
Diluted Shares, the Committee shall comply with such instructions and such
instruction shall be binding as if unanimously given by all Sellers even if some
Sellers dissent thereto.
2.7 Assets and Liabilities. As of the Closing Date, the
consolidated assets of the Company (the "Assets") will include all of the
tangible and intangible assets 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, tradenames, trademarks, all patient records and
files, Certificates of Need, Medicare and Medicaid provider agreements and
numbers, telephone numbers, and to the extent permitted by law, all permits,
licenses and
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other governmental approvals. The Assets of the Company as of the Closing Date
shall also include cash, accounts receivable, and prepaid expenses. As of the
Closing, the Company will not have any liabilities other than such long-term
liabilities and current liabilities as are reflected on the Closing Date Balance
Sheet. It is expressly agreed that Sellers shall remain responsible for all
other liabilities and obligations of the Company, including, without limitation,
all liabilities or obligations ("Excess Reimbursement Liabilities") owed to or
amounts due or that may become due to Medicare or Medicaid or any other health
care reimbursement or payment intermediary on account of Medicare cap 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 with respect to
any period on or prior to the Closing Date, except for the current liabilities
and long-term liabilities disclosed on the Closing Date Balance Sheet referred
to in Section 2.2(a). However, any favorable settlements in excess of estimated
Medicare cost report receivables or less than estimated Medicare cost report
liabilities as disclosed on the audit of the Closing Date Balance Sheet shall be
offset against the Excess Reimbursement Liabilities. If such offset should
exceed the Excess Reimbursement Liabilities, eighty (80%) percent of the excess
will be returned to Sellers upon final audit and settlement of all Medicare and
Medicaid cost reports for all periods through the Closing Date.
ARTICLE III: IHS STOCK
3.1 IHS Stock. Fifty-one (51%) percent of the Aggregate Net
Purchase Price and the Class A Redemption Price 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(a)(ii) 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) business day period immediately
preceding the date which is three (3) business days before the Closing Date.
(b) Registration Rights. Buyer will use its best
efforts to cause to be prepared and filed within ninety (90) days following the
Closing Date, and will use its best efforts to have declared effective by the
Securities and Exchange Commission (the "Commission"), a registration statement
for the registration of the IHS Stock under the Securities Act of 1933, as
amended (the "Securities Act"), and Buyer shall maintain the effectiveness of
such registration statement for a period of two (2) years following the date it
became effective, except to the extent that an exemption from registration may
be available.
(c) Registration Expenses. Buyer shall bear all
reasonable expenses related to such registration. Such costs and expenses shall
include, without limitation, the fees and expenses of counsel for Buyer and of
its accountants, all other costs, fees and expenses of Buyer incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the fees and
expenses of one
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counsel to the Sellers or their designees who receive IHS Stock at Closing (the
"Holders") relating to such registration, 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 counsel) incurred in
connection with the qualification of IHS Stock under the Blue Sky laws of
various jurisdictions.
(d) Resale Limitations. The Holders hereby
covenant with Buyer that sales by them of IHS Stock after the Closing Date shall
not, in the aggregate, exceed 75,000 shares during any 30-day period. All sales
by Holders shall be effected solely through Smith Barney, Inc., Cowen & Co., or
Paine Webber.
(e) Registration Procedures, etc. In connection
with the registration rights granted to the Holders 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 a period of two (2) years, except to the extent that an
exemption from registration may be available. Buyer will immediately notify the
Holders, 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 Holders 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 Holders, 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.
(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 Holders of IHS Stock to be sold pursuant to the registration statement,
their successors and assigns, and each person, if any,
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who controls such Holders within the meaning of section 15 of the Securities Act
or section 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
Holders 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 Holders or any controlling person of the Holders in respect
of which indemnity may be sought against Buyer pursuant to this subsection
3.1(e)(iv), the Holders 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 defenseof such
actions, including the employment and payment of reasonable fees and expenses of
counsel (reasonably satisfactory to the Holders or such controlling person). The
Holders 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 Holders 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 Holders and/or such controlling person shall be borne by
Buyer. Except as expressly provided in the previous two sentences, 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 Holders or such controlling
person in investigating, preparing or defending any such action or claim. Buyer
agrees promptly to notify the Holders 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.
(v) The Holders 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 section 15 of the
Securities Act or section 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
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Exchange Act or any other statute, common law or otherwise, arising from
information furnished in writing by or on behalf of such Holders, or their
successors or assigns for specific inclusion in such registration statement.
(f) Notice of Sale. If the Holders desire to
transfer all or any portion of IHS Stock, the Holders 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 Holders
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 Holders when the registration statement has again become
current. If the Holders 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
Holders 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 Holders shall furnish in writing 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 Holder 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 Holders 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 Holder will, severally, promptly notify Buyer at any time
when a prospectus relating to a registration statement covering such Holder'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 Holder 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.
(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,
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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 they deem necessary in connection with such
investment.
(i) Legend. It is understood that the
certificates evidencing the IHS Stock shall bear a legend substantially as
follows:
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. Except in the case of
any transfer to a person in an open market transaction subsequent to the
effective date of registration of the IHS Stock, no Holder 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 Holders under
this Article III.
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 five (5) business days following the later of (a) the signing of this
Agreement by the holders of in excess of 90% of each of the outstanding
Signature Common (assuming exercise of the Signature Options and Signature
Warrants), Class A Stock, and Class B Stock (both in voting power and economic
interest) and (b) satisfaction of all other conditions precedent specified in
this Agreement, 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
Company and each of the Sellers, each as to himself, herself
or itself, hereby severally represent and warrant to Buyer as follows (it being
understood that, for the purposes of this Article V, "Company" shall be deemed
to refer collectively to the Company and its subsidiaries listed on Schedule
5.23):
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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 correct. 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.
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.
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 Capital 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 Securities are held in the
treasury of the Company. Except as otherwise set forth on Schedule 5.4, the
Sellers are the record owners of all of the Company Securities 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 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. Except as set forth on Schedule 5.4, on the
Closing Date there shall not be outstanding any warrants, options, or other
rights to subscribe for or purchase from the Company any shares of capital stock
of the Company, nor shall there be outstanding any securities convertible into
or exchangeable for such shares. All Signature Options and Signature Warrants of
the Company by their terms may be terminated by the Company without payment or
other compensation upon the occurrence of a merger where the Company is not the
surviving entity unless such option or warrant is exercised prior to the
effective time of such merger.
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5.5 Assets and Liabilities. As of the Closing, the consolidated Assets of the
Company will include all of the tangible and intangible assets of the Company 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 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 and the inventory is good, usable, merchantable, and
salable in the ordinary course of the Company, in each case, as determined by
the Company in good faith and consistent with past practice. The accounts
receivable of Company are reflected properly on its books and records in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP"), and have been billed or invoiced in the ordinary course of
business consistent with past practice. Schedule 5.5(a) sets forth a complete
and accurate accounts payable aging schedule of the Company as of June 30, 1996.
The Assets are not subject to any liens or encumbrances, except as identified on
Schedule 5.5(b) and expressly accepted by Buyer hereto.
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 the 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
correct 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
other assets are bound and 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 sale of
any of the Company'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 the Company to indemnify or act for, or
guarantee the obligation of, any other person or entity;
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(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 is likely to involve 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 or other similar
contract, arrangement or commitment which involves consideration of more than
$15,000; or
(h) each contract under which the Company performs
home health services;
(i) each lease of real property;
(j) each agreement pursuant to which any
professional of the type described under 42.C.F.R 410.20(b) renders services on
behalf of the Company;
(k) each agreement with referral sources, whether
or not related to the referrals, including "sub-contracting agreements" with
respect to Medicare and Medicade patients;
(l) 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. Except as indicated on Schedule 5.7, 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.
Except as indicated on Schedule 5.7, all amounts payable under the Contracts
are, or will at the Closing Date, be on a current basis.
5.8 Financial Statements.
(a) Schedule 5.8(a) sets forth the audited
consolidated balance sheets of the Company as of December 31, 1994, and December
31, 1995, and the related consolidated statements of operations, consolidated
statements of changes in redeemable stock and stockholders' equity, and
consolidated statements of cash flows, for the years then ended (the
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"Audited Financial Statements"), previously delivered to Buyer by Sellers,
present fairly in all material respects the financial condition and results of
operations of the Company at and for the periods therein specified and were
prepared in accordance with GAAP. Such statements of operation do not contain
any items of special or nonrecurring income or expense or any other income not
earned or expense not incurred in the ordinary course of business except as
expressly specified therein or as listed as audit adjustments on Schedule
5.8(d).
(b) Schedule 5.8(b) sets forth the unaudited
consolidated balance sheets of the Company as of April 30, 1996 and the related
consolidated statements of operations and consolidated statement of cash flows
for the period then ended (the "Unaudited Interim Financial Statements"),
previously delivered to Buyer by Sellers, present fairly in all material
respects the financial condition and results of operations of the Company at and
for the periods therein specified and were prepared in accordance with GAAP.
Such statements of operation do not contain any items of special or nonrecurring
income or expense or any other income not earned or expense not incurred in the
ordinary course of business except as expressly specified therein or as listed
as adjustments on Schedule 5.8(d).
(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 liabilities or obligations (whether absolute, accrued,
contingent or otherwise and whether due or to become due, kind or nature which
are 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 Unaudited Interim Financial Statements 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 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 only in the
ordinary and normal course. 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 the Company.
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
the Company's business that are now in effect, including all certificates of
occupancy issued with respect to the Company's business; (b) all Certificates of
Need issued with respect to the home health agencies of the Company and its
subsidiaries that are now in effect; and (c) each other license, permit, or
other authorization that is necessary for the operation of the Company's
business (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 business of the Company and
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its subsidiaries as they are operated on the date hereof. The Company has
delivered to Buyer copies of all of the Licenses. Except as set forth on
Schedule 5.10, the Company and its subsidiaries own, possess or otherwise have
the exclusive legal right to use the Licenses, free and clear of all liens,
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, except as set forth
on Schedule 5.10. Except as set forth on Schedule 5.10, each License is in full
force and effect, and neither the Company nor any of its subsidiaries has
received written notice of any proceeding to terminate or suspend any License or
of any condition or event (other than survey deficiencies which singly or in the
aggregate would not be material to any home health agency that the Company or
any of 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. Except as set forth on Schedule
5.10, all Licenses are in full force and effect. No conditions not generally
applicable to home health agencies requiring changes in the operation of the
Company or any of its subsidiaries have been imposed, formally or informally, by
any License issuer during the past twenty-four (24) months. 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, 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), the Company has good and marketable title to, or
valid and subsisting leasehold interests in, all of the personal property
located at its place of business or used in connection with the operation of its
business, 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 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, security interest 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). All
of said personal property leases are valid, binding and enforceable in
accordance
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with their respective terms and are in full force and effect. 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; and
(v) the liens set forth on 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 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 most
recent payroll of the Company, indicating the names, positions, and compensation
of its employees. All of such information is materially correct as of such date.
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.
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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 likely. 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 5.13, 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 its 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 5.13, 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 Company, Buyer will not, pursuant to any agreement with any Seller
or Company or by reason of any representation made or plan adopted by any Seller
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")
or insurance benefits.
5.15 ERISA.
(a) The Company does not maintain or make con-
tributions to and has 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, 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 Company).
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(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 correct 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.
5.17 Relationships. Except as disclosed on Schedule 5.17
hereto, no Seller 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
business by which the Company will be bound after the Closing.
5.18 Absence of Certain Events. Except as set forth on
Schedule 5.18, since the date of the Unaudited Interim Financial Statements, 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 its
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;
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(c) made or suffered any termination of any home
health 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 $15,000, other than in the ordinary
course of business;
(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 its 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 in excess of
$15,000, except as may be consistent with the current practice of the Company;
(g) changed any of the accounting principles
followed by it or the methods of applying such principles;
(h) failed to collect, withhold and/or pay to
any proper governmental agency any federal, state or local income, franchise,
sales, use, withholding or similar tax that applicable law requires be
collected, withheld and/or paid;
(i) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental agency
relating to it or its property which will likely have or has had a materially
adverse effect on the condition (financial or otherwise), properties, assets,
liabilities, operations, business or prospects of the Company or any of its
subsidiaries; and
(j) entered into any transaction other than in
the ordinary course of business involving consideration in excess of $15,000.
5.19 Compliance with Laws. The Company is in compliance 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 its business ("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. Neither the Company, nor any officer, director,
employee, agent, or other
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representative of Company has made, directly, or indirectly, any illegal bribes,
kickbacks, or political contributions with corporate funds, illegal payments
from corporate funds to governmental officials in their individual capacities or
illegal payments from corporate funds to obtain or retain business either within
the United States or abroad.
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 it.
(b) For purposes of this Agreement, "Tax" means
any net income, gross income, sales, use, franchise, personal, 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 the record or beneficial owner of more than ten (10%) percent of
the equity interest. 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. None of the representations and
warranties in this Article V 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. The Company, to the
extent necessary to conduct the Company 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
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recoupment claim against Buyer which arose out of any transactions on the part
of 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. Schedule 5.26 hereto sets forth a
complete and correct list of all leases pursuant to which the Company or any of
its subsidiaries leases real property. Each of the Company 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. The Company has provided access to the Buyer to complete and
correct copies of the leases identified in Schedule 5.26.
5.27 Power and Authority. Company and Sellers have all
requisite power and authority to execute, deliver and perform this Agreement,
and as of the Closing, 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 and Sellers constitute the valid and binding
obligations of such party, enforceable against such party in accordance with
their respective terms.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Sellers, each as to himself, herself, or itself,
hereby severally represents and warrants to Buyer as follows:
6.1 Organization and Standing. Such Seller, if a
corporation, is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it was incorporated, and if a
partnership, is a partnership duly organized and validly existing under the laws
of the state of its formation.
6.2 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
have been duly authorized by all necessary action, corporate or otherwise, on
the part of such Seller, and any necessary consents of holders of indebtedness
of such Seller have been obtained.
6.3 Binding Effect. This Agreement and all Transaction
Documents executed by such Seller constitute the valid and binding obligations
of such party, enforceable against such Seller in accordance with their
respective terms.
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6.4 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) the
formation documents of such Seller, or (ii) any law, rule, judgment, order,
writ, injunction, or decree of any court currently in effect applicable to such
Seller, or (iii) any rule or regulation of any administrative agency or other
governmental authority currently in effect applicable to such Seller, or (iv)
any 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.
6.5 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 such Seller.
6.6 Ownership of Company Securities. Except as disclosed on
Schedule 6.6 hereto, such Sellers are the lawful record and beneficial owners of
all of the Company Securities shown as owned by such Sellers 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 Sellers have
the full legal power to transfer and deliver such Company Securities in
accordance with this Agreement, and delivery of such Company Securities to Buyer
pursuant hereto will convey good and marketable title thereto, free and clear of
all liens and encumbrances, claims and other charges thereon of any kind. The
shares of Company Securities 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. Except as disclosed on Schedule 5.4, on the Closing Date there
shall not be outstanding any warrants, options, or other rights to subscribe for
or purchase from the Company any shares of capital stock of the Company, nor
shall there be outstanding any securities convertible into or exchangeable for
such shares.
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.
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.
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7.3 Binding Agreement. This Agreement has been duly executed
and delivered by Buyer. This Agreement is, and when executed and delivered by
Buyer at the Closing each of the Transaction Documents executed by Buyer will
be, the legal, valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their respective terms.
7.4 Securities and Exchange Commission Filings. Buyer has
furnished the Company with 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 therein, 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, and
the rules and regulations promulgated by the SEC thereunder. The financial
statements of the Buyer included in the SEC Documents complied as to form 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.
7.5 Capital Stock. Buyer's Form 10-Q filed with the
Commission with respect to the fiscal quarter ended March 31, 1996 (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
of preemptive rights.
7.6 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 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.
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7.7 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.
7.8 Litigation. There are no legal, administrative,
arbitration or other proceedings or governmental investigations pending or, to
Buyer's knowledge, threatened against Buyer or any of its affiliates that would
give any third party the right to enjoin, rescind or condition the transactions
contemplated hereunder.
7.9 Investment Representation. Buyer is acquiring the
Company Securities for its own account with no present intention of reselling or
otherwise distributing the same or participating in a distribution of same
except pursuant to an offering of shares duly registered under the Securities
Act and applicable state securities laws, or under other circumstances that, in
the opinion of counsel for Company at the time, would not require registration
of the Company Securities under the Securities Act. Buyer is an accredited
investor as defined under the Securities Act. Buyer acknowledges that it has
been advised and is aware that (i) the Sellers are relying upon an exemption
under the Securities Act predicated upon Buyer's representations and warranties
contained in this Section 7.9 in connection with the offer and sale of the
Company Securities pursuant to this Agreement and (ii) the Company Securities in
the hands of Buyer will be restricted stock within the meaning of Rule 144
promulgated pursuant to the Securities Act and unless, and until, registered
under the Securities Act, may be subject to limitations upon its resale.
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE COMPANY
AND ITS SUBSIDIARIES
8.1 Access to Information and Records before Closing.
(a) 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 their 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 its inception; and the Company shall make, or cause to be made,
extracts thereof as Buyer or its representatives may request from time to time
to enable
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Buyer and its representatives to investigate the affairs of the Company and the
accuracy of the representations and warranties made in this Agreement. The
Company shall cause its accountants to cooperate with Buyer and to disclose the
results of audits relating to the Company and to produce the working papers
relating thereto.
(b) The Buyer shall use reasonable efforts to
permit the Company and its authorized representatives (including legal counsel
and accountants), to have full access to the Buyer's management and publicly
available information upon reasonable notice and during normal business hours.
The information to which the Company shall have access shall include only such
information reasonably nrepresentations and warranties of the Buyer made in this
Agreement and to complete a review of the Company's publicly available
information.
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 business 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) use their best efforts to cause or permit to
occur any of the events or occurrences described in Sections 5.18(c) and (d) and
cause or permit to occur any of the events or occurrences described in the
remainder of 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:
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(a) maintain their business in substantially the
state of repair, order and condition as on the date hereof, reasonable wear and
tear or loss by casualty excepted;
(b) maintain in full force and effect all
Licenses currently in effect with respect to their business unless such License
is no longer necessary for the operation of the Company and its subsidiaries;
(c) maintain in full force and effect the in-
surance policies and binders currently in effect, or the replacements thereof,
including without limitation those listed on Schedule 5.16;
(d) utilize its 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 its 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 (except that, as to
the Company's Contracts with vendors, it shall use its reasonable efforts to
comply in all material respects with such Contracts), and comply in all material
respects with the provisions of all material laws, rules and regulations
applicable to the Company's and its subsidiaries' business;
(g) cause to be paid when due, all material
taxes, assessments and charges or levies imposed upon it or on any of its
properties or which it is required to withhold and pay over;
(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) Shall 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 with the Company's customers; and
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<PAGE>
(j) deliver to Buyer monthly financial statements
within thirty (30) days of the last day of the immediately preceding month.
Notwithstanding anything contained herein, the decertification of the San
Antonio agency will not result in a breach of this Section 9.3, a reduction of
the Aggregate Gross Purchase Price or a claim for indemnification. The foregoing
shall not be deemed to be a waiver by Buyer for any breach of representations
and warranties concerning any loss, liability or other adverse consequences
other than the actual occurrence of the decertification of the San Antonio
agency or the fact that the agency has been closed.
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' business by Buyer
in accordance herewith ("Required Approvals"). The Company and its subsidiaries
shall cooperate with and use its reasonable efforts to assist Buyer in obtaining
all such approvals.
9.5 Exclusivity. Until the earlier of the Closing Date or
the termination of this Agreement pursuant to Section 13.1, neither the Sellers
nor the Company, nor any of their respective affiliates, shall engage in any
discussions or negotiations directly or indirectly with any other party in
respect of the sale of the Company Securities or of substantially all of the
assets of the Company, or in respect of any merger, consolidation or other sale
of the Company (any of said transactions being referred to herein as a
"Prohibited Transaction").
9.6 Solicitation of Stockholders. The Company shall through
its board of directors unanimously recommend to its stockholders approval of
this Agreement and the sale of the Company Securities and as promptly as
practicable after the date of this Agreement use its best efforts to obtain
stockholder approval.
9.7 Line of Credit. Upon Buyer's execution of this
Agreement, the Buyer will advance to the Company the sum of $1,000,000 pursuant
to the terms of that certain Promissory Note, dated June 18, 1996 by Signature
Home Care Group, Inc.
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligations to consummate the purchase of the Company
Securities 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.
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10.1 Representations and Warranties. The representations and
warranties of Company and Sellers in Articles V and VI 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 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 or general partner, as the case may be, 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 and Company shall have
delivered to Buyer an opinion, dated the Closing Date, of its 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 and each of the
corporate Sellers 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 respective
officers.
10.7 Material Change. Since the date of the Unaudited Interim
Financial Statements there shall not have been any material adverse changes 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
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Company's and its subsidiaries' business, 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' business or
its 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 from each of those entities with whom the Company and its
subsidiaries have home health service contracts as listed on Schedule 5.7(h),
where such consent is required by reason of the change of control of the Company
and its subsidiaries contemplated under this Agreement.
10.10 Closing Date Balance Sheet. Sellers and Company shall
have furnished the Closing Date Balance Sheet to Buyer.
10.11 Resignation of Company and its Subsidiaries' Boards of
Directors. Each director of Company and its subsidiaries shall have submitted
his or her resignation to be effective no later than the Closing Date.
10.12 Additional Sellers. The holders of at least ninety (90%)
percent of the outstanding shares of each class of the stock of the Company
shall have executed and delivered to Buyer a counterpart of this Agreement,
signifying such holder's agreement to be bound as a Seller hereunder.
10.13 Hart-Scott-Rodino Act. All applicable waiting periods
underthe Hart-Scott- Rodino Antitrust Improvement Act of 1976 shall have expired
or been terminated.
10.14 Samaritan Joint Venture Agreements. The existing
arrangements with Samaritan Health System ("Samaritan") concerning the Arizona
home health agencies owned and operated by the Company's subsidiaries (the
"Subsidiary"), including without limitation, the organizational documents for
the two limited liability companies in which a Subsidiary and Samaritan are the
only two members and the applicable non-compete agreements, shall be reaffirmed.
10.15 Real Property Consents. The Company shall have used
reasonable efforts to obtain the consent of each landlord with whom the Company
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 the Company, and the
written consent of such landlords shall have been received by the Company. Buyer
shall have received notice from the Sellers by the Closing Date, identifying any
landlord that has not given any necessary consent as of such date.
10.16 Dallas Joint Venture. Buyer shall have received an
amendment or confirmation to the existing Agreement of General Partnership of
Arlington Memorial Home Healthcare (the "Partnership"), dated November 3, 1986,
as amended, between AMH Health Ventures, Inc. and VHA Enterprises Home
Healthcare, Inc. that would permit Buyer to continue its existing business
operations within a fifty (50) mile radius of all Partnership locations.
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10.17 Other Documents. Sellers and Company shall have
furnished Buyer with all other documents, certificates and other instruments
required to be furnished to Buyer by Sellers and Company pursuant to the terms
hereof.
ARTICLE XI: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
Sellers' obligation to consummate the sale of the Company
Securities is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions:
11.1 Representations and Warranties. The representations and
warranties of Buyer 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 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 a senior vice president of Buyer dated the
Closing Date upon which Sellers can rely, certifying that the statements made in
Sections 11.1 and 11.2 are true, correct and complete as of the Closing Date.
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 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.
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ARTICLE XII: OBLIGATIONS OF THE PARTIES AFTER CLOSING
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 the applicable period of limitations
for audits by the applicable Governmental Authority shall have expired. 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. Each Seller, severally and
not jointly, 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
breach of any warranty, made by such Seller or Company in Article V or VI,
provided that a claim is made or an action with respect thereto is initiated by
Buyer against such Seller within 90 days after the discovery by Buyer of such
inaccuracy or breach of warranty; or
(b) the breach of any covenant or undertaking by
such Seller contained in this Agreement which survives the Closing and is not
waived by Buyer at or prior to the Closing, provided that a claim is made or an
action with respect thereto is initiated by Buyer against such Seller within 90
days after the discovery by Buyer of the occurrence of such breach; or
(c) ownership or operation of the Company or its
subsidiaries or their businesses or assets prior to the Closing Date, including,
without limitation, any Excess Reimbursement Liabilities (as defined in Section
2.7), the audit or assessment of taxes by the Federal, state or local tax
authority, and any Loss in excess of the amounts recorded on the Closing Date
Balance Sheet arising out of the legal proceedings referenced on Schedule 5.12
but excluding any Loss arising out of any current liabilities or long-term
liabilities as reflected on the Closing Date Balance Sheet or the audit of such
Closing Date Balance Sheet.
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:
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(a) any inaccuracy in any representation, or
breach of any warranty, set forth in Article VII, provided that a claim is made
or an action with respect thereto is initiated by Sellers against Buyer within
90 days after the discovery by the Sellers, or any one or more of them, of such
inaccuracy or breach; or
(b) the breach of any covenant or undertaking by
Buyer which survives the Closing and is not waived by Sellers at or prior to the
Closing, provided that a claim is made or an action with respect thereto is
initiated by Sellers against Buyer within 90 days after the discovery by Sellers
of the occurrence of such breach.
12.4 Assertion of Claims. Any claims for indemnification
under this Article XII and any claims for breach of representations and
warranties or breach of covenants contained herein must be asserted by written
notice by a date which is one (1) year following the Closing Date, except that
any claim based upon Excess Reimbursement Liabilities (as defined in Section
2.7) or a breach of the representations and warranties contained in Section 5.25
(Medicare and Medicaid) or Section 5.21 (Tax) may be asserted until the
applicable period of limitations for audits by the applicable Governmental
Authority shall have expired. After one (1) year following the Closing Date,
Sellers will be severally, but not jointly, responsible for any claims based
upon a breach of the representations and warranties contained in Section 5.23
(Medicare and Medicaid) and Section 5.21 (Tax) for such time period as described
herein.
12.5 Liability Cap. Notwithstanding any other provision of
this Article XII, the maximum aggregate liability of the Sellers for
indemnification hereunder and any claims for breach of representations and
warranties or breach of covenants contained herein shall not exceed an amount
equal to the Aggregate Net Purchase Price.
12.6 Control of Defense of Indemnifiable Claims.
(a) Buyer shall give Sellers prompt written notice
of the claim for which it seeks indemnification. Failure of the Buyer to give
such prompt notice shall not relieve the Sellers of their indemnification
obligation, provided that such indemnification obligation shall be reduced by
any damages suffered by Sellers resulting from a failure to give prompt notice
hereunder. The Sellers shall be entitled to participate in the defense of such
claim. If at any time the Sellers acknowledge in writing that the claim is fully
indemnifiable under this Agreement, they shall have the right to assume total
control of the defense of such claim at their own expense. If the Sellers do not
assume total control of the defense of any such claim, the Buyer agrees not to
settle such claim without the written consent of the Sellers, 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. Notwithstanding any other provision hereof, neither party shall be
entitled to indemnification in respect of a representation or warranty which it
actually knew to be incorrect, whether as a result of its investigation prior to
the Closing or otherwise.
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(b) The Sellers shall give Buyer prompt written
notice of the claim for which they seek indemnification. Failure of the Sellers
to give such prompt notice shall not relieve the Buyer of its indemnification
obligation, provided that such indemnification obligation shall be reduced by
any damages suffered by Buyer resulting from a failure to give prompt notice
hereunder. The Buyer shall be entitled to participate in the defense of such
claim. If at any time the Buyer 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 at its own expense. If the Buyer does not
assume total control of the defense of any such claim, the Sellers agree not to
settle such claim without the written consent of the Buyer, 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. Notwithstanding any other provision hereof, neither party shall be
entitled to indemnification in respect of a representation or warranty which it
actually knew to be incorrect, whether as a result of its investigation prior to
the Closing or otherwise.
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) For a period of three (3) years 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) For a period of three (3) years after the
Closing Date, none of the Sellers shall, directly, or indirectly, be a director
of, be a partner in, or have a proprietary interest in, 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 is engaged in or provides home
health services anywhere within a 50 mile radius of any agency of the Company
operating on the Closing Date. Nothing herein shall prohibit any Seller from
being a passive owner of not more than five (5%) percent of the equity of a
business engaged in rendering home health services. In the event that Samaritan
is merged into, consolidated with or forms a joint venture or other similar
business arrangement or combination with another entity (the "Other Entity"),
the surviving or resulting entity from such merger or consolidation or the joint
venture or other similar business arrangement or combination will be bound by
the restrictions contained in this Section 12.7(c), except that the
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continued ownership and/or operation by the surviving or resulting entity or the
joint venture or other similar business arrangement or combination of any home
health agencies that as of the effective date of such merger or consolidation
were already owned or operated by the Other Entity shall not be deemed to be in
violation of this provision.
(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
theparties 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 Sellers not otherwise in violation of this
Section 12.7 or advertises the need for services to be supplied to Sellers shall
not be deemed to be an inducement or solicitation with respect to any such
patients, physicians, suppliers, employees or independent contractors.
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.
12.9 Audit. Following Closing, the Sellers will cooperate and
provide such information as may be necessary in connection with an audit of the
Company's financial statement for the periods beginning January 1, 1996, and
ending after the Closing Date. Buyer shall bear the cost of such audit.
12.10 Appraisal Rights. In the event that less than one
hundred (100%) percent of the Signature Common Stock, Class A Stock, and Class B
Stock is sold to Buyer at the Closing, and if, in connection with any merger of
the Company within six (6) months after the Closing, any of the holders of the
Company Securities that were not sold to Buyer at Closing shall have exercised
their appraisal rights under Section 262 of the Delaware General Corporation
Law, any amount by which the resulting appraised value of such Company
Securities exceeds the Per Share Purchase Price shall be paid to Buyer from the
Escrow Fund. If such appraised value of such Company Securities is less than the
Per Share Purchase Price, Buyer shall promptly pay the amount of such difference
to the Sellers in the respective combinations of cash and IHS Stock as set forth
in Section 2.1(b).
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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 set forth in Article X hereof has not been satisfied by
September 30, 1996;
(b) Sellers, if any condition precedent to each
Seller's obligations hereunder set forth in Article XI hereof has not been
satisfied by September 30, 1996; 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
otherwise than by reason of default of such party, 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, except for the obligations of the
Company, Signature Home Care Group, Inc., and Sellers under that certain
Promissory Note, dated June 18, 1996 by Signature Home Care Group, Inc. and that
certain Stock Pledge Agreement, dated June 18, 1996, between Signature Home Care
Group, Inc. and Integrated Health Services Financial Holdings, Inc.
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.
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. Buyer
may not assign its interest under this Agreement to any other person or entity
without the prior written consent of Sellers; provided, however, that Buyer may
assign its rights, duties and obligations hereunder to one or more subsidiaries
or affiliates of Buyer, or, in connection with the financing of Buyer's purchase
of the Company Securities, to a third party with the prior written consent of
Sellers, which consent will not be unreasonably withheld; and further provided
that in the instance of such assignment Buyer shall guaranty the performance of
its assignee hereunder.
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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;
provided, however, the confidentiality provisions of that certain letter of
intent, dated June 17, 1996, among Buyer, Company, Michael Kluger, Steven
Gilbert, and David Finkel shall remain in effect; provided, further, that
Buyer's obligations under such confidentiality provisions shall automatically
terminate upon the Closing. 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 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
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 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, properly
addressed to the party or parties entitled to receive such notice at the address
stated below:
If to the Company: Signature Home Care, Inc.
1320 Greenway Drive, Suite 600
Irving, TX 75038
Attn: Michael Kluger
with a copy to: Winston Walp, Esq.
Jenkens & Gilchrist
Fountain Place
1445 Ross Avenue, Suite 3200
Dallas, TX 75202
If to the Sellers: Michael Kluger
Liberty Partners
1177 Avenue of the Americas
34th Floor
New York, NY 10036
with a copy to: Winston Walp, Esq.
Jenkens & Gilchrist
Fountain Place
1445 Ross Avenue, Suite 3200
Dallas, TX 75202
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If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian K. Davidson
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 Texas, 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. 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.
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
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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.
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:
SIGNATURE HOME CARE, INC.
By: /s/ Barry Harding
------------------------------------
Its: Senior Vice President/CFO
----------------------------------
SELLERS:
WITNESS:
By: /s/ David Finkel
------------------------------------------------
WITNESS:
By: /s/ Anthony LeVecchio
------------------------------------------------
WITNESS:
By: /s/ Charles E. Berg
------------------------------------------------
WITNESS:
By: /s/ Michael Kluger
------------------------------------------------
WITNESS:
By: /s/ James C. Crews
------------------------------------------------
President and CEO
Samaritan Health System
WITNESS:
By: /s/ Stephen F. Wiggins
------------------------------------------------
WITNESS:
By: /s/ Chris Dunleavy
------------------------------------------------
WITNESS:
By: /s/ Barry Harding
------------------------------------------------
WITNESS:
By: /s/ Karen Huey
------------------------------------------------
WITNESS:
By: /s/ Bob Nance
------------------------------------------------
WITNESS:
By: /s/ Larry Ross
------------------------------------------------
WITNESS:
By: /s/ Rob Rowley
------------------------------------------------
WITNESS:
By: /s/ David Stefan
------------------------------------------------
WITNESS:
By: /s/ Louis Church
------------------------------------------------
WITNESS:
By: /s/ Alex Brown IRA
------------------------------------------------
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BUYER:
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Brian K. Davidson
----------------------------------------------
Brian K. Davidson,
Executive Vice President - Development
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The undersigned holders of capital stock of the Company hereby agree to
be bound as Sellers under the Agreement.
SELLERS:
WITNESS:
By: /s/ Alvin R. Albe, Jr. - Trustee
----------------------------------------------------
for the Albe Family Trust dated 11/8/83
WITNESS:
By: /s/ Alvin R. Albe, Jr.
----------------------------------------------------
WITNESS:
By: /s/ Donald Barrett
----------------------------------------------------
WITNESS:
By: /s/ Peter Bennett
----------------------------------------------------
WITNESS:
By: /s/ Carmel Burke Bonesso
----------------------------------------------------
WITNESS:
By: /s/ David Blumberg
----------------------------------------------------
WITNESS:
By: /s/ Austin Broadhurst, Jr.
----------------------------------------------------
WITNESS:
By: /s/ Robert Day
----------------------------------------------------
WITNESS:
By: /s/ James deVenny
----------------------------------------------------
WITNESS:
By: /s/ Dale McCullough, Special Master
----------------------------------------------------
for Robert F. Doviak II
WITNESS:
By: /s/ Ian J. Dowie
----------------------------------------------------
WITNESS:
By: /s/ Alan Fishman
----------------------------------------------------
WITNESS:
By: /s/ Steven Gilbert
----------------------------------------------------
WITNESS:
By: /s/ Gary Gladstein
----------------------------------------------------
WITNESS:
By: /s/ James E. Gordon
----------------------------------------------------
WITNESS:
By: /s/ Ruth Ann Hardisty
----------------------------------------------------
WITNESS:
By: /s/ Steven Holzman
----------------------------------------------------
WITNESS:
By: /s/ Alex M. Jernigan, Trustee
----------------------------------------------------
of the Alex M. Jernigan Living Trust dated
January 31, 1994
WITNESS:
By: /s/ H. C. Kresge
----------------------------------------------------
WITNESS:
By: /s/ Susan C. Kresge
----------------------------------------------------
WITNESS:
By: /s/ Gary Markoff
----------------------------------------------------
WITNESS:
By: /s/ Joseph Maturo
----------------------------------------------------
WITNESS:
By: /s/ Terry M. McGann
----------------------------------------------------
WITNESS:
By: /s/ John Pinder
----------------------------------------------------
WITNESS:
By: /s/ Steven B. Potter
----------------------------------------------------
WITNESS:
By: /s/ Robert D. Reed
----------------------------------------------------
WITNESS:
By: /s/ Doviak Partners, Ltd.
----------------------------------------------------
by Marla C, Reynolds, Agent
WITNESS:
By: /s/ Gerry M. Ritterman
----------------------------------------------------
WITNESS:
By: /s/ K. E. Shepphird
----------------------------------------------------
Managing Partner - FG-HS
WITNESS:
By: /s/ Elliot Stein
----------------------------------------------------
WITNESS:
By: /s/ Stern Family Partnership
----------------------------------------------------
Marc I. Stern, General Partner
WITNESS:
By: /s/ Mark Thompson
----------------------------------------------------
WITNESS:
By: /s/ Jerry Tomlinson
----------------------------------------------------
WITNESS:
By: /s/ Beatrice B. Trust
----------------------------------------------------
Marc I. Stern, Trustee
WITNESS:
By: /s/ Paul Wolansky
----------------------------------------------------
WITNESS:
By: /s/ Christina Adams
----------------------------------------------------
WITNESS:
By: /s/ William Bolgar
----------------------------------------------------
WITNESS:
By: /s/ Donna J. Campbell
----------------------------------------------------
WITNESS:
By: /s/ Lois W. Griesser
----------------------------------------------------
WITNESS:
By: /s/ Barry Schwimmer
----------------------------------------------------
WITNESS:
By: /s/ Donna Kirk
----------------------------------------------------
WITNESS:
By: /s/ Jeanne Macejko
----------------------------------------------------
WITNESS:
By: /s/ Patricia Marquardt
----------------------------------------------------
WITNESS:
By: /s/ Susan Murray
----------------------------------------------------
WITNESS:
By: /s/ Cathy Nakashima
----------------------------------------------------
WITNESS:
By: /s/ Susan Ramsey
----------------------------------------------------
WITNESS:
By: /s/ Shirley Reed
----------------------------------------------------
WITNESS:
By: /s/ Rick Short
----------------------------------------------------
WITNESS:
By: /s/ Lois J. Whitley
----------------------------------------------------
WITNESS:
By: /s/ Andy Collins
----------------------------------------------------
WITNESS:
By: /s/ Pamela Nenaber
----------------------------------------------------
WITNESS:
By: /s/ Isaac Greenberg
----------------------------------------------------
WITNESS:
By: /s/ Eddie Church
----------------------------------------------------
WITNESS:
By: /s/ Freddie Quiz
----------------------------------------------------
WITNESS:
By: /s/ Clark Good
----------------------------------------------------
WITNESS:
By: /s/ Joleen Moden
----------------------------------------------------
WITNESS:
42
-------------------------------------
ASSET PURCHASE AGREEMENT
Dated as of October 23, 1996
among
INTEGRATED HEALTH SERVICES, INC.,
IHS ACQUISITION XV, INC., as Buyer
and
TOTAL REHAB SERVICES, LLC
and
TOTAL REHAB SERVICES 02, LLC, as Sellers
and
THE MEMBERS OF SELLERS
-------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I: PURCHASE AND SALE OF ASSETS; NO ASSUMPTION OF LIABILITIES;
DESIGNATED CONTRACTS.....................................................................................2
1.1 Assets..........................................................................................2
1.2 Liabilities.....................................................................................2
1.3 Designated Contracts............................................................................4
1.4 Designated Related Contracts....................................................................4
1.5 Termination of Provider Contracts and Related Contracts.........................................5
1.6 02 Services in New York; Southshore and Central Island Management Agreements
5
ARTICLE II: PURCHASE PRICE.......................................................................................8
2.1 Determination and Payment of Purchase Price.....................................................8
2.2 Allocation of Purchase Price....................................................................8
2.3 Working Capital Adjustments to the Purchase Price...............................................8
2.4 Escrow Indemnification.........................................................................10
2.5 IHS Stock......................................................................................11
ARTICLE III: THE CLOSING........................................................................................17
3.1 Time and Place of Closing......................................................................17
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND
THE MEMBERS.............................................................................................18
4.1 Organization and Standing; Subsidiaries........................................................18
4.2 Authority......................................................................................19
4.3 Binding Effect.................................................................................19
4.4 Absence of Conflicting Agreements..............................................................19
4.5 Consents.......................................................................................20
4.6 Schedule of Assets and Properties..............................................................20
4.7 Contracts......................................................................................20
4.8 Financial Statements...........................................................................22
4.9 Material Changes...............................................................................23
4.10 Licenses; Permits; Certificates of Need........................................................24
4.11 Title, Condition to Personal Property..........................................................24
4.12 Title, Condition of the Leased Properties......................................................25
(i)
<PAGE>
4.13 Legal Proceedings..............................................................................26
4.14 Employees......................................................................................26
4.15 Collective Bargaining, Labor Contracts, Employment Practices, etc..............................26
4.16 ERISA..........................................................................................26
4.17 Insurance and Surety Agreements................................................................27
4.18 Relationships..................................................................................27
4.19 Assets Comprising the Business.................................................................27
4.20 Absence of Certain Events......................................................................27
4.21 Compliance with Laws...........................................................................29
4.22 Tax Returns....................................................................................29
4.23 Encumbrances Created by this Agreement.........................................................30
4.24 Questionable Payments..........................................................................30
4.25 Reimbursement Matters..........................................................................30
4.26 Finders........................................................................................31
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS......................................................31
5.1 Organization and Standing......................................................................31
5.2 Power and Authority............................................................................31
5.3 Binding Agreement..............................................................................31
5.4 Absence of Conflicting Agreements..............................................................31
5.5 Consents.......................................................................................31
5.6 SEC Documents..................................................................................32
5.7 Receipt of Contracts...........................................................................32
5.8 IHS Stock......................................................................................32
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS......................................................32
6.1 Access to Information and Records before Closing...............................................32
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING............................................................32
7.1 Conduct of Business Pending Closing............................................................33
7.2 Negative Covenants of Sellers..................................................................33
7.3 Affirmative Covenants of Sellers...............................................................33
7.4 Pursuit of Consents and Approvals..............................................................34
7.5 Supplementary Financial Information............................................................34
7.6 Tail Policy....................................................................................34
7.7 Exclusivity....................................................................................35
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
AND IHS.................................................................................................35
8.1 Representations and Warranties.................................................................35
8.2 Performance of Covenants.......................................................................35
8.3 Delivery of Closing Certificate................................................................35
(ii)
<PAGE>
8.4 Opinions of Counsel............................................................................35
8.5 Legal Matters..................................................................................36
8.6 Authorization Documents........................................................................36
8.7 Material Change................................................................................36
8.8 Approvals......................................................................................36
8.9 Bill of Sale and Assignment....................................................................36
8.10 Non-Competition Agreements.....................................................................36
8.11 Employment and Consulting Agreements...........................................................38
8.12 COBRA..........................................................................................38
8.13 Assets Transferred at Closing..................................................................38
8.14 Certificate as to Provider and Related Contracts...............................................38
8.15 ANB Security Interest..........................................................................38
8.16 Lease Amendment................................................................................39
8.17 Designated Contract and Designated Related Contract Consents...................................39
8.18 Documents......................................................................................39
ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS AND
THE MEMBERS ............................................................................................39
9.1 Representations and Warranties.................................................................39
9.2 Performance of Covenants.......................................................................39
9.3 Delivery of Closing Certificate................................................................39
9.4 Opinions of Counsel............................................................................39
9.5 Legal Matters..................................................................................40
9.6 Authorization Documents........................................................................40
9.7 Necessary Consents.............................................................................40
9.8 Assignment and Assumption......................................................................40
9.9 ANB Guarantees.................................................................................40
9.10 Other Documents................................................................................40
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING.............................................................40
10.1 Survival of Representations and Warranties.....................................................40
10.2 Indemnification................................................................................41
10.3 Restrictions...................................................................................42
10.4 Records........................................................................................43
10.5 Appeal of Denials and Disallowances............................................................43
10.6 Audit..........................................................................................44
10.7 Offer of Employment............................................................................44
10.8 Option on Excluded NY 02 Services..............................................................44
ARTICLE XI: TERMINATION..........................................................................................45
11.1 Termination....................................................................................45
11.2 Effect of Termination..........................................................................45
(iii)
<PAGE>
ARTICLE XII: CASUALTY, RISK OF LOSS..............................................................................46
12.1 Casualty, Risk of Loss.........................................................................46
ARTICLE XIII: MISCELLANEOUS.....................................................................................46
13.1 Costs and Expenses.............................................................................46
13.2 Benefit and Assignment.........................................................................46
13.3 Effect and Construction of this Agreement......................................................46
13.4 Cooperation - Further Assistance...............................................................47
13.5 Notices........................................................................................47
13.6 Waiver, Discharge, Etc.........................................................................48
13.7 Rights of Persons Not Parties..................................................................48
13.8 Governing Law..................................................................................48
13.9 Amendments, Supplements, Etc...................................................................48
13.10 Severability...................................................................................48
13.11 Public Announcements...........................................................................49
</TABLE>
(iv)
<PAGE>
SCHEDULES
---------
Schedule 1.1 - Excluded Assets
Schedule 1.2(b)(i) - Accounting Principle Deviations
Schedule 4.1(b) - Organization and Standing; Subsidiaries
Schedule 4.5 - Consents
Schedule 4.6 - Assets and Properties
Schedule 4.7(b) - Contracts
Schedule 4.7(c) - Related Contracts
Schedule 4.8(a)(i) - Financial Statements
Schedule 4.8(a)(ii) - Adjusted Financial Statements
Schedule 4.8(b)(i) - Non-Balance Sheet Liabilities
Schedule 4.8(b)(ii) - Non-Adjusted Balance Sheet Liabilities
Schedule 4.10 - Licenses; Permits; Certificates of Need
Schedule 4.11(b) - Permitted Liens
Schedule 4.11(c) - Personal Property Leases
Schedule 4.13 - Legal Proceedings
Schedule 4.14 - Employees
Schedule 4.15 - Collective Bargaining, Labor Contracts, Employment
Practices, etc.
Schedule 4.17 - Insurance and Surety Agreements
Schedule 4.18 - Relationships
Schedule 4.20 - Absence of Certain Events
Schedule 4.22(a) - Tax Returns
Schedule 4.25 - Reimbursement Matters
Schedule 8.16 - Assets Transferred at Closing
Schedule 10.7 - Excluded Employees
EXHIBITS
--------
Exhibit 1.6(b)(ii) - Southshore Management Agreement
Exhibit 1.6(b)(iii) - Central Island Management Agreement
Exhibit 2.4 - Escrow; Indemnification
Exhibit 8.9-1 - Bill of Sale and Assignment
Exhibit 8-9.2 - Assignment and Assumption
(v)
<PAGE>
----------------------------
ASSET PURCHASE AGREEMENT
----------------------------
This Asset Purchase Agreement (the "Agreement") is made as of
the 23rd day of October, 1996, among Integrated Health Services, Inc., a
Delaware corporation ("IHS"), IHS Acquisition XV, Inc., a Delaware corporation
and a wholly-owned subsidiary of IHS ("Buyer"), Total Rehab Services, LLC, an
Illinois limited liability company ("Rehab"), Total Rehab Services 02, LLC, an
Illinois limited liability company ("Rehab 02", and together with Rehab,
"Sellers"), Timothy H. Dacy ("Dacy"), David S. Krause ("Krause"), and Ruby
Healthcare LLC, a Wisconsin limited liability company ("Ruby" and together with
Dacy and Krause, the "Rehab Members"), and Ron Paler ("R. Paler"), Bruce Paler
("B. Paler") and Shari Kaplan ("Kaplan", and together with R. Paler, and B.
Paler, the "Ruby Members" and together with the Rehab Members, the "Members").
Sellers and the Members are sometimes referred to herein collectively as the
"Group" and each individually as a "Group Participant" or "Participant of the
Group".
WHEREAS, the Members own all of the issued and outstanding
membership interest of each Seller; and
WHEREAS, the Ruby Members own all of the issued and
outstanding membership interest of Ruby; and
WHEREAS, Rehab is engaged in the business (the "Rehab
Business") of providing contract rehabilitation services (including, without
limitation, speech and language pathology, occupational therapy and physical
therapy services) (collectively, "Rehab Services") in the States of Illinois and
New York; and
WHEREAS, Rehab O2 is engaged in the business (the "Rehab O2
Business", and together with the Rehab Business, the "Business") of providing
respiratory services ("O2 Services") in the States of Illinois and New York; and
WHEREAS, Buyer wishes to purchase from Sellers, and Sellers
wish to sell to Buyer, substantially all of the assets of each Seller;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, IHS, Buyer, Sellers and the Members intending to be legally bound,
agree as follows:
1
<PAGE>
ARTICLE I: PURCHASE AND SALE OF ASSETS; NO ASSUMPTION OF
--------------------------------------------------------
LIABILITIES; DESIGNATED CONTRACTS
---------------------------------
1.1 Assets. Subject to the terms and conditions of this
Agreement at the Closing (as hereinafter defined), and in reliance upon the
covenants, representations and warranties of IHS and Buyer, Sellers will sell,
assign and convey to Buyer free and clear of all Liens (as such term is
hereinafter defined) other than Permitted Liens (as such term is hereinafter
defined), and subject to the terms and conditions of this Agreement and in
reliance upon the covenants, representations and warranties of Sellers and the
Members, Buyer will purchase and acquire from Sellers, all of the assets of each
Seller which now or hereafter comprise, or which are now or hereafter used or
useful in connection with the operation of, the Business (the "Assets"),
excluding inventory and supplies disposed of from the date hereof until Closing
in the ordinary course of business consistent with past practice and otherwise
in conformity with the obligations of Sellers and the Members under this
Agreement, and excluding the Excluded NY 02 Assets (as defined below) and each
Seller's Certificate of Incorporation, qualification to do business in any
jurisdiction, taxpayer identification number, minute books, stock transfer
records and other documents related specifically to such Seller's corporate
organization and maintenance (collectively, "Excluded Assets"). Except for the
Excluded Assets, the Assets will include, without limitation, all tangible,
intangible, real, personal and mixed property, operations, policy and procedure
manuals, leasehold interests, inventory, cash, accounts receivable, cash
equivalents, notes receivable, claims and rights under Designated Contracts
(defined herein), rights in collateral or other security for obligations due to
any Seller, provider agreements with third party payors, the names "Total Rehab
Services" and "Total Rehab Services 02", all other tradenames, trademarks,
service marks, patient lists and records, telephone numbers, trade secrets,
other proprietary rights or intellectual property, good will, and, to the extent
permitted by law, all permits, licenses and certificates of need and other
rights held by Seller with respect to the ownership or operation of any or all
of the Business or other Assets, and all of each Seller's books and records
pertaining to the foregoing. Notwithstanding the assignment and transfer to
Buyer of the names "Total Rehab Services" and "Total Rehab Services O2", neither
Seller shall be required to file a Certificate of Amendment to its respective
Certificate of Organization to change its name so long as it shall not transact
business under such name. "Excluded NY 02 Assets" shall mean all assets relating
solely to the operation of the Excluded NY 02 Services (defined in Section
1.6(a)) including any accounts receivable arising solely from Excluded NY 02
Services, all as more specifically described on Schedule 1.1. Notwithstanding
the foregoing, all assets necessary or useful to, or held for use in connection
with, the provision of 02 Services at or to the Southshore Home (defined in
Section 1.6(b)) including, without limitation, any accounts receivable (the
"Southshore Receivables") shall be included as Assets and shall not be part of
the Excluded NY 02 Assets.
1.2 Liabilities. (a) Neither Buyer nor IHS will assume any,
and Sellers shall remain liable for each, Liability of each Seller existing on
the Closing Date. 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,
2
<PAGE>
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 generally accepted
accounting principles, consistently applied, 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
(including, without limitation, any of the same which becomes due to any nursing
home, hospital, other facility or other third party pursuant to any Contract (as
such term is hereinafter defined) directly, by reason of offset or
indemnification, or otherwise, or any other form of Medicare or other health
care reimbursement denial, recapture, adjustment or overpayment whatsoever with
respect to any period on or prior to the Closing Date ("Excess Reimbursement
Liabilities"), (iii) any obligation or liability arising out of any Contract
which is not a Designated Contract, and (iv) any obligation or liability arising
out of the provision of Excluded NY O2 Services (as such term is defined in
Section 1.6(a) below).
(b) Notwithstanding the provisions of subsection (a) above, on
the Closing Date, contingent upon the consummation of the transactions
contemplated hereby, Buyer shall assume and thereafter in due course fully
satisfy:
(i) all operating trade payables, operating expenses
and other current liabilities of Sellers that would be classified as current
liabilities ("Current Liabilities") on a consolidated balance sheet of Sellers
as of the Closing Date prepared in accordance with generally accepted accounting
principles (except as disclosed on Schedule 1.2(b)(i)) applied on a basis
consistent with the balance sheet delivered to Buyer and included in the
financial statements of the Sellers as at March 31, 1996 ("GAAP"), including,
without limitation, all amounts due to American National Bank and Trust ("ANB")
immediately prior to the Closing regardless of whether the same shall be
satisfied concurrently with the Closing, but excluding any current liabilities
arising out of the Excluded NY O2 Services ("Excluded NY 02 Liabilities"); and
(ii) those obligations which arise under the
Designated Contracts specified pursuant to Section 1.3 below and assigned by
Sellers to Buyer, with respect to, and only with respect to, services to be
rendered or goods to be supplied or benefits to be conferred to Buyer solely
after the Closing Date. Liabilities under such Designated Contracts that have
accrued, or the performance of which is due, on or prior to the Closing Date, or
which are in payment or consideration for Excluded Assets, shall remain the sole
responsibility of Sellers except to the extent same constitute Current
Liabilities.
3
<PAGE>
1.3 Designated Contracts.
(a) As soon as practicable after the date hereof,
but in no event within two (2) business days after the date hereof, Buyer shall
deliver notice in writing to Sellers designating which, if any, of the Contracts
to which any Seller is a party listed on Schedule 4.7 hereto pursuant to Section
4.7 of this Agreement will be assigned to and assumed by Buyer (collectively,
the "Designated Contracts"). If within said period of time Buyer fails to so
deliver notice to Sellers, Buyer will be deemed to have designated all of said
Contracts; provided however, that in no event will any of the Contracts
described on Schedule 4.17 below or Schedule 4.7(b)(ix) below be included as
Designated Contracts. To the extent Buyer makes (or is deemed to have made) any
such designation, Sellers shall at Closing be obligated to assign all of their
right, title and interest under such Designated Contracts to Buyer and Buyer
shall assume the obligations accruing after Closing under such Designated
Contracts to the extent provided in Section 1.2 above.
(b) Immediately after notice of the Designated
Contracts by Buyer, each Seller will use its best efforts and shall diligently
proceed to obtain any consents of any parties necessary to permit the assignment
of the Designated Contracts. If any Designated Contract is not assignable and
the parties to any Designated Contract fail or refuse to consent to any
assignment on or before the Closing Date, Buyer shall have no liability to
assume any such Designated Contract, and if such Designated Contract shall not
be a Provider Contract (as defined in Section 4.7(b)(vi) below) and shall be
material to the Business, Buyer shall be permitted to terminate this Agreement
in accordance with Article XI hereof.
1.4 Designated Related Contracts; Other Designated Provider
Contracts. As soon as practicable after the date hereof, each Seller will notify
or, if applicable, provide a form of consent of (in each case, in a writing in
form and substance acceptable to IHS) each nursing home, hospital or other
facility and each licensed professional corporation that is a party to a Related
Contract or other Provider Contract (as such terms are hereinafter defined in
Section 4.7 below) that is a Designated Contract ("Designated Related Contracts"
and "Designated Provider Contracts", respectively) that the applicable
Designated Related Contract or Designated Provider Contract with, or the
management of the provider(s) of Rehab Services and/or O2 Services to, as the
case may be, such nursing home or hospital or other facility or such licensed
professional corporation will be assigned to Buyer, a subsidiary of IHS,
effective at the Closing. If at least fourteen (14) days shall have elapsed
since the date on which a notice (as set forth above) is received by a party to
a Related Contract or a Provider Contract (which Contract does not require
consent to the assignment to Buyer) and no termination or threatened termination
of such Contract shall occur prior to Closing, then such Contract shall be
deemed to qualify as effectively assigned to Buyer for purposes of Section 1.5
hereof. Sellers shall not be obligated to provide the notice or form of consent
as required above with respect to a Designated Provider Contract if Sellers
obtain the written consent (in form and substance reasonably acceptable to
Buyer) on or prior to the Closing Date from each applicable party to the
Designated Provider Contract to the assignment to Buyer of said Designated
Provider Contract or the written
4
<PAGE>
acknowledgment (in form and substance reasonably acceptable to Buyer) on or
prior to the Closing from each party to the Designated Related Contract that
Buyer, a subsidiary of IHS, will become the manager of the applicable provider
under such Designated Related Contract. Sellers will promptly notify IHS if they
become aware or receive any written or oral notice (directly from any applicable
nursing home, hospital or other facility or licensed professional corporation,
or indirectly from any provider or otherwise) of the actual or threatened
termination of any Designated Related or any other Designated Provider Contract.
1.5 Termination of Provider Contracts and Related Contracts.
For purposes of this Section 1.5, a Designated Provider Contract or Related
Contract shall be deemed "Matured" if it shall have been in effect for at least
sixty (60) days on the Closing Date. If, after the date hereof and on or prior
to Closing, Sellers are unable to assign to Buyer Matured Designated Provider
Contracts and Matured Designated Related Contracts (none of which Designated
Provider Contracts and Designated Related Contracts shall be terminated or
subject to threatened termination), that generate aggregate annualized net
revenues to Sellers measured as of the Closing Date equal to at least fourteen
million four hundred thousand dollars ($14,400,000), then Buyer shall be
permitted to terminate this Agreement in accordance with Article XI hereof. For
purposes of this Agreement, annualized net revenues to a Seller for any
Designated Contract or Designated Related Contract for the 1996 fiscal year
shall be calculated as follows: The daily net revenue to said Seller arising out
of said Designated Contract or Designated Related Contract shall be equal to the
amount of net revenue for the period commencing on the later to occur of (x)
January 1, 1996, and (y) the date on which such Designated Contract or
Designated Related Contract was executed and delivered, and ending October 31,
1996, shall be divided by the number of days during such period. The annualized
net revenue shall be equal to the daily net revenue calculated in accordance
with the preceding sentence multiplied by three hundred and sixty five (365);
provided, however, that no revenues generated by the South Shore Home or
Woodbridge Nursing Pavillion, Ltd. contracts shall be included.
1.6 02 Services in New York; Southshore and Central Island
Management Agreements.
(a) Notwithstanding anything to the contrary
contained in this Agreement, Buyer shall not assume, and shall not be assigned,
any Contracts, obligations or liabilities with respect to O2 Services in the
State of New York ("Excluded NY O2 Services"), except as expressly provided
below in subsection (b) (ii) below.
(b) (i) The Group has an understanding with
Southshore Health Center, 275 West Merrick Road, Freeport, New York 11520 (the
"Southshore Home") pursuant to which Rehab 02 (or its successors and assigns) is
to provide management services for the respiratory therapists at such facilities
in consideration for a management fee of approximately $10,000 per month and
with Central Island Nursing Home, 825 Old Country Road, Plainview, New York
11803 (the "Central Island Home") pursuant to which Rehab (or its successors and
assigns) is to provide management services for the rehabilitation therapists at
such facilities in consideration for a management fee of approximately $10,000
per month.
5
<PAGE>
(ii) (A) If within thirty (30) days
after the Closing Date, Buyer shall not be assigned and shall not enter into a
written Management Agreement with the Southshore Home to provide management
services for the respiratory therapists at such facility in the form of Exhibit
1.6(b)(ii) (a "Southshore Management Agreement"), then Buyer shall be entitled
to a reduction in the Purchase Price equal to Five Hundred Thousand Dollars
($500,000), which amount shall be paid to Buyer out of the Escrow Deposit upon
demand. If there shall be insufficient shares of IHS Stock in the Escrow Deposit
to cover such $500,000 payment, the Group shall pay any deficiency to Buyer on
demand. At the time that any such Southshore Management Agreement shall be
assigned to Buyer or executed by Buyer, Sellers shall be deemed automatically to
have represented and warranted as of such date that: (aa) they shall not have
taken any action or omitted to take any action in connection with such
assignment or execution that is not in compliance with all applicable
Governmental Requirements; (bb) each representation and warranty that they would
have made pursuant to Section 4.7 hereof had the Southshore Management Agreement
been in effect on the date hereof and been deemed a Contract ; and (cc) the
obligations set forth under Sections B.1., B.6. and D.1 of the Southshore
Management Agreement have been satisfied in full, or in the case of the
obligations set forth under Sections B.1. and B.6, Sellers have no reason to
believe, after reasonable investigation, that Buyer shall not be capable of
timely and properly satisfying such obligations in full. No Buyer Indemnitee (as
such term is defined in Section 10.2(a)) shall be entitled to indemnification
for a breach of any representation or warranty made pursuant to this clause
(ii)(A) except to the extent the amount of the claim shall exceed the amount of
any purchase price reduction made in accordance with this clause (ii).
(B) If there shall be a Southshore
Management Agreement and it shall be terminated (other than a termination by the
Southshore Home for cause as provided in Paragraph F(2) of such Management
Agreement, or a termination by Buyer other than for cause as provided in
Paragraphs F(2) or F(3) of such Management Agreement) prior to the date which is
six months after its commencement date, then Buyer shall be entitled to a
reduction in the Purchase Price equal to Five Hundred Thousand Dollars
($500,000) less the amount of net income (determined in accordance with GAAP)
earned by Buyer under such Management Agreement, which amount shall be paid to
Buyer out of the Escrow Deposit upon demand. If there shall be insufficient
shares of IHS Stock in the Escrow Deposit to cover such $500,000 payment, the
Group shall pay any deficiency to Buyer on demand.
(C) If there shall be a Southshore
Management Agreement and it shall not be terminated (or if it shall be
terminated by the Southshore Home for cause as provided in Paragraph F(2) of
such Management Agreement) by notice given prior to the date which is six months
after its commencement date (the "Southshore Contingency") and the Central
Island Contingency (defined below) shall have been satisfied, then Sellers shall
be entitled to receive One Hundred Fifty Thousand Dollars ($150,000) from the
Escrow Deposit upon demand.
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(iii) (A) If within thirty (30) days
after the Closing Date, Buyer shall not be assigned and shall not enter into a
written Management Agreement with the Central Island Home to provide management
services for the physical, occupational or speech therapists at such facility in
the form of Exhibit 1.6(b)(iii) (a "Central Island Management Agreement"), then
Buyer shall be entitled to a reduction in the Purchase Price equal to Five
Hundred Thousand Dollars ($500,000), which amount shall be paid to Buyer out of
the Escrow Deposit upon demand. If there shall be insufficient shares of IHS
Stock in the Escrow Deposit to cover such $500,000 payment, the Group shall pay
any deficiency to Buyer on demand. At the time that any such Central Island
Management Agreement shall be assigned to Buyer or executed by Buyer, Sellers
shall be deemed automatically to have represented and warranted as of such date
that: (aa) they shall not have taken any action or omitted to take any action in
connection with such assignment or execution that is not in compliance with all
applicable Governmental Requirements; and (bb) each representation and warranty
that they would have made pursuant to Section 4.7 hereof had the Central Island
Management Agreement been in effect on the date hereof and been deemed a
Contract; and (cc) the obligations set forth under Section [B.1., B.6. and D.1]
of the Central Island Management Agreement have been satisfied in full, or in
the case of the obligations set forth under Sections B.1. and B.6, Sellers have
no reason to believe, after reasonable investigation, that Buyer shall not be
capable of timely and properly satisfying such obligations in full. No Buyer
Indemnitee shall be entitled to indemnification for a breach of any
representation or warranty made pursuant to this clause (iii)(A) except to the
extent the amount of the claim shall exceed the amount of any purchase price
reduction made in accordance with this clause (ii).
(B) If there shall be a Central
Island Management Agreement and it shall be terminated (other than a termination
by the Central Island Home for cause as provided in Section F(2) such Management
Agreement, or termination by Buyer other than for cause as provided in
Paragraphs F(2) or F(3) of such Management Agreement) prior to the date which is
six months after its commencement date, then Buyer shall be entitled to a
reduction in the Purchase Price equal to Five Hundred Thousand Dollars
($500,000) less the amount of net income (determined in accordance with GAAP)
earned by Buyer under such Management Agreement, which amount shall be paid to
Buyer out of the Escrow Deposit upon demand. If there shall be insufficient
shares of IHS Stock in the Escrow Deposit to cover such $500,000 payment, the
Group shall pay any deficiency to Buyer on demand.
(C) The "Central Island
Contingency" means that there shall be a Central Island Management Agreement and
it shall not be terminated (unless it shall be terminated by the Central Island
Home for cause as provided in Section F(2) of such Management Agreement or by
IHS other than for cause) by notice given prior to the date which is six months
after its commencement date.
(iv) If not assigned at Closing, any
assignment and assumption of the Southshore Management Agreement and the Central
Island Management Agreement shall be made pursuant to an assignment and
assumption agreement in the form of Exhibit 8.9-2 hereto (revised
appropriately). The assignment and assumption shall be accompanied by a Bill of
Sale conveying to Buyer all of each Seller's right, title and interest in and to
all of such Seller's assets that relate to the Management Agreement.
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ARTICLE II: PURCHASE PRICE
2.1 Determination and Payment of Purchase Price. Subject to
adjustment as provided in this Agreement, the aggregate purchase price to be
paid to Sellers for the Assets and their respective obligations under this
Agreement (the "Purchase Price") shall be EIGHT MILLION and 00/100 DOLLARS
($8,000,000.00), and which Purchase Price shall be payable as follows:
(a) FIVE MILLION THREE HUNDRED AND 00/100 DOLLARS
($5,300,000) shall be paid at the Closing to Sellers in cash by wire transfer of
immediately available funds to the account designated in writing by Sellers at
least one business day prior to the Closing;
(b) TWO MILLION FIFTY THOUSAND AND 00/100 DOLLARS
($2,050,000) shall be paid at the Closing by delivery to Sellers of newly issued
shares of the Common Stock, par value $.001 per share, of IHS (the "IHS Stock"),
based upon the valuation and subject to the terms and conditions of Section 2.5
below; and
(c) SIX HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
($650,000) (the "Escrow Deposit") shall be paid by the deposit into an escrow
account as provided in Section 2.4 below of shares of IHS Stock, based upon the
valuation and subject to the terms and conditions of Section 2.5 below.
2.2 Allocation of Purchase Price. The Purchase Price as
adjusted pursuant to this Agreement (and all other capitalizable costs) shall be
allocated among the Sellers and with respect to each Seller, among the
categories of Assets, as shall be determined by Sellers, subject to the consent
of Buyer (which consent shall not unreasonably be withheld), in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Each
of the parties hereto agrees to prepare and file all tax returns (including Form
8594) in a manner consistent with such allocation and to report this transaction
for Federal and state income tax purposes in accordance with such allocation of
the Purchase Price.
2.3 Working Capital Adjustments to the Purchase Price.
(a) For the purposes of this Agreement, "Current
Assets" shall mean the aggregate amount of all assets of the Sellers that would
be classified as current assets on the consolidated balance sheet of the Sellers
as of the Closing Date prepared in accordance with GAAP, but excluding any
current assets that constitute Excluded NY O2 Assets, it being understood that
all Southshore Receivables shall be included as Current Assets. As used herein,
"Working Capital" means the amount by which Current Assets exceeds Current
Liabilities.
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(b) At the Closing, Sellers shall deliver to Buyer
the consolidated balance sheet of Sellers as of the Closing Date, certified by
the Chief Financial Officer of each Seller to be his or her best good faith
estimate of such balance sheet as of the Closing (the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall indicate which of the assets and
liabilities constitute Excluded NY O2 Assets and Excluded NY O2 Liabilities. The
Purchase Price payable to the Sellers shall be reduced if the Closing Date
Balance Sheet discloses that the consolidated Working Capital of Sellers as of
the Closing Date (the "Closing Date Working Capital") is less than EIGHT HUNDRED
THOUSAND DOLLARS ($800,000 (the "Minimum Amount"). In such event, the amount of
the Purchase Price payable to the Sellers at the Closing shall be reduced by an
amount, on a dollar-for-dollar basis, equal to the amount by which the Closing
Date Working Capital is less than such Minimum Amount.
(c) Buyer may complete, at its own expense, a
review of the Closing Date Working Capital, and, if it does so, shall deliver to
Sellers its written report (the "Working Capital Review") setting forth the
amount of such Closing Date Working Capital as confirmed or determined in
accordance with such review. If Buyer shall not have completed such a Working
Capital Review and delivered a copy thereof to Sellers within ninety (90) days
following the Closing Date, Buyer shall be deemed to conclusively have accepted
the determination of the Closing Date Working Capital as set forth on the
Closing Date Balance Sheet, and such determination shall become final and shall
not be subject to further review, challenge or adjustment, absent fraud. In the
event that the Working Capital Review is timely prepared and delivered to
Sellers and it discloses that the Closing Date Working Capital was less than the
lesser of: (x) the Minimum Amount and (y) the amount of the Working Capital set
forth on the Closing Date Balance Sheet, the Purchase Price shall be deemed to
have been reduced by the amount of such deficiency; provided, however, if
Sellers shall dispute the amount set forth in the Working Capital Review, they
shall give notice to Buyer (a "Delay Payment Notice") within thirty (30) days
after delivery to them of the Working Capital Review that the payment specified
in subsection (d) hereof should not then be made and setting forth in reasonable
detail their objections and the basis therefor, in which case the parties shall
meet and in good faith attempt to resolve any disagreements within thirty (30)
days after delivery to Buyer of the Delay Payment Notice. If the parties are
unable to resolve such disagreements within such time period, the disagreements
shall be referred to a "Big Six" accounting firm selected by mutual agreement of
Sellers, on the one hand, and Buyer, on the other hand (or if the parties cannot
agree on such selection, then a "Big Six" accounting firm, other than KPMG Peat
Marwick LLP selected by lot) (the "Settlement Accountants"), and the
determination of the Settlement Accountants shall be final and shall not be
subject to further review, challenge, or adjustment absent fraud. The Settlement
Accountants shall be directed to use their best efforts to reach a determination
not more than forty-five (45) days after such referral. The costs and expenses
of the services of the Settlement Accountants shall be borne by the party
against whom the Settlement Accountants shall rule; provided that if the
Settlement Accountants shall not clearly rule against any party, then such costs
and expenses shall be borne equally by Sellers, on the one hand, and Buyer, on
the other hand.
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(d) If the Purchase Price is decreased as provided
in this Section 2.3, the amount of the decrease shall be paid promptly by
Sellers to Buyer. Such payment shall be made in IHS Stock (valued in accordance
with Section 2.4(c) below) out of the Escrow Deposit to the extent there shall
be sufficient shares therefor and any further deficiency shall be paid in cash
by Sellers.
(e) The parties acknowledge that because the
Purchase Price is payable, in part, by the delivery of shares of IHS Stock, and
that at least two (2) business days lead-time is necessary to prepare the stock
certificates, it may be impractical to make Purchase Price adjustments at the
Closing by changing the number of shares of IHS Stock to be delivered.
Accordingly, to the extent such adjustments can not be made at the Closing by
way of decreasing the number of shares delivered, the parties agree that such
adjustments will be made by the reduction in the payment of cash at Closing.
Notwithstanding the foregoing, in lieu of reducing the cash payments in
accordance with the foregoing sentence, Sellers may elect to instruct Buyer's
attorneys to hold the stock certificates evidencing the Purchase Price in escrow
pending the issuance to Sellers of stock certificate(s) evidencing the exact
amount of the Purchase Price.
2.4 Escrow Indemnification.
(a) At the Closing, pursuant to an Escrow Agreement
to be executed by the parties in substantially the form and substance of Exhibit
2.4 hereto, the Escrow Deposit shall be deposited with an escrow agent (the
"Escrowee") acceptable to Buyer and Sellers and shall be held by the Escrowee,
together with all dividends (stock or cash), if any, earned thereon, and any
interest or income earned thereon in accordance with the Escrow Agreement, as a
non-exclusive source of indemnification from the Sellers for any amount due to
any Buyer Indemnitee (as such term is hereinafter defined) and as a source of
repayment of any reduction in the Purchase Price pursuant to Section 1.6 or
Section 2.3 above. The Escrow Deposit shall be deemed to be the property of
Buyer unless and until paid to Sellers pursuant to the Escrow Agreement. The
Escrow Deposit (plus all dividends, if any, earned thereon, and any interest or
income earned thereon in accordance with the Escrow Agreement) less any claims
made pursuant to Section 1.6 or Section 2.3 above or for Losses (as such term is
defined in Section 10.2(a) hereof), and also less any amounts previously
released to Sellers in accordance with Section 1.6 above, shall be released to
Sellers on the first anniversary of the Closing Date. If any Buyer Indemnitee
shall have asserted a claim to indemnification or for a Purchase Price
reduction, and the amount of such claim shall not have been finally determined
by the first anniversary of the Closing Date, then the amount of the Escrow
Deposit to be released to Sellers in accordance with the foregoing sentence
shall be reduced by a reasonable reserve for such claim as determined by Buyer
in good faith and set forth in a notice to Sellers and the Escrow Agent. If
Sellers shall dispute the amount of such reserve, they shall give notice to
Buyer setting forth in reasonable detail their objections and the basis
therefor, in which case the parties shall meet and in good faith attempt to
resolve any disagreements within thirty (30) days after Sellers' receipt of
notice of the amount of the reserve. If the parties are unable to resolve such
disagreements within such time period, the disagreements shall be referred to
the Settlement Accountants, and the determination of the Settlement Accountants
shall be final and
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shall not be subject to further review, challenge, or adjustment absent fraud.
The Settlement Accountants shall be directed to use their best efforts to reach
a determination not more than forty-five (45) days after such referral. The
costs and expenses of the services of the Settlement Accountants shall be borne
by the party against whom the Settlement Accountants shall rule; provided that
if the Settlement Accountants shall not clearly rule against any party, then
such costs and expenses shall be borne equally by Sellers, on the one hand, and
Buyer, on the other hand.
(b) Subject to the limitations set forth in Section
2.5 below (including without limitation, Sections 2.5 (b) and 2.5(c)) with
respect to the sale of shares of IHS Stock issued pursuant to this Agreement, if
Sellers shall so request, Buyer and IHS shall agree to the sale of shares of IHS
Stock constituting all or part of the Escrow Deposit if the entire gross
proceeds of such sale shall become part of the Escrow Deposit and shall be
deposited with the Escrow Agent and held pursuant to the Escrow Agreement, and
Buyer and IHS shall have determined that a satisfactory procedure shall have
been established so that at all times before, during and after such sale the
escrowed shares of IHS Stock to be sold and said gross proceeds thereof shall be
subject to the sole possession and control of the Escrow Agent and shall be free
and clear of all Liens of third parties (other than the Escrow Agent if and as
provided in the Escrow Agreement).
(c) For purposes of determining the value of any
shares of IHS Stock claimed as a source for indemnification, for Purchase Price
reductions or for release of less than all of the shares held in escrow, the
Current Market Value Per Share shall be used. For purposes hereof "Current
Market Value Per Share" means the average closing New York Stock Exchange
("NYSE") price of IHS Stock for the thirty (30) business day period ending on
the date which is two (2) business days prior to the date on which such IHS
Stock is to be released from the Escrow pursuant to the Escrow Agreement.
(d) If any shares of IHS Stock constituting any
part of the Escrow Deposit shall be sold, the gross proceeds thereof shall be
held by the Escrow Agent pursuant to the terms of the Escrow Agreement and may
be invested in accordance with the mutual instructions of Sellers and IHS as
provided in the Escrow Agreement. Any interest or income or dividends paid on or
in respect of all or any part of the Escrow Deposit ("Escrow Income") shall be
added to the Escrow Deposit and shall be used for the benefit of Sellers or be
paid to Sellers upon release of the balance of the Escrow Deposit.
(e) The costs, fees and expenses of the Escrow
Agent shall be borne equally by Buyer, on the one hand, and Sellers, on the
other hand.
2.5 IHS Stock.
(a) As set forth in Sections 2.1(b) and (c) above,
but subject to Sections 2.3(d) and (e) above, a portion of the Purchase Price
equal to TWO MILLION SEVEN HUNDRED THOUSAND AND 00/100 DOLLARS ($2,700,000)
shall be payable by means of the
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delivery to Sellers and the Escrowee of IHS Stock based upon a price per share
of such stock equal to the average closing New York Stock Exchange ("NYSE")
price of such stock for the thirty (30) business day period ending on the date
which is two (2) business days prior to the Closing Date (the "Initial Market
Value Per Share").
(b) Resale Limitations. All sales of IHS Stock
issued pursuant to this Agreement shall be effected solely through Smith Barney,
Inc., as broker, which shall charge not more than customary brokerage
commissions, and sales of such shares shall not at any time, in the aggregate,
exceed fifty thousand (50,000) shares during any thirty (30) day period; it
being understood however, that such covenant will not apply to shares of IHS
Stock issued pursuant to the Asset Purchase Agreement, dated as of April 20,
1996, among them, Hospice of the Great Lakes, Inc. ("HGL"), Hospice of
Integrated Health Services, Inc., IHS and various other shareholders of HGL.
(c) Investment Representations. All shares of
IHS Stock to be issued hereunder will be newly issued shares of IHS. Sellers and
the Members represent and warrant to IHS and Buyer that the IHS Stock being
issued hereunder is being acquired, and will be acquired, by Sellers for
investment for their own accounts or for the account of any Member or the
Consultant (as such term is defined in Section 13.1) to whom transfer of any of
such shares is expressly permitted in accordance with this Agreement, and not
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act") or
any applicable state securities law; Sellers and each Member acknowledge that
the IHS Stock constitutes restricted securities under Rule 144 promulgated by
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act, may have to be held indefinitely and may not 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 and the rules and regulations thereunder. Sellers and each Member
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. Sellers and each Member have been provided
with such materials as are generally provided to shareholders of IHS and have
had the opportunity to make inquiries of and obtain from representatives and
employees of IHS such other information about IHS as they deem necessary in
connection with such investment.
(d) Legends. It is understood that the certificates
evidencing the 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):
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.
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(e) Transfers. Upon prior notice to IHS, Sellers
shall be permitted to transfer any of the shares of IHS Stock acquired by it
pursuant to this Agreement (other than shares then being held as part of the
Escrow Deposit) and the registration rights related thereto to any of the
Members, the Consultant or TRS Protective Trust, Trustees David S. Krause and
Ronald Paler, dated October 23, 1996, (each a "Transferee") in accordance with
Section 13.1 hereof, provided that said transfer shall be made in compliance
with all applicable securities laws. As a condition to any such transfer, if IHS
shall reasonably so request, Sellers shall cause an opinion of legal counsel
(such opinion and legal counsel to be reasonably acceptable to IHS) to be
delivered to IHS upon which IHS and its legal counsel may rely to the effect
that such transfer may be made in compliance with all applicable securities
laws. Upon such transfer the acquiring Transferee shall be deemed to have made
each of the representations and warranties set forth in subsection (c) above
with respect to himself, herself or itself, as of the date of such transfer, and
he, she or it shall be bound by the provisions of this Agreement relating to
such transferred shares, including without limitation, the resale limitations
set forth in subsection (b) above and all of the obligations relating to the
registration of the shares. No such transfer shall release any Seller from any
of its obligations under this Agreement relating to such transferred shares or
otherwise.
(f) Registration of IHS Stock.
(i) IHS will use its best efforts to cause
to be prepared, filed and declared effective by the Commission within sixty (60)
days following the Closing Date, a registration statement for the registration
under the Securities Act of the IHS Stock issued to Seller pursuant to this
Agreement (including, without limitation, all of the shares of IHS Stock
constituting part of the Escrow Deposit), and IHS shall maintain the
effectiveness of such registration statement for a period of two (2) years
following the date on which it becomes effective, or for so long as any Seller
(or any Transferee) 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. If the number of shares of IHS
Stock constituting the Purchase Price shall be increased pursuant to clause (ii)
below, IHS shall, prior to the effective date, estimate the number of additional
shares and shall use its best efforts to include all of the newly issued shares
in the registration statement. IHS shall use its best efforts to cause the
shares of IHS Stock to be approved for listing on the NYSE.
(ii) If, notwithstanding the use
of its best efforts as provided in clause (i) above, IHS does not cause the
registration statement to be prepared, filed and declared effective within one
hundred and eighty (180) days after the Closing Date, then as of the date that
such registration statement shall become effective, the number of shares of IHS
Stock constituting the Purchase Price shall be adjusted so that the number of
shares issued to Sellers pursuant to this Agreement (including the shares
constituting the Escrow Deposit) shall have an aggregate fair market value equal
to the amount of the stock portion of the Purchase Price as adjusted pursuant to
this Agreement based upon a price per share of such stock equal to the average
closing NYSE price of such stock for the thirty (30) business day period ending
on the date which is two (2)
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business days prior to such effective date (the "Adjusted Market Value Per
Share"). Within five (5) business days after such effective date IHS shall
deliver notice (the "Adjustment Notice") to Seller of the Adjusted Market Value
Per Share and the number of shares to be delivered by Buyer to Sellers and the
Escrow Agent (if the Adjusted Market Value Per Share shall be less than the
Initial Market Value Per Share) or by Sellers and the Escrow Agent to Buyer (if
the Adjusted Market Value Per Share shall be greater than the Initial Market
Value Per Share) so as to effect the adjustment described in this clause (ii).
The number of shares to be delivered or issued, as the case may be, shall be
rounded up or down so that no fractional shares need be issued. Within five (5)
business days the parties shall make (and if applicable, shall instruct and
cause the Escrow Agent to make) the delivery of the shares of IHS Stock required
in the Adjustment Notice.
(g) Registration Procedures, etc. In connection
with the registration rights granted to Sellers with respect to the IHS Stock as
provided in this Section 2.5, IHS agrees as follows:
(i) IHS will promptly notify Sellers at
any time when a prospectus relating to a registration statement covering any
Seller's shares under this Section 2.5 is required to be delivered under the
Securities Act, of the happening of any event known to IHS 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, and, to the extent
required by applicable law, IHS shall promptly prepare and file with the SEC as
appropriate a supplement or amendment to such prospectus so that, as thereafter
timely delivered to the purchaser of any IHS Stock such prospectus shall not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(ii) IHS shall furnish Sellers with such
number of prospectuses as shall reasonably be requested, and Sellers agree to
comply with the prospectus delivery requirements of the Securities Act in
connection with any sale of IHS Stock by it.
(iii) IHS 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 Sellers, provided that IHS
shall not be obligated to qualify as a foreign corporation or dealer to do
business under the laws of any such jurisdiction.
(iv) The information included or
incorporated by reference in the registration statement filed pursuant to this
Section 2.5 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
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registration statement will comply in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder. With respect to
sales of IHS Stock sold in accordance with the provisions of this Section 2.5
pursuant to the registration statement, IHS shall indemnify Sellers and their
permitted successors and assigns, and the Transferees, and each person, if any,
who controls Sellers within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "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,
based upon a sale by them pursuant to any untrue statement or alleged untrue
statement of a material fact contained in such registration statement executed
by IHS or based upon a sale by them pursuant to written information furnished by
IHS 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, NASDAQ, 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 IHS by any Seller or any Transferee 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 any Seller or any controlling person of
any Seller or any Transferee in respect of which indemnity may be sought against
IHS pursuant to this subsection, such Seller or such controlling person or such
Transferee shall within thirty (30) days after the receipt thereof of a summons
or complaint, notify IHS in writing of the institution of such action and IHS
shall assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel. Any Seller or any such controlling
person or any such Transferee 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 such Sellers or such controlling persons or such Transferee
unless (A) the employment of such counsel shall have been authorized in writing
by IHS in connection with the defense of such action, or (B) IHS 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 IHS (in which case, IHS 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 Seller, such controlling person and such Transferees shall be
borne by IHS and such law firm shall be reasonably acceptable to IHS. Except as
expressly provided in the previous sentence, in the event that any Seller, any
such controlling person or any such Transferee assumes control of the defense of
any such action or claim, IHS shall not thereafter be liable to such Seller or
any such controlling person or such Transferee in investigating, preparing or
defending any such action or claim. IHS agrees promptly to notify Sellers of the
commencement of any litigation or proceedings against IHS or any of its
officers, directors or controlling persons in connection with the resale of IHS
Stock or in connection with such registration statement. If the indemnification
provided for in this Section 2.5 is held by a court of competent jurisdiction to
be unavailable to any Seller or any controlling person of any Seller or any
Transferee with respect to any loss,
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liability, claim, damage or expense referred to herein, then IHS in lieu of
indemnifying any Seller or any controlling person of any Seller or any
Transferee hereunder, shall contribute to the amount paid or payable by any
Seller or any controlling person of such Seller or any such Transferee
hereunder, as a result of such loss, liability, claim, damage, expense or
liability in such proportion as is appropriate to reflect the relative fault of
IHS on the one hand and of such Seller or any controlling person of such Seller
or any Transferee on the other hand in connection with the statements or
omissions which resulted in such loss, liability, claim, damage, expense, or
liability, as well as any other relevant equitable considerations. The relative
fault of IHS and of such Seller or any controlling person of such Seller or any
Transferee shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by IHS or by such Seller or any
controlling person of such Seller or any Transferee and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(v) Sellers and any Transferee who proposes
to sell IHS Stock pursuant to a registration statement, and its, his or her
respective successors and assigns, shall severally, and not jointly, indemnify
IHS and Buyer, their respective officers, directors and advisers, and each
person, if any, who controls IHS or Buyer within the meaning of Section 15 of
the Securities Act or Section 20(a) of the 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
they may become subject under the Securities Act, the Exchange Act or any other
statute, common law or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in a registration statement, a prospectus, or any amendment or supplement
thereto filed by IHS in accordance with this Agreement, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in a registration statement, a prospectus, or any amendment or supplement
thereto filed in accordance with this Agreement in reliance upon and in
conformity with written information furnished to IHS by the Sellers, or any
Transferee, or its, his or her respective successors or assigns.
(h) Registration Expenses. IHS shall bear all
reasonable expenses related to such registration. Such costs and expenses shall
include, without limitation, the fees and expenses of counsel for IHS and of its
accountants, all other costs, fees and expenses of IHS incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the fees and
expenses of one counsel to Sellers and the Transferees relating to such
registration, 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 counsel) incurred in connection with the qualification
of IHS Stock under the Blue Sky laws of various jurisdictions. IHS, however,
shall not be required to pay
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underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs and expenses in excess in the aggregate of $20,000 for Blue Sky
qualifications of Sellers' (and any Transferee's) IHS Stock, or to pay any costs
or expenses arising out of any Seller's or any Transferee's failure to comply
with its obligations under this Section 2.5.
(i) Notice of Sale. Except for transfers
permitted under Section 2.5(e), above, if any Seller (or any of its Transferees)
desires to transfer all or any portion of its, his or her IHS Stock, it, he or
she will deliver written notice to IHS, describing in reasonable detail its
intention to effect the transfer and the manner of the proposed transfer.
ARTICLE III: THE CLOSING
------------------------
3.1 Time and Place of Closing.
(a) The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place by mail through escrow
arrangements satisfactory to the parties hereto on November 8, 1996, or at such
other time and place upon which the parties may agree. The date on which the
Closing is held is hereinafter referred to as the "Closing Date."
(b) If prior to or on the Closing Date: each
license to operate the Business by the state agency or agencies with
jurisdiction over the licensing of the Business has not been issued to Buyer
(the "Required Approvals"); then, the Closing Date automatically shall be
extended until the date which is sixty (60) days after the date hereof;
provided, however, that if the Required Approvals are not obtained by such date,
this Agreement automatically shall terminate, unless Buyer and Seller shall
mutually agree to extend said date, and such termination shall be governed in
accordance with Article XI herein.
(c) If prior to or on the Closing Date, Buyer
shall have the right to terminate this Agreement by reason of the occurrence of
any of the events specified in Section 1.3(b) or Section 1.5 above, then Buyer,
in its sole discretion shall be entitled to extend the Closing Date for up to an
additional sixty (60) days to provide time to obtain the consents or approvals
contemplated thereby. If prior to or on the Closing Date, Buyer shall have the
right to terminate this Agreement by reason of the occurrence of any of the
events specified in Section 1.5 above, then Sellers, in their sole discretion,
shall be entitled to extend the Closing Date until November 15, 1996, to provide
time to obtain the consents or approvals or acknowledgments contemplated
thereby.
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ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE
-------------------------------------------------------------
MEMBERS
-------
Sellers and the Members hereby jointly and severally represent
and warrant to Buyer and IHS as provided in this Article IV, subject to the
following rules of construction and qualification:
(a) Each representation and warranty qualified by
the phrase "to the Group's Knowledge" shall be considered to be made by each
Seller to its actual knowledge after reasonable investigation and by each Member
to his or her actual knowledge after reasonable investigation; and
(b) To the extent any representation or warranty
is made with respect to the status, affairs, circumstances or effect on any
Member (as opposed to on any Seller), such as the enforceability of this
Agreement against a Member, said representation or warranty shall be deemed to
have been made individually (and not jointly) by each Group Participant and
shall be deemed to have been made by each Member other than the Member who is
the subject of such representation or warranty only to such Member's knowledge;
provided that the foregoing knowledge shall not apply to representations and
warranties of the Ruby Members with respect to Ruby.
4.1 Organization and Standing; Subsidiaries.
(a) Each Seller is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Illinois. Copies of each such limited liability company's Certificate
of Organization and Operating Agreement and all amendments thereof to date, have
been delivered to Buyer, and are complete and correct. Each such limited
liability 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. Each
such limited liability company is qualified to do business as a foreign limited
liability company in any state where the ownership of its assets or the conduct
of its business makes such qualification necessary.
(b) Ruby is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Wisconsin. Copies of its Certificate of Organization and Operating Agreement and
all amendments thereof to date, have been delivered to Buyer, and are complete
and correct. Ruby 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.
(c) Except as set forth on Schedule 4.1(b), no
Seller has any equity interest or investment in any other corporation, limited
liability company, partnership, joint venture or other entity or association.
Schedule 4.1(b) sets forth a complete list of all subsidiaries, joint ventures
and partnerships in which any Seller is the record or beneficial owner of five
(5%) percent or more of the equity interest. All of the issued and outstanding
capital stock or other equity interest of the entities, if any, listed on
Schedule 4.1(b) hereto is owned of record and beneficially by the listed Seller
or by one of the listed wholly-owned subsidiaries except as listed on Schedule
4.1(b).
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4.2 Authority. (a) Each Seller has the full limited liability
company power and authority to make, execute, deliver and perform this Agreement
including all Schedules and Exhibits hereto, and the other agreements,
instruments, certificates and documents required or contemplated hereby or
thereby to be executed or delivered by it, including without limitation, the
Escrow Agreement (collectively the "Seller Transaction Documents") and all of
the transactions contemplated hereby and thereby. Such execution, delivery,
performance and consummation have been duly authorized by all necessary action,
limited liability company or otherwise, on the part of each Seller, its members
and all necessary consents of holders of indebtedness of each Seller have been
obtained.
(b) Each Member has the full legal power and
capacity to make, execute, deliver and perform this Agreement including all
Schedules and Exhibits hereto, and the other agreements, instruments,
certificates and documents required or contemplated hereby or thereby to be
executed or delivered by him or her ("Member Transaction Documents", and
collectively with the Seller Transaction Documents, the "Group Transaction
Documents"), and all of the transactions contemplated hereby and thereby. Such
execution, delivery, performance and consummation have been made in the exercise
of each such Member's free will and volition, and any necessary consents of
holders of indebtedness of such Members have been obtained. In the case of Ruby,
such execution, delivery, performance and consummation have been duly authorized
by all necessary action, limited liability company or otherwise, on the part of
Ruby, and its members and all necessary consents of holders of indebtedness of
Ruby have been obtained.
4.3 Binding Effect. This Agreement and the Group Transaction
Documents executed by any Seller or Member constitute the legal, valid and
binding obligations of such Seller or such Member, as the case may be,
enforceable against it, him or her, as the case may be in accordance with their
respective terms.
4.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Agreement or any of the Group Transaction Documents by any
Group Participant nor the performance by any Group Participant of the
transactions contemplated hereby and thereby, conflicts with, or constitutes a
breach of or a default under or the termination of (a) in the case of each
Seller and Ruby, its Certificate of Organization or Operating Agreement; or (b)
any judgment, order, writ, injunction, or decree of any court applicable to any
Group Participant; or (c) any applicable Federal, state, local or other
governmental laws or ordinances, or any applicable order, rule or regulation
("Governmental Requirements") of any Federal, state, local or other governmental
or quasi-governmental agency, bureau, board, administrator, court, commission,
department, instrumentality, body or other authority having jurisdiction over
it, him or her ("Governmental Authorities"); or (d) any agreement, indenture,
contract or instrument to which any Group Participant is now a party or by which
any of them or any of the Assets is bound.
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4.5 Consents. Except as set forth in Schedule 4.5, no
authorization, consent, approval, license, exemption by filing or registration
with any Governmental Authority, is or will be necessary in connection with any
Group Participant's entry into, execution, delivery and performance of this
Agreement or any of the Group Transaction Documents, or for the consummation of
the transactions contemplated hereby and thereby.
4.6 Schedule of Assets and Properties.
(a) Set forth in Schedule 4.6 are complete and
accurate lists of all of the material items comprising the Assets and inventory
as of the date of this Agreement as follows:
(i) All machinery, vehicles and equipment,
office equipment, furniture and supplies owned or leased by either Seller and
any other items of personal property (not otherwise set forth on a schedule
hereto) that comprise or are otherwise used by either Seller in connection with
any part of the Business.
(ii) All patents, trademarks, service marks,
copyrights, or applications for any of the same, franchises, rights and other
authorizations (other than Licenses as set forth on Schedule 4.10 hereof), if
any, and any other item of intangible or intellectual property that are owned,
possessed or used by either Seller or any other person in the operation of any
of the Business (the "Proprietary Rights"). Schedule 4.6 sets forth any of the
foregoing items which have been registered under any state or federal statute.
All of the Proprietary Rights of Seller are fully and freely assignable by it,
and are free and clear of all Liens.
4.7 Contracts.
(a) Schedules 4.7(b) and (c) set forth a complete
and correct list of all agreements, leases, contracts and commitments whether
written or oral, relating to the Business or to which either Seller is a party
or by which any Seller or any of the Assets are bound (the "Contracts"). The
Group has delivered to Buyer true, complete and correct copies of each written
Contract and a written description of each oral Contract. The Contracts were
entered into and require performance in the ordinary course of business and are
in full force and effect. No Seller is in default under any Contract and there
has not been asserted, either by or against any Seller under any Contract, any
notice of default, set-off or claim of default. Except as set forth on Schedule
4.7(b), to the Knowledge of the Group, the parties to the Contracts other than
Sellers are not in default of any of their respective obligations under any of
the Contracts, and there has not occurred any event which with the passage of
time or the giving of notice (or both) would constitute a default or breach
under any Contract. Except as set forth in Schedule 4.7(b), all amounts payable
under each of the Contracts are, and will at the Closing Date, be on a current
basis. Except as set forth in Schedule 4.7(b), the Contracts are freely and
fully assignable to Buyer without the consent of the remaining parties thereto.
No Group Participant has received notice or has reason to believe that any of
the Contracts will be terminated by any party thereto pursuant to any provision
thereof permitting any such party to terminate such Contract with or without
cause. If the Contracts with Concord Extended Care and/or Fairhaven of Chicago
Ridge
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are re-negotiated as contemplated by the disclosure on Schedule 4.7(b), the
revenues and profits generated by such Contracts as so renegotiated (including
the addition of Washington Heights Nursing Center and Tri-State Nursing &
Rehabilitation Center) will not be materially reduced.
(b) Except as listed in Schedule 4.7(b), no Seller
is a party to or liable in connection with and no Seller has granted any written
or express, oral or implied:
(i) contract, agreement or commitment for
the employment or retention of, or collective bargaining, severance or
termination of or with, any director, officer, employee, consultant or agent or
group of employees or any non-competition, confidentiality or similar agreement
with any such person or persons;
(ii) agreement or arrangement for the sale
of any of its assets, property or rights outside the ordinary course of business
or requiring the consent of any party to the transfer and assignment of any such
assets, property or rights (by sale of assets, sale of stock, merger or
otherwise);
(iii) contract which contains any
provisions requiring either Seller to indemnify or act for any other person or
entity or to guaranty or act as surety for any other person or entity;
(iv) agreement restricting any Seller from
conducting business anywhere in the world for any period of time or restricting
its use or disclosure of any confidential or proprietary information;
(v) partnership, joint venture or
management contract or similar arrangement or agreement which involves a right
to share profits or future payments with respect to the business of either
Seller or any portion thereof or the business of any other person or entity;
(vi) agreement (including, without
limitation, management agreements) with any nursing home or hospital or other
facility or any professional corporation with respect to the provision of Rehab
or O2 Services to patients or residents ("Provider Contracts");
(vii) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or other similar
contract, arrangement or commitment; or
(viii) agreement granting a leasehold
or other interest in real property (the "Leases");
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(ix) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock purchase, severance pay,
pension, retirement hospitalization, insurance or other similar plan, agreement
or arrangement applicable to any employee, consultant or agent to Seller not
covered by clause (i) above; or
(x) agreement not made in the ordinary
and normal course of business and consistent with past practice or involving
consideration in excess of $25,000 except as set forth in Schedule 4.17.
(c) Schedule 4.7(c) sets forth a complete and
correct list of all agreements, contracts and commitments, whether written or
oral, relating to the provision of Rehab Services or O2 Services as to which no
Seller is a party, but with respect to which either Seller is acting as a
manager or consultant (the "Related Contracts"). The Group has delivered to
Buyer true, complete and correct copies of each written Related Contract and a
written description of each oral Related Contract. The Related Contracts were
entered into and require performance in the ordinary course of business and are
in full force and effect. No provider is in default under any Related Contract
and there has not been asserted, either by or against any Seller or provider
under any Related Contract, any notice of default, set-off or claim of default.
Except as set forth on Schedule 4.7(c), to the Knowledge of the Group, the
parties to the Related Contracts other than the providers are not in default of
any of their respective obligations under any of the Related Contracts, and
there has not occurred any event which with the passage of time or the giving of
notice (or both) would constitute a default or breach under any Related
Contract. Except as set forth in Schedule 4.7(c), all amounts payable under each
of the Related Contracts are on a current basis. Except as set forth in Schedule
4.7(c), each Related Contract to which any Seller is a party is freely and fully
assignable to Buyer without the consent of the remaining parties thereto. No
Group Participant has received notice or has reason to believe that any of the
Related Contracts will be terminated by any party thereto pursuant to any
provision thereof permitting any such party to terminate such Related Contract
with or without cause.
4.8 Financial Statements.
(a) (i) Attached hereto as Schedule 4.8(a)(i)
are the unaudited consolidated financial statements of Sellers for the fiscal
quarters ended June 30, 1996 and March 31, 1996, the audited consolidated
financial statements of Sellers for the fiscal year ended December 31, 1995, and
each Seller's unaudited consolidated financial statements for the fiscal year
ended December 31, 1994 and for each fiscal month since January 1, 1995 through
the date hereof, in each case, certified as true and correct by the applicable
Seller's chief financial officer (the "Financial Statements"). The Financial
Statements (including any related notes thereto) are true and correct in all
material respects and present fairly the financial condition and results of
operations of Sellers on a consolidated basis as, at and for the periods therein
specified and were prepared in accordance with GAAP except as expressly set
forth on Schedule 4.8. The books of account of each Seller from which the
Financial Statements were prepared accurately reflect all of the items of income
and expense, assets, liabilities and accruals of Sellers on a consolidated
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basis. The income statements included in the Financial Statements do not contain
any items of special or nonrecurring income or expense or any other income not
earned or expense not incurred in the ordinary course of business except as
expressly specified therein, and such financial statements include all
adjustments, which consist only of normal recurring accruals, necessary for such
fair presentation.
(ii) Attached hereto as Schedule 4.8(a)(ii)
are the unaudited consolidated financial statements of Sellers for the fiscal
quarters ended June 30, 1996 and March 31, 1996, in each case, adjusted to
exclude therefrom the results of operations and the effect of the Excluded NY O2
Services, in each case, certified as true and correct by the applicable Seller's
chief financial officer (the "Adjusted Financial Statements"). The Adjusted
Financial Statements (including any related notes thereto) are true and correct
in all material respects and present fairly the financial condition and results
of operations of Sellers on a consolidated basis after adjustment to exclude the
results of operations and the effect of the Excluded NY O2 Services as, at and
for the periods therein specified and were prepared in accordance with GAAP
except as expressly set forth on Schedule 4.8(a)(ii).
(b) (i) The unaudited consolidated balance
sheet contained in the Financial Statements as of March 31, 1996 (the "Balance
Sheet") reflects all liabilities as of the date thereof, and no Seller has any
Liabilities that are not reflected thereon, except for such current Liabilities
as have been incurred since the date of the Balance Sheet in the ordinary course
of business consistent with past practice and Liabilities listed on Schedule
4.8(b)(i). There is no basis for the assertion against either Seller of any
Liability of any nature or in any amount (other than current or scheduled
Liabilities as aforesaid) not fully reflected or reserved against in the Balance
Sheet.
(ii) The unaudited consolidated balance
sheet contained in the Adjusted Financial Statements as of March 31, 1996 (the
"Adjusted Balance Sheet") reflects all liabilities as of the date thereof other
than liabilities arising out of the Excluded NY O2 Services, and no Seller has
any Liabilities that are not reflected thereon, except for such current
Liabilities as have been incurred since the date of the Adjusted Balance Sheet
in the ordinary course of business consistent with past practice and Liabilities
listed on Schedule 4.8(b)(ii), and other than liabilities arising out of the
Excluded NY O2 Services.
4.9 Material Changes. Except as noted on Schedule 4.9 hereto,
between the date of the Balance Sheet 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 either Seller, and each Seller has
conducted its business only in the normal course, consistent with past practice.
The Group has identified and communicated to Buyer all material information with
respect to any fact or condition that, to the Group's Knowledge, might adversely
affect the future prospects (financial or otherwise) of any of the Business
other than matters generally affecting the rehabilitation or respiratory service
industry.
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4.10 Licenses; Permits; Certificates of Need. Schedule 4.10
sets forth a description of (a) each license and all other permits and approvals
of Governmental Authorities relating to the operation of any part of the
Business heretofore obtained and that is now in effect; and (b) each other
license, permit, easement, right or other authorization that is necessary for
the operation of any part of the Business (collectively, the "Licenses"). Seller
has delivered to Buyer true, correct and complete copies of all of the Licenses
and the applications therefor. Schedule 4.10 also sets forth a description of
each accreditation of the Business, copies of which Sellers have delivered to
Buyer. Sellers own, possess or have the legal right to use the Licenses, free
and clear of all Liens. No Seller is in default under, and no Seller has
received any notice of any claim or default or any other claim or proceeding
relating to, any such License. The Business is fully and completely licensed by
all appropriate Governmental Authorities to carry on all aspects of the
Business. No member, director or officer, employee or former employee of either
Seller, or any other person, firm or entity owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part in any such
License owned, possessed or used in the operation of any aspect of the Business.
4.11 Title, Condition to Personal Property.
(a) Each Seller has good and marketable title to
all of the personal property comprising the Assets, subject to no liens, claims,
security interests, mortgages, pledges, charges, easements, rights of setoff,
restraints on transfers, restrictions on use, options, conditional sale
agreements, subleases, sublicenses and encumbrances of any kind or nature
whatsoever ("Liens"), other than Permitted Liens. No person other than Seller
has any right to the use or possession of any of such property and no currently
effective financing statement with respect to such personal property has been
filed in any jurisdiction, and no Seller has signed any such financing statement
or any security agreement authorizing any secured party thereunder to file any
such financing statement. Since its formation, each Seller has conducted its
business activities only under the limited liability company and/or trade names
set forth in Section 1.1 hereto. All of such personal property comprising
equipment, improvements, furniture and other tangible personal property, whether
owned or leased, is in good operating condition and repair except for normal
wear and tear in the ordinary course of business, and is functioning in the
manner and for the purpose for which it was intended and is in compliance with
(and the operation thereof is in compliance with) all applicable Governmental
Requirements, and is sufficient and suitable to enable Buyer to operate the
Business in a normal and efficient manner.
(b) "Permitted Liens" means:
(i) each lien set forth on Schedule 4.11
(b) hereto;
(ii) carriers', warehouseman's, mechanics,
materialmen's, repairmen's or other like liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days;
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(iii) 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, provided that each such
deposit shall be included in the Assets and shall not exceed $15,000 in any one
case, or $75,000 in the aggregate;
(iv) pledges or deposits in connection
with worker's compensation, unemployment insurance, and other social security
legislation; and
(v) the security interest granted to ANB;
provided that provision shall have been made for said security interest to be
released and terminated at Closing as provided in Section 8.15 below.
(c) Except as set forth on Schedule 4.11(c), no
tangible personal property used by any Seller in connection with the operation
of the Business is subject to a lease, conditional sale, or similar arrangement.
Schedule 4.11(c) sets forth a true, complete and correct copy of each of the
personal property leases relating to the Business as to which any Seller is a
party (together with all modifications or amendments thereto), the annual rental
and unexpired lease term thereby and all the information set forth thereon is
true, complete and correct.
4.12 Title, Condition of the Leased Properties.
(a) No Seller owns any real property or, other
than the Leases, has a leasehold or other interest in any real property. The
applicable Seller has a valid leasehold interest, free and clear of all Liens,
in each of the properties covered by the Leases (the "Leased Properties").
(b) There are no leases, subleases or other
agreements of any Seller as lessor or sublessor, granting any third party the
right to use or occupy any of the Leased Properties and no person, firm or
entity has any ownership interest (other than the landlord thereunder) or option
or right of first refusal to acquire any ownership interest in any of the Leased
Properties.
(c) The maintenance, operations and use by each
Seller of the buildings and other improvements comprising any of the Leased
Properties (the "Improvements") comply with and do not violate the applicable
lease or any zoning, building or similar law, ordinance, order or regulation or
any statement of occupancy issued for or in respect of the Business. There has
been no violation of any Governmental Requirement affecting any of the Leased
Properties and no written notice of any such violation has been issued by any
Governmental Authority. To the Group's Knowledge, the Improvements and all of
their systems, including without limitation, the heating, ventilating and air
condition systems, and the plumbing, electrical, mechanical and drainage
systems, and roofs are in good operating condition, repair and working order
(except for
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normal wear and tear which has not had a material adverse effect on the
condition thereof), and have passed all previous safety and/or licensing
inspections.
4.13 Legal Proceedings. Other than as set forth on Schedule
4.13, there are no disputes, claims, actions, suits or proceedings, arbitrations
or investigations, either administrative or judicial, pending, or, to the
Group's Knowledge, threatened or contemplated, nor, to the Group's Knowledge, is
there any basis therefor, against or affecting Seller or any of the Assets or
Seller's rights therein or the ability of any Group Participant 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, including, without limitation, any of the foregoing
relating to the infringement of proprietary rights. No Participant of the Group
has received any requests for information with respect to the transactions
contemplated hereby from any Governmental Authority.
4.14 Employees. Schedule 4.7(b)(i) and Schedule 4.14 together
contain a true, complete and correct list of the name, position, current rate of
compensation and any vacation or holiday pay, sick pay, personal leave and any
other compensation arrangements or fringe benefits, of each current employee,
consultant and agent of Seller (together with a description of any specific
arrangements or rights concerning such persons that are not reflected in any
agreement or document referred to in Schedule 4.7). Each Seller is in compliance
with all Governmental Requirements applicable to any of the employee benefit
plans, agreements and arrangements identified on Schedule 4.7(b)(ix), including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). No such employee, consultant or commission agent has any
vested or unvested retirement benefits or other termination benefits, except as
described on Schedule 4.7(b)(i) or (ix). The Balance Sheet contains an adequate
reserve for vacation, sick leave, severance and all other employee-related
accruals.
4.15 Collective Bargaining, Labor Contracts, Employment
Practices, etc. During the two (2) years prior to the Closing Date, there has
been no material adverse change in the relationship between either Seller and
any two or more employees acting together nor any strike or labor disturbance by
any of such employees affecting the Business and there is no indication that
such a change, strike or labor disturbance is likely. No employees of either
Seller are represented by any labor union or similar organization in connection
with their employment by or relationship with, any Seller, and to the Group's
Knowledge there are no pending or threatened activities the purpose of which is
to achieve such representation of all or some of such employees. Except as set
forth on Schedule 4.15, there are no pending suits, actions or proceedings
against any Seller relating to any of its past or present respective employees,
and there are no threats of strikes, work stoppages or pending grievances by any
such employees. Except as set forth on Schedule 4.15, no Seller has any
collective bargaining or other labor contracts.
4.16 ERISA. No Seller maintains or makes contributions to
and no Seller has at any time in the past maintained or made contributions to
any employee benefit plan which is
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subject to the minimum funding standards of ERISA. No Seller maintains or makes
contributions to or has 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").
4.17 Insurance and Surety Agreements. Schedule 4.17 contains a
true and correct list of: (a) all policies of fire, liability and other forms of
insurance held or owned by any Seller or otherwise in force and providing
coverage for the Business or any of the Leased Properties or Assets (including
but not limited to medical malpractice insurance, and any state sponsored plan
or program for worker's compensation); (b) all bonds, indemnity agreements and
other agreements of suretyship made for or held by any Seller or otherwise in
force and relating to the Business or any of the Leased Properties or Assets,
including a brief description of the character of the bond or agreement, the
name of the surety or the indemnifying party. Schedule 4.17 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 Sellers, 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 4.17 are in full force and effect, all premiums due on or before the
Closing Date have been or will be paid on or before the Closing Date, no Seller
has been advised by any of its insurance carriers of an intention to terminate
or modify any such policies, nor has it failed to comply with any of the
material conditions contained in any such policies.
4.18 Relationships. Except as disclosed on Schedule 4.18, no
officer, director or employee of either Seller, no Member, no member of any
Member's immediate family, and no person or entity which is controlled by, under
common control with or controlling any of them (each, an "Affiliate") has, and
at no 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 Business.
4.19 Assets Comprising the Business. The Assets, including
without limitation, the inventory included therein, and the Leased Properties,
Contracts, Proprietary Rights and Licenses listed on the Schedules to this
Agreement as owned by Sellers represent all of the property (real, personal and
mixed), licenses, intellectual property, permits and authorizations, contracts,
leases and other agreements that are necessary or material to the operation of
the Business as now operated (the "Necessary Assets"), except for the Excluded
Assets. No Medicare or Medicaid provider number is necessary or appropriate for
the operation of the Business because Sellers do not directly bill Medicare or
Medicaid.
4.20 Absence of Certain Events. Except as set forth on
Schedule 4.20, since the date of the Balance Sheet, no Seller has:
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(a) sold, assigned, transferred or disposed of
any of its assets or properties, except in the ordinary course of business
consistent with past practice and replaced with Assets of at least the same
quality, type and quantity having an aggregate value at least equal to the
aggregate value of the items sold or otherwise disposed of;
(b) mortgaged, pledged or subjected to any Lien
of any nature whatsoever any of the Assets other than Permitted Liens;
(c) made or suffered any termination of any
Contract, or made or suffered any amendment of any Contract except for
amendments of Contracts made in the ordinary course of business consistent with
past practice and which would not affect earnings or otherwise be material, and
no Seller has received notice or has knowledge that any Related Contract or
other Contract has been terminated or will be terminated or modified or amended
(as aforesaid);
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees, or made any increase in, or any additions to, other benefits to which
any of such employees may be entitled;
(e) discharged or satisfied any Lien or
encumbrance, or paid any material Liabilities, other than in the ordinary course
of business consistent with past practice, or failed to pay or discharge when
due any Liabilities, the failure to pay or discharge of which has caused or may
cause any actual damage or risk of loss to Seller or its Business or the Assets;
(f) incurred any Liabilities other than trade
payables and other operating liabilities which would be reflected on the date
incurred as current liabilities on a balance sheet of the applicable Seller in
accordance with GAAP, in each case in the ordinary course of business consistent
with past practice;
(g) changed any of the accounting principles
followed by it or the methods of applying such principles;
(h) cancelled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
(i) declared or paid or set aside or reserved any
amounts for payment of any dividend or other distribution in respect of any
membership interest or other securities, or redeemed or repurchased or agreed to
redeem or repurchase any membership interest or other securities, or made any
payment to any Affiliate except for payments of compensation in the ordinary
course of business consistent with past practice and disclosed to Buyer as such;
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(j) failed to collect, withhold and/or pay to any
proper governmental agency or authority, any federal, state or local income,
franchise, sales, use, withholding or similar tax required by applicable law to
be so collected, withheld and/or paid;
(k) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body relating
to it or its property or received any threat thereof which could have or has had
a materially adverse effect on either Seller's condition (financial or
otherwise), properties, assets, liabilities, operations, business or prospects;
or
(l) entered into any material transaction other
than in the ordinary course of business consistent with past practice.
4.21 Compliance with Laws.
(a) Each Seller is in compliance with all laws,
statutes, rules, regulations, orders, and ordinances, and to the Group's
Knowledge, with all directives and guidelines, of all Governmental Authorities
applicable to any or all of it, its Assets and the operation of the Business. No
Seller has received any claim or notice that any of the Leased Properties or
Assets is not in compliance with any applicable Governmental Requirements. The
Group shall report to Buyer, within five (5) days after its receipt thereof, any
written or oral claims or notices that any of the Leased Properties or Assets
are not in compliance with any of the foregoing.
(b) At all times, each Seller has complied, and
is complying in all respects with all environmental and related Governmental
Requirements applicable to it, its Leased Properties, all other real properties
used by it in the operation of the Business, and its Assets, including, but not
limited to, the Resource Conservation and Recovery Act of 1976, as amended, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Federal Water Pollution Control Act, as amended by the Clean Water
Act, and subsequent amendments, the Federal Toxic Substances Control Act, as
amended, with respect to the environmental or healthful state, condition or
quality of any property (collectively "Environmental Laws"). The foregoing
representation and warranty applies to all aspects of the operation of the
Business and the use and ownership of the Assets including, but not limited to,
the use, handling, treatment, storage, transportation and disposal of any
hazardous, toxic or infectious waste, material or substance or (including
Medical Waste) and petroleum products, material or waste whether performed on
any of the Leased Properties or at any other location. No notice from any
Governmental Authority has ever been served upon either Seller, or any of its
agents or representatives claiming any violation of any Environmental Law, or
requiring or calling attention to the need for any work, repairs, or demolition,
on or in connection with any of such properties in order to comply with any
Environmental Law.
4.22 Tax Returns.
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(a) Except as set forth in Schedule 4.22(a), (i)
all Tax (as defined below) returns, statements, reports and forms required to be
filed with any Governmental Authority on or before the Closing Date by or on
behalf of each Seller (collectively, the "Returns"), have been or will be filed
on or before the Closing Date in accordance with all applicable Government
Requirements, and true and complete copies of all Returns with respect to income
or sales or use for any period during the three-year period ending on the date
hereof have been delivered to Buyer; (ii) as of the time of filing, the Returns
correctly reflected or will correctly reflect the facts regarding the income,
business, assets, operations, activities and status of each Seller and any other
information required to be shown therein; and (iii) each Seller has timely paid
all Taxes.
(b) "Tax" (including, with correlative meaning,
the terms "Taxes" and "Taxable") means any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits tax, alternative or add-on minimum tax, customs
duty or other tax, fee assessment or charge of any kind whatsoever, together
with any interest and any penalty, addition to tax or additional amount imposed
by any Governmental Authority.
4.23 Encumbrances Created by this Agreement. Neither the
execution and delivery of this Agreement nor the execution and delivery of any
of the Group Transaction Documents creates, and the consummation of the
transactions contemplated hereby or thereby will not create, any Liens on any of
the Assets in favor of third parties.
4.24 Questionable Payments. To the Group's Knowledge, no
Seller and no member, director, officer, controlling person or employee of
Seller, (a) has used any corporate funds of either Seller to make any payment to
any officer or employee of the government, or to any political party or official
thereof, where such payment either (i) was, at the time, unlawful under laws
applicable thereto; or (ii) was, at the time, unlawful under 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 otherwise in connection with the operation of the
Business.
4.25 Reimbursement Matters. Except as disclosed on Schedule
4.25 or, including, without limitation, those set forth on the print-out of
listed denials attached to said Schedule 4.25, (a) no Seller and, to the Group's
Knowledge, no nursing home, hospital or other facility with respect to which
either Seller provides services has received any notice of denial or recoupment
from the Medicare or Medicaid programs, or any other third party reimbursement
source (inclusive of managed care organizations) with respect to products or
services provided by either Seller, (b) to the Group's Knowledge, there is no
basis for the assertion after the Closing Date of any such denial or recoupment
claim, and (c) no Seller and, to the Group's Knowledge, no nursing home,
hospital or other facility with respect to which either Seller provides services
has received notice from any Medicare or Medicaid program or any other third
party reimbursement source (inclusive of managed care organizations) of any
pending or threatened investigations or surveys specifically with respect to, or
arising out of, products or services provided by either Seller, and to the
Group's Knowledge, no such investigation or survey is pending, threatened or
imminent.
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4.26 Finders. No broker or finder has acted for any Group
Participant in connection with the transactions contemplated by this Agreement
and no 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 any Participant of the Group.
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS
Buyer and IHS, jointly and severally, represent and warrant to
the Group as follows:
5.1 Organization and Standing. Each of Buyer and IHS has been
duly incorporated and is validly existing in good standing under the laws of the
State of Delaware.
5.2 Power and Authority. Each of IHS and Buyer has the
corporate power and authority to make, execute, deliver and perform this
Agreement including all Schedules and Exhibits hereto and all of the
transactions contemplated hereby and thereby and all of the instruments and
agreements required to be delivered by it to the Group at the Closing,
including, without limitation, the Escrow Agreement (collectively the "Buyer/IHS
Transaction Documents") and all of the transactions contemplated hereby and
thereby.
5.3 Binding Agreement. This Agreement has been duly executed
and delivered by each of IHS and Buyer. This Agreement is, and when executed and
delivered by Buyer or IHS, as the case may be, at the Closing, each of the
Buyer/IHS Transaction Documents executed by Buyer or IHS, as the case may be,
will be, the legal, valid and binding obligation of Buyer or IHS, as the case
may be, enforceable against Buyer or IHS, as the case may be, in accordance with
their respective terms.
5.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Agreement or any of the Buyer/IHS Transaction Documents by
Buyer or IHS, as the case may be, nor the performance by Buyer or IHS, as the
case may be, of the transactions contemplated hereby and thereby, conflicts
with, or constitutes a breach of or a default under (a) the Articles of
Incorporation or By-Laws of Buyer or IHS, as the case may be; or (b) any
applicable judgment, order, writ, injunction, or decree of any court; or (c) any
applicable Governmental Requirement; or (d) any agreement, indenture, contract
or instrument to which Buyer or IHS, as the case may be, is now a party or by
which any of them or any of their respective assets are bound.
5.5 Consents. Except for the Required Approvals, no
authorization, consent, approval, license, exemption by filing or registration
with any Governmental Authority, is or will be necessary in connection with the
entry by Buyer or IHS into, execution, delivery and performance of this
Agreement or any of their respective Buyer/IHS Transaction Documents, or for the
consummation of the transactions contemplated hereby and thereby.
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5.6 SEC Documents. IHS has furnished Sellers and the Members
with a correct and complete copy of its report on Form 10-K for its fiscal year
ended December 31, 1995, its reports on Form 10-Q for each of its first fiscal
quarter ended in 1996, and its proxy statement prepared in connection with its
annual meeting held on May 23, 1996 (the "SEC Documents"). As of their
respective dates, none of the SEC Documents contained any untrue statements, or
omitted to make any disclosures, which, in light of the circumstances would
render any of such documents materially misleading, and the SEC Documents
complied when filed in all material respects with the then applicable
requirements of the Exchange Act, and the rules and regulations promulgated by
the Commission thereunder.
5.7 Receipt of Contracts. Buyer acknowledges its receipt
of each of the Contracts referred to or described in the Disclosure Schedule
(except as expressly stated otherwise).
5.8 IHS Stock. Upon delivery to Sellers in accordance with the
terms of this Agreement, each share of IHS Stock shall be duly authorized,
validly issued, and nonassessable.
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS
----------------------------------------------------------
6.1 Access to Information and Records before Closing. Prior to
the Closing Date, Buyer may make, or cause to be made, such investigation of
each Seller's financial and legal condition as Buyer deems necessary or
advisable to familiarize itself with such Seller and/or matters relating to its
history or operation. Each Seller shall permit Buyer and its authorized
representatives (including legal counsel and accountants), to have full access
to each Seller's books and records in the possession or under the effective
control of any Group Participant upon reasonable notice and during normal
business hours, and Seller will furnish, or cause to be furnished, to Buyer such
financial and operating data and other information and copies of documents with
respect to such Seller'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, each Seller's tax returns and
related work papers since its inception and each Seller shall make, or cause to
be made, extracts thereof as Buyer or its representatives may request from time
to time to enable Buyer and its representatives to investigate the affairs of
each Seller and the accuracy of the representations and warranties made in this
Agreement. Each Seller shall use its best efforts to cause Seller's accountants
to cooperate with Buyer and to disclose and make available to Buyer all books
and records and the results of audits relating to such Seller and to produce the
working papers relating thereto.
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
-----------------------------------------------------
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7.1 Conduct of Business Pending Closing. Between the date of
this Agreement and the Closing, each Seller shall maintain its existence and
shall conduct its business in good faith and in a prudent manner and in the
ordinary course consistent with past practice.
7.2 Negative Covenants of Sellers. Without the prior written
approval of Buyer, which approval shall not be unreasonably withheld, no Seller
shall between the date hereof and the Closing:
(a) cause or permit to occur any of the events or
occurrences described in Section 4.20 (Absence of Certain Events) of this
Agreement; or
(b) dissolve or reorganize, or merge or consolidate
or enter into a share membership interest exchange with or into any other
entity; or
(c) make any change to its by-laws or articles of
incorporation; or
(d) sell or dispose of any Assets other than
supplies, inventory and obsolete equipment sold, consumed or used in the usual
and ordinary course of business and consistent with past practice; such Seller
shall replace all items thus disposed of with Assets of at least the same
quality, type and quantity having an aggregate value at least equal to the
aggregate value of the items sold or otherwise disposed of; or
(e) perform, take or fail to take any action or
incur or permit to exist any of the acts, transactions, events or occurrences of
a type which would have been inconsistent with the representations, warranties
and covenants set forth in this Agreement had the same occurred prior to the
date hereof; or
(f) enter into any agreement, contract, commitment,
lease or instrument including, without limitation, agreements with nursing
homes, hospitals and other facilities for the provision of Rehab Services or O2
Services, except for agreements, in each case which are immaterial and entered
into in the ordinary and customary course of business with unrelated third
parties on customary terms and conditions and for customary prices as disclosed
to Buyer; or
(g) take any action that would prevent any Group
Participant from consummating the transactions contemplated by this Agreement.
7.3 Affirmative Covenants of Sellers. Between the date
hereof and the Closing, each Seller shall:
(a) maintain the Assets in substantially the
state of repair, order and condition as on the date hereof, reasonable wear and
tear or loss by insured casualty excepted;
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(b) maintain in full force and effect all Licenses
currently in effect with respect to either Seller or the Business;
(c) maintain in full force and effect the insurance
policies and binders currently in effect with respect to each Seller, or
replacements thereof which are approved by Buyer (such approval not to be
unreasonably withheld);
(d) use its reasonable efforts to preserve intact
its present business operations and organization; keep available the services of
its present employees and agents; and maintain its relations and good will with
patients, suppliers, vendors, employees, and any others having business relating
to it;
(e) maintain all of the books and records relating
to each Seller in accordance with its past practices;
(f) comply in all material respects with all
provisions of all Contracts and with any other material agreements that either
Seller has entered into after the date hereof, and comply in all material
respects with the provisions of all Governmental Requirements applicable to
either Seller, the Assets or the Business;
(g) cause to be paid when due, all Taxes imposed
upon it or on any of its properties or which it is required to withhold and pay
over; and
(h) promptly advise Buyer in writing of: (i) the
threat or commencement against either Seller of any claim, action, suit or
proceeding, arbitration or investigation that could materially adversely effect
Seller's operations, properties, assets or prospects; or (ii) the termination of
any Contract.
7.4 Pursuit of Consents and Approvals. Promptly upon execution
of this Agreement, Buyer shall use all reasonable efforts to obtain, at its own
cost and expense, all Required Approvals. Sellers shall cooperate with and use
their reasonable efforts to assist Buyer in obtaining all such approvals.
7.5 Supplementary Financial Information. Within thirty (30)
days after the end of each calendar month between the date of this Agreement and
the Closing Date, each Seller shall provide to Buyer unaudited financial
statements (including at a minimum income statements, a balance sheet and a
statement of cash flows) for such month then ended that shall present fairly the
results of the operations of Seller at such date and for the period covered
thereby, all in accordance with GAAP (except as otherwise expressly stated
therein), in each case, certified as true and correct by such Seller's chief
financial officer.
7.6 Tail Policy. Each Seller shall obtain, at its own
expense, a "tail policy" to all of its applicable liability insurance policies,
naming each of Buyer and IHS as an additional
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insured, against claims made after Closing arising out of facts or circumstances
occurring or existing prior to Buyer's ownership of the Assets and operation of
the Business.
7.7 Exclusivity. Until the earlier of Closing or the
termination of this Agreement pursuant to Section 11.1, no Seller nor any
Member, 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 any other party with respect to the
sale of the Assets, or in respect of the sale of any controlling interest in
either Seller.
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND IHS
------------------------------------------------------------------
The obligations of Buyer and IHS to consummate the
transactions contemplated by this Agreement to occur at the Closing 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 IHS in writing.
Upon failure of any of the following conditions, Buyer or IHS may terminate this
Agreement prior to Closing pursuant to and in accordance with Article XI herein.
8.1 Representations and Warranties. The representations and
warranties of each Seller and each Member made under this Agreement and under
each Group Transaction Document 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.
8.2 Performance of Covenants. Each Seller and each Member
shall have performed or complied in all material respects with their respective
agreements and covenants required by this Agreement and each Group Transaction
Document to be performed or complied with by it, her or him prior to or at the
Closing.
8.3 Delivery of Closing Certificate. The President of each
Seller and each Member shall have executed and delivered to Buyer and IHS a
certificate, dated the Closing Date, upon which Buyer and IHS may rely,
certifying that the conditions set forth in Sections 8.1 and 8.2 have been
satisfied.
8.4 Opinions of Counsel.
(a) The Group shall have delivered to Buyer and
IHS an opinion, dated the Closing Date, of its counsel, in such form and
substance (including without limitation, as to the matters covered by the
representations and warranties contained in Sections 4.1(a), 4.2, 4.3, 4.4 and
4.5 hereof) as shall be satisfactory to Buyer and IHS, provided that as to any
factual matters such counsel may rely on its actual knowledge and the truth and
accuracy of the representations and warranties made by the Group contained in
this Agreement, the Group Transaction Documents and certificates supplied to
such counsel by the Group and Governmental Authorities. Said opinion shall be
addressed to and may be relied upon by Buyer, IHS, the lenders of IHS, and each
such party's counsel.
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(b) In addition, Buyer shall have received opinions
acceptable to it from legal counsel in each state where the Sellers conduct
business, that the operation of the Business is in compliance with all
Government Requirements.
8.5 Legal Matters. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person or Governmental Authority that questions the enforceability,
validity or legality of this Agreement or the transactions contemplated hereby,
including, without limitation, Buyer's proposed use of the Assets.
8.6 Authorization Documents. Buyer and IHS shall have received
a certificate of the Secretary or other authorized officer of each Seller
certifying a copy of resolutions of its Board of Directors and members
authorizing such Seller's execution and full performance of this Agreement and
the Group Transaction Documents to which such Seller is a party and the
incumbency of its officers.
8.7 Material Change. Since the date of this Agreement
there shall not have been any material adverse change in the condition
(financial or otherwise) of the assets, properties, prospects or operations of
either Seller.
8.8 Approvals.
(a) The consent or approval of all persons and
Governmental Authorities necessary for the consummation of the transactions
contemplated hereby shall have been granted.
(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 Business, or (ii)
shall impose on Buyer or IHS any condition or provision or requirement with
respect to Buyer, IHS or the Business that is more restrictive than or different
from that imposed by such Governmental Authority prior to Closing.
8.9 Bill of Sale and Assignment. Each Seller shall have
executed and delivered to Buyer a Bill of Sale (each, a "Bill of Sale") and an
Assignment and Assumption Agreement (each, an "Assignment and Assumption")
respectively in the forms of Exhibits 8.9-1 and 8.9-2.
8.10 Non-Competition Agreements. Each Seller and each Member
shall have entered into a non-competition and non-solicitation agreement (the
"Non-Competition Agreements") with Buyer and IHS, pursuant to which it, he or
she shall agree that for a period of five (5) years from the Closing Date it, he
or she will not, directly or indirectly, for itself, himself or herself, or on
behalf of any other person, firm, entity or other enterprise, be employed
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by, be an officer, director or manager of, act as a consultant for, be a partner
in, have a proprietary interest in, or loan money to any person, enterprise,
partnership, association, corporation, limited liability company, joint venture
or other entity which is directly or indirectly in the business of owning,
operating or managing any contract rehabilitation or respiratory service
business, licensed or unlicensed, now or hereafter competitive with any contract
rehabilitation or respiratory service business of Buyer (including, without
limitation, the Business), IHS or any of their respective Affiliates, located in
any or all of the States of Illinois, or Missouri or within twenty (20) miles of
Deland, Florida or thirty (30) miles of New York City, New York or Kansas City,
Kansas (the "Prohibited Areas"), or which business solicits from or performs
contract rehabilitation or respiratory services for any current customers or
clients of the Business or any owner, lessee or manager of any such customer or
client ( "Protected Customers"). Each Ruby Member represents and warrants (and
notwithstanding anything to the contrary contained in this Agreement, none of
Dacy, Krause and neither Seller shall be deemed to have represented and
warranted) that the only persons owning, leasing, managing, performing
consulting services for or employed by, any Protected Customer with whom any
such Ruby Member has a relationship that would give such Ruby Member a
competitive advantage with respect to obtaining or performing any business for a
Protected Customer is set forth on Schedule 8.10 hereto (each, a "Protected
Source"). Schedule 8.10 also identifies the relationship of the Protected Source
to the Protected Customer. For purposes of this Agreement the Southshore Home
and the Central Island Home shall be deemed included as Protected Customers.
Said Non-Competition Agreements for R. Paler, B. Paler and Kaplan shall also
contain provisions stating that notwithstanding the foregoing, said individual
shall not be prohibited by reason of such agreement from being employed by,
being an officer, director or manager of, acting as a consultant for, being a
partner in, having a proprietary interest in, or lending money to, any person,
enterprise, partnership, association, corporation, limited liability company,
joint venture or other entity which is directly or indirectly in the business of
owning, operating or managing any contract rehabilitation or respiratory service
business, licensed or unlicensed, competitive with any of those of Buyer, IHS or
any of their respective Affiliates; provided that he or she: (x) does not breach
any of his or her other obligations to Buyer or IHS, including without
limitation, under Section 10.3 of this Asset Purchase Agreement; (y) does not
directly or indirectly participate in the provision or solicitation of contract
rehabilitation or respiratory services business in any of the Prohibited Areas
or to or with any of the Protected Sources; provided, however, that the
foregoing shall not be deemed to prohibit him or her from participating in any
general mass marketing effort which covers an area of which one or more of the
Prohibited Areas constitutes an incidental and insubstantial part, such as a
national campaign, and that does not involve personal contact by him or her in
any Prohibited Areas or personal contact with any Protected Source or use of any
confidential information referred to in Section 10.3 of this Asset Purchase
Agreement; and (z) delivers to Buyer and IHS his or her written acknowledgment
setting forth: the name and address of the business in which he or she is
participating; that he or she has delivered to such business a copy of his or
her Non-Competition Agreement; and that he or she continues to be bound by the
provisions of the Non-Competition Agreement. No Ruby Member shall be deemed to
be in violation of this Section 8.10 by reason of the acquisition and subsequent
ownership by any Protected Customer of any business to which such Ruby Member
shall be providing contract rehabilitation or respiratory services prior to such
acquisition. Said Non-Competition Agreements also shall contain provisions
relating to non-solicitation of Protected Sources, and of employees, agents or
consultants of Buyer and
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Sellers. The Non-Competition Agreements shall not prohibit the ownership of less
than 0.1% of the issued and outstanding stock of any competitive business whose
stock is listed on a national securities exchange or traded on the NASDAQ
national market system. Buyer and IHS agree that the Non-Competition Agreement
shall not prohibit any Group Participant: (a) from continuing to own an interest
in and participating in the oxygen concentration business as currently operated
by C.O.M.S.; provided that the Group represents and warrants that the only
connection that C.O.M.S. has to O2 or Rehab Services is supplying or leasing
durable medical equipment, including, without limitation, oxygen concentration
equipment; or (b) unless otherwise agreed in such person's employment or
consulting agreement with Buyer, from operating a respiratory services business
in the State of New York; provided, however, that no Group Participant shall
provide any such services (or solicit to provide any such services) to the
Southshore Home.
8.11 Employment and Consulting Agreements. Buyer shall have
entered into an employment agreement and/or consulting agreement with each of
the Ruby Members and Andrew Fleming in form and substance satisfactory to Buyer
and each such person.
8.12 COBRA. Each Seller shall have given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
Closing under this Agreement. This provision shall not be construed, however, to
require Seller to maintain its group health insurance coverage following
Closing, except as may be required by applicable Governmental Requirements. IHS
shall take such steps as are commercially reasonable to permit former employees
of Sellers to obtain COBRA coverage under insurance plans available to IHS
employees.
8.13 Assets Transferred at Closing. Each Seller shall have
delivered or caused to be delivered to Buyer possession of the Assets (or the
right to obtain possession on demand). Each Seller shall also execute and
deliver to Buyer at Closing such UCC financing statements as shall be necessary
or appropriate to record the assignment to Buyer of all recorded security
interests held by either Seller. All Assets shall be free and clear of all
Liens.
8.14 Certificate as to Provider and Related Contracts. Sellers
shall have executed and delivered to Buyer and IHS a certificate, dated the
Closing Date upon which Buyer and IHS may rely, certifying that the condition
set forth in Section 1.5(a) shall not have occurred and setting forth the number
of Provider Contracts and Related Contracts, if any, which have been terminated
(or with respect to which a notice of termination shall have been given) and the
amount of the Purchase Price adjustment, if any, then required pursuant to
Section 1.5(b) hereof by reason thereof.
8.15 ANB Security Interest. ANB shall have executed and
delivered to Buyer a payout letter setting forth the total amount of obligations
due to it as of the Closing Date and agreeing that, upon payment thereof on such
date, its security interest in all of the Assets and all guarantees of said
obligations (the "Guarantees") shall be released and terminated. Such payout
letter shall be in form and substance satisfactory to Buyer and shall be
accompanied by all UCC
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termination statements (to be held pending the occurrence of the conditions set
forth in said letter) necessary to evidence said release and termination. All
costs incurred in connection with satisfying this condition shall be borne by
Sellers.
8.16 Lease Amendment. The Lease Agreement between Sellers
and 3100 Commercial Partners shall have been amended to terminate with no
penalty 60 days after the Closing.
8.17 Designated Contract and Designated Related Contract
Consents. Buyer shall not have terminated this Agreement by reason of the
occurrence of the matters permitting such termination as provided in Section
1.3(b) or Section 1.5 above.
8.18 Documents. Each Seller and each Member shall have
furnished Buyer and IHS with all other documents, certificates and other
instruments required to be furnished to Buyer or IHS by such Group Participant
pursuant to the terms hereof.
ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
--------------------------------------------------------------
AND THE MEMBERS
---------------
The obligations of Sellers and the Members to consummate the
transactions contemplated hereby to occur at the Closing 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 Sellers in writing. Upon failure of
any of the following conditions, Sellers may terminate this Agreement prior to
Closing pursuant to and in accordance with Article XI herein.
9.1 Representations and Warranties. The representations and
warranties of Buyer and IHS made under this Agreement and under each Buyer/IHS
Transaction Document 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.
9.2 Performance of Covenants. Each of Buyer and IHS shall have
performed or complied in all material respects with their respective agreements
and covenants required by this Agreement and each Buyer/IHS Transaction Document
to be performed or complied with by it prior to or at the Closing.
9.3 Delivery of Closing Certificate. An authorized officer of
each of Buyer and IHS shall have executed and delivered to Sellers and the
Members a certificate, dated the Closing Date, upon which Sellers and Members
may rely, certifying that the conditions set forth in Sections 9.1 and 9.2 have
been satisfied.
9.4 Opinions of Counsel. Buyer and IHS shall have delivered to
Sellers and the Members an opinion, dated the Closing Date, of its counsel, in
such form and substance (including without limitation, as to the matters covered
by the representations and warranties
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contained in Sections 5.1, 5.2, and 5.3 hereof and as to Buyer's ability to
conduct the Business in New York in compliance with New York laws) as shall be
satisfactory to Seller, provided that as to any factual matters such counsel may
rely on its actual knowledge and the truth and accuracy of the representations
and warranties made by Buyer and IHS contained in this Agreement, the Buyer/IHS
Transaction Documents and certificates supplied to such counsel by
representatives of IHS and Buyer and of Governmental Authorities. Said opinion
shall be addressed to and may be relied upon by Sellers and the Members and each
such party's counsel.
9.5 Legal Matters. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person or Governmental Authority that questions the enforceability,
validity or legality of this Agreement or the transactions contemplated hereby.
9.6 Authorization Documents. Each Seller and Member shall have
received a certificate of the Secretary or other authorized officer of Buyer and
of IHS certifying a copy of resolutions of its Board of Directors authorizing
its execution and full performance of this Agreement and the Buyer/IHS
Transaction Documents to which it is a party and the incumbency of its officers.
9.7 Necessary Consents. The consent or approval of all
persons and Governmental Authorities necessary for the consummation of the
transactions contemplated hereby shall have been granted.
9.8 Assignment and Assumption. Buyer shall have executed
and delivered to each Seller an Assignment and Assumption Agreement.
9.9 ANB Guarantees. Provided that Sellers shall have satisfied
the condition set forth in Section 8.15 above each Member shall have been
released from all Guarantees.
9.10 Other Documents. Buyer and IHS shall have furnished
each Seller and Member with all documents, certificates and other instruments
required to be furnished to any of them by Buyer or IHS pursuant to the terms
hereof.
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING
---------------------------------------------------
10.1 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. Notwithstanding any
investigation conducted before or after the Closing or the decision of any party
to consummate the Closing, each party hereto shall be entitled to rely and is
hereby declared to have reasonably relied upon the representations and
warranties of the other party.
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10.2 Indemnification.
(a) Each Seller and each Member jointly (except
as expressly set forth below) and severally shall indemnify and defend Buyer and
IHS and each of their respective shareholders, directors, officers, employees,
agents and advisors, and each of their respective successors and assigns ("Buyer
Indemnitees") against and with respect to any and all damages, losses, claims,
liabilities, deficiencies, costs and expenses (including, without limitation,
reasonable attorney's fees and expenses) (all of the foregoing hereinafter
collectively referred to as "Loss") resulting from (i) any misrepresentation,
breach of warranty, or failure to fulfill any agreement or covenant on the part
of any Group Participant under this Agreement or any Group Transaction Document;
(ii) any Taxes resulting from the operation of the Business or ownership of any
of the Assets for any period ending on or before the Closing Date; (iii) all
Excess Reimbursement Liabilities; (iv) any Loss relating to any Liability (each
an "Unassumed Liability") of Seller or other Group Participant that is not
expressly assumed by Buyer pursuant to the terms of this Agreement; (v) any Loss
arising out of any bulk transfer act (whether relating to liabilities in general
or taxes or otherwise); (vi) any Loss arising out of the noncompliance of either
Seller with COBRA or any like statute; and (vii) any and all actions, suits,
proceedings, demands, assessments, judgments, settlements (to the extent
approved by Sellers, such approval not to be unreasonably withheld, delayed or
conditioned) costs and legal and other expenses incident to any of the
foregoing. Notwithstanding the foregoing, no Member shall be jointly liable for
any breach of a representation or warranty by any other Member to the extent
such representation or warranty was expressly made severally by such other
Member in accordance with this Agreement.
Without limiting the foregoing, the Group hereby represents
and warrants to Buyer and IHS that it has complied with any and all bulk
transfer act or similar procedures applicable to the transactions herein
contemplated. The Group has requested that Buyer withhold from the non-escrowed
portion of the Purchase Price such amount as shall be required by the Illinois
State Tax Commission in a notice delivered to Buyer pending notice from said
Illinois State Tax Commission in compliance with such bulk transfer procedures,
and Buyer has agreed to do so.
(b) Buyer and IHS jointly and severally covenant
and shall defend, hold harmless and indemnify each Group Participant and each of
their respective members, directors, officers, employees, agents and advisors,
and each of their respective successors and assigns ("Group Indemnitees")
against and with respect to any and all Losses resulting from: (i) any
misrepresentation, breach of warranty, or failure to fulfill any agreement or
covenant on the part of Buyer or IHS under this Agreement or any Buyer/IHS
Transaction Document, (ii) Buyer's operation of the Business after the Closing
Date, and (iii) any and all actions, suits, proceedings, demands, assessments,
judgments, settlements (to the extent approved by IHS, such approval not to be
unreasonably withheld, delayed or conditioned) costs and legal and other
expenses incident to any of the foregoing.
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(c) Any claim for indemnification for any breach
of a representation or warranty under this Section 10.2 or for a Loss described
in Section 10.2(a)(v) above must be asserted by written notice by the first
anniversary of the Closing Date, except that any claim by any Buyer Indemnitee
for indemnification arising out of a breach of any of the representations and
warranties of any of the Group Participants for any tax matter may be asserted
any time prior to expiration of the applicable statute of limitations for the
assertion of the related tax claim by the government, and any such claim based
on Excess Reimbursement Liability may be brought any time prior to a date which
is thirty (30) days following expiration of the applicable audit period for such
liability. The foregoing limitation shall not apply to any indemnification
obligation of any person or entity pursuant to Section 2.5 (g) (v) hereof.
(d) Any Buyer Indemnitee shall be entitled (but
shall not be obligated) to collect from the Escrow Deposit any amount due to it
by reason of any Group Participant's obligations under this Section 10.2 hereof.
To the extent any Buyer Indemnitee shall be entitled to indemnification under
this Section 10.2, such Buyer Indemnitee shall first seek to recover against the
Escrow Deposit prior to proceeding against the assets of any Group Participants.
(e) The aggregate amount for which the Group
Participants shall be liable for indemnification obligations under this Section
10.2 shall not exceed the amount of the Purchase Price, as adjusted pursuant to
Sections 1.6 and 2.3 hereof.
10.3 Restrictions.
(a) From and after the Closing Date, no Group
Participant shall disclose, directly or indirectly, to any person or entity, or
make use of, without the express authorization of IHS and Buyer, any non-public
pricing strategies or records of either Seller, any proprietary data or trade
secrets owned by either Seller, Buyer or IHS or any financial or other
information about any of them ("confidential information"); provided that the
foregoing restrictions shall not apply to any information which:
(i) is or becomes publicly known through
no wrongful act on the part of any Seller or Member; or
(ii) is or becomes available to the
disclosing party on a non-confidential basis from a third party without
restriction and without breach of this Agreement; or
(iii) is approved for release by written
authorization signed by Buyer; or
(iv) is required to be disclosed in
accordance with applicable law; provided, however, prior to making any such
disclosure the party required to make such disclosure shall provide Buyer with
prompt notice of such requirement to enable Buyer to seek an appropriate
protective order and such party will use its best efforts to preserve the
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confidentiality of such information and will disclose only that portion of the
information as is required to be disclosed.
(b) Each Group Participant acknowledges that the
restrictions contained in this Section 10.3 are reasonable and necessary to
protect the legitimate business interests of Buyer and IHS, and that any
violation thereof by any of them would result in irreparable harm to Buyer and
IHS. Accordingly, each Group Participant agrees that upon the violation by any
of them of any of the restrictions contained in this Section 10.3, Buyer and IHS
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, without the necessity of posting
any bond or security whatsoever.
10.4 Records. On the Closing Date, each Seller shall use its
best efforts to deliver, or cause to be delivered, to Buyer all records and
files not then in such Seller's possession relating to the operation of the
Business. Following the Closing, Buyer shall provide either Seller with access
during business hours upon reasonable prior notice (not less than two (2)
business days), to such of its financial records relating to the operation of
the Business prior to the Closing Date as Buyer shall reasonably request in
connection with the preparation by it of any tax returns or the collection of
any accounts receivable owned by it.
10.5 Appeal of Denials and Disallowances. If there shall be
any claim for Excess Reimbursement Liability, Buyer will contest or appeal such
claim (using at least the same standard of care as it would apply to contests or
appeals with respect to its own reimbursement liabilities) in accordance with
the procedures set forth in Buyer's manual. After any contest or appeal in
accordance with the foregoing, Sellers shall within ten (10) business days after
any request by Buyer, accompanied by a log of procedures performed in accordance
with Buyer's manual with respect to such claim and copies of all documentation
submitted to third payors in connection therewith, pay and satisfy any such
claim that was denied. If Sellers shall fail to comply with the provisions of
this Section 10.5, then Buyer shall have the right, but shall in no event be
obligated, to make any such payment on behalf of Sellers, in which case, Sellers
shall, upon demand, immediately reimburse Buyer for any amount so paid by it.
The rights of Buyer under this Section 10.5 are in addition to, and shall not be
deemed to limit, any other rights or remedies which Buyer might have under this
Agreement, law, equity or otherwise. Neither Buyer nor IHS shall have any
obligation with respect to any appeals or contests arising out of any Excluded
NY O2 Service. Buyer's obligations under this Section 10.5 shall be conditioned
on the cooperation of the Group Participants, including, without limitation,
their providing Buyer with all appropriate documentation to support an appeal or
contest in their possession or under their control. Buyer shall not be required
to incur any extraordinary expense except to the extent required pursuant to the
manual in connection with its obligations under this Section 10.5 unless Sellers
shall have agreed to advance the funds therefor.
10.6 Audit. Following Closing, each Seller will cooperate
with and assist Buyer in a review of the financial statements of such Seller.
Buyer may, at its own expense, have an
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audit performed of such financial statement, and each Seller and Member will
cooperate in the performance of such audit.
10.7 Offer of Employment. Except for Philip Esformes, Andrew
Fleming and Lynn Mershon and employees working principally in the Excluded NY 02
Services, Buyer agrees to offer to retain (for so long as it deems it to be in
its best interests), after the Closing, the services of substantially all of the
licensed professionals and office staff who are employees of either Seller on
the date hereof and on the Closing Date.
10.8 Option on Excluded NY 02 Services. At any time after the
Closing and on or prior to the day that is 30 days after the Closing (the
"Option Period"), Buyer shall be entitled to acquire all of the assets then
relating to the Excluded NY O2 Services (the "O2 Business") for no further
consideration other than the assumption of all of the liabilities then relating
to the Excluded NY O2 Services as such liabilities are represented by Sellers to
Buyer at the time of such acquisition. Such option shall be exercisable by the
giving of notice to Sellers during such Option Period and the closing of such
acquisition shall occur on such date as Buyer shall designate in such notice
(the "Option Closing"); provided that such date shall be a business day and
shall not be more than thirty (30) days or less than (10) days after the date of
such notice. The Option Closing shall take place by mail and escrow in a manner
reasonably satisfactory to each of the parties thereto. At the Option Closing,
Sellers shall execute and deliver to Buyer such bills of sale and assignment
instruments as Buyer shall reasonably require to effectuate the acquisition, and
Sellers shall make such customary representations and warranties with respect to
the O2 Business, the subject assets and liabilities, the authority of Sellers to
complete the contemplated transaction and such other customary representations
and warranties as Buyer shall reasonably require. At the Option Closing, Buyer
shall execute and deliver to Sellers such assumption instruments as Sellers
shall reasonably require to effectuate the assumption of liabilities, and Buyer
shall make such customary representations and warranties with respect to the
acquisition and its authority as Sellers shall reasonably require. Sellers shall
use their reasonable efforts to advise Buyer of any material occurrences with
respect to the O2 Business and shall promptly provide Buyer with any information
reasonably requested by it with respect to the O2 Business during the Option
Period. Notwithstanding anything to the contrary contained in this Section 10.8,
Sellers shall be entitled to liquidate and wind-up the O2 Business at any time
during the Option Period; provided that Sellers shall give Buyer at least
fifteen (15) days prior written notice before it shall commence such process and
before it shall terminate any contracts pursuant to which it directly or
indirectly provides O2 Services. Except as provided above, Sellers shall not
sell or encumber any of the assets of the O2 Business during the Option Period,
except in the ordinary course of business consistent with past practice. Buyer
shall pay to Sellers upon completion of the acquisition, if any, of the 02
Business pursuant to this Section 10.8 the amount, if any, by which the sum of:
(x) current assets included in such acquisition plus (y) $150,000, exceeds the
current liabilities assumed by Buyer pursuant thereto, in each case, determined
in accordance with GAAP; provided, however, that such payment shall not exceed
the amount, if any, by which the Purchase Price is reduced pursuant to Section
2.3 hereof. During the Option Period and for thirty (30) days thereafter Sellers
shall make available to Buyer the services of Tim Fisher (if he is still
employed by Sellers; provided, however, that the
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provision by Tim Fisher shall not interfere with his obligations to Seller), and
Buyer shall make available to Sellers the services of R. Paler, Andrew Fleming
and a billing person if they are employed or retained by Buyer; provided
however, that the provision by R. Paler, Andrew Fleming and such billing person
shall not interfere with any such person's obligations to Buyer. During the
Option Period and for thirty (30) days thereafter Sellers, shall not terminate
the employment of Tim Fisher without having given Buyer at least five (5)
business days prior notice. Thirty (30) days following the termination of the
Option Period, Sellers shall provide Buyer with the opportunity to offer
employment or consulting arrangements to Tim Fisher, and Sellers shall fully
cooperate with Buyer to encourage Tim Fisher to accept any such employment or
consulting arrangements. Neither Buyer nor Sellers shall be reimbursed for the
cost of providing the other with the services of its employees as required by
this Section 10.8; provided, however, that the costs of transportation, room and
board of such employees in connection with providing the services under this
Section 10.8 shall be borne by the party for whom the services are provided.
ARTICLE XI: TERMINATION
-----------------------
11.1 Termination. This Agreement may be terminated at any
time at or prior to the time of Closing by:
(a) Buyer, if any condition precedent to the
obligations of Buyer or IHS hereunder, including without limitation those
conditions set forth in Article VIII hereof, have not been satisfied by the
Closing Date or pursuant to Section 12.1 if any portion of the Assets is damaged
or destroyed as a result of fire, other casualty or from any reason whatsoever;
(b) Sellers, if any condition precedent to the
obligations of the Group hereunder, including without limitation those
conditions set forth in Article IX hereof, have not been satisfied by the
Closing Date;
(c) the mutual consent of Buyer and Sellers.
11.2 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 Section 10.2 hereof (and for such purposes such
Section 10.2 shall survive the termination of this Agreement). Furthermore,
nothing in this Section 11.2 shall affect any party's right to specific
performance of the obligations of the Group at Closing hereunder.
ARTICLE XII: CASUALTY, RISK OF LOSS
-----------------------------------
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12.1 Casualty, Risk of Loss. 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, 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 Group Members on account of any such casualty.
Nothing contained in this Section 12.1 shall limit or adversely affect the right
of Buyer and IHS to receive indemnification for any Losses incurred by either of
them by reason of any breach by any Group Participant of any representation,
warranty or obligation under this Agreement in accordance with Section 10.2
hereof (and for such purposes such Section 10.2 shall survive the termination of
this Agreement).
ARTICLE XIII: MISCELLANEOUS
---------------------------
13.1 Costs and Expenses. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby. The Group shall pay all sales, transfer, recording, stamp and like taxes
payable in connection with any of the transactions contemplated by this
Agreement, and shall timely and truthfully complete and file any filings or
returns necessary in connection therewith. The Group, on the one hand, and Buyer
and IHS on the other hand, shall each bear fifty percent (50%) of the cost of
obtaining the legal opinions referred to in Section 8.4(b) hereto. Subject to
Section 2.4 hereof, Buyer and IHS agree that Sellers may use shares of IHS Stock
to pay the fee due to its consultant, C-III, L.L.C. (the "Consultant"), a
Missouri limited liability company, provided that said Consultant shall have
agreed in writing, in form and substance satisfactory to IHS, to be bound by the
provisions of Section 2.5 hereof (including 2.5(b) and (e)).
13.2 Benefit and Assignment. This Agreement binds and inures
to the benefit of each party hereto and its successors and assigns. Prior to
Closing, Buyer may not assign its interest under this Agreement to any other
person or entity without the prior written consent of Sellers; provided,
however, that prior to Closing Buyer may assign its rights, duties and
obligations hereunder to one or more subsidiaries or affiliates of IHS, except
that no such assignment shall operate to relieve IHS of its obligations
hereunder.
13.3 Effect and Construction of this Agreement. This Agreement
and the Exhibits, Schedules and the Transaction Documents 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 do not constitute part of this Agreement, are
for convenience only and shall not control or affect the meaning or
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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.
13.4 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.
13.5 Notices. All notices and demands required or permitted
hereunder shall be in writing and shall be deemed to be properly given or made
when personally delivered to the party or parties entitled to receive the notice
or two (2) business days after being sent by certified or registered mail,
postage prepaid, or the 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 any Group Participant: to or in care of:
Total Rehab Services, LLC
3100 Commercial Avenue
Northbrook, Illinois 60062
Attention: Timothy H. Dacy and David S. Krause
With a copy to: Johnson and Colmar
300 South Wacker Drive
Chicago, IL 60606
Attention: Mark Chester, Esq.
If to Buyer or IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, General Counsel
and
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian Davidson, Executive Vice President
With a copy to: Blass & Driggs, Esqs.
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461 Fifth Avenue, 19th Floor
New York, NY 10017
Attn: Michael S. Blass, Esq.
Such addresses may be changed by providing written notice as provided in this
Section 13.5.
13.6 Waiver, Discharge, Etc. This Agreement and the
Transaction Documents and the obligations hereunder and thereunder shall not be
released, discharged, abandoned, changed, waived or modified in any manner,
except by an instrument in writing executed by Sellers, if any Group Participant
is to be the party to be charged, and by Buyer, if Buyer or IHS is to be the
party to be charged. 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.
13.7 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, and other than the
Buyer Indemnitees and Group Indemnitees pursuant to Section 10.2 hereto.
13.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Illinois
applicable to contracts executed, delivered and to be fully performed in such
State, disregarding any contrary rules relating to the choice or conflict of
laws.
13.9 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
Sellers on behalf of the Group Members and by Buyer on behalf of Buyer and IHS.
13.10 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 10.3 shall be
determined to be overly broad in any respect, then it
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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.
13.11 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 IHS 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.
13.12 Joint and Several. Except as expressly set forth in the
rules of construction and qualification in the preamble to Article IV of this
Agreement, all obligations, representations, warranties, covenants and
agreements of any Group Participant under this Agreement or any of the Group
Transaction Documents shall be the joint and several obligations,
representations, warranties, covenants and agreements of all of the Group
Members.
[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.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Elizabeth B. Kelly
--------------------------
Its: Senior Vice President
Corporate Development
-------------------------
IHS ACQUISITION XV, INC.
By: /s/ Elizabeth B. Kelly
--------------------------
Its:
-------------------------
TOTAL REHAB SERVICES, LLC
By: /s/ Timothy H. Dacy
--------------------------
Its: Member
--------------------------
TOTAL REHAB SERVICES 02, LLC
By: /s/ Timothy Dacy
--------------------------
Its: Member
--------------------------
RUBY HEALTHCARE, LLC
By: /s/ Bruce Paler
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Its: Member
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/s/ Timothy Dacy
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Timothy H. Dacy
/s/ David S. Krause
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David S. Krause
/s/ Ron Paler
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Ron Paler
/s/ Bruce Paler
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Bruce Paler
/s/ Shari Kaplan
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Shari Kaplan
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ASSET PURCHASE AGREEMENT
By and Among
MEDIQ MOBILE X-RAY SERVICES, INC.,
MEDIQ INCORPORATED
and
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
Dated as of November 6, 1996
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Page
TABLE OF CONTENTS
Page
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Background.....................................................................1
ARTICLE I
PURCHASE AND SALE OF ASSETS...........................................1
1.1 Assets Being Sold and Purchased................................1
1.2 Excluded Assets................................................3
1.3 Assumption of Liabilities......................................4
1.4 Assignment of Assets...........................................6
ARTICLE II
PURCHASE PRICE AND CLOSING............................................7
2.1 Purchase Price.................................................7
2.2 Purchase Price Contingency.....................................8
2.3 Post-Closing Purchase Price Adjustment.........................9
2.4 Closing Date..................................................12
2.5 Closing Documents of Seller...................................12
2.6 Closing Documents of Parent...................................13
2.7 Closing Documents of Buyer....................................13
2.8 Legal Opinions................................................14
2.9 IHS Stock.....................................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES.......................................20
3.1 Representations and Warranties of Seller and Parent...........20
(a) Authority............................................20
(b) Organization and Standing of Seller and Parent.......20
(c) Ownership............................................20
(d) Subsidiaries of the Seller...........................21
(e) Financial Statements.................................21
(f) Taxes................................................21
(g) Assets Other than Real Property......................22
(h) Title to Real Property...............................23
(i) Intellectual Property................................23
(j) Contracts............................................23
(k) Litigation; Decrees..................................25
(l) Insurance............................................25
(m) Benefit Plans........................................26
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(n) Absence of Changes or Events.........................26
(o) Compliance with Applicable Laws......................27
(p) Licenses; Permits....................................28
(q) Environmental Matters................................28
(r) Employee and Labor Relations.........................28
(s) Special Fee Arrangements.............................29
(t) Patient Volumes......................................29
(u) Employees............................................29
(v) Relationships........................................29
(w) Questionable Payments................................29
(x) Reimbursement Matters................................29
(y) Medicare/Medicaid Participation......................30
(z) Customer List........................................30
(aa) Financial Statements and SEC Documents...............30
3.2 Representations and Warranties of Buyer.......................31
(a) Authority............................................31
(b) Sufficient Funds.....................................31
(c) Organization and Standing of Buyer...................31
(d) Financial Statements and SEC Documents...............32
ARTICLE IV
COVENANTS............................................................32
4.1 Covenants of Seller...........................................32
(a) Insurance............................................32
(b) Employment Agreements................................32
4.2 Covenants of Buyer............................................32
(a) Financial Information................................33
(b) Accounts.............................................33
(c) Employees............................................33
4.3 Mutual Covenants..............................................34
(a) Records..............................................34
(b) Publicity............................................35
ARTICLE V
OTHER AGREEMENTS.....................................................35
5.1 Certain Understandings........................................35
5.2 Further Assurances............................................35
5.3 Transfer Taxes................................................35
5.4 Use of Mediq Name.............................................35
5.5 Covenant Not to Compete.......................................36
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5.6 Restrictions..................................................38
5.7 Adjustments for Medicare Reimbursement Rate Increases.........38
5.8 Audit.........................................................39
5.9 Billing and Collection Agent..................................39
5.10 Benefits under Excluded Contracts.............................39
ARTICLE VI
INDEMNIFICATION......................................................40
6.1 Indemnification by Seller and Parent..........................40
6.2 Indemnification by Buyer......................................41
6.3 Losses Net of Insurance, Etc..................................41
6.4 Termination of Indemnification................................41
6.5 Procedures Relating to Indemnification under
Sections 6.1 and 6.2......................................42
ARTICLE VII
DEFINITIONS..........................................................43
ARTICLE VIII
MISCELLANEOUS........................................................47
8.1 Assignment....................................................47
8.2 No Third-Party Beneficiaries..................................48
8.3 Survival of Representations...................................48
8.4 Expenses......................................................48
8.5 Amendments....................................................48
8.6 Notices.......................................................48
8.7 Fees..........................................................50
8.8 Severability..................................................50
8.9 Interpretation................................................50
8.10 Waiver........................................................51
8.11 Counterparts..................................................51
8.12 Entire Agreement..............................................51
8.13 Governing Law.................................................51
8.14 Joint and Several.............................................51
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LIST OF SCHEDULES
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Schedule 1.1(a)(vii) Third Party Consents
Schedule 1.3 Assumed Liabilities
Schedule 3.1(a) Authority
Schedule 3.1(b) Qualification to do Business
Schedule 3.1(e) Financial Statements
Schedule 3.1(f) Taxes
Schedule 3.1(g) Assets Other than Real Property
Schedule 3.1(h) Title to Real Property
Schedule 3.1(i) Intellectual Property
Schedule 3.1(j) Contracts
Schedule 3.1(j)-A Contracts Not in Effect
Schedule 3.1(j)-B Breaches and Defaults
Schedule 3.1(j)-C Contracts not Current in Payments
Schedule 3.1(j)-D Consents
Schedule 3.1(k) Litigation; Decrees
Schedule 3.1(l) Insurance
Schedule 3.1(m) Benefit Plans
Schedule 3.1(n) Absence of Changes or Events
Schedule 3.1(o) Compliance with Applicable Laws
Schedule 3.1(p) Licenses; Permits
Schedule 3.1(q) Environmental Matters
Schedule 3.1(r) Employee and Labor Relations
Schedule 3.1(s) Special Fee Arrangements
Schedule 3.1(t) Patient Volumes
Schedule 3.1(u) Employees
Schedule 3.1(v) Relationships
Schedule 3.1(w) Questionable Payments
Schedule 3.1(x) Reimbursement Matters
Schedule 3.1(y) Medicare/Medicaid Participation
Schedule 3.1(z)-A Facilities List
Schedule 3.1(z)-B Patients List
Schedule 5.5 Non-Competition Agreement Parties
LIST OF EXHIBITS
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Exhibit 2.5(d)-1 Bill of Sale
Exhibit 2.5(d)-2 Assignment and Assumption of Contracts
Exhibit 2.7(i) Assumption Agreement
Exhibit 2.8(a) Legal Opinion of Dechert Price & Rhoads
Exhibit 2.8(b) Legal Opinion of Blass & Driggs, Esqs.
Exhibit 3.1(j)-A Customer Contract
Exhibit 3.1(j)-B Customer Contract
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of November 6, 1996 by and among
MEDIQ Mobile X-Ray Services, Inc., a Delaware corporation ("Seller"), MEDIQ
Incorporated, a Delaware corporation ("Parent"), and Symphony Diagnostic
Services No. 1, Inc., a California corporation ("Buyer").
Background
WHEREAS, Seller operates a business which provides portable X-ray,
EKG and nutritional services to residents of nursing homes and other
institutions and home care patients, and ancillary services related thereto (the
"Business");
WHEREAS, Buyer wishes to purchase and assume from Seller and
Seller wishes to sell and transfer to Buyer certain assets used and liabilities
arising in the Business, all as more fully described herein;
WHEREAS, Parent owns 100% of the issued and outstanding capital
stock of Seller and is entering into this Agreement as an inducement to Buyer to
enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements contained in
this Agreement, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Assets Being Sold and Purchased.
(a) Subject to and upon the terms and conditions of this Agreement,
concurrently herewith Seller shall transfer, sell, convey, assign and deliver to
Buyer free and clear of all Liens, other than Permitted Liens (as hereinafter
defined), and Buyer shall purchase from Seller, all of Seller's right and title
to and interest in the following properties and assets as the same exist on the
date hereof:
(i) all tangible assets used in or useful or held for use in
connection with the ownership or operation of the Business whether owned or
leased, including, without limitation, all inventory, supplies, furnishings,
moveable and other equipment, instruments, machinery, tools, vehicles, furniture
and office equipment, all fixtures and leasehold improvements and other items of
personal property owned by Seller;
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(ii) manufacturers' and vendors' warranties in connection with
the assets being transferred hereunder;
(iii) except for Excluded Contracts (as defined in Section 1.4),
agreements to provide services or equipment, real estate leases, equipment
maintenance agreements, non-competition and proprietary information agreements
(other than such confidentiality agreements and letters of intent that arose
from the sale of the Business) and other agreements related to, and incurred in
the ordinary course of, the Business, including its contracts to provide
portable x-ray, EKG and other ancillary services and all other Contracts (as
such term is hereinafter defined in Section 3.1(j));
(iv) trade names, including but not limited to, "MMXR" and the
names, service marks, trademarks, copyrights, copyright applications, trademark
applications, patents, and patent applications used or useful or held for use in
connection with the ownership or operation of the Business and the right to use
the logos, except for the name and service mark "MEDIQ" and any derivations
thereof;
(v) all prepaid expenses and deposits used or useful or held for
use in connection with the ownership or operation of the Assets being
transferred hereunder (the "Prepaid Expenses"), which excludes those prepaid
expenses and deposits (which expenses and deposits remain the property of
Seller) relating to those liabilities that are not Assumed Liabilities;
(vi) all original agreements, documents, books, instruments,
papers, records, and files of all kind and nature relating to the Business
(collectively, the "Records"), but excluding its charter, minute books, stock
record books and corporate seal;
(vii) all consents, licenses, permits, certifications and
approvals granted by any governmental or non-governmental third party
(collectively, the "Third Party Consents"), to the extent transferable in
accordance with applicable law, including without limitation, those specified on
Schedule 1.1(a)(vii);
(viii) its past and present customer lists and all telephone
numbers, patient records, including without limitation, patient x-ray films and
EKGs, and files and other confidential or proprietary information (other than
confidentiality agreements and letters of intent that arose from the sale of the
Business), in each case only to the extent transferable in accordance with
applicable law;
(ix) its cash, cash equivalents, accounts and notes receivable
and the proceeds of any Non-Assignable Receivables (as defined below);
(x) any provider or participation agreements and provider numbers
relating to Medicare or Medicaid to which Seller is a party (including, without
limitation, any hereafter issued with respect to Michigan) and any IPL numbers;
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(xi) its goodwill and going concern value; and
(xii) all other assets that are used, useful or held for use in
connection with the ownership or operation of the Business.
(b) The assets being sold and purchased hereunder are hereinafter
collectively referred to as the "Assets".
1.2 Excluded Assets. Notwithstanding anything contained in Section 1.1
hereof to the contrary, Seller is not selling, assigning, transferring or
conveying to Buyer any asset or item not described in Section 1.1. Without
limiting the foregoing, the following assets, rights and properties are excluded
from the transactions contemplated in this Agreement (the "Excluded Assets"):
(a) the ownership interest in equipment and other personal property,
wherever located, leased, licensed or rented by the Company and owned by third
parties who are not affiliated with Seller;
(b) refunds for Taxes (as hereinafter defined in Section 3.1(f)(i))
paid;
(c) prepaid expenses and deposits relating to those liabilities that
are not Assumed Liabilities (as hereinafter defined);
(d) inter-company accounts receivable from Affiliates of Seller, and
Seller's pension, profit-sharing or other funded employee benefit plan assets;
(e) the capital stock of Seller owned or held by Parent;
(f) banking or financial institution accounts or any deposit or
concentration accounts or safety deposit boxes (it being understood that the
foregoing does not apply to any funds or other assets held in any such accounts,
all of which are included in the Assets);
(g) Seller's rights under any Excluded Contracts except under the
Agreement between Lawrence M. Smith and Parent, dated as of February 27, 1996
(which rights are expressly included as Assets) or except as expressly provided
in Section 5.5(f);
(h) Medicare Provider Numbers for Pennsylvania, Ohio, Florida,
Maryland, Rhode Island and Washington, D.C.;
(i) the name and service mark "MEDIQ" and any derivations thereof (the
"Name");
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(j) Seller's rights under this Agreement or any other Transaction
Documents (as hereinafter defined); and
(k) all Accounts Receivable of Seller from governmental payors that by
law may not be assigned to Buyer ("Non-Assignable Receivables") (it being
understood however, that for purposes of Section 2.3 of this Agreement the
Non-Assignable Receivables shall be deemed to be Accounts Receivable).
1.3 Assumption of Liabilities. (a) At Closing, Seller shall transfer to
Buyer, and Buyer shall assume and shall thereafter pay, perform and discharge,
to the extent not paid, performed and discharged at the Closing, all of the
Assumed Liabilities.
For purposes of this Agreement "Assumed Liabilities" shall mean, without
duplication:
(i) all operating trade payables, other liabilities and accrued
expenses of Seller that would be classified as current liabilities ("Current
Liabilities") on a balance sheet of Seller as of the Closing Date prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the balance sheet delivered to Buyer and included in the
financial statements of Seller as at August 31, 1996 referred to in Section
3.1(e) ("GAAP"), other than: (A) any liabilities that Buyer is expressly not
assuming as provided in this Agreement (other than payables under Excluded
Contracts that are reflected on the Closing Balance Sheet and that constitute
Current Liabilities), (B) any liability due to Parent of the type included under
the heading "Intercompany Advance-Parent" on Seller's balance sheet or any other
fee, loan, advance or other similar item due by Seller to Parent that does not
represent a Current Liability that is a reimbursement for expenses actually
incurred by Parent on Seller's behalf, (it being understood, however, that any
other Liabilities due to Parent or any of its Affiliates constituting Current
Liabilities shall be Assumed Liabilities), (C) any liability for taxes (other
than Buyer Taxes), (D) any obligation or liability arising out of any of the
Seller's Benefit Plans (as defined in Section 3.1(m)) except as provided in
Section 4.2(d), and (E) any obligation or liability to any Designated Employee
(as defined in Section 4.2(c)).
(ii) those obligations that arise or accrue under the Contracts
assigned by Seller to Buyer, with respect to, and only with respect to, services
to be rendered or goods to be supplied or benefits to be conferred to or by
Buyer or otherwise arising or accruing on or after the date that such Contracts
are assigned to Buyer. Notwithstanding the foregoing, Liabilities under such
Contracts that have accrued, or the performance of which is due, on or prior to
such date of assignment or which are in payment or consideration for Excluded
Assets, or that arise out of breaches that occurred prior to Closing, shall
remain the sole responsibility of Seller except to the extent such liabilities
constitute Current Liabilities; and
(iii) liabilities for severance or other payments related to the
termination of employment (as opposed to accrued compensation for services
rendered to Buyer) ("Employee Termination Payments") with respect to each
employee of Seller (other than the Subject Employees
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as hereinafter defined in Section 4.1(b)) that Buyer employs as of the Closing
Date through a date that ends at least sixty (60) days after the Closing Date.
Within ten (10) days of request, Seller shall reimburse Buyer for any Employee
Termination Payments paid or incurred by it for any employee of Seller that
Buyer terminates prior to the end of such sixty (60) day period except to the
extent such Employee Termination Payments exceed $150,000. Subject to the
aforesaid reimbursement obligation of Seller, Buyer shall be responsible for the
payment of all Employee Termination Payments for all of Buyer's employees that
are so terminated. If Buyer shall terminate the employment of any such employee
prior to the end of such sixty (60) day period, then the Employee Termination
Payment with respect to such terminated employee shall include any severance
obligations with respect to such employee included in any Benefit Plans,
severance or employment agreement disclosed in the Disclosure Schedule (and not
constituting an Excluded Contract). If Buyer shall terminate the employment of
any such employee on or after the end of such sixty (60) day period, then the
Employee Termination Payment with respect to such terminated employee shall
exclude any severance obligations included in any Benefit Plan but shall include
any severance obligations with respect to such employees included in any
severance or employment agreement disclosed in the Disclosure Schedule (and not
constituting a Excluded Contract and not otherwise expressing assumed by Seller
pursuant to said agreement).
(b) Buyer will not assume any, and Seller shall remain liable for
each, Liability of Seller existing on the Closing Date, other than the Assumed
Liabilities (the "Excluded Liabilities"). 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
generally accepted accounting principles, 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 or Medicaid cost report adjustments
or other payment adjustments attributable to any period on or prior to the
Closing Date (including, without limitation, any of the same which becomes due
to any nursing home, hospital, other facility or other third party pursuant to
any Contract directly, by reason of offset or indemnification, or otherwise, or
any other form of Medicare or other health care reimbursement denial, recapture,
adjustment or overpayment whatsoever with respect to any period on or prior to
the Closing Date), or any liabilities arising out of the Middle District of
Pennsylvania investigation of Seller, or out of any Questionable Payment (as
defined in Section 3.1(w)) ("Reimbursement Liabilities"), (iii) any obligation
or liability arising out of any Excluded Contract, unless and until it is
assigned to and assumed by Buyer in accordance with Section 1.4 and any
Liabilities arising out of any Excluded Asset, (iv) any obligation or liability
arising out of any United States Department of Labor (or any similar State
agency or department) investigation or claim with regard to any employment
matters of the Business, (v) any obligation or liability arising out of any
Seller's Benefit Plan (as such term is hereinafter defined in Section
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3.1(m)), (vi) any liabilities arising out of Taxes due or owing by Seller,
including, without limitation, to the extent such Taxes are accrued on the
Closing Balance Sheet, (vii) any obligation or liability arising out of any of
the matters described on Schedule 3.1(k) (viii) any obligation for bonus, unpaid
vacation or salary of any Subject Employee (as hereinafter defined) outstanding
on the Closing Date, except to the extent included as a Current Liability; (ix)
any liability or obligation arising out of any noncompliance with law described
in the Memorandum, dated April 26, 1996, to Harvey Z. Werblowsky from Anne L.
Thompson and Richard Wright; and (x) any liabilities due to Parent for
management fees for repayment of working capital or other advances, to the
extent such liabilities are not accrued on the Closing Balance Sheet.
1.4 Assignment of Assets.
(a) Buyer agrees to assume and Seller agrees to assign to Buyer all of
the Contracts set forth on Schedule 3.1(j), except for the Contracts set forth
on Schedule 1.4(a) ("Excluded Contracts"). Notwithstanding the foregoing, to the
extent that any lease, contract, license, permit, agreement, sales or purchase
order, commitment, property interest, qualification or other Asset described in
Section 1.1, and not constituting an Excluded Contract or otherwise excluded in
Section 1.2, to be sold, assigned or conveyed to Buyer, cannot be sold, assigned
or conveyed, without the approval, consent or waiver of any third person, or if
such sale, assignment or conveyance or attempted sale, assignment or conveyance
would constitute a breach thereof or a violation of any law, decree, order,
regulation or other governmental edict (collectively, "Impracticalities"), this
Agreement shall not (unless and until such Impracticality is resolved)
constitute or require a sale, assignment or conveyance thereof, or an attempted
sale, assignment or conveyance thereof, and each Contract covered by the
foregoing sentence (a "Temporary Excluded Contract") shall be deemed to be an
Excluded Contract unless and until the Impracticalities applicable to it are
resolved. The foregoing sentence shall not be deemed to limit any representation
or warranty made by Seller pursuant to this Agreement.
(b) Buyer and Seller shall each use commercially reasonable efforts,
and shall cooperate with each other, to resolve any Impracticalities necessary
to sell, assign or convey the Assets to Buyer as soon as practicable, provided
that neither Seller nor Buyer shall be required to expend money, commence any
litigation or offer or grant any accommodation (financial or otherwise) to any
third party.
(c) With respect to any asset, contract, lease, agreement, permit,
license, interest or other right of Seller (other than any Excluded Contract)
which is not included in the Assets assigned to Buyer at the Closing by reason
of the immediately preceding paragraphs of this Section 1.4, after the Closing),
(i) the parties shall cooperate with each other, upon written request, in
endeavoring to obtain the requisite third-party consent(s) to the assignment
thereof to Buyer (or the resolution of any other Impracticalities), without
either party being obligated, however, to make any payment to any such third
party which is not otherwise due in order to obtain such consent or resolution,
unless Buyer shall make such payment or agree to reimburse Seller for such
payment, and (ii) if any such requisite consent cannot be obtained, Seller shall
use
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its commercially reasonable efforts in endeavoring to obtain for Buyer, at no
cost to Seller, an arrangement reasonably acceptable to Buyer designed to
provide for Buyer the benefits thereof (subject to assumption and performance of
all related liabilities in some other manner reasonably acceptable to Buyer and
Seller to the extent they otherwise would be assumed by Buyer in accordance with
this Agreement but for the failure to obtain such consent or resolve such
Impracticality). A Temporary Excluded Contract shall cease to be an Excluded
Contract for the purposes of this Agreement and shall be assigned to the Buyer
when the Impracticalities applicable to it are resolved.
(d) Provided that Seller complies with its obligations under Sections
1.4(b) and (c) above, Buyer agrees that Seller shall not have any liability
whatsoever arising out of or relating to the failure to obtain any of the
consents set forth on Schedule 3.1(j)-D.
ARTICLE II
PURCHASE PRICE AND CLOSING
2.1 Purchase Price.
(a) The aggregate purchase price for the Assets and for the Non-
Competition Agreement (as hereinafter defined in Section 5.5) shall be equal to
the sum of: (a) $10,502,347 payable at Closing (as hereinafter defined) subject
to the adjustment provided in Section 2.3 , which amount shall be payable as
follows: (i) FIVE MILLION THREE HUNDRED AND TWO THOUSAND THREE HUNDRED AND
FORTY-SEVEN DOLLARS ($5,302,347) shall be payable in cash; and (ii) FIVE MILLION
TWO HUNDRED THOUSAND DOLLARS ($5,200,000) shall be paid at the Closing by
delivery to Seller of newly issued shares of the Common Stock, par value $.001
per share, of IHS (the "IHS Stock"), based upon the valuation and subject to the
terms and conditions of Section 2.9 below; and (b) the Contingent Payment, as
defined in Section 2.2(a) (collectively, the "Purchase Price"). The cash portion
of the Purchase Price shall be paid by wire transfer to an account designated by
Seller. Of the cash portion of the Purchase Price payable at Closing, the
outstanding balance of the $2,100,000 amount due to the United States Government
pursuant to the Settlement Agreement, dated as of September 25, 1995, shall be
paid into an escrow account to be released to the United States Government on
behalf of Seller and Parent at Closing.
(b) The Purchase Price as adjusted pursuant to this Agreement (and all
other capitalizable costs) shall be allocated among the Assets as shall be
determined by Buyer, subject to the consent of Seller (which consent shall not
unreasonably be withheld, delayed or
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conditioned), in accordance with Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"). Each of the parties hereto agrees to prepare and
file all tax returns (including Form 8594) in a manner consistent with such
allocation and to report this transaction for Federal and state income tax
purposes in accordance with such allocation of the Purchase Price.
2.2 Purchase Price Contingency.
(a) A contingent payment of $2,000,000 (the "Contingent Payment")
shall be payable, if at all, only in the following amounts and as set forth in
Section 2.2(d):
(i) if there occurs any EKG Transportation Reimbursement Change
(defined below) with respect to any period prior to February 1, 1998, then no
portion of the Contingent Payment shall be paid;
(ii) if no EKG Transportation Reimbursement Change occurs with
respect to the period prior to February 1, 1999, then fifty percent (50%) of the
Contingent Payment shall be paid; and
(iii) if no EKG Transportation Reimbursement Change occurs with
respect to the period prior to February 1, 2000, then the balance of the
Contingent Payment shall be paid.
(b) If any portion of the Contingent Payment shall become due in
accordance with subparagraph (a) above, then the payment of such portion shall
be made thirty (30) days after the Date of Determination (hereinafter defined)
that such portion has become due. As used herein, the phrase "Date of
Determination" shall mean, with respect to any period in question, the earliest
to occur of: (i) the date on which the Health Care Finance Administration
("HCFA") or any other Applicable Authority (defined below) makes a final
determination (that is not in conflict with or being contested or appealed by
any action or proceeding by or before or threatened by any other Applicable
Authority) that any pending, threatened or currently contemplated EKG
Transportation Reimbursement Change will not be enacted, promulgated or
otherwise effectuated with respect to the period in question, and (ii) the last
day of the period in question if no EKG Transportation Reimbursement Change
shall have occurred or be so pending, threatened or currently contemplated with
respect to such period in question.
(c) As used herein, the phrase "EKG Transportation Reimbursement
Change" shall mean an alteration, modification or other change in the amount of
EKG transportation reimbursement paid with respect to the operation of the
Business before, on or after the Closing Date, from either Medicare Part A or
Part B, third party billing, facility billing or direct billing, which
alteration, modification or change: (i) results from any actions taken by HCFA,
Medicare, U.S. Congress or any U.S. Court (an "Applicable Authority"); and (ii)
has the effect of eliminating or reducing the reimbursement amount which Seller
(prior to Closing) or Buyer (after the Closing) is paid for its services.
Notwithstanding anything to the contrary
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contained in this Section 2.2, no EKG Transportation Reimbursement Change shall
be deemed to have occurred if it shall only affect payments made or due to
Seller prior to Closing and that do not constitute any part of the Assets.
(d) If there shall be an EKG Transportation Change, but such EKG
Transportation Reimbursement Change shall be a reduction in the amount of EKG
transportation reimbursement paid with respect to the operation of the Business
as aforesaid by less than 40% of the amount payable on the date hereof, then, in
addition to the portion of the Contingent Payment
which shall be paid in accordance with subsection (a) above, if any, within
thirty (30) days after the Date of Determination of the amount of such EKG
Transportation Change, Buyer shall pay to Seller a portion of the Contingent
Payment which has not previously been paid in accordance with subsection (a),
which portion shall be equal to the percentage set forth in Column "Y" below of
the amount not previously paid which corresponds to the range of percentage
reduction in EKG transportation reimbursement set forth in column "X" below.
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"X" "Y"
Range of % Reduction in EKG % Payment of
Transportation Reimbursement Remaining Contingent Payment
---------------------------- ----------------------------
More than 40% Reduction 0
Less than or equal to 40% Reduction/ 25%
More than 30% Reduction
Less than or equal to 30% Reduction/ 35%
More than 20% Reduction
Less than or equal to 20% Reduction/ 45%
More than 10% Reduction
Less than or equal to 10% Reduction 55%
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2.3 Post-Closing Purchase Price Adjustment.
(a) In addition to any adjustment to the Purchase Price arising under
Section 2.2, the Purchase Price shall be further subject to adjustment after
Closing as follows: (i) if the Closing Date Working Capital (as hereinafter
defined) of Seller is less than $2,700,000 (the "Required Amount") then the
Purchase Price shall be reduced dollar-for-dollar by the amount of such
deficiency; and (ii) if the Closing Date Working Capital of Seller shall exceed
$2,700,000 then the Purchase Price shall be increased dollar-for-dollar by the
amount of such excess to the extent payable as provided in Section 2.3(b)(ii).
If the Closing Date Working Capital equals $2,700,000 there will be no
adjustment to the Purchase Price under this Section 2.3(a). As used herein, the
"Closing Date Working Capital" of Seller shall mean the excess of (x) the
aggregate
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amount of cash and accounts receivable, inventories and prepaid expenses and
other current assets of Seller, in each case, included in the Assets on the
Closing Balance Sheet (as such term is hereinafter defined) over (y) the
aggregate amount of current liabilities reflected on the Closing Balance Sheet
(excluding therefrom any portion thereof constituting Excluded Liabilities).
There shall be no accrual on the Closing Balance Sheet for any bonuses due to
any Subject Employee or for any bonuses arising out of the consummation of the
transactions contemplated by this Agreement, and all of such liabilities shall
be Excluded Liabilities. No accrual shall be made for Employee Termination
Payments.
(b) Regarding the Closing Balance Sheet. (i) At the Closing, Seller
shall deliver to Buyer the balance sheet of Seller and a calculation of the
amount of the Closing Date Working Capital, certified by the Chief Financial
Officer of the Seller to be his or her best good faith estimate of such balance
sheet and Closing Date Working Capital as of the Closing (the "Preliminary
Closing Date Balance Sheet"). The Preliminary Closing Date Balance Sheet shall
be prepared in accordance with GAAP (the "Accounting Principles"). Buyer shall
complete, at its own expense, a review of such calculation of the Closing Date
Working Capital and shall deliver to Seller within ninety (90) days after the
Closing, its written report (the "Working Capital Review") setting forth the
amount of such Closing Date Working Capital as confirmed or determined in
accordance with such review. The Working Capital Review must be done in
accordance with the same Accounting Principles used by Seller. In the event that
the Working Capital Review delivered to Seller in accordance with the provisions
of this Agreement discloses that the Closing Date Working Capital was greater
than $2,700,000, the Purchase Price shall be deemed to have been increased by
the amount of such excess (the "Working Capital Increase"), provided that Buyer
collects in respect of Accounts Receivable (hereinafter defined) at least the
Target Amount (hereinafter defined). The "Target Amount" shall mean the amount
of accounts receivable that must be included as current assets in the Closing
Date Working Capital in order to obtain a Closing Date Working Capital amount
equal to $2,700,000. Any payment by Seller to Buyer of a Purchase Price
adjustment pursuant to clause (ii) below shall decrease the Target Amount by the
principal amount of such payment. In the event that the Working Capital Review
delivered to Seller in accordance with the provisions of this Agreement
discloses that the Closing Date Working Capital was less than $2,700,000, the
Purchase Price shall be deemed to have been reduced by the amount of such
deficiency and Seller, upon demand, shall immediately pay the amount of such
deficiency to Buyer. If Seller shall dispute the amount set forth in the Working
Capital Review, it shall give notice to Buyer (a "Delay Payment Notice") within
thirty (30) days after delivery to it of the Working Capital Review that the
adjusting payment required above should not then be made and setting forth in
reasonable detail its objections and the basis therefor, in which case the
parties shall meet and in good faith attempt to resolve any disagreements within
thirty (30) days after delivery to Buyer of the Delay Payment Notice. If Seller
shall not have delivered a Delay Payment Notice within such thirty (30) day
period, Seller shall be deemed to conclusively have accepted the determination
of Buyer of the amount of Working Capital as of the Closing Date, in which case
such determination shall be final and shall not be subject to further review,
challenge or adjustment, absent fraud. If Seller and Buyer cannot resolve any
such disputes, such disputes shall be resolved by KPMG Peat Marwick LLP or if
such firm is unable
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to so act or is not at the time independent of both Seller and Buyer, by an
independent nationally recognized accounting firm selected by KPMG Peat Marwick
LLP, which accounting firm is reasonably acceptable to both Seller and Buyer
(the accounting firm so engaged shall hereinafter be referred to as the
"Independent Accounting Firm"); provided, the Independent Accounting Firm shall
only resolve disputes properly raised in accordance with the provisions of this
Section 2.3. The Independent Accounting Firm shall be directed to make its
determination as promptly as practicable (and no later than 30 days after
referral to it of such dispute by Seller and Buyer) and such determination shall
be final and binding upon Seller and Buyer. The expenses relating to the
engagement of the Independent Accounting Firm shall be borne by the party
against whom the Independent Accounting Firm shall rule; provided that if it
does not clearly rule in favor of either party, the expenses shall be shared
one-half by Seller and one-half by Buyer. For purposes of this Agreement, the
Closing Balance Sheet shall be as set forth in the Working Capital Review, as
accepted by Seller as set forth above, or as modified by resolution of Seller
and Buyer or by the Independent Accounting Firm.
(ii) Any adjustment to the Purchase Price due to Buyer pursuant
to this Section shall be paid by Seller to Buyer (together with interest on such
amount from the date on which it shall become due to Buyer in accordance with
this Agreement until paid at a rate equal to 7% per annum) within 10 days after
the final determination of such adjustment is made. Subject to subsection
(c)(ii) below, any Excess Collections (hereinafter defined) shall be paid by
Buyer to Seller on the fifteenth business day of each calendar month in an
amount equal to all Excess Collections (hereinafter defined) during the calendar
month then most recently ended, and any such payments shall be first applied
against any Working Capital Increases and any excess shall thereafter be paid to
Seller. "Excess Collections" means the amount of Accounts Receivable collected
in excess of the Target Amount. If Buyer shall fail to timely pay any such
amount in accordance with the foregoing two sentences, then such amount shall
bear interest from the date on which it shall become so due to Seller until paid
at a rate equal to 7% per annum, and such interest shall be payable upon demand.
(c) Accounts Receivable Collection and Reporting. (i) Commencing 90
days after the Closing Date and continuing until the first anniversary of the
Closing Date, or if earlier, until all Accounts Receivable shall have been
collected, Buyer shall provide quarterly reports to Seller regarding the amounts
collected on the accounts receivable of the Business outstanding as of the
Closing Date (the "Accounts Receivable") and Buyer's efforts to collect such
accounts. Buyer shall, at Buyer's election, either (i) apply at least the same
efforts in the collection of the Accounts Receivable as Buyer applies in the
collection of its own accounts receivable or (ii) use substantially the same
personnel and procedures to collect the Accounts Receivable as were used by the
Business immediately prior to the Closing Date, in the substantially same
positions, with the substantially same responsibilities and at the substantially
same salaries and hours. Buyer shall have no liability or responsibility to
collect Accounts Receivable to the extent Seller fails to deliver to Buyer such
documentation as Buyer shall reasonably request with respect thereto. The
collection of all Accounts Receivable received from an account debtor of the
Business as of the Closing Date shall be applied to the oldest outstanding
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invoice with such account debtor which is not then in dispute consistent with
Buyer's general overpayment policies; provided, however, notwithstanding the
foregoing, any payments made by an account debtor in respect of a designated
account shall be applied to the account so designated. For purposes of the
preceding sentence, a disputed invoice is an invoice that is the subject of a
written dispute from the account debtor which is reasonably recognized by Buyer
as disputed in accordance with its general policies; upon the resolution of any
such dispute, such invoice shall no longer be considered disputed and
collections from the account debtor shall be applied in accordance with the
previous sentence as if such dispute had not arisen. Provided that Buyer has
collected in respect of Accounts Receivable at least the Target Amount, then on
the fifteenth (15th) business day of each calendar month until one month after
the first anniversary of the Closing Date, Buyer shall provide reports to Seller
regarding the amounts collected on such Accounts Receivable with respect to the
preceding calendar month, and Buyer's efforts to collect such accounts.
(ii) In the event that Buyer has complied with its collection
obligations set forth in this paragraph (c) but has not collected at least the
Target Amount by the first anniversary of the Closing Date, (i) Buyer shall
notify Seller of the amount of such Accounts Receivable actually collected by
Buyer, (ii) Seller shall promptly remit to Buyer the amount, if any, by which
the amount of such Accounts Receivable actually collected is less than the
Target Amount (to the extent not already paid), and (iii) Buyer shall promptly
remit to Seller all amounts thereafter collected by Buyer in respect of the
Accounts Receivable.
2.4 Closing Date. The closing (the "Closing") of the purchase and sale
of the Assets shall be held pursuant to overnight courier and escrow
arrangements acceptable to all parties hereto as of 12:01 a.m. on November 6,
1996 or on such other date or in such other manner as the parties may mutually
agree. The date on which the Closing shall occur is hereinafter referred to as
the "Closing Date".
2.5 Closing Documents of Seller. At the Closing, Seller shall deliver or
cause to be delivered to Buyer the following documents:
(a) copies of the Certificate of Incorporation of Seller as amended to
the Closing Date, certified by its Secretary and the Secretary of State of the
State of Delaware;
(b) copies of the By-laws of Seller as amended to the Closing Date,
certified by its Secretary;
(c) long form corporate good standing certificate with respect to
Seller from the Secretary of State of the State of Delaware, dated no earlier
than five (5) days prior to the Closing Date;
(d) a duly executed bill of sale (the "Bill of Sale"), in the form
attached hereto as Exhibit 2.5(d)-1 and an assignment and assumption of
Contracts in the form of Exhibit
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2.5(d)-2, and such documents as shall be reasonably necessary to convey title to
all owned motor vehicles and the registrations of all equipment included in the
Assets to Buyer in a fashion consistent with the provisions of this Agreement;
(e) the Records contemplated by Section 4.3;
(f) a certificate from the Chief Financial Officer of Seller setting
forth in reasonable detail the best good faith estimate of such Chief Financial
Officer of the Closing Date Working Capital;
(g) a certificate dated the Closing Date and signed by the duly
authorized signatories of Seller stating that the transactions contemplated
hereunder have been duly authorized and approved by Seller and certifying the
attached resolutions of Seller's shareholders, if applicable, and Board of
Directors approving said transactions; and
(h) an affidavit that Seller is not a foreign person.
2.6 Closing Documents of Parent. At the Closing, Parent shall deliver or
cause to be delivered to Buyer the following documents:
(a) copies of the Certificate of Incorporation of Parent as amended to
the Closing Date, certified by its Secretary and the Secretary of State of the
State of Delaware;
(b) copies of the By-laws of Parent as amended to the Closing Date,
certified by its Secretary;
(c) long form corporate good standing certificate with respect to
Parent from the Secretary of State of the State of Delaware, dated no earlier
than five (5) days prior to the Closing Date; and
(d) a certificate dated the Closing Date and signed by the duly
authorized signatories of Parent stating that the transactions contemplated
hereunder have been duly authorized and approved by Parent and certifying the
attached resolutions of Parent's Board of Directors approving said transactions
2.7 Closing Documents of Buyer. At the Closing, Buyer shall deliver or
cause to be delivered to Parent the following documents:
(a) copies of its Certificate of Incorporation as amended to the
Closing Date, certified by its Secretary;
(b) copies of its By-laws, as amended to the Closing Date, certified
by its Secretary;
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(c) long form tax and corporate good standing certificate from the
Secretary of State of the State of California, dated no earlier than five (5)
days prior to the Closing Date;
(d) copies of the Certificate of Incorporation of Integrated Health
Services, Inc. ("IHS") as amended to the Closing Date, certified by its
Secretary;
(e) copies of the By-laws of IHS as amended to the Closing Date,
certified by its Secretary;
(f) long form corporate good standing certificate for IHS from the
Secretary of State of the State of Delaware, dated no earlier than five (5) days
prior to the Closing Date;
(g) a certificate dated the Closing Date and signed by the duly
authorized signatories of Buyer stating that the transactions contemplated
hereunder have been duly authorized and approved by the Buyer and certifying the
attached resolutions of its Board of Directors, and if applicable, its
shareholders, approves said transactions;
(h) a certificate dated the Closing Date and signed by the duly
authorized signatories of IHS stating that the transactions hereunder have been
duly authorized and approved by IHS including the guarantee by IHS of Buyer's
performance under such transactions and certifying the attached resolutions of
its Board of Directors, and if applicable, its shareholders, approves said
transactions;
(i) a duly executed assumption agreement (the "Assumption Agreement"),
in the form attached hereto as Exhibit 2.7(i), and such other documents as
Seller shall reasonably request to evidence Buyer's assumption of the Assumed
Liabilities; and
(j) stock certificates representing the shares of IHS Stock issued to
Seller in connection with this Agreement.
2.8 Legal Opinions. In addition to the other documents to be delivered
at Closing, (a) Buyer shall have received the favorable opinion, dated as of the
Closing Date, from Dechert Price & Rhoads, counsel for Seller and for Parent, in
the form attached hereto as Exhibit 2.8(a) and (b) Parent and Seller shall have
received the favorable opinion, dated as of the Closing Date, from Blass &
Driggs, Esq., counsel for Buyer, in the form attached hereto as Exhibit 2.8(b).
2.9 IHS Stock.
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(a) As set forth in Section 2.1(b) above, a portion of the Purchase
Price shall be payable by means of the delivery to Seller of IHS Stock valued at
$5,200,000 based upon a price per share (the "Initial Market Value Per Share")
of such stock equal to the average closing NYSE price of such stock for the
twenty (20) business day period ending on the date which is four (4) business
days prior to the Closing Date.
(b) Resale Limitations. All sales of IHS Stock issued pursuant to this
Agreement shall be effected solely through Smith Barney, Inc., as broker, and
sales of such shares shall not at any time, in the aggregate, exceed one-hundred
thousand (100,000) shares during any thirty (30) day period. The restriction on
the number of shares that may be sold in accordance with this subsection (b)
shall lapse at such time as the Seller or the Parent shall have sold at least
100,000 of such shares in accordance with this subsection (b). If Smith Barney,
Inc. shall be unable to act as the broker for any of such sales, then IHS shall
designate another broker that is reasonably acceptable to Seller through which
such sales shall be made.
(c) Investment Representations. All shares of IHS Stock to be issued
hereunder will be newly issued shares of IHS. Seller represents and warrants to
IHS and Buyer that the IHS Stock being issued hereunder is being acquired, and
will be acquired, by it for investment for its own account or the account of the
Parent, to whom transfer of any of such shares is expressly permitted in
accordance with this Agreement, and not with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act") or any applicable state securities law; Seller
acknowledges that the IHS Stock constitutes restricted securities under Rule 144
promulgated by the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act, may have to be held indefinitely and may not 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 and the rules and regulations thereunder. Seller and Parent 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. Seller and Parent have been provided with such
materials as are generally provided to shareholders of IHS and has had the
opportunity to make inquiries of and obtain from representatives and employees
of IHS such other information about IHS as they deem necessary in connection
with such investment.
(d) Legends. It is understood that the certificates evidencing the 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):
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.
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Upon the written request of Seller and Parent, accompanied by a legal
opinion in form and substance and from counsel reasonably acceptable to IHS and
setting forth that the shares evidenced by the stock certificate are freely
transferable without registration under the Securities Act, IHS shall cause a
new certificate, evidencing such shares and that does not bear such legend, to
be issued to Seller or the Parent.
(e) Transfers. Upon prior notice to IHS, Seller shall be permitted to
transfer any of the shares of IHS Stock acquired by it pursuant to this
Agreement and the registration rights related thereto to Parent.
(f) Registration of IHS Stock. (i) IHS will use its best efforts to
cause to be prepared, filed and declared effective by the Commission within
sixty (60) to ninety (90) days following the Closing Date, a registration
statement for the registration under the Securities Act of the IHS Stock issued
to Seller pursuant to this Agreement, and IHS shall maintain the effectiveness
of such registration statement for a period of two (2) years following the date
on which it becomes effective, or for so long as Seller or Parent shall own any
of the IHS Stock issued pursuant to this Agreement, whichever shall occur first,
in each case except to the extent that such shares shall become freely
transferable without registration under the Securities Act. If the number of
shares of IHS Stock included in the Purchase Price shall be increased pursuant
to clause (ii) below, IHS shall, prior to the effective date of such
registration statement estimate the number of additional shares and shall use
its best efforts to include all of the newly issued shares in the registration
statement.
(ii) (A) As of the date that such registration statement shall
become effective, the number of shares of IHS Stock included in the Purchase
Price shall be adjusted so that the number of shares issued to Seller pursuant
to this Agreement shall have an aggregate fair market value (the "Adjusted Fair
Market Value") equal to $5,200,000 based upon a price per share of such stock
equal to the average closing NYSE price of such stock for the twenty (20)
business day period ending on the date which is two (2) business days prior to
such effective date (the "Adjusted Market Value Per Share"). Within five (5)
business days after such effective date IHS shall deliver notice (the
"Adjustment Notice") to Seller of the Adjusted Fair Market Value, the Adjusted
Market Value Per Share and the number of shares to be delivered by Buyer to
Seller (if the Adjusted Market Value Per Share shall be less than the Initial
Market Value Per Share) or by Seller to Buyer (if the Adjusted Market Value Per
Share shall be greater than the Initial Market Value Per Share) so as to effect
the adjustment described in this clause (ii). The number of shares to be
delivered or issued, as the case may be, shall be rounded up or down so that no
fractional shares need be issued. Within five (5) business days the parties
shall make the delivery of the shares of IHS Stock required in the Adjustment
Notice.
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(B) In lieu of (and not in addition to) the adjustment set
forth in paragraph (A) above, in addition to any other remedy available at law,
if the registration statement referred to in clause (i) above shall not have
been declared effective on or prior to the second anniversary of the Closing
Date and the Adjusted Market Value Per Share as of such second anniversary date
shall be less than Initial Market Value Per Share, then, the adjustment set
forth in paragraph (A) above shall be made as of such second anniversary date.
(g) Registration Procedures, etc. In connection with the registration
rights granted to Seller with respect to the IHS Stock as provided in this
Section 2.9, IHS agrees as follows:
(i) IHS will promptly notify Seller at any time when a prospectus
relating to a registration statement covering Seller's shares under this Section
2.9 is required to be delivered under the Securities Act, of the happening of
any event known to IHS 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) IHS shall furnish Seller with such number of prospectuses as
shall reasonably be requested, and Seller agrees to comply with the prospectus
delivery requirements of the Securities Act in connection with any sale of IHS
Stock by it.
(iii) IHS 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 Seller, provided that IHS shall not be obligated to
qualify as a foreign corporation or dealer to do business under the laws of any
such jurisdiction.
(iv) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 2.9 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. With respect to sales of IHS Stock sold in accordance with the
provisions of this Section 2.9 pursuant to the registration statement, IHS shall
indemnify Seller and its successors and assigns, and the Parent, and each
person, if any, who controls Seller within the meaning of ss.15 of the
Securities Act or ss.20(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against all loss, claim, damage,
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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, based upon any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement executed by IHS or based upon written information furnished by IHS
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, NASDAQ, 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 IHS by Seller or the Parent 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 Seller or any controlling person of Seller or the
Parent in respect of which indemnity may be sought against IHS pursuant to this
subsection, Seller or the Parent or such controlling person of Seller or the
Parent shall within thirty (30) days after the receipt thereof of a summons or
complaint, notify IHS in writing of the institution of such action and IHS shall
assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel. Seller or any such controlling person
or the Parent 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
such Seller or such controlling person or such Parent unless (A) the employment
of such counsel shall have been authorized in writing by IHS in connection with
the defense of such action, or (B) IHS 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 IHS (in which
case, IHS 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 Seller, such
controlling person and the Parent shall be borne by IHS and such law firm shall
be reasonably acceptable to IHS. Except as expressly provided in the previous
sentence, in the event that Seller, any such controlling person or any the
Parent assumes control of the defense of any such action or claim, IHS shall not
thereafter be liable to Seller or any such controlling person or the Parent in
investigating, preparing or defending any such action or claim. IHS agrees
promptly to notify Seller of the commencement of any litigation or proceedings
against IHS or any of its officers, directors or controlling persons in
connection with the resale of IHS Stock or in connection with such registration
statement. If the indemnification provided for in this Section 2.9 is held by a
court of competent jurisdiction to be unavailable to Seller or any controlling
person of Seller or any Parent with respect to any loss, liability, claim,
damage or expense referred to herein, then IHS in lieu of indemnifying Seller or
any controlling person of Seller or the Parent hereunder, shall contribute to
the amount paid or payable by Seller or any controlling person of Seller or the
Parent hereunder, as a result of such loss, liability, claim, damage, expense or
liability in such proportion as is appropriate to reflect the relative fault of
IHS on the one hand and of Seller or any controlling person of Seller or the
Parent on the other hand in connection with the statements or omissions which
resulted in such loss, liability, claim, damage, expense, or liability, as well
as any other relevant equitable considerations. The relative
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fault of IHS and of Seller or any controlling person of Seller or the Parent
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by IHS or by Seller or any controlling
person of Seller or the Parent and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(v) Seller and Parent and their respective successors and
assigns, shall severally, and not jointly, indemnify IHS and Buyer, their
respective officers, directors and advisers, and each person, if any, who
controls IHS or Buyer within the meaning of Section 15 of the Securities Act or
Section 20(a) of the 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 they may become
subject under the Securities Act, the Exchange Act or any other statute, common
law or otherwise, arising from information that was furnished by or on behalf of
Seller, or the Parent or its, respective successors or assigns and which was
included in the selling shareholder provisions in such registration statement.
The indemnification rights set forth in this clause (v) shall be subject to the
same procedures as are to be applied to the indemnification rights set forth in
clause (iv) above, although references to Buyer and IHS on the one hand, and
Seller and Parent, on the other hand, shall be reversed.
(h) Registration Expenses. Seller and the Parent shall not be
responsible for, and IHS shall bear, all of the reasonable expenses of IHS
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. IHS, however, shall not be required to pay underwriter's
or brokerage discounts, commissions or expenses, or to pay any costs and
expenses in excess in the aggregate of $20,000 for Blue Sky qualifications of
Seller's (and the Parent's) IHS Stock, or to pay any costs or expenses arising
out of Seller's or the Parent's failure to comply with its obligations under
this Section 2.9.
(i) Notice of Sale. Except for transfers permitted under Section
2.9(e), above, if the Seller (or the Parent) desires to transfer all or any
portion of its IHS Stock, Seller (or the Parent, as the case may be) will
deliver written notice to IHS, describing in reasonable detail its intention to
effect the transfer and the manner of the proposed transfer.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller and Parent. Seller and
Parent hereby, jointly and severally, represent and warrant to Buyer as follows:
(a) Authority. This Agreement and each of the certificates,
instruments, agreements and documents executed and delivered by Seller or Parent
pursuant to this Agreement (Seller's "Transactions Documents") have been duly
executed and delivered by Seller and Parent and constitute the legal, valid and
binding obligations of Seller and Parent enforceable against each of them, in
accordance with their respective terms. The Seller and Parent have all requisite
corporate power and authority to enter into this Agreement and each Seller's
Transaction Document and to consummate the transactions contemplated hereby and
thereby. All corporate acts and other proceedings required to be taken by the
Seller and Parent to authorize the execution, delivery and performance of this
Agreement and each Seller's Transaction Document and the consummation of the
transactions contemplated hereby and thereby have been duly and properly taken.
The execution and delivery of this Agreement and the Seller's Transaction
Documents do not, and the consummation of the transactions contemplated hereby
and thereby and compliance with the terms hereof and thereof will not: result in
any violation of or default, under, or require any consents or approvals under
(i) any material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment or agreement to which Seller or the Parent is a party or by
which any of their respective properties are bound except as set forth on
Schedule 3.1(a), (ii) any provision of the Certificate of Incorporation or
Bylaws of Seller or Parent and (iii) any judgment, injunction, order or decree,
or material statute, law, ordinance, rule or regulation applicable to Seller or
Parent, or the property or assets of Seller or Parent.
(b) Organization and Standing of Seller and Parent. Seller and Parent
are each a corporation duly organized and validly existing under the laws of
Delaware. Seller has full corporate power and authority and possesses all
material governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to use its corporate name and to own, lease or
otherwise hold its properties and assets and to carry on its business in all
material respects as presently conducted. Seller is duly qualified and in good
standing to do business in each jurisdiction set forth on Schedule 3.1(b) and
Seller is not doing business and none of the Assets are located in any other
jurisdiction where the failure to be so qualified and in good standing would
have a Material Adverse Effect. Seller and Parent have delivered to Buyer true
and complete copies of the Certificates of Incorporation, as amended to date,
and the Bylaws, as in effect on the date hereof, of Seller and Parent.
(c) Ownership. Parent owns of record and beneficially all of the
outstanding capital stock of Seller.
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(d) Subsidiaries of the Seller. Seller does not, directly or
indirectly, own any stock of, or any other interest in, any other corporation or
business entity (including, without limitation, joint ventures and
partnerships).
(e) Financial Statements. Schedule 3.1(e) sets forth the unaudited
consolidated balance sheets of Seller as of September 30, 1994 (the "1994
Balance Sheet"), September 30, 1995 (the "1995 Balance Sheet"), July 31, 1996,
and August 31, 1996 (the "Balance Sheet"), and the unaudited consolidated
statements of income, shareholders' equity, and cash flows of Seller for the
periods ended September 30, 1994, September 30, 1995, July 31, 1996, and August
31, 1996 (collectively, the "Financial Statements"). The Financial Statements
have been prepared in accordance with the books and records of Seller and
present fairly, in all material respects, the financial position and operations
as of September 30, 1994, September 30, 1995, July 31, 1996, and August 31, 1996
and the results of operations and cash flows of Seller for the periods then
ended in conformity with generally accepted accounting principles, consistently
applied, except for (i) the absence of certain notes which would otherwise be
required by generally accepted accounting principles and (ii) no accrual has
been made in connection with the governmental inquiries described on Schedule
3.1(e). Except as set forth on Schedule 3.1(e), the income statements included
in the Financial Statements do not contain any material items of special or
nonrecurring income or expense or any other income not earned or expense not
incurred in the ordinary course of business except as expressly specified
therein, and, except as so set forth, such financial statements include all
adjustments, which consist only of normal recurring accruals, necessary for such
presentation. Except under general principles of successor liability law
(including, without limitation, such principles arising under applicable
healthcare law), there is no basis for the assertion against Seller of any
material Liability of any nature or in any amount (other than Liabilities
reflected on the Balance Sheet or as have been incurred since the date of the
Balance Sheet in the ordinary course of business consistent with past practice)
for which Buyer may become liable.
(f) Taxes.
(i) For purposes of this Agreement, (A) "Tax" or "Taxes" shall
mean all Federal, state, local and foreign taxes, charges and assessments,
including all interest, penalties and additions imposed with respect to such
amounts and (B) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(ii) Seller has filed or caused to be filed in a timely manner
(within any applicable extension periods) all Tax returns, reports and forms
required to have been filed by the Code or by applicable state, local or foreign
Tax laws, rules, regulations and orders (collectively, "Returns") other than
those the failure which to file would not have a Material Adverse Effect; all
Taxes shown to be due on such Returns have been timely paid in full; and no tax
Liens have been filed and no material claims are being asserted in writing with
respect to any
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Taxes, except as set forth on Schedule 3.1(f). True and complete
copies of all Returns with respect to income or sales or use for any period
during the two-year period ending on the date hereof have been delivered to
Buyer, and as of the time of filing, the Returns correctly reflected in all
material respects or will correctly reflect in all material respects the facts
regarding the income, business, assets, operations, activities and status of
Seller and any other information required to be shown therein.
(g) Assets Other than Real Property. Schedule 3.1(g) sets forth a
complete description and list of all of Seller's motor vehicles, all x-ray, EKG
and other equipment, all computers, all office furniture and each other item of
tangible personal property included in the Assets that has a fair market value
of at least $500. Except as disclosed on Schedule 3.1(g) hereto, Seller has such
title to all Assets comprising personal property, tangible or intangible,
reflected on the Balance Sheet or thereafter acquired, except those since sold
or otherwise disposed of in the ordinary course of business, consistent with
past practice, as is necessary to permit the use and enjoyment of such assets
and properties in the same manner as used and enjoyed by Seller and none of such
Assets are subject to any liens, claims, security interests, mortgages, pledges,
charges, easements, rights of setoff, restraints on transfers, restrictions on
use, options, conditional sale agreements, subleases, sublicenses or
encumbrances of any kind or nature whatsoever ("Liens"), other than Permitted
Liens. For the purposes of this Agreement, "Permitted Liens" means: (i) each
lien set forth on Schedule 3.1(g) hereto; (ii) carriers', warehouseman's,
mechanics, materialmen's, repairmen's or other like liens arising in the
ordinary course of business which are not overdue for a period of more than 30
days; (iii) 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, provided that each such deposit shall be included
in the Assets and shall not exceed $15,000 in any one case, or $75,000 in the
aggregate; (iv) pledges or deposits in connection with worker's compensation,
unemployment insurance, and other social security legislation; and (v)
capitalized financing leases to the extent reflected on the Balance Sheet and
copies of which have been delivered to Buyer. No person other than Seller has
any right to the use or possession of any of such property (other than in the
ordinary course of business in accordance with contractual rights) and no
currently effective financing statement (other than Permitted Liens) with
respect to such personal property has been filed in any jurisdiction, and (other
than Permitted Liens) Seller 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 owned by Seller and necessary
to the operation of the Business, or currently being used by Seller in the
operation of the Business, comprising equipment, improvements, furniture,
vehicles and other tangible personal property, whether owned or leased, is in
good operating condition and repair except for normal wear and tear in the
ordinary course of business. The Assets, other than the Excluded Assets,
represent all of the assets, including without limitation, all property (real,
personal and mixed), licenses, intellectual property, permits and
authorizations, contracts, leases and other agreements that are owned by Seller,
and include
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all of the Assets owned by Seller, other than any Excluded Assets, that are
necessary or material to the operation of the Business as now operated (the
"Necessary Assets"). The preceding sentence shall not apply to assets owned by
any other person. This paragraph (g) does not relate to real property or
interests in real property, such items being the subject of paragraph (h) of
this Section 3.1.
(h) Title to Real Property. Schedule 3.1(h) sets forth a complete list
of all real property and interests in real property leased by Seller. Except as
disclosed on the appropriate Schedule, Seller has such leasehold interest in all
real property and interests in real property shown on Schedule 3.1(h) to be
leased by it, as is necessary to permit the use and enjoyment of such real
property substantially in the manner such real property is now utilized by
Seller, and there are no Liens (other than capitalized financing leases)
affecting any such leasehold interest except for (A) easements, covenants,
rights-of-way and other encumbrances or restrictions of record on the date
hereof, (B) zoning, building and other statutory or regulatory restrictions, (C)
liens for taxes and assessments not yet due and payable, (D) easements,
covenants, rights-of-way, liens, encumbrances or other restrictions, none of
which have a Material Adverse Effect.
(i) Intellectual Property. Schedule 3.1(i) sets forth a true and
complete list of all material patents, trademarks, trade names, service marks
and copyrights and applications therefor owned by, licensed to, or, to its
Knowledge, used by Seller. Except as set forth in Schedule 3.1(i), Seller has no
notice or Knowledge of any objections or claim being asserted in writing by any
person with respect to the ownership, validity, enforceability or use of any
such patents, trademarks, trade names, copyrights, applications therefor, or
trade secrets or challenging or questioning the validity or effectiveness of any
such license which would (or would reasonably be expected to) have a Material
Adverse Effect (or of the basis for any such claim).
(j) Contracts. Except as described in Schedule 3.1(j) or the other
Schedules hereto, Seller is not as of the date of this Agreement a party to or
bound by any:
(i) employee collective bargaining agreement or other contract
with any labor union;
(ii) employment or severance agreements or non-competition or, to
the extent included in the Assets, confidentiality agreements with any current
or former director, officer or employee (excluding any such employment contracts
or arrangements for which the total compensation during each of the last two
years was less than $20,000 per person);
(iii) (A) lease or similar agreement under which Seller is lessee
of, or holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by a third party, (B) continuing contract for the future
purchase of materials, supplies or equipment, (C) management, service,
consulting or other similar type of contract, (D) distribution
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or sales agency agreement or arrangement, or (E) advertising agreement or
arrangement, in any such case which has an aggregate future liability in excess
of $25,000 or which is not terminable by Seller (x) on not more than 90 days'
notice without penalty or premium or (y) for a cost of less than $25,000;
(iv) agreement or contract under which Seller has borrowed or
loaned any money or issued any note, bond, indenture or other evidence of
indebtedness or guaranteed indebtedness, liabilities or obligations of others,
in each case for an amount in excess of $25,000 in any single case, or in excess
of $100,000 in the aggregate (other than endorsements for the purpose of
collection in the ordinary course of business);
(v) mortgage, pledge, security agreement, deed of trust or other
document, in each case granting a lien (including liens upon properties acquired
under conditional sales, capital leases or other title retention or security
devices) securing obligations in excess of $25,000 in any single case, or in
excess of $100,000 in the aggregate;
(vi) independent contractor agreements with any radiologist,
cardiologist, or company representing a physician or other physician including
annual payments in excess of $25,000 in any single case, or in excess of
$100,000 in the aggregate;
(vii) agreement or arrangement for the sale of any of its assets,
property or rights outside the ordinary course of business or requiring the
consent of any party to the transfer and assignment of any such assets, property
or rights (by sale of assets, sale of stock, merger or otherwise);
(viii) contract which contains any provisions requiring Seller
or, with respect to the Business, the Parent, to indemnify or act for any other
person or entity or to guaranty or act as surety for any other person or entity;
(ix) agreement restricting Seller from conducting business
anywhere in the world for any period of time or restricting its use or
disclosure of any confidential or proprietary information (other than those
agreements not included in the Assets);
(x) partnership, joint venture or management contract or similar
arrangement or agreement which involves a right to share profits or future
payments with respect to the business of Seller or any portion thereof or the
business of any other person or entity;
(xi) agreement granting a leasehold or other interest in real
property;
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(xii) contract under which the Seller performs radiological, EKG,
ultrasound or other services for any nursing home or other facility or
institution ("Customer Contracts"); or
(xiii) agreement not made in the ordinary and normal course of
business and consistent with past practice or involving consideration in excess
of $25,000 in any single case or $100,000 in the aggregate or the omission of
which would otherwise cause a Material Adverse Effect.
Each agreement, contract, lease, license, commitment or instrument of
Seller described on Schedule 3.1(j) or the other Schedules hereto (collectively,
the "Contracts") is in full force and effect, except as expressly disclosed on
Schedule 3.1(j)-A or the other Schedules hereto. Seller is not (with or without
the lapse of time or the giving of notice, or both) in breach or default under
any Contract, and to the Knowledge of Seller, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default thereunder, except for such breaches or defaults as
are disclosed on Schedule 3.1(j)-B. Except as set forth on Schedule 3.1(j)-C all
amounts payable under each of the Contracts are on a current basis. Seller has
delivered to Buyer true, complete and correct copies of each written Contract
and a written description of the material terms of each oral Contract except for
Customer Contracts. Each Customer Contract is in the form and substance of
Exhibits 3.1(j)-A and 3.1(j)-B hereto, except for deviations that individually
or in the aggregate would not be likely to and shall not have a Material Adverse
Effect. At Closing, possession of each written Customer Contract shall be
delivered to Buyer at the location where such Contract is presently located.
Except as set forth in Schedule 3.1(j)-C, each of the Contracts is freely and
fully assignable to Buyer without the consent of the remaining parties thereto.
Seller has obtained the consent from each party to each Contract not set forth
on Schedule 1.4(a) that is necessary for the assignment thereof to Buyer other
than the consents set forth on Schedule 3.1(j)- D. Seller has not received
written notice that any of the Contracts will be terminated by any party thereto
pursuant to any provision thereof permitting any such party to terminate such
Contract with or without cause.
(k) Litigation; Decrees. Schedule 3.1(k) sets forth a list as of the
date of this Agreement of all lawsuits, claims, proceedings or investigations
pending or, to the Knowledge of Seller, threatened by or against or affecting
Seller or any of its properties, assets, operations or business which, if
determined adversely to Seller, could reasonably be expected to have a Material
Adverse Effect, or which challenge the legality of this Agreement or any action
to be taken in connection herewith. To the Knowledge of Seller, Seller is not in
default under any judgment, order or decree applicable to it or any of its
properties.
(l) Insurance. Seller maintains such policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses as are set forth in Schedule 3.1(l). True and
complete copies of each of such policies have been delivered to Buyer.
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(m) Benefit Plans.
(i) Schedule 3.1(m) sets forth a list of all "employee benefit
plans" (as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), bonus, incentive, deferred compensation,
stock or stock option plans or arrangements, and other material employee fringe
benefit plans or arrangements (all the foregoing being herein called the
"Seller's Benefit Plans") maintained, or contributed to, by Seller or Parent for
the benefit of any employees of Seller. Seller will on request deliver to Buyer
copies of (A) each of Seller's Benefit Plans (or, in the case of any unwritten
Benefit Plans, written descriptions thereof), (B) the most recent annual report
on Form 5500 filed with the Internal Revenue Service with respect to any of
Seller's Benefit Plans (if applicable), and (C) each trust agreement and group
annuity contract relating to any of Seller's Benefit Plans.
(ii) Seller's Benefit Plans are in compliance in all respects
with the applicable provisions of ERISA and the regulations and published
interpretations thereunder, except where noncompliance would not have a Material
Adverse Effect. None of Seller's Benefit Plans are subject to the provisions of
Title IV of ERISA. Seller does not 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.
(n) Absence of Changes or Events. Except as set forth in Schedule
3.1(n) or expressly in any other Schedule to this Agreement, since the Balance
Sheet Date the business of Seller, has been conducted in the ordinary course
consistent with past practice and Seller has not:
(i) sold, assigned, failed to replace, transferred or disposed of
any of its assets or properties, except in the ordinary course of business
consistent with past practice;
(ii) mortgaged, pledged or subjected to any Lien of any nature
whatsoever any of the Assets, other than Permitted Liens;
(iii) made or suffered any termination of any Contract, or made
or suffered any amendment of any Contract except for amendments or terminations
of Contracts made in the ordinary course of business consistent with past
practice;
(iv) except in the ordinary course of business, consistent with
past practice, or otherwise to comply with any applicable minimum wage law,
increased the salaries or other compensation of any of its employees, or made
any increase in, or any additions to, other benefits to which any of such
employees may be entitled;
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(v) discharged or satisfied any Lien or encumbrance, other than
in the ordinary course of business consistent with past practice, or failed to
pay or discharge when due any Liabilities, the failure to pay or discharge which
has caused a Material Adverse Effect or any actual damage or risk of loss to
Seller or its Business or the Assets;
(vi) changed any of the accounting principles followed by it or
the methods of applying such principles;
(vii) cancelled, modified or waived any debts or claims held by
it, other than in the ordinary course of business consistent with past practice
that would have a Material Adverse Effect, or waived any rights of substantial
value, whether or not in the ordinary course of business;
(viii) declared or paid or set aside or reserved any amounts for
payment of any dividend or other distribution in respect of any equity or other
securities, or redeemed or repurchased or agreed to redeem or repurchase any
capital stock or other securities, or made any material payment to any Affiliate
(as such term is hereinafter defined in Article VII) except for payments or
compensation in the ordinary course of business consistent with past practice
and disclosed to Buyer as such;
(ix) failed to collect, withhold and/or pay to any proper
governmental agency or authority, any federal, state or local income, franchise,
sales, use, withholding or similar tax required by applicable law to be so
collected, withheld and/or paid, except those whose failure to collect or
withhold or pay would not have a Material Adverse Effect;
(x) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body relating to it or its
property or to its Knowledge received any threat of any such litigation, action
or proceeding;
(xi) entered into any material transaction other than in the
ordinary course of business consistent with past practice; or
(xii) suffered any event, circumstance or occurrence that would
(or would reasonably be likely to) have a Material Adverse Effect on Seller.
(o) Compliance with Applicable Laws. Except as set forth in Schedule
3.1(o), Seller and its operations, properties and assets are in compliance with
all applicable statutes, laws, ordinances, rules and regulations of any
governmental authority or instrumentality, domestic or foreign, except where
noncompliance would not (and would not reasonably be expected to) have a
Material Adverse Effect.
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(p) Licenses; Permits. To the Knowledge of Seller, all material
licenses, permits or authorizations of Seller are validly held by Seller, Seller
has complied in all material respects with all requirements in connection
therewith and the same are not subject to suspension, modification or revocation
and will not be so subject, as a result of this Agreement or the consummation of
the transactions contemplated hereby, except as set forth on Schedule 3.1(p).
Seller has all of the licenses, permits or authorizations which are required to
carry on the business of Seller as such business is now conducted (the
"Permits"), except for such licenses, permits or authorizations the failure to
obtain which would not (and would not reasonably be expected to) have a Material
Adverse Effect. True and correct copies of each of such Permits have been
delivered to Buyer. No Affiliate of Seller or of any other person, firm or
corporation other than Seller owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part in any of the Permits.
(q) Environmental Matters. Except as set forth on Schedule 3.1(q)
hereto:
(i) Seller has all material permits, licenses, and other
authorizations required for the operations, or conduct of the business of Seller
under applicable Environmental Laws. Seller is in compliance with all terms and
conditions of such authorizations, and with all applicable Environmental Laws,
except for such noncompliance which would not (and would not be reasonably
likely to) have a Material Adverse Effect.
(ii) During the past three (3) years, Seller has received no
written notice of any citation, summons, order, complaint, penalty,
investigation, or review by any governmental or other entity with respect to any
violation by Seller of any Environmental Law.
(iii) Seller has received no written requests for information,
notice of claim, demand, or notification that it is, or may be, potentially
responsible with respect to any investigation or cleanup of any threatened or
actual release of any Hazardous Substance.
(r) Employee and Labor Relations. Except as set forth in Schedule
3.1(r) hereto:
(i) there is no labor strike, dispute, slowdown or work stoppage
or lockout actually pending or, to the Knowledge of Seller, threatened against
or affecting Seller and during the past year there has not been any such action;
(ii) no employees of Seller are represented by any labor union or
similar organization in connection with their employment relationship with
Seller, and to the Knowledge of Seller, no material union organizational
campaign is in progress with respect to any of the employees of Seller and no
question concerning representation exists respecting such employees; and
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(iii) there is no unfair labor practice charge or complaint against Seller
pending or, to the Knowledge of Seller, threatened before the National Labor
Relations Board.
(iii) there is no unfair labor practice charge or complaint
against Seller pending or, to the Knowledge of Seller, threatened before the
National Labor Relations Board.
(s) Special Fee Arrangements. Schedule 3.1(s) sets forth a true and
complete list of any special fee arrangements in effect between Seller and any
of its customers as ofthe date hereof that contain terms and conditions other
than the Seller's customary terms and conditions as of the time the arrangement
was entered into.
(t) Patient Volumes. Schedule 3.1(t) sets forth a true and complete
list of Seller's patient volumes for x-rays, EKGs, and other exams from the
commencement of fiscal year 1994 through August 31, 1996.
(u) Employees. Schedule 3.1(u) and Schedule 3.1(m) together contain a
true, complete and correct list of the name, position, current rate of
compensation and any vacation or holiday pay, sick pay, personal leave and any
other material compensation arrangements or fringe benefits, of each current
employee of Seller (together with a description of any specific arrangements or
rights concerning such persons that are not reflected in any agreement or
document referred to in Schedule 3.1(j)). No employee, consultant or commission
agent of Seller has any vested or unvested retirement benefits or other
termination benefits, except as described on Schedule 3.1(m). The Balance Sheet
contains an adequate reserve for vacation and all other vested employee-related
accruals.
(v) Relationships. Except as disclosed on Schedule 3.1(v), to Seller's
knowledge, no Affiliate of Seller or Parent has, and at no 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 Business.
(w) Questionable Payments. Except as set forth on Schedule 3.1(w),
Seller has not, and to Seller's Knowledge, no Affiliate (a) has used any
corporate funds of Seller or, with respect to the Business, of the Parent, in
any case, to make any payment to any officer or employee of the government, or
to any political party or official thereof, where such payment either (i) was,
at the time, unlawful under laws applicable thereto; or (ii) was, at the time,
unlawful under the Foreign Corrupt Practices Act of 1977, as amended; or (b) has
made or received an illegal payment, bribe, kickback, political contribution or
other similar questionable illegal payment in connection with the operation of
the Business (collectively, "Questionable Payments") or made any illegal
referrals in connection with the operation of the Business.
(x) Reimbursement Matters. Except as disclosed on Schedule 3.1(x), (a)
Seller has not and, to the Seller's Knowledge, no nursing home, hospital or
other facility with respect to which Seller provides services has received any
written notice of denial or recoupment from the Medicare or Medicaid programs,
or any other third party reimbursement source
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(inclusive of managed care organizations) with respect to products or services
provided by Seller, (b) to the Seller's Knowledge, there is no basis for the
assertion after the Closing Date of any such denial or recoupment claim, and (c)
neither Seller nor, to the Seller's Knowledge, any nursing home, hospital or
other facility with respect to which Seller provides services has received
written notice from any Medicare or Medicaid program or any other third party
reimbursement source (inclusive of managed care organizations) of any pending or
threatened investigations or surveys specifically with respect to, or arising
out of, products or services provided by Seller, and to the Seller's Knowledge,
no such investigation or survey is pending, threatened or imminent. Seller has
fully and accurately disclosed to the appropriate intermediaries and carriers
all material billing and business practices with respect to Medicare and
Medicaid reimbursement with respect to the Business to the extent necessary for
Seller to comply with applicable law. Seller has complied with all material
requirements imposed by any such intermediary or carrier with respect to such
billing. Seller has billed the applicable intermediaries and/or carriers for the
services rendered by Seller in material compliance with all applicable Medicare
and Medicaid laws, and Seller is not aware of any non-compliance by it with any
state licensing or corporate practice of medicine law that would cause such
billing or business practices to not be in material compliance with any of such
Medicare or Medicaid laws. Seller has not received any notice from any
regulatory authority or intermediary that indicates that Buyer could not
continue to bill intermediaries in substantially the same manner and structure
as Seller is billing on the date hereof.
(y) Medicare/Medicaid Participation. All services provided by the
Seller for which Seller directly or indirectly receives payment under the
Medicare or Medicaid programs are, to the extent required by law, certified for
participation or enrollment in all Medicare and Medicaid programs, have a
current and valid provider contract with the Medicare and Medicaid programs or
other third party reimbursement source (inclusive of managed care
organizations), are in compliance with the conditions of participation of such
programs, and, to the extent required by law, have received all approvals or
qualifications necessary for capital reimbursement, except for such
certifications, contracts, compliances, approvals and qualifications which are
set forth on Schedule 3.1(y) and which, individually or in the aggregate, would
not have a Material Adverse Effect. Seller has delivered to Buyer true and
complete copies of all Medicare and Medicaid compliance reports by the
applicable licensing authority for any period after October 1, 1994 for each
location of Seller for which there is a Medicare or Medicaid provider number.
(z) Customer List. Schedule 4.1(z)-A contains a complete and accurate
list of each of the nursing homes, prisons and other facilities which is
currently serviced by Seller in connection with the Business, and Schedule
4.1(z)-B contains a complete and accurate list of patients serviced by the
facilities during the one year period ending on the date hereof.
(aa) Financial Statements and SEC Documents. Each of the balance
sheets in or incorporated by reference into any annual reports filed on Form
10-K and all other reports, registration statements, definitive proxy statements
or information statements filed by Parent after December 31, 1995 with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (together with the rules and regulations thereunder, the
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"Securities Act"), or under Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act") (collectively, the "Parent SEC
Documents") fairly presents in all material respects the financial position of
Parent as of the date it was filed and each of the statements of income and
changes in shareholders' equity and cash flows or equivalent statements in such
report and documents (including any related notes and schedules thereto) as of
such date fairly presents in all material respects the results of operations,
changes in shareholders' equity and changes in cash flows, as the case may be,
of the Parent for the periods set forth therein, in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except in each case as may be noted therein, subject to normal and
recurring year-end audit adjustments in the case of unaudited statements (and,
where applicable, the absence of footnotes).
3.2 Representations and Warranties of Buyer. Buyer hereby represents and
warrants to Seller as follows:
(a) Authority. Buyer and IHS have all requisite corporate power and
authority to enter into this Agreement and each of the certificates,
instruments, agreements and documents executed and delivered by Buyer pursuant
to this Agreement (Buyer's "Transaction Documents") and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by Buyer and IHS to authorize the execution,
delivery and performance of this Agreement and each Buyer Transaction Documents,
and the consummation of the transactions contemplated hereby have been duly and
properly taken. This Agreement and each Buyer Transaction Document have been
duly executed and delivered by Buyer and, as applicable, IHS and constitute the
legal, valid and binding obligations of Buyer and, as applicable, IHS,
enforceable against Buyer and IHS in accordance with their respective terms. The
execution and delivery of this Agreement and each Buyer Transaction Document, do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the terms hereof will not: result in any violation of or
default, under (i) any provision of the Certificate or Articles of Incorporation
or Bylaws of Buyer or IHS, (ii) any material note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment or agreement to which Buyer
or IHS is a party or by which any of their respective properties are bound or
(iii) any judgment, injunction, order or decree, or material statute, law,
ordinance, rule or regulation applicable to Buyer or IHS or to the property or
assets of Buyer or IHS. No Consent is required to be obtained or made by or with
respect to Buyer or IHS in connection with the execution and delivery of this
Agreement or the consummation by Buyer of the transactions contemplated hereby,
other than as set forth on Schedule 3.1(a).
(b) Sufficient Funds. IHS and Buyer have sufficient funds available to
pay in full the Purchase Price.
(c) Organization and Standing of Buyer. Buyer is a corporation duly
organized and validly existing under the laws of California. IHS is a
corporation duly organized and validly existing under the laws of Delaware.
Buyer and IHS have full corporate power and
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authority and possess all material governmental franchises, licenses, permits,
authorizations and approvals necessary to enable them to use their corporate
names and to own, lease or otherwise hold their properties and assets and to
carry on their business in all material respects as presently conducted.
(d) Financial Statements and SEC Documents. Each of the balance sheets
in or incorporated by reference into any annual reports filed on Form 10-K and
all other reports, registration statements, definitive proxy statements or
information statements filed by IHS after December 31, 1995 with the SEC under
the Securities Act or under Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act (collectively, the "IHS SEC Documents") fairly presents in all material
respects the financial position of IHS as of the date it was filed and each of
the statements of income and changes in shareholders' equity and cash flows or
equivalent statements in such report and documents (including any related notes
and schedules thereto) as of such date fairly presents in all material respects
the results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of IHS for the periods set forth therein, in each
case in accordance with generally accepted accounting principles consistently
applied during the periods involved, except in each case as may be noted
therein, subject to normal and recurring year-end audit adjustments in the case
of unaudited statements (and, where applicable, the absence of footnotes).
(e) IHS Stock. Upon delivery to Seller in accordance with the terms of
this Agreement, each share of IHS Stock shall be duly authorized, validly
issued, and nonassessable.
ARTICLE IV
COVENANTS
4.1 Covenants of Seller. Seller covenants and agrees as follows:
(a) Insurance. Effective as of the Closing Date and for a period of
three (3) years thereafter, Seller at its own expense shall purchase and
maintain a tail insurance policy with respect to all claims-made insurance
policies of Seller currently in effect, such tail coverage to name Seller as
insured and Buyer as an additional insured.
(b) Employment Agreements. In the event that Buyer terminates the
employment (including upon expiration of the Initial Term (as such term is
defined in the Employment Agreements) if Buyer elects not to extend the Initial
Term pursuant to the applicable Employment Agreement) of any of William Glynn,
Kenneth Levinson, or Stephen Manty (the "Subject Employees") at any time after
the one year anniversary of the Closing Date and on or prior to the expiration
of the Initial Term (as such term is defined in such Employment Agreement),
Seller will be solely responsible for the payment of any compensation,
severance, benefits, or other amounts becoming thereafter due to such terminated
Subject Employee solely under Employment Agreements between Seller and the
Subject Employees in an amount not to
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exceed the aggregate amount that would have been due had such Employment
Agreements not been amended or modified on or after the Closing Date; provided
however, that any liability to any Subject Employee that constitutes a Current
Liability on the Closing Balance Sheet shall be Buyer's responsibility. Any
liabilities or obligations of any nature to the Subject Employees arising out of
any matters occurring after the Closing or arising out of such Employment
Agreements, other than those arising under the preceding sentence (or as
expressly assumed by Seller under the applicable Assignment and Amendment of
Employment Agreement) shall be the sole liability and responsibility of Buyer.
Buyer's liabilities under this Section 4.1(c) shall be Assumed Liabilities. Any
liability to Stephen Manty expressly assumed by Seller under paragraph 3 of his
Assignment and Amendment of Employment Agreement shall be an Excluded Liability.
(c) COBRA. Seller shall give all notices, make all offers, pay and
collect all premiums, obtain all group health plan coverage, and perform all
other actions mandated by Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), which are required to be given, made,
paid, obtained, and performed as a result of the Closing under this Agreement.
This provision shall not be construed, however, to require Seller to maintain
its group health insurance coverage following Closing, except as may be required
by applicable Governmental Requirements or Section 4.2(c).
4.2 Covenants of Buyer. Buyer covenants and agrees as follows:
(a) Financial Information. Buyer will use reasonable commercial
efforts to (i) hold all of the books and records of Seller delivered to it and
existing on the Closing Date and not destroy or dispose of any thereof for a
period of three (3) years from the Closing Date, and thereafter if it desires to
destroy or dispose of such books and records, will offer first in writing at
least 60 days prior to such destruction or disposition to surrender them to
Parent, provided that such books and records must be held as confidential
information by Parent and Parent must state the reason it wants possession of
the books and records, and (ii) promptly provide to Parent upon request,
financial information provided to it by Seller with respect to Seller for the
period of the current fiscal year up to Closing in accordance with past practice
to allow Parent to comply with securities law, financial and tax reporting and
accounting requirements.
(b) Accounts. Buyer shall pay to Parent all amounts owed to Parent by
Seller on the Closing Date to the extent such amounts constitute Assumed
Liabilities when they shall become due in the ordinary course of business
consistent with past practice.
(c) Employees. Buyer undertakes to offer employment to all employees
of Seller other than two (2) employees to be designated by Buyer (the
"Designated Employees"), on such terms and with such benefits and compensation
as Buyer shall deem advisable in its sole discretion. Buyer agrees, at Seller's
prior written request, to use its reasonable commercial effort to continue
(until no later than March 31, 1997) the employment of Ms. Perez-Lugones after
the date which is thirty (30) days after the date hereof to provide Seller with
such assistance as it shall reasonably request of her (within the scope of her
employment arrangement or agreement with
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Buyer); provided that Seller shall be liable for all compensation to, and costs
and expenses payable with respect to, such employee with respect to any period
during which said employee is employed by Buyer at Seller's request, and if
Seller requests that Buyer continue such employment, Buyer shall be entitled to
reimbursement for any Employment Termination Payment due to such employee to the
extent provided in Section 1.3(a)(iii) regardless of when she is thereafter
terminated.
(d) Insurance. The disability, life, health, dental and vision
insurance plans of Seller described on Schedule 3.1(l) shall constitute
Contracts and shall be assigned to, and assumed by, Buyer as provided in Section
1.4 of this Agreement.
4.3 Mutual Covenants. Each of Seller and Buyer, as applicable, covenants
and agrees as follows:
(a) Records.
(i) On the Closing Date, Seller shall cause to be delivered to
Buyer all Records and, to the extent transferred hereunder, the items described
in Section 1.1(a)(viii), in the possession of Seller relating to the Business to
the extent not then in the possession of Seller, subject to the following
exceptions:
(A) Buyer recognizes that certain Records may contain incidental
confidential information relating to Parent and not relating to Seller, and that
Seller may delete and retain such information from such Records; and
(B) Seller may retain all bids received from other parties and
analyses relating to Seller.
(ii) Upon reasonable written notice, Buyer and Seller agree to
furnish or cause to be furnished to each other and their representatives,
employees, counsel and accountants access, during normal business hours, such
information (including Records pertinent to Seller) and assistance relating to
Seller as is reasonably necessary for financial reporting and accounting
matters, the preparation and filing of any Returns or the defense of any Tax
claim or assessment or the defense or prosecution of any litigation matters;
provided, however, that such access does not unreasonably disrupt the normal
operations of Buyer, Seller or any of their Affiliates.
(iii) Buyer agrees that it will use its commercially reasonable
efforts to make available to Seller the services of Stephen Manty (to the extent
he shall continue to be employed by Buyer and within the scope of his Employment
Agreement with Buyer) and/or his designees for the time period commencing on the
date hereof and ending on March 31, 1997 to assist Seller with the defense of
litigation matters and any investigation by the Department of Labor and
oversight of accounting matters; provided that Seller shall pay to Buyer an
amount equal to $4,000 per month in respect thereof and such services to Seller
shall not materially interfere with the performance of his obligations to Buyer
under his Employment Agreement.
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(b) Publicity. Seller (and Parent) and Buyer (and IHS) agree that no
public release or announcement concerning the transactions contemplated hereby
shall be issued by either of them without the prior consultation and written
consent (which consent shall not be unreasonably withheld) of the other, except
such release or announcement as may be required by law or the rules or
regulations of any United States or foreign securities exchange, in which case
the party requiredto make the release or announcement shall allow the other
party reasonable time to comment on such release or announcement in advance of
such issuance.
ARTICLE V
OTHER AGREEMENTS
5.1 Certain Understandings. Buyer acknowledges that neither Parent, Seller,
nor any other person has made any representation or warranty, expressed or
implied, as to the accuracy or completeness of any information regarding Seller
not included in this Agreement or the Schedules hereto or the Seller's
Transaction Documents, and none of Parent, Seller, or any other person will have
or be subject to any liability to Buyer or any other person resulting from the
distribution to Buyer, or Buyer's use of, any such information (including,
without limitation, any offering memorandum, brochure or other publication
provided to Buyer, and any other document or information provided to Buyer in
connection with the transactions contemplated hereby).
5.2 Further Assurances. From time to time, as and when requested by either
party hereto, the other party shall execute and deliver, or cause to be executed
and delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may reasonably deem
necessary or desirable to consummate the transactions contemplated by this
Agreement.
5.3 Transfer Taxes. Seller shall be responsible for and shall timely pay
all sales and use taxes and personal property transfer taxes imposed by any
governmental entity in connection with the transfer of the Assets. Buyer shall
be responsible for and shall pay all other transfer taxes, documentary stamp
taxes, recording charges and other fees and taxes imposed by any governmental
entity in connection with the transfer of the Assets ("Buyer Taxes").
5.4 Use of Mediq Name. Buyer acknowledges and agrees that the name and
service mark "MEDIQ" and all derivations thereof (the "Name") is owned by Parent
and that by the sale of the Assets, or otherwise, Parent is not relinquishing
any interest in or rights to the Name or any derivation thereof, nor permitting
Buyer (after the Closing Date) to use, license or otherwise have any rights in
or to the Name, except on such terms as are expressly set forth in this Section.
Parent will permit use of the Name by Buyer for transition purposes during a
period not to exceed 365 days subsequent to the Closing Date (the "Transition
Period"), on the following terms and conditions:
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(a) By the end of the Transition Period, Buyer shall have caused the
removal in all material respects of the Name from all of Buyer's assets, motor
vehicles, machinery, equipment, stationery, business cards, and other documents.
During the Transition Period, Buyer and Seller shall not affix, or cause to be
affixed, the Name to any of its assets, vehicles, machinery or equipment.
(b) Within a reasonable period of time after the Closing Date, Buyer
shall cease to use the Name in its dealings with its customers, suppliers and
others with whom it does business.
(c) Buyer may use the Name solely in connection with its operation of
the Business pursuant to this Section 5.4 and shall have no right to license,
assign or otherwise transfer any rights in or to the Name.
5.5 Covenant Not to Compete.
(a) Each of Parent and Seller agrees that for a period of 3 years after the
Closing Date neither of them nor any of their respective Affiliates shall,
directly or indirectly, for himself, herself or itself, or on behalf of any
other person, firm, entity or other enterprise, be employed by, be an officer,
director or manager of, act as a consultant for, be a partner in, have a
proprietary interest in, or loan money to any person, enterprise, partnership,
association, corporation, limited liability company, joint venture or other
entity which is directly or indirectly in the business of owning, operating or
managing any mobile radiological, EKG, or any other business currently conducted
by Seller (the "Applicable Businesses"), now or hereafter competitive with any
such Applicable Business of Buyer (including, without limitation, the Business),
IHS or any of their respective Affiliates, located in any state in which Buyer,
IHS or Seller is currently conducting such business; provided, however, that
nothing contained herein shall restrict Seller from performing its obligations
under any Temporary Excluded Contracts as provided in Section 1.4(c) or restrict
Parent or any of its Affiliates from operating or owning any of their existing
businesses or investments or renting or leasing any equipment, provided that
they do not expand into the foregoing prohibited activities. The restrictions
contained in this Section 5.5 (other than the confidentiality provisions) shall
not be binding upon any third party purchaser of Parent, or of any assets,
stock, division or business unit of Parent or of any Affiliate of Parent.
(b) Seller and Parent represent and warrant that there are no employees,
consultants or agents of Parent having expertise in the operation of the
Applicable Business or having a relationship with any customers of the
Applicable Business. Notwithstanding anything to the contrary contained in this
Agreement, the foregoing representation and warranty and all indemnification
rights with respect thereto shall not expire until the date that is three (3)
years after the date hereof.
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(c) Seller and the Parent hereby agree that, for a period of three (3)
years following the date hereof, without the express written consent of IHS,
none of Seller, the Parent and their respective Affiliates will directly or
indirectly, for themselves or on behalf of any other person, firm, entity or
other enterprise:
(i) solicit any client, facility or patient who, prior to the
date hereof, was a client, facility or patient of Seller with respect to the
Applicable Business; or
(ii) hire, entice away or in any other manner persuade any
employee, consultant, representative or agent who was an employee, consultant,
representative or agent of Seller prior to the date hereof, to alter, modify or
terminate their relationship with Buyer or IHS.
(d) The Parent and Seller each acknowledges that the restrictions
contained in this Section 5.5 are reasonable and necessary to protect the
legitimate business interests of Buyer and IHS and that any violation thereof by
either of them would result in irreparable harm to Buyer and IHS, and that
damages in the event of such a breach will be difficult, if not impossible, to
ascertain. Accordingly, the Parent and Seller each agrees that upon the
violation by it of any of the restrictions contained in this Section 5.5, Buyer
and IHS 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, equity, under this Agreement or otherwise, without the necessity of posting
any bond or other security whatsoever. 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 to such a manner or for such a time (or both) as is adjudged to be
reasonable.
(e) The Parent and Seller each acknowledges that the covenants
contained in this Section 5.5 are independent covenants and that any failure by
the Buyer or IHS to perform its obligations under this Agreement shall not be a
defense to enforcement of the covenants contained in this Agreement, including
but not limited to a temporary or permanent injunction.
(f) Seller and Parent agree to take any and all actions necessary,
including, without limitation, commencement of legal proceedings, to enforce
each of the non-competition agreements set forth on Schedule 1.4(a) hereto upon
the request of and in accordance with the instructions of Buyer. Seller and
Parent shall not be required to advance or expend any funds in connection with
their respective obligations under this subsection (f). Buyer shall indemnify
and hold harmless Seller and Parent from any loss, liability, damage, cost and
expense, including without limitation, reasonable legal fees and expenses,
arising out of taking any such actions at Buyer's request. Buyer acknowledges
that Seller intends to terminate all Excluded Contracts (not otherwise
terminated); provided that Seller shall not shorten the non-competition
provisions of such agreements in effect immediately prior to their termination.
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5.6 Restrictions.
(a) From and after the Closing Date, neither Seller nor the Parent
shall disclose, directly or indirectly, to any person or entity, or make use of,
without the express authorization of IHS and Buyer, any non-public pricing
strategies or records acquired by Buyer from Seller, any proprietary data or
trade secrets acquired by Buyer from Seller or any financial or other
information acquired by Buyer from Seller; provided that the foregoing
restrictions shall not apply to any information which:
(i) is or becomes publicly known through no wrongful act on the
part of Seller or Parent; or
(ii) is or becomes available to the disclosing party on a non-
confidential basis from a third party without restriction and without breach of
this Agreement; or
(iii) is approved for release by written authorization signed by
Buyer or IHS; or
(iv) is required to be disclosed in accordance with applicable
law; provided, however, prior to making any such disclosure the party required
to make such disclosure shall provide Buyer with prompt notice of such
requirement to enable Buyer to seek an appropriate protective order and such
party will use its best efforts to preserve the confidentiality of such
information and will disclose only that portion of the information as is
required to be disclosed.
(b) Each of Seller and Parent acknowledges that the restrictions
contained in this Section 5.6 are reasonable and necessary to protect the
legitimate business interests of Buyer and IHS, and that any violation thereof
by any of them would result in irreparable harm to Buyer and IHS. Accordingly,
each of Seller and Parent agrees that upon the violation by any of them of any
of the restrictions contained in this Section 5.6, Buyer and IHS 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, without the necessity of posting any bond or
security whatsoever.
5.7 Adjustments for Medicare Reimbursement Rate Increases.
(i) If the Medicare carrier for the States of Maine,
Massachusetts, New Hampshire or Vermont (each, an "Applicable State"): increases
the reimbursement rate for the transport component for mobile x-ray or EKG
services performed by Seller prior to the Closing Date, then the difference
between the amount due with respect to the transport component for mobile x-ray
or EKG services performed by Seller in all Applicable States prior to the
Closing
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Date at the increased rate of reimbursement shall be deemed to be an Account
Receivable, and accordingly, Seller shall be entitled to additional Purchase
Price payments if and to the extent provided in Section 2.3(b)(ii) above;
provided that such increases in Purchase Price by reason of this Section 5.7(a)
shall not exceed $800,000 in the aggregate.
(b) Buyer and IHS shall cooperate and use their commercially
reasonable efforts to collect any amounts that shall become due to Seller as
contemplated by subsection (a) above, including, without limitation,
resubmitting billing if necessary, but only to the extent that Seller has
specifically identified and compiled and delivered to Buyer all of the necessary
bills and records.
(c) Seller shall have the right to assume the prosecution of any
action, suit, claim, proceeding or investigation relating to an increase in the
Medicare reimbursement rate for the transport component for mobile x-ray or EKG
services in the Applicable States that could result in an Account Receivable (as
provided in subsection (a) above) (each, an "Action") in a manner consistent
with the prosecution of similar Actions with respect to such reimbursement rates
in the Applicable States by other businesses in the Seller's industry in such
Applicable States, and Buyer and Seller agree to cooperate in good faith with
each other and shall not have the right to compromise or settle an Action
without the other's consent (which shall not be unreasonably withheld or
delayed).
5.8 Audit. Following Closing, Seller and the Parent will cooperate with and
assist Buyer in a review of the financial statements of Seller. Buyer may, at
its own expense, have an audit performed of such financial statements, and
Seller and the Parent will cooperate in the performance of such audit.
5.9 Billing and Collection Agent. (a) Seller hereby appoints Buyer to act as
Seller's exclusive authorized agent to bill and collect all Non-Assignable
Receivables, and Buyer and Seller hereby agree that the proceeds of such
Non-Assignable Receivables shall be distributed in accordance with the
provisions of Section 1.1 and 2.3(b) above.
(b) Buyer shall not receive a fee or any other compensation for said
billing and collection services.
(c) Seller hereby constitutes and appoints Buyer its true, lawful, and
irrevocable attorney to demand, receive, and enforce the billing and collection
of the Non-Assignable Receivables, and to give receipts, releases, and
satisfactions for the same.
5.10 Benefits under Excluded Contracts. If Buyer is provided with any
requested benefit under an Excluded Contract (such as use of space or access to
programs available with respect to leased motor vehicles), Buyer shall reimburse
Seller for its proportionate out-of-pocket cost of providing such benefit.
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ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by Seller and Parent. (a) Seller and Parent hereby
jointly and severally agree to indemnify Buyer, IHS and their respective
Affiliates and their respective officers, directors, employees and agents
against and hold them harmless from any loss, liability, claim, damage or
expense (including reasonable legal fees and expenses but excluding punitive
damages and unforeseen or other consequential damages other than punitive
damages and unforeseen or other consequential damages which are paid to third
parties) (a "Loss") suffered or incurred by any such indemnified party, as a
direct consequence of (i) any breach of any representation or warranty of Seller
or Parent contained in this Agreement or any Transaction Document, which by the
terms of Section 8.3 survives the Closing, (ii) any breach of any covenant of
Seller contained in this Agreement or any Transaction Document, (iii) all
Reimbursement Liabilities; (iv) any Loss relating to any Excluded Liability
(except as expressly assumed by Buyer under Section 1.4(c)); (v) any Loss
arising out of any bulk transfer act (whether relating to liabilities in general
or taxes or otherwise); (vi) any Loss arising out of the noncompliance of Seller
with COBRA or any like statute; (vii) any Loss that is attributable to the
pre-Closing conduct by Seller and relates to matters presently being
investigated by the U.S. Department of Labor with respect to Seller; and (viii)
any and all actions, suits, proceedings, demands assessments, judgments,
settlements (to the extent approved by Seller, such approval not to be
unreasonably withheld, delayed or conditioned) costs and legal and other
expenses incident to any of the foregoing; provided, however, that Seller shall
not have any liability under clause (i) above until the aggregate of all Losses,
for which Seller would, but for this proviso, be liable exceeds on a cumulative
basis $100,000, upon which Seller shall be liable for such $100,000 amount and
all other amounts under this Section 6.1; provided, further, that the aggregate
liability of Seller hereunder with respect to any and all Losses shall be
limited to the aggregate amount of the final Purchase Price.
(b) Buyer acknowledges and agrees that its sole and exclusive remedy
with respect to any and all claims for monetary damages relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article VI.
(c) Buyer acknowledges and agrees that Parent and Seller shall not
have any liability under any provision of this Agreement for any Loss to the
extent that such Loss is caused by actions taken by or omitted to be taken by
Buyer after the Closing Date. Buyer shall take and cause its Affiliates to take
all reasonable steps to mitigate any Loss to the extent the same would have been
required by applicable law if Buyer's rights to compensation for damages arose
under law rather than by reason of contractual rights.
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(d) Buyer may offset any of its indemnification claims against payment
of the Contingent Payment (as defined in Section 2.2), provided that if Seller
disputes the claim, Buyer shall place the amount of the claim into an escrow
account with a nationally recognized financial institution, until the dispute is
settled under the procedures set forth in this Article VI.
6.2 Indemnification by Buyer. (a) The Buyer hereby agrees to indemnify
Parent, Seller and their Affiliates against and hold them harmless from any Loss
suffered or incurred by any such indemnified party as a direct consequence of
(i) any breach of any representation or warranty of Buyer contained in this
Agreement or any Transaction Document, which by the terms of Section 8.3
survives the Closing, (ii) any breach of any covenant of Buyer contained in this
Agreement or any Transaction Document, (iii) any guarantee or obligation to
assure performance given or made by Parent or any of its Affiliates with respect
to any obligation or liability of the Business that constitutes an Assumed
Liability, (iv) any Assumed Liability or any liability, expense or obligation of
the Business arising after the Closing Date, (v) any use of the Name by Buyer or
IHS not authorized by this Agreement and (vi) any and all actions, suits,
proceedings, demands assessments, judgments, settlements (to the extent approved
by Buyer, such approval not to be unreasonably withheld, delayed or conditioned)
costs and legal and other expenses incident to any of the foregoing.
(b) Seller and Parent shall take all reasonable steps to mitigate any
Loss to the extent the same would have been required by applicable law if the
rights of Seller and Parent to compensation for damages arose under law rather
than by reason of contractual rights..
6.3 Losses Net of Insurance, Etc. The amount of any Loss for which
indemnification is provided under this Article VI shall be net of (i) in the
case of Section 6.1, any reserves established on the Closing Balance Sheet of
the Seller, to the extent covering such Loss, (ii) any net insurance proceeds
actually collected by the indemnified party covering such loss and (iii) an
amount equal to the present value of the net Tax benefit, if any, attributable
to such Loss and used by the indemnified party, taking into account the receipt
of such recovery; it being understood that each party will use such Tax benefits
as promptly as reasonably practicable. If the amount to be netted hereunder from
any payment required under Sections 6.1 or 6.2 is determined after payment by
the indemnifying party of any amount otherwise required to be paid to an
indemnified party pursuant to this Article VI, the indemnified party shall repay
to the indemnifying party, promptly after such determination, any amount that
the indemnifying party would not have had to pay pursuant to this Article VI had
such determination been made at the time of such payment.
6.4 Termination of Indemnification. The obligations to indemnify and hold
harmless a party hereto, (i) pursuant to Sections 6.1(a)(i) and 6.2(a)(i), shall
terminate when the applicable representation or warranty terminates pursuant to
Section 8.3, and (ii) pursuant to the other clauses of Sections 6.1 and 6.2,
shall not terminate; provided; however, that as to clauses (i)
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and (ii) above
such obligations to indemnify and hold harmless shall not terminate with respect
to any item as to which the person to be indemnified (or the related party
thereto) shall have, before the expiration of the applicable period, previously
made a claim by delivering a notice (stating in reasonable detail the basis of
such claim) to the party providing the indemnification.
6.5 Procedures Relating to Indemnification under Sections 6.1 and 6.2. (a) A
party seeking indemnification pursuant to Sections 6.1 and 6.2 (an "Indemnified
Party") shall give prompt notice to the party from whom such indemnification is
sought (the "Indemnifying Party") of the assertion of any claim or assessment,
or the commencement of any action, suit, audit or proceeding, by a third party
in respect of which indemnity may be sought hereunder (a "Third Party Claim")
and will give the Indemnifying Party such information with respect thereto as
the Indemnifying Party may reasonably request, but no failure to give such
notice shall relieve the Indemnifying Party of any liability hereunder (except
to the extent the Indemnifying Party has suffered actual prejudice thereby). The
Indemnifying Party (which, in the case of Seller or Parent, must include both
such parties) shall have the right, exercisable by written notice (the "Notice")
tothe Indemnified Party (which notice shall state that the Indemnifying Party
expressly agrees that as between the Indemnifying Party and the Indemnified
Party, the Indemnifying Party shall be solely obligated to satisfy and discharge
the Third Party Claim) within fourteen (14) days of receipt of notice from the
Indemnified Party of the commencement of or assertion of any Third Party Claim,
to assume the defense of such Third Party Claim, using counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party; provided,
that the Indemnifying Party shall not have the right to assume a Third Party
Claim if (i) the named parties to any such action (including any impleaded
parties) include both the Indemnified Party and the Indemnifying Party and (ii)
the Indemnified Party shall have been advised by counsel in writing that under
applicable standards of professional responsibility, a conflict will arise in
the event both the Indemnified Party and the Indemnifying Party are represented
by the same counsel with respect to the Third Party Claim, in which case such
Indemnified Party shall have the right to participate in the defense of such
Third Party Claim and all Losses in connection therewith shall be reimbursed by
the Indemnifying Party. In addition, if the Indemnifying Party fails to give the
Indemnified Party the Notice complying with the provisions stated above within
the stated time period, the Indemnified Party shall have the right to assume
control of the defense of the Third Party Claim and all Losses in connection
therewith shall be reimbursed by the Indemnifying Party upon demand of the
Indemnified Party.
(b) If at any time after the Indemnifying Party assumes the defense of
a Third Party Claim, any of the conditions set forth in clauses (i) or (ii) of
subsection (a) above come into existence the Indemnified Party shall have the
same rights as set forth above as if the Indemnifying Party never assumed the
defense of such claim.
- 42 -
<PAGE>
(c) The Indemnifying Party or the Indemnified Party, as the case may
be, shall in any event have the right to participate, at its own expense, in the
defense of any Third Party Claim which the other is defending.
(d) The Indemnifying Party, if it shall have assumed the defense of
any Third Party Claim in accordance with the terms hereof, shall have the right,
upon thirty (30) days prior written notice to the Indemnified Party, to consent
to the entry of judgment with respect to, or otherwise settle such Third Party
Claim unless (i) the Third Party Claim involves equitable or other non-monetary
damages or (ii) in the reasonable judgment of the Indemnified Party such
settlement would have a continuing material adverse effect on the Indemnified
Party's business (including any material impairment of its relationships with
customers and suppliers), in which case such settlement only may be made with
the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. Seller shall keep Buyer appraised of any material
negotiations between Seller and the U.S. Department of Labor, or any material
occurrences with respect to the same (to the extent within the knowledge of
Seller or the Parent), and will not enter into a settlement of such matters
without Buyer's consent, such consent not to be unreasonably withheld or
delayed.
(e) Whether or not the Indemnifying Party chooses to defend or
prosecute any claim involving a third party, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested in connection
therewith.
ARTICLE VII
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Accounting Principles" shall have the meaning set forth in
Section 2.3(b).
"Accounts Receivable" shall have the meaning set forth in
Section 2.3(b).
"Action" shall have the meaning set forth in Section 5.7(d).
"Affiliate" shall have the meaning given to such term in Rule
12b-2 under the Exchange Act, as in effect as of the date of
this Agreement.
"Applicable Authority" shall have the meaning set forth in
Section 2.2(c).
- 43 -
<PAGE>
"Applicable State" shall have the meaning set forth in Section
5.7(a).
"Balance Sheet" shall have the meaning set forth in Section
3.1(e).
"Base Rate" shall have the meaning set forth in Section
5.7(a).
"Buyer" shall have the meaning set forth in the first
paragraph of this Agreement.
"Buyer Taxes" shall have the meaning set forth in Section 5.3
"Buyer's Transaction Documents" shall have the meaning set
forth in Section 3.2(a).
"Closing" shall have the meaning set forth in Section 2.4.
"Closing Date" shall have the meaning set forth in Section
2.4.
"Closing Date Working Capital" shall have the meaning set
forth in Section 2.3(a).
"COBRA" shall have the meaning set forth in Section 4.1(e).
"Code" shall have the meaning set forth in Section 3.1(f).
"Collateral Source" shall have the meaning set forth in
Section 6.3.
"Confidentiality Agreement" shall have the meaning set forth
in Section 4.1(a).
"Contingent Payment" shall have the meaning set forth in
Section 2.2(a).
"Contracts" shall have the meaning set forth in Section
3.1(j).
"Customer Contracts" shall have the meaning set forth in
Section 3.1(j)(xii).
"Date of Determination" shall have the meaning set forth in
Section 2.2(b).
"Delay Payment Notice" shall have the meaning set forth in
Section 2.3(b).
"EKG Transportation Reimbursement Change" shall have the
meaning set forth in Section 2.2(c).
"Environmental Laws" means federal, state and local laws,
rules, regulations, codes and ordinances, and any orders,
decrees, judgments or injunctions issued, promulgated,
approved or entered thereunder, relating to the environment,
- 44 -
<PAGE>
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act
("CERCLA"); the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"); the Federal Water Pollution Control
Act, as amended; the Federal Clear Air Act, as amended; the
Toxic Substances Control Act, as amended; the Surface Mining
Control and Reclamation Act of 1977, as amended; the Safe
Drinking Water Act, as amended; the Pollution Control Act of
1990, as amended; the Federal Insecticide, Fungicide and
Rodenticide Act, as amended; and comparable state and local
laws in effect on the date hereof.
"ERISA" shall have the meaning set forth in Section 3.1(m).
"Excess Amount" shall have the meaning set forth in Section
5.7(a).
"Excess Amount Dispute Notice" shall have the meaning set
forth in Section 5.7(b).
"Excess Amount Schedule" shall have the meaning set forth in
Section 5.7(b).
"Exchange Act" shall have the meaning set forth in Section
3.1(aa).
"Excluded Contracts" shall have the meaning set forth in
Section 1.4(a).
"Excluded Liabilities" shall have the meaning set forth in
Section 1.3(b).
"Final Excess Amount" shall have the meaning set forth in
Section 5.7(b).
"Financial Statements" shall have the meaning set forth in
Section 3.1(e).
"Hazardous Substances" shall have the meaning set forth in
Section 101(14) of CERCLA, 42 U.S.C. Section 9601(14).
"IHS SEC Documents" shall have the meaning set forth in
Section 3.2(d).
"Impracticalities" shall have the meaning set forth in Section
1.4(a).
"Indemnified Party" shall have the meaning set forth in
Section 6.5.
"Indemnifying Party" shall have the meaning set forth in
Section 6.5.
"Independent Accounting Firm" shall have the meaning set forth
in Section 2.3(b).
- 45 -
<PAGE>
"Knowledge" means, with respect to Seller, the actual
knowledge of the officers of Seller.
"Liability" shall have the meaning set forth in Section
1.3(b).
"Liens" shall have the meaning set forth in Section 3.1(g).
"Loss" shall have the meaning set forth in Section 6.1(a).
"Material Adverse Effect" means a material adverse effect on
the value of the Assets, the transactions contemplated by this
Agreement, the financial condition, or results of operations
of the Seller, or the Buyer, as the case may be. Seller or
Buyer may, however, at its option, include in the Schedules of
this Agreement or elsewhere items which would not have a
Material Adverse Effect within the meaning of the previous
sentence in order to avoid any misunderstanding, and such
inclusion shall not be deemed to be an acknowledgment by the
Seller or Buyer that such items would have a Material Adverse
Effect or further define the meaning of such term for the
purpose of this Agreement.
"Name" shall have the meaning set forth in Section 5.4.
"Non-competition Agreement" shall have the meaning set forth
in Section 5.5
"Notice" shall have the meaning set forth in Section 6.5.
"Parent SEC Documents" shall have the meaning set forth in
Section 3.1(aa).
"Permitted Liens" shall have the meaning set forth in Section
3.1(g).
"Purchase Price" shall have the meaning set forth in Section
2.1.
"Preliminary Closing Date Balance Sheet" shall have the
meaning set forth in Section 2.3(b).
"Questionable Payments" shall have the meaning set forth in
Section 3.1(w).
"Records" shall have the meaning set forth in Section
1.1(a)(vi).
"Required Amount" shall have the meaning set forth in Section
2.3(a).
"Returns" shall have the meaning set forth in Section 3.1(f).
- 46 -
<PAGE>
"SEC" shall have the meaning set forth in Section 3.1(aa).
"Securities Act" shall have the meaning set forth in Section
3.1(aa).
"Seller" shall have the meaning set forth in the first
paragraph of this Agreement.
"Seller's Benefit Plans" shall have the meaning set forth in
Section 3.1(m).
"Seller's Transaction Documents" shall have the meaning set
forth in Section 3.1(a).
"Smith Agreement" shall have the meaning set forth in Section
1.4(a).
"Specified Party" shall have the meaning set forth in Section
6.7.
"Subject Employees" shall have the meaning set forth in
Section 4.1(c).
"Tax" or "Taxes" shall have the meanings set forth in Section
3.1(f).
"Third Party Claim" shall have the meaning set forth in
Section 6.5.
"Transition Period" shall have the meaning set forth in
Section 5.4.
"Working Capital Increase" shall have the meaning set forth in
Section 2.3(b).
"Working Capital Review" shall have the meaning set forth in
Section 2.3(b).
ARTICLE VIII
MISCELLANEOUS
8.1 Assignment. This Agreement and the rights hereunder shall not be
assignable or transferable by Buyer or Seller (including by sale of stock,
operation of law in connection with a merger, or sale of substantially all the
assets of Buyer) without the prior written consent of the other party hereto;
provided that Buyer may assign this Agreement to any other Affiliate of IHS or
to any person that acquires all or substantially all of the assets of Buyer,
with IHS remaining as guarantor of the assignee's obligations and liabilities
under this Agreement and further provided Buyer remains liable hereunder. This
Agreement shall inure to the benefit of, and be binding upon and enforceable
against, the successors and permitted assigns of the respective parties hereto.
- 47 -
<PAGE>
8.2 No Third-Party Beneficiaries. Except as provided in Section 4.2 and
Article VI, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any person or entity, other than the parties hereto and
such assigns, any legal or equitable rights hereunder.
8.3 Survival of Representations. The representations and warranties in this
Agreement and in any other document delivered in connection herewith shall
survive the Closing solely for purposes of Sections 6.1 and 6.2 of this
Agreement and shall terminate at the close of business twelve months following
the Closing Date, except that such time limitation shall not apply to (i) claims
for misrepresentations or breaches of warranty relating to Section 3.1(f)
(relating to Taxes), Section 3.1(w) (relating to Questionable Payments), Section
3.1(x) (relating to Reimbursement Matters), or Section 3.1(z) (relating to
Medicare/Medicaid Participation) which may be asserted within 60 days after the
expiration of the applicable statute of limitations with respect to the period
to which the particular claims relate, and (ii) claims for any other
misrepresentation or breach of warranty as to which Buyer has described in
reasonable detail pursuant to a written notice given to Seller prior to the
expiration of such 12-month period.
8.4 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs or expenses, except as may otherwise be expressly provided in this
Agreement. None of Seller's cost and expenses arising out of the transactions
contemplated by this Agreement, including without limitation, legal and
accounting fees, shall be included as Current Liabilities.
8.5 Amendments. No amendment to or modification of this Agreement shall be
effective unless it shall be in writing and signed by each of the parties
hereto.
8.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the date of delivery if delivered
personally; (b) on the date of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (c) on the business date
after delivery to a reputable nationally recognized overnight courier service or
(d) three business days after being mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(i) If to Buyer,
Symphony Diagnostic Services
No. 1, Inc.
8181 West Broward Boulevard, Suite 370
Plantation, FL 33324
Attention: Martin Ardman
Telecopier: (954) 474-3754
- 48 -
<PAGE>
With required copies to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Marshall Elkins, Esq.
and
Blass & Driggs, Esqs.
461 Fifth Ave.
19th Floor
New York, NY 10016
Attention: Michael Blass, Esq.
Telecopier: 212-447-5428
(ii) If to Seller, to:
Mediq Mobile X-Ray Services, Inc.
90 Glacier Drive
Westwood, MA 02090
Attention: Stephen Manty
Telecopier: (617) 326-8807
With a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Henry N. Nassau, Esq.
Telecopier: (215) 994-2222
(iii) If to Parent to:
Mediq Incorporated
One Mediq Plaza
Pennsauken, NJ 08110
Attention: Michael F. Sandler
Telecopier: (609) 486-4720
- 49 -
<PAGE>
With a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Henry N. Nassau, Esq.
Telecopier: (215) 994-2222
Such addresses may be changed, from time to time by means of a notice given in
the manner provided in this Section (provided that no such notice shall be
effective until it is received by the other parties hereto).
8.7 Fees. Each party hereto hereby represents and warrants that the only
broker or finder that has acted for such party in connection with this Agreement
or the transactions contemplated hereby or that may be entitled to any brokerage
fee, finder's fee or commission in respect thereof is Robert Reisley with
respect to Seller. Seller will pay all fees or commissions which may be payable
to the firms so named.
8.8 Severability. If any provision of this Agreement or the application of
any such provision to any person or circumstance shall be held invalid, illegal
or unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof.
8.9 Interpretation. All references to immediately available funds or dollar
amounts contained in this Agreement shall mean United States dollars. All
references to generally accepted accounting principles contained in this
Agreement shall mean United States generally accepted accounting principles
consistently applied. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. The parties acknowledge and agree that (i) each party and its
counsel have reviewed the terms and provisions of this Agreement and have
contributed to its revision, (ii) the normal rule of construction, to the effect
that any ambiguities are resolved against the drafting party, shall not be
employed in the interpretation of it, and (iii) the terms and provisions of this
Agreement shall be constructed fairly as to all parties hereto and not in favor
of or against any party, regardless of which party was generally responsible for
the preparation of this Agreement. All information disclosed by Seller in any
Schedule hereto or any representation or warranty herein shall be deemed to have
been disclosed in any other Schedule hereto or any representation or warranty
herein where such disclosure of such information is required or pertains to a
representation or warranty made by Seller herein; provided that a reasonable
reading of such schedule, representation or warranty would clearly indicate that
information contained therein is required in or pertains to another Schedule,
representation or warranty. Reference in this Agreement to dollar amount
thresholds (including such references in Article VIII of this Agreement) shall
not, for purposes of this Agreement, be deemed to be evidence of materiality or
a Material Adverse Effect.
- 50 -
<PAGE>
8.10 Waiver. Waiver of any term or condition of this Agreement by any party
shall be effective if in writing and shall not be construed as a waiver of any
subsequent breach or failure of the same term or condition, or a waiver of any
other term of this Agreement. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
8.12 Entire Agreement. This Agreement, including the Schedules and Exhibits
hereto and the other documents delivered pursuant to this Agreement, contain the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersede all prior and contemporaneous
agreements, negotiations, correspondence, undertakings and understandings, oral
or written, relating to such subject matter. Any Confidentiality Agreements in
effect between the parties hereto prior to the date hereof are hereby
terminated.
8.13 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania applicable
to agreements made and to be performed entirely within Pennsylvania, without
regard to the conflicts of law principles thereof.
8.14 Joint and Several. All obligations, representations, warranties,
covenants and agreements of Seller and Parent under this Agreement or any of
Seller's Transaction Documents shall be joint and several obligations,
representations, warranties, covenants and agreements of Seller and Parent. All
obligations, representations, warranties, covenants and agreements of Buyer and
IHS under this Agreement or any of Buyer's Transaction Documents shall be joint
and several obligations, representations, warranties, covenants and agreements
of Buyer and IHS.
[SIGNATURES ON FOLLOWING PAGE]
- 51 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
MEDIQ INCORPORATED
By: /s/ Michael Sandler
__________________________________
Name:
________________________________
Title:_______________________________
MEDIQ MOBILE X-RAY SERVICES, INC.
By: /s/ Michael Sandler
__________________________________
Name:________________________________
Title:_______________________________
SYMPHONY DIAGNOSTIC SERVICES
NO.1, INC.
By: /s/ Martin Ardman
__________________________________
Name:________________________________
Title:_______________________________
GUARANTEE:
The performance of all the covenants, liabilities and obligations of
Symphony Diagnostic Services No. 1, Inc. hereunder are unconditionally and
irrevocably, jointly and severally guaranteed as surety by Integrated Health
Services, Inc., its parent.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Elizabeth B. Kelly
-------------------------------
Elizabeth B. Kelly
Senior Vice President
Corporate Development
- 52 -
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of November 8, 1996
among
INTEGRATED HEALTH SERVICES, INC.,
IHS ACQUISITION XXI, INC.
and
SELLING SHAREHOLDERS OF LIFEWAY, INC.,
and
LIFEWAY, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I: MERGER.................................................................................................1
1.1 Merger..........................................................................................1
1.2 Issuance of IHS Stock...........................................................................1
1.3 Taking of Necessary Action......................................................................1
1.4 Assets..........................................................................................2
1.5 Liabilities.....................................................................................2
ARTICLE II: MERGER CONSIDERATION.................................................................................3
2.1 Determination and Payment of Merger Consideration...............................................3
2.2 IHS Stock.......................................................................................3
ARTICLE III: THE CLOSING.........................................................................................7
3.1 Time and Place of Closing.......................................................................7
3.2 Filings at Closing..............................................................................7
3.3 Effective Time..................................................................................7
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS 8
4.1 Organization and Standing of the Company........................................................8
4.2 Absence of Conflicting Agreements...............................................................8
4.3 Consents........................................................................................8
4.4 Assets..........................................................................................8
4.5 Company Shares..................................................................................9
4.6 Trademarks......................................................................................9
4.7 Contracts.......................................................................................9
4.8 Financial Statements...........................................................................10
4.9 Material Changes...............................................................................11
4.10 Licenses; Permits..............................................................................11
4.11 Title, Condition of Personal Property..........................................................12
4.12 Legal Proceedings..............................................................................13
4.13 Employees......................................................................................13
4.14 Collective Bargaining, Labor Contracts, Employment Practices, Etc..............................13
4.15 ERISA..........................................................................................14
4.16 Insurance and Surety Agreements................................................................14
4.17 Relationships..................................................................................15
4.18 Absence of Certain Events......................................................................15
4.19 Compliance with Laws...........................................................................16
4.20 Finders........................................................................................16
4.21 Tax Returns....................................................................................16
4.22 Encumbrances Created by this Agreement.........................................................17
4.23 Subsidiaries and Joint Ventures................................................................17
4.24 No Untrue Statement............................................................................17
4.25 Medicare and Medicaid Programs.................................................................17
(i)
<PAGE>
4.26 Leasehold Interests............................................................................17
4.27 Power and Authority............................................................................17
ARTICLE V: ADDITIONAL REPRESENTATIONS AND WARRANTIES OFSHAREHOLDERS.............................................17
5.1 Authority......................................................................................18
5.2 Binding Effect.................................................................................18
5.3 Absence of Conflicting Agreement...............................................................18
5.4 Consents.......................................................................................18
5.5 Ownership of Company Shares....................................................................18
5.6 Investment Representation......................................................................18
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER.............................................................19
6.1 Organization and Standing......................................................................19
6.2 Absence of Conflicting Agreements..............................................................19
6.3 Consents.......................................................................................19
6.4 Finders........................................................................................19
6.5 Power and Authority............................................................................19
6.6 Binding Agreement..............................................................................20
6.7 Securities and Exchange Commission Filings.....................................................20
6.8 Capital Stock..................................................................................20
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANY.....................................................20
7.1 Access to Information and Records before Closing...............................................20
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING..........................................................21
8.1 Conduct of Business Pending Closing............................................................21
8.2 Negative Covenants of the Company..............................................................21
8.3 Affirmative Covenants..........................................................................21
8.4 Pursuit of Consents and Approvals..............................................................22
8.5 Supplementary Financial Information............................................................22
8.6 Exclusivity....................................................................................23
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.........................................................23
9.1 Representations and Warranties.................................................................23
9.2 Performance of Covenants.......................................................................23
9.3 Delivery of Closing Certificate................................................................23
9.4 Opinions of Counsel............................................................................23
9.5 Legal Matters..................................................................................23
9.6 Authorization Documents........................................................................23
9.7 Material Change................................................................................24
9.8 Approvals......................................................................................24
9.9 Delivery of Stock Purchase Options.............................................................24
9.10 Other Documents................................................................................24
(ii)
<PAGE>
ARTICLE X: CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS....................................................24
10.1 Representations and Warranties.................................................................24
10.2 Performance of Covenants.......................................................................25
10.3 Delivery of Closing Certificate................................................................25
10.4 Opinion of Counsel.............................................................................25
10.5 Legal Matters..................................................................................25
10.6 Authorization Documents........................................................................25
10.7 Approvals......................................................................................25
10.10 Payment of Promissory Notes....................................................................25
10.11 Other Documents................................................................................26
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING............................................................26
11.1 Survival of Representations and Warranties.....................................................26
11.2 Indemnification by Shareholders................................................................26
11.3 Indemnification by Buyer.......................................................................27
11.4 Assertion of Claims............................................................................27
11.5 Control of Defense of Indemnifiable Claims.....................................................27
11.6 Restrictions...................................................................................28
11.7 Records........................................................................................29
ARTICLE XII: TERMINATION........................................................................................29
12.1 Termination....................................................................................29
12.2 Effect of Termination..........................................................................29
ARTICLE XIII: MISCELLANEOUS.....................................................................................30
13.1 Costs and Expenses.............................................................................30
13.2 Performance....................................................................................30
13.3 Benefit and Assignment.........................................................................30
13.4 Effect and Construction of this Agreement......................................................30
13.5 Cooperation - Further Assistance...............................................................30
13.6 Notices........................................................................................30
13.7 Waiver, Discharge, Etc.........................................................................31
13.8 Rights of Persons Not Parties..................................................................31
13.9 Governing Law..................................................................................32
13.10 Amendments, Supplements, Etc...................................................................32
13.11 Severability...................................................................................32
</TABLE>
(iii)
<PAGE>
SCHEDULES
Schedule 4.3 - Consent List of the Company
Schedule 4.4 - Accounts Payable Aging Schedule
Schedule 4.5(a) - Company Shares
Schedule 4.5(b) - Convertible Instruments
Schedule 4.6 - Trademarks, Service Marks and Copyrights
Schedule 4.7 - Contracts
Schedule 4.8 - Financial Statements
Schedule 4.9 - Material Changes
Schedule 4.10 - Licenses, Permits
Schedule 4.11(b) - Leases of Personal Property, Liens
Schedule 4.12 - Legal Proceedings
Schedule 4.13 - Employees
Schedule 4.15(b) - Employee Benefit Plans
Schedule 4.15(c) - COBRA
Schedule 4.16 - Insurance and Surety Agreements
Schedule 4.17 - Relationships
Schedule 4.18 - Absence of Certain Events
Schedule 4.21 - Tax Returns
Schedule 4.23 - Joint Ventures and Subsidiaries
Schedule 4.25 - Medicare and Medicaid
Schedule 4.26 - Leasehold Interests
Schedule 6.3 - Consent List of Buyer
EXHIBITS
Exhibit A - Certificate of Merger
Exhibit 9.4 - Seller's Legal Opinion
Exhibit 9.9 - Termination and Release Agreement
Exhibit 10.4 - Buyer's Legal Opinion
(iv)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
made as of the 8th day of November, 1996, among INTEGRATED HEALTH SERVICES,
INC., a Delaware corporation ("Buyer"), IHS ACQUISITION XXI, INC., a Delaware
corporation ("Newco"), LIFEWAY PARTNERS LLC and FRED MCCALL-PEREZ (collectively,
the "Shareholders"), and LIFEWAY, INC., a Delaware corporation (the "Company").
WHEREAS, Shareholders are the owners of capital stock (the
"Company Shares") of the Company as set forth on Schedule 4.5; and
WHEREAS, Newco is a direct wholly-owned subsidiary of Buyer;
and
WHEREAS, the Board of Directors of Buyer, Newco, and the
Company deemed it advisable to merge Newco with and into the Company (the
"Merger") pursuant to this Agreement and the Plan of Merger annexed as Exhibit A
hereto (the "Plan of Merger") in a transaction intended to qualify under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, pursuant to the Merger all Company Shares will be
converted into the right to receive the Merger Consideration as described below;
and
WHEREAS, to effectuate the foregoing the parties desire to
adopt a plan of reorganization, in accordance with the provisions of Section
368(a) of the Code.
NOW, THEREFORE, Shareholders, Newco, Buyer, and the Company,
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 hereinafter), Newco shall
be merged with and into the Company and the separate existence of Newco shall
cease.
1.2 Issuance of IHS Stock. Buyer agrees that following the
Effective Time of Merger, as defined below, it will issue IHS Stock to the
extent set forth in, and in accordance with the terms of this Agreement and the
Plan of Merger.
1.3 Taking of Necessary Action. Prior to and after the
Effective Time of Merger, subject to the provisions of this Agreement, each of
Buyer, Newco, and the Company shall take all such action as may be necessary or
appropriate in order to effect the Merger and the conversion of Company Shares
as contemplated hereunder. In case at any time after the Effective
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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 the Company
Shares and Shareholders with full title to IHS Stock, the parties shall take all
such necessary action.
1.4 Assets. As of the Closing Date, the assets of the Company
(the "Assets") will include all of the tangible and intangible assets 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,
tradenames, trademarks, all patient records, books and files, Certificates of
Need, Medicare and Medicaid provider agreements and numbers, provider agreements
with third party payors, telephone numbers, and to the extent permitted by law,
all permits, licenses and other governmental approvals, free and clear of all
liens, except for Permitted Liens as defined in Section 4.11 below, claims and
encumbrances. The Assets of the Company as of the Closing Date shall also
include cash, accounts receivable, and prepaid expenses.
1.5 Liabilities. At the Closing, the Company shall deliver to
Buyer the balance sheet of the Company dated as of the Closing Date on a
consolidated basis, certified by the Company's Chief Financial Officer (the
"Closing Date Balance Sheet"). As of the Closing, the Company will not have any
liabilities other than such long-term liabilities and current liabilities as are
reflected on the 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
generally accepted accounting principles, consistently applied, 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 with respect to
any period on or prior to the Closing Date ("Excess Reimbursement Liabilities");
(iii) any accounts payable or employment or other taxes except for those current
liabilities disclosed on the Closing Date Balance Sheet, and (iv) accrued but
unpaid compensation or other benefits to any of the Company's employees, agents,
consultants or advisers, including accrued vacation except for those current
liabilities disclosed on the Closing Date Balance Sheet.
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ARTICLE II: MERGER CONSIDERATION
2.1 Determination and Payment of Merger Consideration. The
aggregate merger consideration payable by the Buyer for the Company Shares shall
be in an amount equal to NINE HUNDRED THOUSAND ($900,000.00) DOLLARS (the
"Merger Consideration"), which amount shall be payable at the Closing, by the
delivery to certain of the Shareholders or their respective assignees of
newly-issued shares of the Common Stock, par value $.001 per share, of Buyer
(the "IHS Stock"), based upon the valuation and subject to the terms and
conditions of Section 2.2 hereof. The amounts of IHS Stock payable at the
Closing to each respective Shareholder shall be as set forth below:
Shareholder IHS Stock
Lifeway Partners, LLC $ 650,000.00
Fred McCall-Perez $ 250,000.00
2.2 IHS Stock. The Merger Consideration as well as that
portion of the Bonus Payments as set forth in Section 10.9 below and that
portion of the Promissory Notes Payment as set forth in Section 10.10 below
payable by Buyer by means of the delivery of IHS Stock shall be paid in
accordance with and subject to the following:
(a) Share Value. The number of shares of IHS
Stock issuable pursuant to Sections 2.1, 10.9 and 10.10 shall be calculated
based upon a price per share of such stock equal to the closing New York Stock
Exchange ("NYSE") price of such stock on the day before the Closing Date.
(b) Registration Rights. Buyer will use its best
efforts to cause to be prepared and filed within ninety (90) days following the
Closing Date, and will use its best efforts to have declared effective by the
Securities and Exchange Commission (the "Commission"), a registration statement
for the registration of the IHS Stock under the Securities Act of 1933, as
amended (the "Securities Act"), and Buyer shall maintain the effectiveness of
such registration statement for a period of two (2) years following the date it
became effective, except to the extent that an exemption from registration may
be available.
(c) Registration Expenses. Buyer shall bear all
reasonable expenses related to such registration. Such costs and expenses shall
include, without limitation, the fees and expenses of counsel for Buyer and of
its accountants, all other costs, fees and expenses of Buyer 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
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fees and disbursements of counsel) incurred in connection with the qualification
of IHS Stock under the Blue Sky laws of various jurisdictions.
(d) Resale Limitations. Fred McCall-Perez
individually covenants with Buyer that he shall not sell or otherwise transfer
any shares of IHS Stock received by him pursuant to this Agreement for a period
of one (1) year after the Closing Date. All sales by Holders shall be effected
solely through Smith Barney, Inc.
(e) Registration Procedures, etc. In connection
with the registration rights granted to the Holders with respect to the IHS
Stock as provided in this Section 2.2, Buyer covenants and agrees as follows:
(i) At Buyer's expense, Buyer will keep
the registration and qualification under this Section 2.2 effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate for a period of two (2) years, except to the extent that an
exemption from registration may be available. Buyer will immediately notify the
Holders, at any time when a prospectus relating to a registration statement
under this Section 2.2 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 Holders 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 Holders, 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.
(iv) The information included or
incorporated by reference in the registration statement filed pursuant to this
Section 2.2 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 Holders of IHS Stock to be sold pursuant to the registration statement,
their successors and assigns, and each person, if any, who controls such Holders
within the meaning of Section 15 of the Securities Act or Section 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,
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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
Holders 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 Holders or any controlling person of the Holders in respect
of which indemnity may be sought against Buyer pursuant to this subsection
2.2(e)(iv), the Holders 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 Holders or such controlling person). The
Holders 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 Holders 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 Holders and/or such controlling person shall be borne by
Buyer. Except as expressly provided in the previous two sentences, 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 Holders or such controlling
person in investigating, preparing or defending any such action or claim. Buyer
agrees promptly to notify the Holders 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.
(v) The Holders 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 Section 15 of the
Securities Act or Section 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 in writing
by or on behalf of such Holders, or their successors or assigns for specific
inclusion in such registration statement.
(f) Notice of Sale. If the Holders desire to
transfer all or any portion of IHS Stock, the Holders will deliver written
notice to Buyer, describing in reasonable detail
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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 Holders 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
2.6(e) and to give prompt notice to the Holders when the registration statement
has again become current. If the Holders 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 Holders 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
Section 2.2 that the Holders shall furnish in writing 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 Holder 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 Holders 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 Holder will, severally, promptly notify Buyer at any time
when a prospectus relating to a registration statement covering such Holder's
shares under this Section 2.2 is required to be delivered under the Securities
Act, of the happening of any event known to such Holder 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.
(h) 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
they deem necessary in connection with such investment.
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(i) Legend. It is understood that the
certificates evidencing the IHS Stock shall bear a legend substantially as
follows:
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. Except in the case of
any transfer to a person in an open market transaction subsequent to the
effective date of registration of the IHS Stock, no Holder 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 Holders under
this Article II.
ARTICLE III: THE CLOSING
3.1 Time and Place of Closing. The closing (the "Closing") of
the transactions contemplated by this Agreement shall take place on November 13,
1996, at the offices of 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,
Shareholders shall deliver to Buyer the Company Shares, duly endorsed or
accompanied by one or more stock powers duly endorsed, as applicable, and Buyer
shall deliver to Shareholders those stock certificates issued in the name of
Shareholders representing that number of shares of IHS Stock payable to
Shareholders as the Merger Consideration, pursuant to Section 2.1 hereof.
3.2 Filings at Closing. At the Closing Date, Buyer and the
Company shall cause the Plan of Merger or such other certificate as required to
be filed in accordance with the Delaware General Corporation Law, and each of
Buyer and the Company shall take any and all lawful actions to cause the Merger
to become effective.
3.3 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 Delaware Secretary of State is made effective (the "Effective
Time of Merger").
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ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders hereby jointly and severally represent and
warrant to Buyer as follows:
4.1 Organization and Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of 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 correct. 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.
4.2 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 Shareholders or the Company, nor the
performance by Shareholders or 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; 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 the Company is
now a party or by which any of the assets of the Company is bound.
4.3 Consents. Except as disclosed on Schedule 4.3, 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 Shareholders or the Company.
4.4 Assets. As of the Closing, the consolidated Assets of the
Company will include all of the tangible and intangible assets of the Company 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 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 and the inventory is good, usable, merchantable, and
salable in the ordinary course of the Company, 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. Schedule 4.4 sets forth a complete and
accurate accounts payable aging schedule of the Company as of September 30,
1996. The Assets are not subject to any liens or encumbrances, except as
identified on Schedule 4.11 and expressly accepted by Buyer hereto.
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4.5 Company Shares. Schedule 4.5(a) sets forth: a) a complete
list and description of the authorized shares of the Company, the number of
shares issued and outstanding of each class or series of such shares, and the
identity of each shareholder of the Company, in each case indicating the class
and number of shares held and the number of shares subject to any outstanding
option or warrant; and b) the outstanding promissory notes of the Company. No
shares of the Company Shares are held in the treasury of the Company. Schedule
4.5(b) sets forth a complete list and description of all options, warrants and
convertible promissory notes, and any other agreements, rights, or instruments
which are or may become exercisable for or convertible into any capital of the
Company (the "Convertible Instruments"), the number of shares issuable upon
exercise or conversion (as the case may be), and the identity of each holder of
a Convertible Instrument. Except as set forth on Schedule 4.5(b), there are no
preemptive or first refusal rights to purchase or otherwise acquire capital
shares 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 the Company any capital shares of the
Company, nor shall there be outstanding any securities convertible into or
exchangeable for such shares.
4.6 Trademarks. Schedule 4.6 sets forth a complete and
accurate list of all registered 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 Shareholders, 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 Shareholders,
the Company is not infringing on the intellectual property rights of any other
person.
4.7 Contracts. Schedule 4.7 sets forth a complete and correct
list of all agreements, contracts and commitments of the following type to which
the Company is a party or by which the Company or the Company's assets are bound
and 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, shares option, shares purchase, severance pay,
pension, retirement, hospitalization, insurance or other similar plan, agreement
or arrangement;
(c) each agreement or arrangement for the sale
of any of the Company's assets, properties or rights outside the ordinary course
of business (by sale of assets, sale of shares, merger or otherwise) which is
currently in effect;
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(d) each contract currently in effect which
contains any provisions requiring the Company to indemnify or act for 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 is likely to involve 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 or other similar
contract, arrangement or commitment which involves consideration of more than
$15,000;
(h) each contract under which the Company
performs services; and
(i) any other agreement which involves
consideration of more than $15,000.
Except as indicated on Schedule 4.7, each of the Contracts was
entered into and requires performance in the ordinary course of business and is
in full force and effect. Except as indicated on Schedule 4.7, the Company is
not in 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 Shareholders, the parties to the
Contracts other than the Company are not in default of any of their respective
obligations under the Contracts, and there has not occurred any event which with
the passage of time or the giving of notice (or both) would constitute a default
or breach under any Contract. All amounts payable by the Company under the
Contracts are, or will at the Closing Date, be on a current basis.
4.8 Financial Statements.
(a) The unaudited balance sheet of the Company
as of September 30, 1996, and the related statements of operations and
accumulated deficit and statements of cash flows for the 9 month period then
ended, certified by an officer of the Company (the "Unaudited Interim Financial
Statements"), previously delivered to Buyer by Shareholders, to the best of
Shareholders' knowledge present fairly in all material respects the financial
condition and results of operations of the Company at and for the periods
therein specified. Such statements of operation do not contain any items of
special or nonrecurring income or expense or any other income not earned or
expense not incurred in the ordinary course of business except as expressly
specified therein or as listed as adjustments on Schedule 4.8.
(b) The unaudited balance sheet of the Company
as of December 31, 1995, and the related statement of operations and accumulated
deficit and statement of cash flows for the year then ended, previously
delivered by Shareholders to Buyer, to the best of Shareholders' knowledge
present fairly in all material respects the financial condition and results
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of operations of the Company at and for the period therein specified. Such
statements of operation do not contain any items of special or nonrecurring
income or expense or any other income not earned or expense not incurred in the
ordinary course of business except as expressly specified therein or as listed
as adjustments on Schedule 4.8.
(c) Except as set forth on Schedule 4.8 or as
expressly set forth on the Unaudited Interim Financial Statements, the Company
has no material liabilities or obligations (whether absolute, accrued,
contingent or otherwise and whether due or to become due, including, without
limitation, any guarantees of any obligations of any other person or entity) of
any kind or nature whether or not required by GAAP to be reflected on a
corporate balance sheet and/or the notes thereto.
4.9 Material Changes. Except as set forth on Schedule 4.9,
since the date of the Unaudited Interim Financial Statements, there has not been
any material adverse change in the condition (financial or otherwise) of the
assets, properties or operations of the Company, whether or not covered by
insurance, and during such period of time the Company has and from the date of
this Agreement through the Closing, will have, conducted its business only in
the ordinary and normal course, and made no distributions to the Shareholders
other than wages paid in the ordinary and normal course of business.
4.10 Licenses; Permits. Schedule 4.10 sets forth a description
of (a) all 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) each other license, permit, or other
authorization that is necessary for the operation of the Company's business (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 business 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. Except as set forth on Schedule 4.10,
the Company and its subsidiaries own, possess or otherwise have the exclusive
legal right to use the Licenses, free and clear of all liens, 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, except as set forth on Schedule 4.10.
Except as set forth on Schedule 4.10, each License is in full force and effect,
and neither the Company nor any of its subsidiaries has received written notice
of any proceeding to terminate or suspend any License or of any condition or
event which, if uncured, would result in the termination or suspension of any
License. None of the Licenses are: (a) provisional, probationary, or restricted
in any way except to the extent qualified by any outstanding deficiencies or
citations, particulars of which have been set forth on Schedule 4.10; or (b)
subject to any investigation, cancellation, impairment, limitation, order,
complaint, proceeding, or suspension nor is such threatened or pending. Except
as set forth on Schedule 4.10, all Licenses are in full force and effect. No
conditions requiring changes in the operation of the Company or any of its
subsidiaries have been imposed, formally or informally, by any License issuer
during the past twenty-four (24) months. No Shareholder, 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, in whole or in part in any of the Licenses.
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4.11 Title, Condition of Personal Property.
(a) The Company has good and indefeasible title
to, or valid and subsisting leasehold interests in, all of the personal property
located at or used in connection with operation of its business, 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 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 except for the Permitted Liens. All of such personal
property comprising equipment, improvements, furniture and other tangible
personal property in use at 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 4.11(b), no
tangible personal property used by the Company in connection with the operation
of its business is subject to a lease, conditional sale, security interest or
similar arrangement. Shareholders have delivered to Buyer a complete and correct
copy of each of the leases and other agreements listed on Schedule 4.11(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. The
Company is not in 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
Shareholders, 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 lessees under leases set
forth on Schedule 4.11(b);
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(iv) pledges or deposits in connection
with workman's compensation, unemployment insurance, and other social security
legislation; and
(v) liens described on Schedule 4.11(b).
4.12 Legal Proceedings. Other than as set forth on Schedule
4.12, there are no claims, actions, suits or proceedings or arbitrations, either
administrative or judicial, pending, or, to the knowledge of the Shareholders,
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.
4.13 Employees. Schedule 4.13 contains a complete and correct
list of the name, position, and current rate of compensation and any other
compensation arrangements or fringe benefits, of (i) each officer and management
level employee of the Company, and (ii) any consultant or agent of the Company,
that is not reflected in any agreement or document referred to in Schedule 4.7.
Except as set forth on Schedule 4.13, the Company does not have any pension,
profit sharing, or welfare benefit plan applicable to any of its employees.
Except as described on Schedule 4.13, (i) no such employee, consultant or agent
has any vested or unvested retirement benefits or other termination benefits,
and (ii) the Company has no liability for any accrued and unpaid employee
benefits (including accrued vacation and sick days) for which adequate reserves
are not reflected on the Company's September 30, 1996 balance sheet.
4.14 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 likely. 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 4.7 or Schedule 4.13, 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 its 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 4.7 and Schedule 4.13, 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 Company, Buyer will not, pursuant to
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any agreement with any Shareholder or Company or by reason of any representation
made or plan adopted by any Shareholder 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") or insurance benefits.
4.15 ERISA.
(a) The Company does not maintain or make
contributions to and has 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 4.15(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 Company).
(c) Schedule 4.15(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.
4.16 Insurance and Surety Agreements. Schedule 4.16 contains a
true and correct list of: (a) all policies of fire, liability and other forms of
insurance held or owned by the Company (including but not limited to
professional liability insurance, and any state sponsored plan or program for
worker's compensation); and (b) all bonds, indemnity agreements and other
agreements of suretyship made for or held by the Company, 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 (2) 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 4.16 are in full force and effect, all premiums due on or before the
Closing Date have been or will be paid 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
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a replacement policy, nor has the Company failed to comply with any of the
material conditions contained in any such policies.
4.17 Relationships. Except as disclosed on Schedule 4.17
hereto, no Shareholder and no 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 the Company by which the Company will be bound
after the Closing.
4.18 Absence of Certain Events. Except as set forth on
Schedule 4.18, since the date of the Unaudited Interim Financial Statements, 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 its
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 amendment or
termination of any material contract, commitment, instrument or agreement other
than in the ordinary course of business;
(d) 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 its employees, or made
any increase in, or any additions to, other benefits to which any of such
employees may be entitled;
(e) failed to pay or discharge when due any
liabilities, the failure to pay or discharge which has caused or will cause any
actual material damage or give rise to the risk of a material loss to the
Company;
(f) changed any of the accounting principles
followed by it or the methods of applying such principles;
(g) entered into any material transaction other
than in the ordinary course of business;
(h) failed to collect, withhold and/or pay to
any proper governmental agency any federal, state or local income, franchise,
sales, use, withholding or similar tax that applicable law requires be
collected, withheld and/or paid;
(i) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental agency
relating to it or its property which will likely
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have or has had a materially adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, operations, business or prospects
of the Company or any of its subsidiaries;
(j) entered into any transaction other than in
the ordinary course of business involving consideration in excess of $15,000;
and
(k) discharged, terminated, separated with, or
otherwise lost any key employees.
4.19 Compliance with Laws. The Company is in compliance with
all Governmental Requirements (as defined herein). 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 its business
("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. Neither the
Company, nor any officer, director, employee, agent, or other representative of
Company has made, directly, or indirectly, any illegal bribes, kickbacks, or
political contributions with corporate funds, illegal payments from corporate
funds to governmental officials in their individual capacities or illegal
payments from corporate funds to obtain or retain business either within the
United States or abroad.
4.20 Finders. No broker or finder has acted for the
Shareholders or the Company in connection with the transactions contemplated by
this Agreement, and no other broker or finder is entitled to any broker's or
finder's fee or other commission in respect thereof based in any way on
agreements, understandings or arrangements with the Shareholders or the Company.
4.21 Tax Returns.
(a) Except as set forth in Schedule 4.21, (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 it.
(b) For purposes of this Agreement, "Tax" means
any net income, gross income, sales, use, franchise, personal, or real property
tax.
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4.22 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.
4.23 Subsidiaries and Joint Ventures. Schedule 4.23 sets forth
a complete list of all subsidiaries, joint ventures and partnerships in which
the Company is the record or beneficial owner of more than ten (10%) percent of
the equity interest. All of the issued and outstanding capital stock of the
subsidiaries listed on Schedule 4.23 hereto is owned of record or beneficially
by the Company or by one of the listed subsidiaries on Schedule 4.23.
4.24 No Untrue Statement. None of the representations and
warranties in this Article IV 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.
4.25 Medicare and Medicaid Programs. The Company, to the
extent necessary to conduct the Company in a manner consistent with past
practice, is qualified for participation in the Medicare and Medicaid programs.
Except as reflected on Schedule 4.25, (a) no Shareholder 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 which arose out of any transactions on the
part of Company prior to the Closing or against any Shareholder for which Buyer
will be liable, and (c) to the knowledge of Shareholders 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.
4.26 Leasehold Interests. Schedule 4.26 hereto sets forth a
complete and correct list of all leases pursuant to which the Company or any of
its subsidiaries leases real property. Each of the Company 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. The Company has provided access to the Buyer to complete and
correct copies of the leases identified in Schedule 4.26.
4.27 Power and Authority. Company and Shareholders have all
requisite power and authority to execute, deliver, and perform this Agreement,
and as of the Closing, Company and Shareholders 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.
ARTICLE V: ADDITIONAL REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS
Each Shareholder hereby severally represents and warrants to
Buyer as follows:
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5.1 Authority. Such Shareholder 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
have been duly authorized by all necessary action, corporate or otherwise, on
the part of such Shareholder, and any necessary consents of holders of
indebtedness of such Shareholder have been obtained.
5.2 Binding Effect. This Agreement and all Transaction
Documents to which such Shareholder is a party constitute the valid and binding
obligations of such Shareholder, enforceable against it in accordance with their
respective terms.
5.3 Absence of Conflicting Agreement. Neither the execution or
delivery of this Agreement or any of the Transaction Documents by such
Shareholder, nor the performance by such Shareholder 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 Shareholder, or (ii) any rule
or regulation of any administrative agency or other governmental authority
currently in effect applicable to such Shareholder, or (iii) any agreement,
indenture, contract or instrument to which such Shareholder is now a party or by
which any of the assets of such Shareholder is bound.
5.4 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 Shareholder.
5.5 Ownership of Company Shares. Such Shareholder is the
lawful record and beneficial owner of all of the Company Shares shown as owned
by such Shareholder in Schedule 4.5(a), with good and marketable title thereto,
free and clear of all liens and encumbrances, claims and other charges thereon
of any kind. Such Shareholder has the full legal power to transfer and deliver
such Company Shares in accordance with this Agreement, and delivery of such
Company Shares 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. On the Closing Date, there shall not be outstanding any
warrants, options, or other rights to subscribe for or purchase from the Company
any capital shares of the Company, nor shall there be outstanding any securities
convertible into or exchangeable for such shares.
5.6 Investment Representation. The IHS Stock being issued
hereunder is being acquired, and will be acquired, by such Shareholder for
investment for his 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 any
applicable state securities law; Such Shareholder acknowledges that the IHS
Stock constitutes restricted securities under Rule 144 promulgated by the
Commission pursuant to the Securities Act, may have to be held indefinitely and
may not be sold, transferred,
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assigned, pledged or otherwise disposed of except pursuant to an effective
registration statement or an exemption from registration under the Securities
Act and the rules and regulations thereunder. Such Shareholder 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. Such Shareholder has been provided with such materials as are
generally provided to shareholders of IHS and has had the opportunity to make
inquiries of and obtain from IHS representatives and employees such other
information about IHS as they deem necessary in connection with such investment.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and the
Shareholders as follows:
6.1 Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Copies of the Buyer's Articles of Incorporation and By-Laws, and all
amendments thereof to date, have been delivered to Shareholders, and are
complete and correct. Buyer has the power and authority to own the property and
assets now owned by it and to conduct its business presently conducted by it.
6.2 Absence of Conflicting Agreements. Neither the
execution or delivery of this Agreement, including Buyer's Schedules and
Exhibits hereto, or any of the Transaction Documents by Buyer nor the
performance by Buyer of the transactions contemplated hereby and thereby,
conflicts with, or constitutes a breach of or a default under (i) the
Certificate of Incorporation or By-Laws of Buyer; or (ii) any applicable law,
rule, judgment, order, writ, injunction, or decree of any court, currently in
effect; 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 Buyer is now a party
or by which any of the assets of the Buyer is bound.
6.3 Consents. Except as set forth in Schedule 6.3, 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 Buyer.
6.4 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.
6.5 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 Company at the
Closing.
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6.6 Binding Agreement. This Agreement has been duly executed
and delivered by Buyer. This Agreement is, and when executed and delivered by
Buyer at the Closing each of the Transaction Documents executed by Buyer will
be, the legal, valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their respective terms.
6.7 Securities and Exchange Commission Filings. Buyer has
furnished the Company with 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 Commission 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 therein, or
omitted to state any material fact required to be stated therein in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, 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, and the rules and regulations promulgated by
the SEC thereunder. The financial statements of the Buyer included in the SEC
Documents complied as to form 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.
6.8 Capital Stock. Buyer's Form 10-Q filed with the Commission
with respect to the fiscal quarter ended September 30, 1996 (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 II, the IHS
Stock will be validly issued, fully paid and nonassessable and free of
preemptive rights.
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANY
7.1 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 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
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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 its inception and the Company shall make, or cause to be made,
extracts thereof as Buyer or its representatives may request from time to time
to enable Buyer and its representatives to investigate the affairs of the
Company and the accuracy of the representations and warranties made in this
Agreement. The Company shall cause its accountants to cooperate with Buyer and
to disclose the results of audits relating to the Company and to produce the
working papers relating thereto.
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
8.1 Conduct of Business Pending Closing. Between the date
of this Agreement and the Closing, the Company shall maintain its existence and
shall conduct its business in the ordinary course of business consistent with
past practice.
8.2 Negative Covenants of the Company. Without the prior
written approval of Buyer, which approval shall not be unreasonably withheld,
the Company shall not, between the date hereof and the Closing:
(a) cause or permit to occur any of the events
or occurrences described in Section 4.18 (Absence of Certain Events) of this
Agreement; or
(b) dissolve, merge or enter into a share
exchange with or into any other entity; or
(c) enter into any contract or agreement, or
negotiations in connection with any union or other collective bargaining
representative representing any employees at the Company without the prior
written consent of Buyer, which consent shall not be unreasonably withheld; or
(d) make any change to its by-laws or articles
of incorporation.
8.3 Affirmative Covenants. Between the date hereof and the
Closing, the Company shall:
(a) maintain the physical assets of the Company
in substantially the state of repair, order and condition as on the date hereof,
reasonable wear and tear or loss by casualty excepted;
(b) maintain in full force and effect all
Licenses currently in effect with respect to the Company unless such License is
no longer necessary for the operation of the Company;
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(c) maintain in full force and effect the
insurance policies and binders currently in effect with respect to the Company,
or the replacements thereof, including without limitation those listed on
Schedule 4.16;
(d) utilize their reasonable efforts to preserve
intact the present business organization of the Company; keep available the
services of the Company's present employees and agents; and maintain the
Company's relations and goodwill with suppliers, employees, and any others
having business relating to the Company;
(e) maintain all of the books and records
relating to the Company in accordance with its past practices;
(f) comply in all material respects with all
provisions of the Contracts listed in Schedule 4.7 and with any other material
agreements that the Company 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 business;
(g) cause to be paid when due, all taxes,
assessments and charges or levies imposed upon them or on any of their
properties or which they are required to withhold and pay over;
(h) promptly advise Buyer in writing of the
threat or commencement against the Company of any claim, action, suit or
proceeding, arbitration or investigation that would materially adversely affect
the operations, properties, assets or prospects of the Company; and
(i) shall 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 with the Company's customers.
8.4 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, of the
Company ("Required Approvals"). The Company shall cooperate with and use its
reasonable efforts to assist Buyer in obtaining all such approvals, but shall
not be required to pay any money to third parties in order to so assist Buyer.
8.5 Supplementary Financial Information. Within twenty-five
(25) days after the end of each calendar month between the date of this
Agreement and the Closing Date, the Company shall provide, or cause to be
provided, to Buyer unaudited financial statements (including at a minimum income
statements and a balance sheet) for the month, which statements shall present
fairly, in all material respects, the results of the operations of the Company
at such
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date and for the period covered thereby, all in accordance with generally
accepted accounting principles applied on a consistent basis.
8.6 Exclusivity. Until the earlier of Closing or the
termination of this Agreement pursuant to Section 12.1, neither the Company nor
the Shareholders, nor any of their respective affiliates, shall engage in any
discussions or negotiations directly or indirectly with any other party in
respect of the sale of the Company Shares or of substantially all of the assets
of the Company, or in respect of any merger, consolidation, or other
reorganization of the Company.
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligation to consummate the purchase of the Company
Shares 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 prior to Closing pursuant to and in accordance with Article XII
herein.
9.1 Representations and Warranties. The representations and
warranties of Shareholders in Articles IV and V shall be true and correct in all
material respects at and as of the Closing Date, as though such representations
and warranties were made at and as of such time except to the extent affected by
the transactions herein contemplated.
9.2 Performance of Covenants. Each of the Shareholders 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.
9.3 Delivery of Closing Certificate. Each of the Shareholders,
and the Company by its president and chief financial officer, shall have
executed and delivered to Buyer a certificate, dated the Closing Date, upon
which Buyer may rely, certifying that the conditions contemplated by Sections
9.1 and 9.2 applicable to it have been satisfied.
9.4 Opinions of Counsel. Shareholders shall have delivered to
Buyer an opinion, dated the Closing Date, of their counsel, in the form of
Exhibit 9.4.
9.5 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.
9.6 Authorization Documents. Buyer shall have received a
certificate of the Secretary or other officer of the Company certifying a copy
of resolutions of its Board of Directors authorizing its execution and full
performance of the Transaction Documents and the incumbency of its officers.
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9.7 Material Change. Since the date of this Agreement there
shall not have been any material adverse changes in the condition (financial or
otherwise) of the assets, properties or operations of the Company.
9.8 Approvals.
(a) The consent or approval of all persons necessary
for the consummation of the transactions contemplated hereby shall have been
granted, including without limitation, the Required Approvals;
(b) None of the foregoing consents or approvals (i)
shall have been conditioned upon the modification, cancellation or termination
of any material lease, contract, commitment, agreement, license, easement, right
or other authorization with respect to the Company, 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 or its operations that is
more restrictive than or different from the conditions imposed upon such
operations prior to Closing.
9.9 Delivery of Stock Purchase Options. The Shareholders and
the Company shall have caused each current Company employee in possession of any
stock purchase options in the Company, and each former Company employee in
possession of vested stock purchase options in the Company (collectively, the
"Option Holders") to have delivered to the Buyer any and all stock purchase
options held by such Option Holder, together with a Termination and Release
Agreement signed by such Option Holder, substantially in the form of Exhibit 9.9
attached hereto.
9.10 Other Documents. Shareholders shall have furnished Buyer
with all other documents, certificates and other instruments required to be
furnished to Buyer by Shareholders pursuant to the terms hereof.
ARTICLE X: CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS
Shareholders' obligation to consummate the sale of the Company
Shares is subject to the fulfillment, prior to or at the Closing, of each of the
following conditions:
10.1 Representations and Warranties. The representations and
warranties of Buyer 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.
24
<PAGE>
10.2 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.
10.3 Delivery of Closing Certificate. Buyer shall have
delivered to Shareholders a certificate of the chief executive officer of Buyer
dated the Closing Date upon which Shareholders can rely, certifying that the
statements made in Sections 10.1 and 10.2 are true, correct and complete as of
the Closing Date.
10.4 Opinion of Counsel. Buyer shall have delivered to
Shareholders an opinion, dated the Closing Date, of Blass & Driggs, Esqs.,
counsel for Buyer, in the form of Exhibit 10.4.
10.5 Legal Matters. No preliminary or permanent injunction or
other order (including a temporary restraining order) 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. Shareholders 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.
10.7 Approvals. The Required Approvals shall have bee
granted.
10.8 Payment of Fees. Buyer shall have paid the following fees
as of the Closing Date: a) the amount of $123,582.00 to LifeWay Partners LLC,
payable in cash, as and for an advisory fee for services performed for the
Company on a cost basis; and b) the amount of $100,000.00 in payment of accrued
legal fees to Blass & Driggs, Esqs., payable in cash.
10.9 Payment of Bonuses. Buyer shall have funded the following
bonuses (the "Bonus Payments") as of the Closing Date: a) the amount of
$406,000.00 in payment of a bonus to Fred McCall-Perez, of which amount
$196,000.00 shall be payable in cash and $210,000.00 shall be payable by the
issuance of IHS Stock, based upon the valuation and otherwise issuable in
accordance with and subject to Section 2.2; and b) the amount of $37,500.00 in
payment of a bonus to John Strobeck, which amount shall be payable to John
Strobeck entirely in cash.
10.10 Payment of Promissory Notes. Buyer shall have paid the
principal balance and all of the accrued and unpaid interest under those certain
promissory notes of the Company referred to below (the "Promissory Notes
Payment"), which amount shall be payable to the holders of those promissory
notes in part in cash and in part by the issuance of IHS Stock, based upon the
valuation and otherwise issuable in accordance with and subject to Section 2.2
hereof. The amounts of cash and IHS Stock payable under this Section 10.10, and
the holders to whom these amounts shall be payable, are as follows:
25
<PAGE>
<TABLE>
<CAPTION>
Note Holder Note Cash Payable IHS Stock
<S> <C> <C> <C>
Lifeway Partners, LLC 1) Promissory Note dated
11/17/95 in the Original
Principal Amount of
$750,000.00 $ 0 $ 750,000.00
accrued interest $ 74,836.00 $ 0
2) Promissory Note dated
8/16/96 in the Original
Principal Amount of
$375,000.00 $ 0 $ 375,000.00
accrued interest $ 9,144.00 $ 0
John Strobeck 1) Promissory Note dated
8/16/96 in the Original
Principal Amount of
$375,000.00 $ 375,000.00 $ 0
accrued interest $ 9,144.00 $ 0
</TABLE>
10.11 Other Documents. Buyer shall have furnished Shareholders
with all documents, certificates and other instruments required to be furnished
to Shareholders by Buyer pursuant to the terms hereof.
10.12 Consulting Agreement. Buyer shall have entered into a
consulting agreement with Fred McCall-Perez, on terms and conditions as shall be
mutually acceptable to the parties thereto.
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING
11.1 Survival of Representations and Warranties. Except as
provided in Section 11.4, all representations, warranties, and agreements made
by each party in this Agreement or in any Schedule certificate, document or list
delivered by any such party pursuant hereto shall survive for a period of twelve
(12) months following the Closing. Notwithstanding any investigation conducted
before or after the Closing or the decision of any party to consummate the
Closing, each party hereto shall be entitled to rely and is hereby declared to
have reasonably relied upon the representations and warranties of the other
party.
11.2 Indemnification by Shareholders. Each Shareholder 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
breach of any warranty, made by such Shareholder in Article IV or V, provided
that a claim is made or an action with
26
<PAGE>
respect thereto is initiated by Buyer against such Shareholder within 90 days
after the discovery by Buyer of such inaccuracy or breach of warranty; or
(b) the breach of any covenant or undertaking by
such Shareholder contained in this Agreement which survives the Closing and is
not waived by Buyer at or prior to the Closing, provided that a claim is made or
an action with respect thereto is initiated by Buyer against such Shareholder
within 90 days after the discovery by Buyer of the occurrence of such breach; or
(c) ownership or operation of the Company or its
subsidiaries or their businesses or assets prior to the Closing Date, including,
without limitation, any and all liabilities or obligations owed to or 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 adjustment attributable to any period on or prior
to the Closing Date, or any other form of Medicare or other healthcare
reimbursement recapture, adjustment or overpayment whatsoever with respect to
any period on or prior to the Closing Date ("Excess Reimbursement Liability"),
the audit or assessment of taxes by the Federal, state or local tax authority,
and any Loss in excess of the amounts recorded on the Closing Date Balance Sheet
arising out of the legal proceedings referenced on Schedule 4.12 but excluding
any Loss arising out of any current liabilities or long-term liabilities as
reflected on the Closing Date Balance Sheet or the review of such Closing Date
Balance Sheet.
11.3 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
breach of any warranty, set forth in Article VI, provided that a claim is made
or an action with respect thereto is initiated by Shareholders against Buyer
within 90 days after the discovery by the Shareholders of such inaccuracy or
breach; or
(b) the breach of any covenant or undertaking by
Buyer which survives the Closing and is not waived by Shareholders at or prior
to the Closing, provided that a claim is made or an action with respect thereto
is initiated by Shareholders against Buyer within 90 days after the discovery by
Shareholders of the occurrence of such breach.
11.4 Assertion of Claims. Any claims for indemnification under
this Article XI and any claims for breach of representations and warranties
contained herein must be asserted by written notice by a date which is one (1)
year following the Closing Date, except that any claim based upon Excess
Reimbursement Liabilities (as defined above ) or a breach of the representations
and warranties contained in Section 4.25 (Medicare and Medicaid) or Section 4.21
(Tax) may be asserted until the applicable period of limitations for audits by
the applicable Governmental Authority shall have expired.
11.5 Control of Defense of Indemnifiable Claims.
27
<PAGE>
(a) Buyer shall give Shareholders prompt written
notice of the claim for which it seeks indemnification. Failure of the Buyer to
give such prompt notice shall not relieve the Shareholders of their
indemnification obligation, provided that such indemnification obligation shall
be reduced by any damages suffered by Shareholders resulting from a failure to
give prompt notice hereunder. The Shareholders shall be entitled to participate
in the defense of such claim. If at any time the Shareholders acknowledge in
writing that the claim is fully indemnifiable under this Agreement, they shall
have the right to assume total control of the defense of such claim at their own
expense. If the Shareholders do not assume total control of the defense of any
such claim, the Buyer agrees not to settle such claim without the written
consent of the Shareholders, which consent shall not be unreasonably withheld.
Nothing contained in this Section 11.6 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.
(b) The Shareholders shall give Buyer prompt
written notice of the claim for which they seek indemnification. Failure of the
Shareholders to give such prompt notice shall not relieve the Buyer of its
indemnification obligation, provided that such indemnification obligation shall
be reduced by any damages suffered by Buyer resulting from a failure to give
prompt notice hereunder. The Buyer shall be entitled to participate in the
defense of such claim. If at any time the Buyer 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 at its own expense. If the
Buyer does not assume total control of the defense of any such claim, the
Shareholders agree not to settle such claim without the written consent of the
Buyer, which consent shall not be unreasonably withheld. Nothing contained in
this Section 11.6 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.
11.6 Restrictions.
(a) From and after the Closing Date, none of the
Shareholders shall disclose, directly or indirectly, to any person outside of
Buyer's employ without the express authorization of the Buyer, any pricing
strategies or records of the Company, any proprietary data or trade secrets
owned by the Company or any financial or other information about the Company not
then in the public domain; provided, however, that Shareholders shall be
permitted to make such disclosures as may be required by law or by a court or
governmental authority.
(b) For a period of three (3) years after the
Closing Date, none of the Shareholders shall engage or participate in any effort
or act to induce any of the suppliers, associates,
employees or independent contractors of the Company to cease doing business, or
their association or employment, with the Company.
(c) For a period of three (3) years after the
Closing Date, Fred McCall- Perez shall not, directly or indirectly, be a
director of, be a partner in, or have a proprietary interest in, any person,
enterprise, partnership, association, corporation, joint venture or other
28
<PAGE>
entity which is directly or indirectly in the business of owning, operating or
managing any entity of any type, licensed or unlicensed, which is engaged in or
provides disease state management products and services for the HIV and
cardiology markets anywhere within the United States. This provision shall not
be construed to prohibit any Shareholder from owning a beneficial interest of up
to 5% of the securities of any company subject to the reporting requirements of
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.
(d) The Shareholders acknowledge that the
restrictions contained in this Section 11.6 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,
Shareholders agree that upon the violation by any of them of any of the
restrictions contained in this Section 11.6, 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
11.6, any advertisement prepared for and disseminated to the public in general,
which advertises the services of the Company not otherwise in violation of this
Section 11.6, or advertises the need for services to be supplied to the Company,
shall not be deemed to be an inducement or solicitation with respect to any such
suppliers or independent contractors.
11.7 Records. On the Closing Date, Shareholders shall deliver,
or cause to be delivered, to Buyer all records and files not then in Buyer's
possession relating to the operation of the Company or the Subsidiaries.
ARTICLE XII: TERMINATION
12.1 Termination. This Agreement may be terminated at any
time at or prior to the Closing by:
(a) Buyer, if any condition precedent to Buyer's
obligations hereunder set forth in Article IX hereof has not been satisfied by
the Closing Date;
(b) Shareholders, if any condition precedent to
Shareholders' obligations hereunder set forth in Article X hereof has not been
satisfied by the Closing Date; or
(c) the mutual consent of Buyer and Shareholders.
12.2 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.
29
<PAGE>
ARTICLE XIII: MISCELLANEOUS
13.1 Costs and Expenses. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby; provided, however, that the Company shall not be charged with any of the
expenses attributable to this transaction.
13.2 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.
13.3 Benefit and Assignment. This Agreement binds and inures
to the benefit of each party hereto and its successors and proper assigns. Buyer
may not assign its interest under this Agreement to any other person or entity
without the prior written consent of Shareholders; provided, however, that Buyer
may assign its rights, duties and obligations hereunder to one or more
subsidiaries or affiliates of Buyer.
13.4 Effect and Construction of this Agreement. This Agreement
and the Exhibits, Schedules, and other agreements referenced herein, 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.
13.5 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
necessary to carry out the intent and purposes of this Agreement.
13.6 Notices. All notices and demands required or permitted
hereunder shall be in writing and shall be deemed to be properly given or made
when personally delivered to the party or parties entitled to receive the notice
or when sent by certified or registered mail, postage prepaid, properly
addressed to the party or parties entitled to receive such notice at the address
stated below:
If to the Shareholders: Dr. Fred McCall-Perez
LifeWay, Inc.
1444 Biscayne Boulevard
Suite 303
Miami, FL 33132
30
<PAGE>
LifeWay Partners LLC
8231 Bay Colony Drive
#P2101
Naples, Florida 33963
With a copy to: Kenneth I. Arvin, Esq.
Ziskind & Arvin, P.A.
Rivergate Plaza
444 Brickell Avenue, Suite 612
Miami, Florida 33131
If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Marshall A. Elkins, Esq.
Integrated Health Services, Inc.
7125 Ambassador Road
Baltimore, MD 21244
Attention: Brian K. Davidson
With a copy to: Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
Attention: Michael S. Blass, Esq.
Such addresses may be changed by providing written notice as provided in this
Section 13.6.
13.7 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.
13.8 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.
31
<PAGE>
13.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, disregarding any
rules relating to the choice or conflict of laws.
13.10 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.
13.11 Severability. Any provision, or distinguishable portion
of any provision, of this Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 11.6 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.
(SIGNATURES ON FOLLOWING PAGE)
32
<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.
SHAREHOLDERS:
LIFEWAY PARTNERS LLC
/s/ Robert N. Elkins
----------------------------------------
Robert N. Elkins
Title:
/s/ Fred McCall-Perez
----------------------------------------
Fred McCall-Perez
COMPANY:
LIFEWAY, INC.
By:/s/ Fred McCall-Perez
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:/s/ Elizabeth B. Kelb
-------------------------------------
Name: Elizabeth B. Kelb
-----------------------------------
Title: Senior Vice President
Corporate Development
----------------------------------
NEWCO:
IHS ACQUISITION, INC.
By:/s/ Elizabeth B. Kelb
-------------------------------------
Name: Elizabeth B. Kelb
-----------------------------------
Title: Senior Vice President
Corporate Development
----------------------------------
33
-----------------
ASSET PURCHASE AGREEMENT
DATED AS OF MAY 20, 1997
AMONG
INTEGRATED HEALTH SERVICES, INC.,
AND
SYMPHONY REHAB DYNAMICS, INC. AND SYMPHONY
RESTORATIVE THERAPY LIMITED, AS BUYERS
AND
REHAB DYNAMICS, INC.
AND
RESTORATIVE THERAPY LIMITED, AS SELLERS
AND
THE SHAREHOLDERS OF SELLERS
<PAGE>
-----------------
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I: PURCHASE AND SALE OF ASSETS; NO ASSUMPTION OF
LIABILITIES; DESIGNATED CONTRACTS..............................................2
1.1 Assets.......................................................2
1.2 Liabilities..................................................3
1.3 Designated Contracts.........................................5
ARTICLE II: PURCHASE PRICE....................................................7
2.1 Determination and Payment of Purchase Price..................7
2.2 Allocation of Purchase Price.................................8
2.3 Working Capital Adjustments to the Purchase Price............8
2.4 IHS Stock...................................................12
2.5 Purchase Price Adjustment...................................17
ARTICLE III: THE CLOSING.....................................................23
3.1 Time and Place of Closing...................................23
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE
SHAREHOLDERS..................................................................23
4.1 Organization and Standing; Subsidiaries.....................23
4.2 Authority...................................................24
4.3 Binding Effect..............................................24
4.4 Absence of Conflicting Agreements...........................24
4.5 Consents....................................................24
4.6 Schedule of Assets and Properties...........................25
4.7 Contracts...................................................25
4.8 Financial Statements........................................27
4.9 Material Changes............................................28
4.10 Licenses; Permits; Certificates of Need.....................28
4.11 Title, Condition to Personal Property.......................28
4.12 Title, Condition of the Leased Properties...................29
4.13 Legal Proceedings...........................................30
4.14 Employees...................................................30
4.15 Collective Bargaining, Labor Contracts,
Employment Practices, etc..................................31
4.16 ERISA.......................................................31
4.17 Insurance and Surety Agreements.............................31
4.18 Relationships...............................................31
4.19 Absence of Certain Events...................................32
4.20 Compliance with Laws........................................33
(ii)
<PAGE>
4.21 Tax Returns.................................................34
4.22 Encumbrances Created by this Agreement......................34
4.23 Questionable Payments.......................................34
4.24 Reimbursement Matters.......................................34
4.25 Questionnaire...............................................35
4.26 RSI Agreement...............................................35
4.27 Finders.....................................................35
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS...................36
5.1 Organization and Standing...................................36
5.2 Power and Authority.........................................36
5.3 Binding Agreement...........................................36
5.4 Absence of Conflicting Agreements...........................36
5.5 Consents....................................................36
5.6 SEC Documents...............................................37
5.7 Material Changes............................................37
5.8 IHS Stock...................................................37
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS...................37
6.1 Access to Information and Records before Closing............37
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.........................38
7.1 Conduct of Business Pending Closing.........................38
7.2 Negative Covenants of Sellers...............................38
7.3 Affirmative Covenants of Sellers............................38
7.4 Pursuit of Consents and Approvals...........................39
7.5 Supplementary Financial Information.........................39
7.6 Exclusivity.................................................40
7.7 Certain Permitted Transactions..............................40
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND
IHS 40
---
8.1 Representations and Warranties..............................40
8.2 Performance of Covenants....................................40
8.3 Delivery of Closing Certificate.............................41
8.4 Opinions of Counsel.........................................41
8.5 Legal Matters...............................................41
8.6 Authorization Documents.....................................41
8.7 Approvals...................................................41
8.8 Bill of Sale and Assignment.................................42
8.9 Non-Competition Agreements..................................42
8.10 Employment and Consulting Agreements........................42
8.11 COBRA.......................................................42
(iii)
<PAGE>
8.12 Assets Transferred at Closing...............................43
8.13 Change of Name..............................................43
8.14 Hart-Scott-Rodino...........................................43
8.15 Documents...................................................43
ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
AND THE SHAREHOLDERS .........................................................44
9.1 Representations and Warranties..............................44
9.2 Performance of Covenants....................................44
9.3 Delivery of Closing Certificate.............................44
9.4 Opinions of Counsel.........................................44
9.5 Legal Matters...............................................44
9.6 Authorization Documents.....................................45
9.7 Necessary Consents..........................................45
9.8 Assignment and Assumption...................................45
9.9 Hart-Scott-Rodino Act.......................................45
9.10 Employment and Consulting Agreements........................45
9.11 Purchase Price..............................................45
9.12 Office Lease Guaranty Releases..............................45
9.13 Other Documents.............................................46
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING..........................46
10.1 Survival of Representations and Warranties..................46
10.2 Indemnification.............................................46
10.3 Restrictions................................................48
10.4 Records.....................................................49
10.5 Audit.......................................................49
10.6 Employees...................................................49
10.7 Reimbursement Paybacks......................................49
10.8 Closing Cost Reports........................................50
ARTICLE XI: TERMINATION.......................................................50
11.1 Termination.................................................50
11.2 Effect of Termination.......................................50
ARTICLE XII: CASUALTY, RISK OF LOSS...........................................50
12.1 Casualty, Risk of Loss......................................50
ARTICLE XIII: MISCELLANEOUS..................................................51
13.1 Costs and Expenses..........................................51
13.2 Benefit and Assignment......................................51
13.3 Effect and Construction of this Agreement...................51
13.4 Cooperation - Further Assistance............................51
(iv)
<PAGE>
13.5 Notices.....................................................52
13.6 Waiver, Discharge, Etc......................................52
13.7 Rights of Persons Not Parties...............................53
13.8 Governing Law...............................................53
13.9 Amendments, Supplements, Etc................................53
13.10 Severability................................................53
13.11 Public Announcements........................................53
(v)
<PAGE>
SCHEDULES
---------
Schedule A - Bethoughtful Assets
- ----------
Schedule 1.1 - Certain Excluded Assets
Schedule 1.3(a) - Unassumed Provider Contracts
Schedule 1.3(b-1) - Selected Good Samaritan Contracts
Schedule 1.3(b-2) - Walker Contracts
Schedule 2.2 - Allocation of Purchase Price
Schedule 2.3(a) - RSI Purchase Amount
Schedule 2.5(d)-A - HDI Joint Contracts
Schedule 2.5(d)-1 - IHS Prospective Facilities
Schedule 2.5(d)-2 - RDI Prospective Facilities
Schedule 4.1(b) - Organization and Standing; Subsidiaries
Schedule 4.5 - Consents
Schedule 4.6 - Assets and Properties
Schedule 4.7(b) - Contracts
Schedule 4.8(a)(i) - Financial Statements
Schedule 4.8(a)(ii) - Adjusted Financial Statements
Schedule 4.8(b) - Non-Balance Sheet Liabilities
Schedule 4.9 - Material Changes
Schedule 4.10 - Licenses; Permits; Certificates of Need
Schedule 4.11(a) - Liens
Schedule 4.11(b) - Permitted Liens
Schedule 4.11(c) - Personal Property Leases
Schedule 4.12(b) - Real Property Leases
Schedule 4.13 - Legal Proceedings
Schedule 4.14 - Employees
Schedule 4.15 - Collective Bargaining, Labor Contracts, Employment
Practices, etc.
Schedule 4.17 - Insurance and Surety Agreements
Schedule 4.18 - Relationships
Schedule 4.19 - Absence of Certain Events
Schedule 4.20 - Compliance with Laws
Schedule 4.21(a) - Tax Returns
Schedule 4.22 - Encumbrances
Schedule 4.24 - Reimbursement Matters
Schedule 4.26 - RSI Agreements
Schedule 5.4 - Absence of Conflicting Agreements
Schedule 5.5 - Consents
Schedule 5.7 - Material Changes
Schedule 8.10 - Identified Employees
Schedule 10.2(e) - Shareholder's Percentage Interest
Schedule 10.4 - Maintenance of Records
(vi)
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EXHIBITS
--------
Exhibit 1.3(b) - Form of Assignment of Walker & Good Samaritan
Contracts
Exhibit 2.3(d)(i) - Working Capital Escrow Agreement
Exhibit 4.25 - Questionnaire
Exhibit 4.26 - RSI Documents
Exhibit 8.8-1 - Bill of Sale
Exhibit 8.8-2 - Assignment and Assumption Agreement
Exhibit 8.9-1 - Non-Compete-Sellers
Exhibit 8.9-2 - Non-Compete-Nechas
Exhibit 8.9-3 - Non-Compete-Kessler
Exhibit 8.9-4 - Non-Compete-Favilla
Exhibit 8.10-1 - Employment Agreement-Nechas
Exhibit 8.10-2 - Employment Agreement-Kessler
Exhibit 8.10-3 - Employment Agreement-Favilla
Exhibit 8.4 - Opinion of Seller's Counsel
Exhibit 9.4 - Opinion of Buyer's Counsel
(vii)
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-------------------------
ASSET PURCHASE AGREEMENT
-------------------------
This Asset Purchase Agreement (the "AGREEMENT") is made as of
the 20 day of May, 1997, among Integrated Health Services, Inc., a Delaware
corporation ("IHS"), Symphony Rehab Dynamics, Inc., a Delaware corporation and a
wholly owned subsidiary of IHS ("REHAB BUYER"), Symphony Restorative Therapy,
Inc., a Delaware corporation, and a wholly owned subsidiary of IHS ("RESTORATIVE
BUYER", and together with Rehab Buyer, "BUYER"), Rehab Dynamics, Inc., a
Minnesota corporation ("REHAB"), Restorative Therapy Limited, a Minnesota
corporation ("RESTORATIVE" and together with Rehab, "SELLERS"), and David Nechas
("NECHAS") and Beth Kessler ("KESSLER", and together with Nechas, the
"SHAREHOLDERS"). Sellers and the Shareholders are sometimes referred to herein
collectively as the "GROUP" and each individually as a "GROUP PARTICIPANT" or
"GROUP MEMBER" or "PARTICIPANT OF THE GROUP".
WHEREAS, the Shareholders own all of the issued and
outstanding shares of capital stock of each Seller; and
WHEREAS, Rehab is engaged in the business (the "REHAB
BUSINESS") of providing contract rehabilitation services to patients at nursing
homes, hospitals, day activity centers, and assisted living units, as well as
through homecare and outpatient clinics (including, without limitation, speech
and language pathology, occupational therapy and physical therapy services and
staffing and consulting services relating to such services), and payment for
such services is made directly to Rehab from various payors (collectively,
"REHAB SERVICES") in the States of Minnesota and North Dakota; and
WHEREAS, Restorative also is engaged in the business (the
"RESTORATIVE BUSINESS", and together with the Rehab Business, the "BUSINESS") of
providing contract rehabilitation services to patients in various settings
(including, without limitation, speech and language pathology, occupational
therapy and physical therapy services and staffing and consulting services
related to such services), and payment for services is made pursuant to various
contractual arrangements primarily through Medicare, Part A ("RESTORATIVE
SERVICES", and collectively with the Rehab Services, the "SERVICES") in the
States of Minnesota and North Dakota; and
WHEREAS, Rehab and Restorative have an interest (the "DYNAMIC
INTEREST") in Dynamic Health Care Solutions, LLC ("DYNAMIC"); and
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WHEREAS, Buyer wishes to purchase from Sellers, and Sellers
wish to sell to Buyer, substantially all of the assets of each Seller, other
than the Dynamic Interest and other than the assets (the "BETHOUGHTFUL ASSETS")
of the Sellers related solely and directly to the operation of the Sellers'
"Bethoughtful" greeting card business (the "BETHOUGHTFUL DIVISION") as described
on Schedule A hereto, including, without limitation, the accounts receivable
arising directly and solely out of such business;
WHEREAS, pursuant to an Asset Purchase Agreement, a copy of
which is attached hereto as Exhibit 4.26 (the "RSI AGREEMENT"), dated as of
December 19, 1996, between Rehab, Restorative and Rehab Services, Inc., a
Minnesota corporation primarily involved in the business of providing
rehabilitation services in the state of Minnesota ("RSI"), Rehab and Restorative
has purchased substantially all of the assets of RSI related to its Minnesota
operations (the "RSI ASSETS") on or about December 31, 1996 (the "RSI
ACQUISITION");
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, IHS, Buyer, Sellers and the Shareholders intending to be legally
bound, agree as follows:
ARTICLE I: PURCHASE AND SALE OF ASSETS; NO ASSUMPTION OF
LIABILITIES; DESIGNATED CONTRACTS
1.1 ASSETS. Subject to the terms and conditions of this
Agreement at the Closing (as hereinafter defined in Section 3.1), and in
reliance upon the covenants, representations and warranties of IHS and Buyer,
Sellers will sell, assign and convey to Buyer free and clear of all Liens (as
such term is hereinafter defined in Section 4.11), and subject to the terms and
conditions of this Agreement and in reliance upon the covenants, representations
and warranties of Sellers and the Shareholders, Buyer will purchase and acquire
from Sellers, all of the assets of each Seller which now or hereafter comprise,
or which are now or hereafter used or held for use in connection with the
operation of, the Business (the "ASSETS"), excluding: (a) inventory and supplies
disposed of from the date hereof until Closing in the ordinary course of
business consistent with past practice and otherwise in conformity with the
obligations of Sellers and the Shareholders under this Agreement; (b) the
Dynamic Interest and all assets owned by Dynamic; (c) the Bethoughtful Assets;
(d) each Seller's Articles of Incorporation, qualification to do business in any
jurisdiction, taxpayer identification number, minute books, stock transfer
records and other documents related specifically to such Seller's corporate
organization and maintenance; (e) amounts paid, payable or that become payable
from Medicare or Medicaid or any other healthcare reimbursement or payment
intermediary or other person or entity on account of cost report adjustments or
other payment adjustments to the extent attributable to Sellers' operation of
the Business during any period on or prior to the Closing Date (including,
without limitation, any of the same which is paid to, or payable or becomes
payable from, any nursing home, hospital, other facility or other third party
pursuant to any Contract (as such term is hereinafter defined in Section 4.7) by
reason of refund, credit or payment for Reimbursement Liabilities (as such term
is hereinafter defined in Section 1.2(a) below)), or any other form of Medicare
or other healthcare
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reimbursement refund or credit for Reimbursement Liabilities, to the extent
attributable to Sellers' operation of the Business during any period on or prior
to the Closing Date ("REIMBURSEMENT PAYBACKS"); (f) except to the extent
included as Current Assets (as such term is hereinafter defined in Section
2.3(a)) on the Closing Date Balance Sheet, any prepaid expenses or refunds with
respect to any Contracts not constituting Designated Contracts (as hereinafter
defined in Section 1.3); (g) any accounts receivable due from Heritage of Edina,
together with any rights to recover costs of collection thereof (the "EDINA
RECEIVABLES"); and (h) any other specifically excluded assets as listed on
Schedule 1.1 to be retained by Sellers (collectively, "EXCLUDED ASSETS"). Except
for the Excluded Assets, the Assets will include, without limitation, all
tangible, intangible, real, personal and mixed property, OPERATIONS, POLICY AND
PROCEDURE MANUALS, LEASEHOLD INTERESTS, EQUIPMENT, FURNITURE, FIXTURES,
inventory, cash, accounts receivable, cash equivalents, notes receivable, claims
and rights under Designated Contracts, subject to Section 10.2(e), all rights of
either or both Sellers under the RSI Agreement and under all agreements,
instruments, and documents now or hereafter executed or delivered in connection
therewith (the "RSI DOCUMENTS"), all rights in collateral or other security for
obligations due to any Seller, provider agreements with third party payors, the
name "Rehab Dynamics, Inc." for use in Minnesota, the name "Restorative Therapy
Limited" for use in Minnesota and North Dakota, all other tradenames,
trademarks, service marks, patient lists and records, telephone numbers, trade
secrets, other proprietary rights or intellectual property, good will, and, to
the extent permitted by law, all permits, licenses and Medicare and Medicaid
provider numbers and other rights held by either or both Sellers with respect to
the ownership or operation of any or all of the Business, and all of each
Seller's books and records pertaining to the foregoing.
1.2 LIABILITIES.
(A) Neither Buyer nor IHS will assume any, and
Sellers shall remain liable for each, Liability of each Seller arising out of
the operation of the Business (or any part thereof) or the ownership or use of
any of the Assets existing on the Closing Date. 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 that would be reflected as a liability on a balance sheet in accordance
with generally accepted accounting principles, consistently applied, including
without limitation, the following: (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 (including, if applicable, penalties and interest) due or that may
become due to Medicare or Medicaid or any other health care reimbursement or
payment intermediary or other person or entity on account of cost report
adjustments or other payment adjustments attributable to any period on or prior
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to the Closing Date (including, without limitation, any of the same which
becomes due to any nursing home, hospital, other facility or other third party
pursuant to any Contract (as such term is hereinafter defined in Section 4.7)
directly, by reason of offset or indemnification, or otherwise), or any other
form of Medicare or other health care reimbursement denial, recapture,
adjustment or overpayment whatsoever with respect to any period on or prior to
the Closing Date ("REIMBURSEMENT LIABILITIES"), (iii) Any obligation or
liability arising out of any Contract which is not a Designated Contract, and
(iv) Any obligation or liability arising out of the Dynamic Interest or the
Bethoughtful Assets. Without limiting the foregoing and notwithstanding anything
to the contrary contained in this Agreement, Buyer shall not assume and Sellers
shall remain liable for all Liabilities arising out of the RSI Documents. For
purposes of this Agreement, all Liabilities of either or both Sellers other than
Assumed Obligations (as hereinafter defined in Section 1.2(b) below) shall
constitute "UNASSUMED LIABILITIES". Each Seller shall pay each Unassumed
Liability when due in the ordinary course of business consistent with past
practice, unless it shall be contesting the same in good faith, in which case,
Sellers may withhold payment of such Unassumed Liability to the extent
consistent with past practice. Each Seller specifically agrees that any
obligation imposed by any applicable Governmental Requirement (as hereinafter
defined in Section 4.4 below) on the Buyer or IHS to pay depreciation recapture
will be treated, for purposes of this Agreement, as an Unassumed Liability.
Further, Sellers agree to promptly repay to Buyer and IHS any sums which they
are required to pay as depreciation recapture and reasonable fees for the legal
defense of such claimed recapture.
(B) Subject to the provisions of subsection (a)
above, at the Closing, Buyer shall assume only the following obligations (the
"ASSUMED OBLIGATIONS") and thereafter in due course fully satisfy:
(I) to the extent included as a Liability on
the Closing Date Balance Sheet (subject to adjustment in accordance with Section
2.3(c) below), all operating trade payables, operating expenses and other
current liabilities of Sellers that would be classified as current liabilities
("CURRENT LIABILITIES") on a consolidated balance sheet of Sellers as of the
Closing Date prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), including all employee compensation
Liabilities existing or arising on the Closing Date, including specifically but
without limitation, accrued wages, accrued paid time off, and severance
obligations to the extent the same would constitute current liabilities as of
the Closing Date in accordance with GAAP; but excluding any current liabilities
arising out of the Bethoughtful Division or Dynamic;
(II) those obligations which arise under the
Designated Contracts (as defined in to Section 1.3 below) assigned by 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. Liabilities under such Designated Contracts that have accrued, or
the performance of which are due, on or prior to the Closing Date, or which are
in payment or consideration for Excluded Assets, shall remain the sole
responsibility of Sellers except to the extent they constitute Current
Liabilities;
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(III) to the extent included as a Liability
on the Closing Date Balance Sheet (subject to adjustment in accordance with
Section 2.3(c) below), all indebtedness for borrowed money, the long-term
portion of all capitalized lease obligations, and all other liabilities of
Sellers that would be classified as long-term liabilities on a consolidated
balance sheet of Sellers and their subsidiaries other than Dynamic as of the
Closing Date prepared in accordance with GAAP, and all guaranties of any of the
foregoing ("LONG-TERM LIABILITIES"), but excluding any of the foregoing arising
out of the Bethoughtful Division; and
(IV) all Liabilities arising out of the WARN
Act (as defined in Section 10.6) (or any similar State law of Minnesota) to the
extent provided in Section 10.6.
1.3 DESIGNATED CONTRACTS.
(A) As soon as practicable after the date hereof, but
in no event later than three (3) business days after the date hereof, Buyer
shall deliver notice in writing to Sellers designating which, if any, of the
Contracts to which any Seller is a party listed on Schedule 4.7(b) hereto
pursuant to Section 4.7 of this Agreement will be assigned to and assumed by
Buyer (collectively, the "DESIGNATED CONTRACTS"). Except as set forth on
Schedule 1.3(a), each existing Provider Contract (as such term is defined in
Section 4.7(b) below) is a Designated Contract, and is sometimes referred to in
this Agreement as a "DESIGNATED PROVIDER CONTRACT" and collectively with all
such other Contracts, as the "DESIGNATED PROVIDER CONTRACTS". If within said
period of time Buyer fails to so deliver notice to Sellers, Buyer will be deemed
to have designated all of said Contracts. Subject to subsections (b) and (c)
below, to the extent Buyer makes (or is deemed to have made) any such
designation, Sellers shall at Closing be obligated to assign all of their right,
title and interest under such Designated Contracts to Buyer and Buyer shall
assume the obligations accruing after Closing under such Designated Contracts to
the extent provided in Section 1.2 above. If, after the date hereof, either
Seller shall enter into any agreement, lease, contract or commitment, whether
written or oral, with respect to the Business, or initially deliver a copy of a
Contract not previously delivered to Buyer, such Seller shall promptly notify
Buyer, in which case Buyer shall have three (3) business days from the date of
its receipt of notice thereof to elect to include such agreement, lease,
contract or commitment as a Designated Contract. Unless Buyer shall otherwise
notify Sellers on or prior to the end of such three (3) business day period,
such agreement, lease, contract or commitment shall be deemed to be a Designated
Contract.
(B)ITS AND SHALL DILIGENTLY PROCEED TO OBTAIN ANY
CONSENTS OF ANY PARTIES NECESSARY TO PERMIT THE ASSIGNMENT OF THE DESIGNATED
CONTRACTS TO BUYER, INCLUDING WITHOUT LIMITATION, EACH DESIGNATED PROVIDER
CONTRACT WITH THE EVANGELICAL LUTHERAN GOOD SAMARITAN SOCIETY OR ANY OF ITS
AFFILIATES ("GOOD SAMARITAN") IDENTIFIED ON SCHEDULE 1.3(B)-1 HERETO (EACH A
"SELECTED GOOD SAMARITAN CONTRACT") and each Designated Provider Contract with
Walker Methodist, Inc. ("WALKER") or any of its affiliates (each a "WALKER
CONTRACT"), each of which Walker Contracts, Sellers represent and warrant, is
set forth on Schedule 1.3(b)-2; provided however that each Seller shall so use
its best efforts with respect to Designated Provider Contracts other than the
Selected Good Samaritan Contracts and the Walker Contracts (the "OTHER
DESIGNATED PROVIDER CONTRACTS") only after the Closing. If any Designated
Contract (other than
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an Other Designated Provider Contract) is not assignable and any party to such
Designated Contract fails or refuses to consent to the assignment thereof on or
before the Closing Date, Buyer shall have no liability to assume any obligations
under such Designated Contract. Moreover, if any party to any of the Walker
Contracts or to any of the Selected Good Samaritan Contracts does not
acknowledge in writing in substantially the words set forth on Exhibit 1.3(b)
hereto its agreement to the assignment of such Walker Contract or Selected Good
Samaritan Contract to Buyer on or before the Closing Date, then Buyer shall be
permitted to terminate this Agreement in accordance with Article XI hereof.
Furthermore, if any party fails or refuses to consent to the assignment of the
Office Lease, dated as of October 18, 1994, between Sellers and the Wirth
Companies (the "OFFICE LEASE") or to any other Designated Contract (other than
Other Designated Provider Contracts) that, individually or together with all
other Designated Contracts with respect to which any such consent is not
obtained, is or are material to the operation or financial condition of the
Business, the Buyer shall be permitted to terminate this Agreement in accordance
with Article XI hereof. Sellers represent and warrant that the Selected Good
Samaritan Contracts are comprised of the six (6) Provider Contracts with Good
Samaritan with respect to which Sellers were parties prior to the closing
contemplated by the RSI Purchase Agreement, and the other four (4) Selected Good
Samaritan Contracts are the four (4) highest revenue generating Provider
Contracts with respect to which RSI was a party prior to such closing of the RSI
Purchase Agreement.
(C) (i) With respect to each Contract (other than the
Designated Provider Contracts) that is not assigned by either Seller to Buyer
pursuant to this Agreement, or for which any necessary consent is not obtained
on or after the Closing, Buyer shall not unreasonably refuse to use its
reasonable commercial efforts to provide any services due or perform Sellers'
obligations (other than the payment of any penalties or other termination
obligations) under such unassigned Contract pending the termination thereof (but
in no event for more than 60 days after the Closing Date), provided that the
Group shall indemnify and hold each Buyer Indemnitee (as such term is
hereinafter defined in Section 10.2) harmless from and against any Loss (as such
term is hereinafter defined in Section 10.2) arising out of such arrangements,
including, without limitation, the performance of such services or obligations
and shall pay to Buyer the amount of compensation to which Sellers would have
been entitled for such services under, and shall make available to Buyer the
benefits to which Sellers would have been entitled as a result of the
performance of obligations under, such unassigned Contract, in each case, if the
transactions contemplated by this Agreement had not occurred.
(ii) With respect to each Designated
Provider Contract, until each consent necessary for the assignment thereof to
Buyer shall be obtained or such Designated Provider Contract is replaced by a
contract with Buyer such Designated Provider Contract shall not be deemed
assigned to Buyer, provided however that the parties shall use their best
efforts to undertake reasonable arrangements pursuant to which Buyer shall
receive the benefits of such unassigned Designated Provider Contracts and be
responsible for the obligations under such Designated Provider Contracts that
otherwise would have been assumed by Buyer pursuant to the terms of this
Agreement. Until so assigned, or replaced, each such Designated Provider
Contract
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shall be referred to as a "PRE-ASSIGNMENT DESIGNATED PROVIDER CONTRACT" for
purposes of this Agreement and so long as a Designated Provider Contract shall
be deemed to be a Pre-Assignment Designated Provider Contract, the Group shall
indemnify and hold each Buyer Indemnitee harmless from and against any Loss in
excess of any insurance proceeds collected by Buyer in respect thereof (net of
costs of recovery and increases in premiums to the extent directly resulting
from such Loss) (other than amounts that, in the ordinary course of business,
are deducted from Net Existing Contract Revenues (as such term is defined in
Section 2.5(a) below) in connection with the determination of the One Year
EBITDA as such term is defined in Section 2.5(a)) arising out of such
arrangements, including, without limitation, out of the performance of such
services, and so long as any such arrangement shall continue, such
Pre-Assignment Designated Provider Contract shall be deemed to be an Existing
Contract (as such term is hereinafter defined in Section 2.5(d) (iii)) for
purposes of determining the One Year EBITDA. If any Pre-Assignment Designated
Provider Contract shall be assigned to Buyer, or if Buyer shall enter into a
replacement Provider Contract with the applicable other party, then such
Pre-Assignment Designated Provider Contract shall be retroactively treated as if
assigned to Buyer on the Closing Date and no Group Member shall have any
indemnification obligation with respect to any post-Closing matter arising under
such Pre-Assignment Designated Contract by reason of this clause (ii).
ARTICLE II: PURCHASE PRICE
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE. Subject to
adjustment as provided in this Agreement, the aggregate purchase price to be
paid to Sellers for the Assets and their respective obligations under this
Agreement (the "PURCHASE PRICE") shall be THIRTY-ONE MILLION FOUR HUNDRED
THOUSAND DOLLARS ($31,400,000), and which Purchase Price shall be payable as
follows:
(A) SEVEN MILLION SIX HUNDRED FORTY THOUSAND DOLLARS
($7,640,000) plus (x) an amount equal to fifty percent (50%) of the unpaid
portion of the RSI Purchase Amount, or (y) FIVE HUNDRED AND SIXTY-TWO THOUSAND
FIVE HUNDRED DOLLARS ($562,500), whichever amount is less, shall be paid at the
Closing to Sellers in cash by wire transfer of immediately available funds to
the account designated in writing by Sellers at least one business day prior to
the Closing; and
(B) ELEVEN MILLION FOUR HUNDRED SIXTY THOUSAND
DOLLARS ($11,460,000) shall be paid at the Closing by delivery to Sellers of
newly issued shares of the Common Stock, par value $.001 per share, of IHS (the
"IHS STOCK"), based upon the valuation of such shares using as the date of
determination the Closing Date and subject to the terms and conditions of
Section 2.4 below; and
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(C) the balance (the "CONTINGENT PAYMENT AMOUNT") of
the $31,400,000 Purchase Price shall be paid in a single installment (the
"CONTINGENT PAYMENT"), subject to offsets for Purchase Price reductions and
indemnification rights as elsewhere provided in this Agreement, on the date that
is four hundred and fifty five (455) days after the first date of the
Determination Period (as defined in Section 2.5(a) below) or the date on which
the One Year EBITDA (as hereinafter defined) shall finally be determined in
accordance with Section 2.5 below, whichever date shall be later, unless such
payment date shall be delayed as hereinafter provided. The Contingent Payment
Amount shall be payable forty percent (40%) in cash and sixty percent (60%) by
delivery of shares of IHS Stock based upon the valuation as of the Determination
Date (as hereinafter defined in Section 2.5(a)) in accordance with Section
2.4(a) below. Prior to offsetting against the Contingent Payment for Purchase
Price reductions or pursuant to indemnification rights, Buyer shall notify the
Sellers of the basis for such offset in reasonable detail. If the Sellers shall
fail to notify Buyer of their objection, if any, to all or any part of such
offset within ten (10) business days after such notice of offset is given to
Buyer, stating in reasonable detail the basis for such objection, then the
Sellers shall be irrevocably deemed to have agreed to such offset to the extent
not objected to, and such offset shall be deemed taken. If the Sellers shall
timely give such a notice of objection, then Buyer shall not be entitled to take
such offset (and shall not be required to make payment of the Contingent Payment
in respect of such claimed offset) unless and until the Sellers and Buyer shall
agree thereto in writing or, if applicable, unless and until the Settlement
Accountants shall finally determine the amount of any Purchase Price reduction
with respect to which such offset is claimed, or unless and until a court of
competent jurisdiction shall have determined in a final judgment whether or not
Buyer is entitled to such offset. If the Settlement Accountants shall determine
in connection with the determination of any claimed Purchase Price reduction
with respect to which an offset is claimed and disputed, or if such court shall
determine in such final judgment, that either the Sellers or Buyer shall have
acted in bad faith in claiming any such offset or making an objection thereto,
as the case may be, then the party that is determined to have acted in bad faith
shall pay interest at an annual rate of five percent (5%) on the amount that was
claimed for offset or objected to, in bad faith, as the case may, from the date
the notice of such offset or objection, as the case may be, was given.
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price as
adjusted pursuant to this Agreement (and all other capitalizable costs) shall be
allocated among the Sellers and with respect to each Seller, among the
categories of Assets, as set forth on Schedule 2.2 hereto, in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"). Each
of the parties hereto agrees to prepare and file all tax returns (including Form
8594) in a manner consistent with such allocation and to report this transaction
for Federal and state income tax purposes in accordance with such allocation of
the Purchase Price.
2.3 WORKING CAPITAL ADJUSTMENTS TO THE PURCHASE PRICE.
(A) For the purposes of this Agreement, "CURRENT
ASSETS" shall mean the aggregate amount of all assets of the Sellers that would
be classified as current assets on the consolidated balance sheet of the Sellers
as of the Closing Date prepared in accordance with GAAP, but excluding any cash,
cash equivalents and accounts receivables of the Bethoughtful Division or
Dynamic, the Edina Receivable, and any other current assets that constitute
Excluded Assets.
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It is understood and agreed that no Reimbursement Payback shall be included as a
Current Asset on the Closing Date Balance Sheet. As used herein, "WORKING
CAPITAL" means the amount by which Current Assets exceeds Current Liabilities.
Regardless of whether the same shall be in accordance with GAAP, the unpaid
portion of the RSI Purchase Amount (as hereinafter defined) shall not be assumed
by Buyer, shall not be included as a Current Liability or part of Long-term
Liabilities, shall constitute an Unassumed Liability (regardless of the
inclusion of the RSI Documents in the Assets), and shall be paid in full by
Sellers at Closing. Regardless of whether the same shall be in accordance with
GAAP, the amount of principal due from Sellers to Park National Bank as of the
Closing Date that would have been treated as long-term liabilities in accordance
with GAAP had Sellers been negotiating to renew and extend for two (2) years the
term thereof, shall be treated as Long-term Liabilities as of the Closing Date
for purposes of this Agreement. The purchase price heretofore, now or hereafter
paid or payable in respect of the RSI Assets or otherwise under any of the RSI
Documents (including, without limitation, any amounts payable in respect of
non-competition agreements, consulting agreements and accelerated earn-out
payments) and all costs and expenses incurred by Sellers in connection with
completing the transactions contemplated by the RSI Agreement is sometimes
referred to in this Agreement as the "RSI PURCHASE AMOUNT". Sellers represent
and warrant that Schedule 2.3(a) accurately sets forth the RSI Purchase Amount,
including each item constituting a portion thereof, and said Schedule 2.3(a)
sets forth the amounts heretofore paid.
(B) At the Closing, Sellers shall deliver to Buyer
the consolidated balance sheet of Sellers as of the Closing Date (excluding any
Excluded Assets and any Unassumed Liabilities), certified by each Seller to be
its best good faith estimate of such balance sheet as of the Closing (the
"CLOSING DATE BALANCE SHEET").
(I) The Purchase Price payable to the
Sellers shall be reduced if the Closing Date Balance Sheet discloses that the
consolidated Working Capital of Sellers as of the Closing Date (the "ESTIMATED
WORKING CAPITAL") is less than the Required Working Capital (as hereinafter
defined). "REQUIRED WORKING CAPITAL" means $5,600,000. In such event, the amount
of the Purchase Price payable to the Sellers at the Closing shall be reduced by
an amount, on a dollar-for-dollar basis, equal to the amount by which the
Estimated Working Capital is less than such Required Working Capital.
(II) The Purchase Price payable to the
Sellers shall be increased if the Closing Date Balance Sheet discloses that the
Estimated Working Capital is greater than the Required Working Capital. In such
event, the amount of the Purchase Price payable to the Sellers at the Closing
shall be increased by an amount, on a dollar-for-dollar basis, equal to the
amount by which the Estimated Working Capital is greater than such Required
Working Capital.
(III) The Purchase Price payable to the
Sellers shall be decreased if the Closing Date Balance Sheet discloses that the
estimated amount of Long-term Liabilities as of the Closing Date (the "ESTIMATED
LONG-TERM LIABILITIES") is greater than $1,300,000 (the "MAXIMUM LONG-TERM
LIABILITIES"). In such event, the amount of the Purchase Price payable to
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the Sellers at the Closing shall be decreased by an amount, on a
dollar-for-dollar basis, equal to the amount by which the Estimated Long-term
Liabilities is greater than such Maximum Long-term Liabilities.
(C) Buyer shall complete, at its own expense, a
review of the Working Capital as of the Closing Date (the "CLOSING DATE WORKING
CAPITAL") and the Long-term Liabilities as of the Closing Date (the "CLOSING
DATE LONG-TERM LIABILITIES"), and, Buyer shall deliver to Sellers its written
report (the "WORKING CAPITAL REVIEW") setting forth the amount of such Closing
Date Working Capital and Closing Date Long- term Liabilities as confirmed or
determined in accordance with such review within one hundred eighty (180) days
after the Closing Date. Buyer shall, upon reasonable request, provide Sellers
with copies of, or, in the discretion of Buyer, access to the source materials
used by it to prepare the Working Capital Review, in which case, such access
shall be at a location no greater than thirty (30) miles from Sellers' current
location, shall be under reasonable conditions, and Sellers shall be permitted
to copy such documents at Sellers' sole cost and expense. If Buyer shall not
have completed such a Working Capital Review and delivered a copy thereof to
Sellers within one hundred eighty (180) days following the Closing Date, Buyer
shall be deemed to conclusively have accepted the determination of the Estimated
Working Capital and Estimated Long-term Liabilities as set forth on the Closing
Date Balance Sheet, and such determination shall become final and shall not be
subject to further review, challenge or adjustment, absent fraud. If there shall
be discovered any Liability that should have been included as a Current
Liability or Long-term Liability on the Closing Date Balance Sheet but that was
not so included, then Buyer, in its sole discretion, may elect to assume such
Liability, in which case such Liability shall be included as a Current Liability
or Long-term Liability, as the case may be, in the determination of Closing Date
Working Capital or Closing Date Long-term Liabilities, as the case may be, or to
not assume such Liability, in which case such Liability shall be an Unassumed
Liability and shall not be included as a Current Liability in the determination
of Closing Date Working Capital, or as a Closing Date Long-term Liability.
(I) If the Working Capital Review is timely
prepared and delivered to Sellers and it discloses that the Closing Date Working
Capital was less than the Estimated Working Capital, then the Purchase Price
shall be deemed to have been decreased by the amount of such deficiency except
to the extent that the amount of such deficiency shall be subject to a Delay
Payment Notice (as hereinafter defined), in which case no such adjustment shall
be made in respect of such disputed portion until such disputed portion shall be
finally determined as set forth below.
(II) If the Working Capital Review is timely
prepared and delivered to Sellers and it discloses that the Closing Date Working
Capital was greater than the Estimated Working Capital, then the Purchase Price
shall be deemed to have been increased by the amount of such excess except to
the extent that the amount of such excess shall be subject to a Delay Payment
Notice, in which case no such adjustment shall be made in respect of such
disputed portion until such disputed portion shall be finally determined as set
forth below.
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(III) If the Working Capital Review is
timely prepared and delivered to Sellers and it discloses that the Closing Date
Long-term Liabilities were greater than the greater of (x) the Maximum Long-term
Liabilities or (y) the Estimated Long-term Liabilities, then the Purchase Price
shall be deemed to have been decreased by the amount of such excess except to
the extent that the amount of such excess shall be subject to a Delay Payment
Notice, in which case no such adjustment shall be made in respect of such
disputed portion until such disputed portion shall be finally determined as set
forth below. If the Estimated Long-term Liabilities exceeded Maximum Long-term
Liabilities and the Closing Date Long-term Liabilities (as finally determined in
accordance with this subsection (c)) are less than the Estimated Long- term
Liabilities, then the Purchase Price shall be deemed to have been increased by
the difference between the Estimated Long-term Liabilities and the greater of:
(x) the Maximum Long-term Liabilities, and (y) the Closing Date Long-term
Liabilities, except to the extent that the amount of such difference shall be
subject to a Delay Payment Notice, in which case no such adjustment shall be
made in respect of such disputed portion until such disputed portion shall be
finally determined as set forth below.
(IV) If Sellers shall dispute the amount set
forth in the Working Capital Review, they shall give notice to Buyer (a "DELAY
PAYMENT NOTICE") within fifteen (15) days after delivery to them of the Working
Capital Review that the disputed portion of the payment should not then be made
and setting forth in reasonable detail their objections and the basis therefor,
in which case the parties shall meet and in good faith attempt to resolve any
disagreements within fifteen (15) days after delivery to Buyer of the Delay
Payment Notice. If the parties are unable to resolve such disagreements within
such time period, the disagreements shall be referred to a "Big Six" accounting
firm selected by mutual agreement of Sellers, on the one hand, and Buyer, on the
other hand (or if the parties cannot agree on such selection, then a "Big Six"
accounting firm, other than KPMG Peat Marwick LLP, selected by lot) (the
"SETTLEMENT ACCOUNTANTS"), and the determination of the Settlement Accountants
of the Closing Date Working Capital and Closing Date Long-term Liabilities shall
be final and shall not be subject to further review, challenge, or adjustment,
absent fraud. The Settlement Accountants shall be directed to use their best
efforts to reach a determination not more than forty-five (45) days after such
referral. The costs and expenses of the services of the Settlement Accountants
shall be borne by the party against whom the Settlement Accountants shall rule;
provided that if the Settlement Accountants shall not clearly rule against any
party, then such costs and expenses shall be borne equally by Sellers, on the
one hand, and Buyer, on the other hand.
(D) (I) If the Purchase Price is increased as
provided in Section 2.3(b), the amount of the increase shall be paid by
delivery, within two (2) business days after the Closing, of IHS Stock (valued
as of the Closing Date in accordance with Section 2.4(a) below) or in cash, or
in such combination thereof as Buyer, in its sole discretion shall determine,
into an interest-bearing escrow account (the "ESCROW ACCOUNT") pursuant to an
Escrow Agreement in the form of Exhibit 2.3(d)(i) (the "WORKING CAPITAL ESCROW
AGREEMENT") among the parties hereto and with an escrow agent acceptable to all
of the parties hereto (the "ESCROWEE"), and upon final determination of the
Closing Date Working Capital and Closing Date Long-term Liabilities in
accordance with Section 2.3(c), the amount of such increase (as the same may be
adjusted to take into consideration any further increases or decreases in the
Purchase Price pursuant to this Section 2.3) (plus all interest and income
earned thereon) shall be paid to Sellers from the Escrow
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Account, in the same proportion of cash and stock as was paid into the Escrow
Account at Closing (as adjusted for any sale of Escrowed Shares by the Escrowee
in accordance with the terms of the Working Capital Escrow Agreement), within
fifteen (15) days after the final determination of the amount due, with any
additional amount in excess of the amount paid out of the Escrow Account (less
interest or income earned and included in such payment) to be paid in cash or in
shares of IHS Stock (valued using a date of determination as of the Closing in
accordance with Section 2.4(a) below), or in such combination thereof as Buyer,
in its sole discretion shall determine.
(II) If the Purchase Price is decreased as
provided in Section 2.3(b)(i) or (b)(iii) or 2.3(c)(i) or (c)(iii), the amount
of the decrease shall be paid by Sellers as follows: All payments of decreases
in the Purchase Price required pursuant to Section 2.3(b)(i) or (b)(iii) shall
be paid into the Escrow Account, and all payment of decreases in the Purchase
Price required to be paid as a result of a further adjustment to the Purchase
Price pursuant to Section 2.3(c)(i) or (c)(iii) shall be paid to Buyer out of
the Escrow Account (together with all interest and income earned thereon) and/or
directly from Sellers, and in each case, shall be paid in any combination of
cash and/or shares of IHS Stock (valued as of the Closing Date in accordance
with Section 2.4(a) below) as Sellers shall determine in their sole discretion;
provided, however, that in no event shall Sellers select a combination that will
have the result that Buyer shall have paid less than sixty percent (60%) of the
Purchase Price (excepting therefrom the amount by which the cash portion of the
Purchase Price is increased in respect of the unpaid portion of the RSI Purchase
Amount in accordance with Section 2.1(a) above) by delivery of shares of IHS
Stock (except that Sellers may make such payment with a greater percentage of
shares of IHS Stock to the extent that Sellers are returning shares of IHS Stock
previously delivered to them or the Escrowee in respect of any previous increase
in Purchase Price to the extent that such shares increased the percentage of
such shares included in such Purchase Price increase to a percentage greater
than sixty percent (60%)).
(E) The Group shall indemnify and hold each Buyer
Indemnitee harmless from and against any Loss arising out of the failure to
collect all or any part of any account receivable included in the Current Assets
to the extent that such failure arises out of any matter that would have been a
Reimbursement Liability, and from and against any Loss arising out of any
Reimbursement Liability with respect to all or part of any such account
receivable that actually is collected prior to the occurrence of the
Reimbursement Liability related thereto.
2.4 IHS STOCK.
(A) As set forth in Section 2.1(b) above, but subject
to Sections 2.3(d) above, a portion of the Purchase Price shall be payable by
means of the delivery to Sellers of IHS Stock based upon a price per share of
such stock equal to the average closing New York Stock Exchange ("NYSE") price
of such stock for the thirty (30) trading day period ending on the date which is
two (2) trading days prior to the applicable date of determination (the "MARKET
VALUE PER SHARE"); provided that if the closing NYSE price of the IHS Stock on
the trading day immediately preceding the Closing Date is either more than
fifteen percent (15%) less than, or fifteen percent (15%) greater than, the
average closing NYSE price of such stock for such thirty (30) trading day
period, then each of the Sellers and Buyer shall have the right to terminate
this
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Agreement, with the effect set forth in Article XI hereof as if terminated under
Section 11.1(c), by giving the other notice thereof on the date that would have
been the Closing Date if this Agreement were not so terminated.
(B) RESALE LIMITATIONS. All sales of IHS Stock issued
pursuant to this Agreement shall be effected solely through Smith Barney, Inc.
(provided that such fees are reasonable and customary), as broker, and after an
effective registration pursuant to subsection (f) below, sales by Sellers and,
if applicable, their pre- registration transferees, including Transferees (as
defined in Section 2.4(e) below), of such shares shall not at any time, in the
aggregate, exceed one hundred thousand (100,000) shares during any thirty (30)
day period. Delivery by Sellers of shares of IHS Stock to Transferees, or to IHS
or Buyer as payment for adjustments to the Purchase Price or pursuant to
indemnification obligations, shall not be considered in applying the resale
limitations set forth herein.
(C) INVESTMENT REPRESENTATIONS. All shares of IHS
Stock to be issued hereunder will be newly issued shares of IHS. Sellers and the
Shareholders represent and warrant that the IHS Stock being issued hereunder is
being acquired, and will be acquired, by Sellers for investment for their own
accounts or for the account of any Transferee to whom transfer of any of such
shares is expressly permitted in accordance with this Agreement, and not with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act of 1933, as amended (the "SECURITIES ACT") or any
applicable state securities law. Sellers and each Shareholder acknowledge that
the IHS Stock constitutes restricted securities under Rule 144 promulgated by
the Securities and Exchange Commission (the "COMMISSION") pursuant to the
Securities Act, and may have to be held indefinitely, and each of them agrees
that such shares shall not 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 and the rules and
regulations thereunder. Sellers and each Shareholder 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. Sellers and each Shareholder acknowledge that they have been
provided with such materials as are generally provided to shareholders of IHS
and have had the opportunity to make inquiries of and obtain from
representatives and employees of IHS such other information about IHS as they
deem necessary in connection with such investment.
(D) LEGENDS. It is understood that, prior to sale of
any shares of IHS Stock pursuant to an effective registration pursuant to
subsection (f) below, 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,
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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.
(E) TRANSFERS. Upon prior notice to IHS, Sellers
shall be permitted to transfer any of the shares of IHS Stock acquired by them
pursuant to this Agreement and the registration rights related thereto to any of
the Shareholders or to Michael C. Favilla ("FAVILLA") (each a "TRANSFEREE") in
accordance herewith, provided that said transfers shall be made in compliance
with all applicable securities laws. Prior to an effective registration pursuant
to subsection (f) below, as a condition to any transfer of shares of IHS Stock
(other than any such transfer to any Transferee), if IHS shall request, Sellers
shall cause an opinion of legal counsel (such opinion and legal counsel to be
reasonably acceptable to IHS) to be delivered to IHS upon which IHS and its
legal counsel may rely to the effect that such transfer may be made in
compliance with all applicable securities laws. Upon such transfer the acquiring
Transferee shall be deemed to have made each of the representations and
warranties set forth in subsection (c) above with respect to himself or herself,
as of the date of such transfer, and he or she shall be bound by the provisions
of this Agreement relating to such transferred shares, including without
limitation, the resale limitations set forth in subsection (b) above and all of
the obligations relating to the registration of the shares. Transferees, other
than Shareholders, may be required (as a condition precedent to permitting any
transfer) by IHS to execute such documents as are necessary to evidence such
representations and warranties contained in this Section 2.4 and to bind them to
the provisions of this Section 2.4 of this Agreement relating to such
transferred shares. No such transfer shall release any Seller or Shareholder
from any of its obligations under this Agreement relating to such transferred
shares or otherwise.
(F) REGISTRATION OF IHS STOCK. IHS will cause to be
prepared, filed and will use its best efforts to have declared effective by the
Commission within ninety (90) days following the Closing Date, a registration
statement for the registration under the Securities Act of the IHS Stock issued
to Sellers pursuant to this Agreement, and IHS shall maintain the effectiveness
of such registration statement for a period of two (2) years following the date
on which it becomes effective, or for so long as any Seller (or any Transferee)
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.
(G) REGISTRATION PROCEDURES, ETC. In connection with
the registration rights granted to Sellers and Shareholders with respect to the
IHS Stock as provided in this Section 2.4, the following shall apply:
(I) IHS will promptly notify Sellers at any
time when a prospectus relating to a registration statement covering any
Sellers' shares under this Section 2.4 is required to be delivered under the
Securities Act, of the happening of any event known to IHS 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
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circumstances then existing, and, to the extent required by applicable law, IHS
shall promptly prepare and file with the SEC as appropriate a supplement or
amendment to such prospectus so that, as thereafter timely delivered to the
purchaser of any IHS Stock such prospectus shall not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(II) IHS shall furnish Sellers with such
number of prospectuses as shall reasonably be requested, and Sellers agree to
comply with the prospectus delivery requirements of the Securities Act in
connection with any sale of IHS Stock by either of them.
(III) Subject to subsection (h) below, IHS
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 Sellers, provided that IHS shall not be obligated to qualify as a foreign
corporation or dealer to do business under the laws of any such jurisdiction.
(IV) The information included or
incorporated by reference in the registration statement filed pursuant to this
Section 2.4 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. With respect to sales
of IHS Stock sold in accordance with the provisions of this Section 2.4 pursuant
to the registration statement, IHS shall indemnify Sellers and the Transferees,
and each person, if any, who controls Sellers within the meaning of ss.15 of the
Securities Act or ss.20(a) of the Securities Exchange Act of 1934, as amended
(the "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, based upon a sale by them pursuant to any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
executed by IHS or based upon a sale by them pursuant to written information
furnished by IHS 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, NASDAQ, 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 IHS by any Seller or any Transferee 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 any Seller or
any controlling person of any Seller or any Transferee in respect of which
indemnity may be sought against IHS pursuant to this subsection, such Seller or
such controlling person or such Transferee shall within thirty (30) days after
the receipt thereof of a summons or
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complaint, notify IHS in writing of the institution of such action and IHS shall
assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel. After twenty (20) business days notice
thereof to IHS, any Seller or any such controlling person or any such Transferee
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 such Sellers or
such controlling persons or such Transferee unless (A) the employment of such
counsel shall have been authorized in writing by IHS in connection with the
defense of such action, or (B) IHS shall not have employed counsel to have
charge of the defense of such action or (C) IHS shall have failed to undertake
and reasonably pursue the defense of such action, or (D) such indemnified party
or parties 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 IHS (in which case, IHS 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 Sellers, such controlling person and such Transferees shall be
borne by IHS, provided that such law firm shall be reasonably acceptable to IHS.
Except as expressly provided in the previous sentence, in the event that any
Seller, any such controlling person or any such Transferee assumes control of
the defense of any such action or claim, IHS shall not thereafter be liable to
indemnify such Seller or any such controlling person or such Transferee in
investigating, preparing or defending, or otherwise in respect of any such
action or claim. IHS agrees promptly to notify Sellers of the commencement of
any litigation or proceedings against IHS or any of its officers, directors or
controlling persons in connection with the resale of IHS Stock or in connection
with such registration statement with respect to which any such party shall be
entitled to indemnification hereunder. If the indemnification provided for in
this Section 2.4 is held by a court of competent jurisdiction to be unavailable
to any Seller or any controlling person of any Seller or any Transferee with
respect to any loss, liability, claim, damage or expense referred to herein,
then IHS in lieu of indemnifying any Seller or any controlling person of any
Seller or any Transferee hereunder, shall contribute to the amount paid or
payable by any Seller or any controlling person of such Seller or any such
Transferee hereunder, as a result of such loss, liability, claim, damage,
expense or liability in such proportion as is appropriate to reflect the
relative fault of IHS on the one hand and of such Seller or any controlling
person of such Seller or any Transferee on the other hand in connection with the
statements or omissions which resulted in such loss, liability, claim, damage,
expense, or liability, as well as any other relevant equitable considerations.
The relative fault of IHS and of such Seller or any controlling person of such
Seller or any Transferee shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by IHS or by
such Seller or any controlling person of such Seller or any Transferee and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(V) Sellers and any Transferee who proposes
to sell IHS Stock pursuant to a registration statement, shall severally, and not
jointly, indemnify IHS and Buyer, their respective officers, directors and
advisers, and each person, if any, who controls IHS or Buyer within the meaning
of ss.15 of the Securities Act or ss.20(a) of the Exchange Act against all
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loss, claim, damage, 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, insofar as such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement, a prospectus, or any amendment or
supplement thereto filed by IHS in accordance with this Agreement, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in a registration statement, a prospectus, a filing, or any
amendment or supplement thereto filed in accordance with this Agreement in
reliance upon and in conformity with written information furnished to IHS by
such Seller, or any such Transferee, or its, his or her respective successors or
assigns.
(H) REGISTRATION EXPENSES. Sellers shall not be
responsible for, and Buyer shall bear, all of the expenses of the Buyer related
to such registration and Buyer's other obligations under this Section 2.4
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. Where any action or inaction by any
Seller or Transferee shall cause unreasonable increases in any of such costs,
Buyer and IHS shall not be responsible for, and Sellers shall pay for all of,
such costs. Buyer also shall pay or reimburse Sellers for the reasonable legal
fees and costs of one law firm to represent Sellers in connection with the
preparation of the registration statement. Buyer, however, shall not be required
to pay underwriter's or brokerage discount, commissions or expenses, or to pay
any costs and expenses in excess in the aggregate of $20,000 for Blue Sky
qualifications of Sellers' (and any Transferee's) IHS Stock, or to pay any costs
or expenses arising out of any Seller's or any Transferee's failure to comply
with its obligations under this Section 2.4.
(I) NOTICE OF SALE. If any Seller (or any of
its Transferees) desires to transfer all or any portion of its, his or her IHS
Stock, it, he or she will deliver written notice to IHS, describing in
reasonable detail its intention to effect the transfer and the manner of the
proposed transfer.
2.5 PURCHASE PRICE ADJUSTMENT.
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(A) The parties acknowledge that the Purchase Price
was determined based upon the Sellers' best good faith estimate that the One
Year EBITDA (as hereinafter defined) to be derived during the twelve (12) month
period commencing on the first day of the calendar month following the calendar
month in which the Closing occurs (the last day thereof being referred to herein
as the "DETERMINATION DATE" and such period being the "DETERMINATION PERIOD")
from the Business multiplied by five (5x) would be at least $31,400,000.
Accordingly, if (x) the actual One Year EBITDA multiplied by five (5x) is less
than (y) Sellers' aforesaid estimate of at least $31,400,000, then the parties
agree that the Purchase Price shall be reduced by such deficiency; provided,
however, that the reduction in Purchase Price pursuant to this Section 2.5 shall
not exceed an amount equal to (x) $14,360,000 minus (y) the portion of the RSI
Purchase Amount paid by Sellers after the date hereof.
(B) As soon as practicable, but in no event later
than ninety (90) days after the Determination Date, Buyer shall deliver to
Sellers a statement (the "EBITDA CALCULATION STATEMENT") showing the One Year
EBITDA (the "EBITDA CALCULATION"). Buyer shall provide the Sellers copies of, or
access to the work papers and similar materials used in connection with the
preparation of the EBITDA Calculation Statement. Sellers shall have thirty (30)
days following their receipt of the EBITDA Calculation Statement within which to
deliver to Buyer a written notice of objection thereto (an "OBJECTION NOTICE"),
which Objection Notice shall (x) set forth Sellers' determination of the EBITDA
Calculation and (y) specify in reasonable detail Sellers' basis for objection,
in which case the parties shall meet and in good faith attempt to resolve any
disagreements within thirty (30) days after delivery to Buyer of the Objection
Notice. If the parties are unable to resolve such disagreements within such time
period, the disagreements shall be referred to the Settlement Accountants, and
the determination of the Settlement Accountants shall be final and binding on
the parties hereto, and shall not be subject to further review, challenge, or
adjustment, absent fraud. The Settlement Accountants shall be directed to use
their best efforts to reach a determination not more than forty-five (45) days
after such referral. The costs and expenses of the services of the Settlement
Accountants shall be borne by the party against whom the Settlement Accountants
shall rule; provided that if the Settlement Accountants shall not clearly rule
against any party, then such costs and expenses shall be borne equally by
Sellers, on the one hand, and Buyer, on the other hand. The failure by Sellers
to deliver an Objection Notice within such thirty (30)-day period shall
constitute the Sellers' acceptance of the EBITDA Calculation, which shall
thereupon become conclusive and binding on all parties hereto, and shall not be
subject to further review, challenge, or adjustment, absent fraud.
(C) If the Purchase Price is decreased as provided in
this Section 2.5, the amount of the decrease shall be paid promptly by Sellers
to Buyer, and in any event by no later than the third day after the amount of
such decrease shall be finally determined. Such payment shall be made first by
offsetting against the Contingent Payment in accordance with Section 2.1(c)
above, then to the extent necessary, by return of shares of IHS Stock (valued as
of the Determination Date in accordance with Section 2.4(a) above) and/or cash
(as determined by Sellers and the Shareholders in their sole and absolute
discretion); provided, however, that in no event shall Sellers select a
combination that will have the result that Buyer shall have paid less than sixty
percent (60%) of the
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Purchase Price (excepting therefrom the amount be which the cash portion of the
Purchase Price is increased in respect of the unpaid portion of the RSI Purchase
Amount in accordance with Section 2.1(a) above) by delivery of shares of IHS
Stock (except that Sellers may make such payment with a greater percentage of
shares of IHS Stock to the extent that Sellers are returning shares of IHS Stock
previously delivered to them or the Escrowee in respect of any previous increase
in Purchase Price to the extent that such shares increased the percentage of
such shares included in such Purchase Price increase to a percentage greater
than sixty percent (60%)).
(D) For purposes of this Agreement, the term "ONE
YEAR EBITDA" shall mean the sum of (x) fifty percent (50%) of the Aggregate
Joint Contract EBITDA (hereinafter defined) for the Determination Period plus
(y) one hundred percent (100%) of the Existing Contract EBITDA (hereinafter
defined) for the Determination Period.
(I) After the Closing, IHS (through its
subsidiary, Symphony Rehabilitation Services No. 4, Inc. ("SYMPHONY REHAB")) and
Buyer shall jointly pursue new Provider Contracts, and the parties hereby
acknowledge that the reason for the inclusion of the Joint Contracts
(hereinafter defined) in the determination of the One Year EBITDA is the
parties' expectation that such agreements will result, in a substantial way,
from the goodwill purchased by Buyer from Sellers pursuant to the terms of this
Agreement. The "AGGREGATE JOINT CONTRACT EBITDA" for the Determination Period
shall mean the result (without duplication) of the following items that are
attributable to the Joint Contracts for the Determination Period: (v) the Net
Joint Contract Revenues (hereinafter defined), minus (w) the Direct Joint
Contract Expenses (hereinafter defined), minus (x) a reserve for doubtful
accounts (including any matters that arise with respect to Services provided
during the Determination Period that would have constituted Reimbursement
Liabilities had they arisen on or prior to Closing ("POST-CLOSING REIMBURSEMENT
LIABILITIES")), minus (y) an amount equal to seven and one-half percent (7.5%)
of the Net Joint Contract Revenues (in lieu of the actual amount of corporate
overhead). "NET JOINT CONTRACT REVENUES" shall mean all amounts billed (as
adjusted for rate changes, discounts given and contractual allowances with
respect to the Services provided) with respect to bona fide Services provided
pursuant to Joint Contracts during the Determination Period. "DIRECT JOINT
CONTRACT EXPENSES" means expenses that can be identified specifically with, or
traced to delivery of, Services provided pursuant to a Joint Contract during
such Determination Period, including without limitation, compensation of
supervisory and management personnel to the extent revenues attributable to a
Joint Contract are generated as a result of the presence of such supervisory or
management personnel. Direct Joint Contract Expenses do not include any
allocation of overhead expenses pertaining to the operation of IHS or any of its
subsidiaries as a whole, including without limitation, Symphony Rehab and Buyer.
Except as otherwise expressly set forth in this clause (i), Aggregate Joint
Contract EBITDA, Net Joint Contract Revenues and Direct Joint Contract Expenses
shall be determined in accordance with GAAP. For purposes of this Agreement, the
term "JOINT CONTRACT" means any Provider Contract with any or all of the three
(3) Health Dimensions, Inc. facilities listed on Schedule 2.5(d) - A hereto (the
"HDI JOINT CONTRACTS") and each Provider Contract that is entered into after the
Closing Date with respect to the provision of Services in the States of
Minnesota or North Dakota and each Provider Contract entered into after the
Closing Date with Good Samaritan or Walker
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(other than RDI Prospective Contracts and Existing Contracts), excluding the
following: (1) the Existing Contracts; (2) each of the Provider Contracts to
which IHS or any of its subsidiaries is a party immediately prior to the
Closing; (3) each Provider Contract with any of the facilities identified on
Schedule 2.5(d)-1 hereto (other than the HDI Joint Contracts) with respect to
which a binding written agreement (or a written letter of intent to enter into a
binding written agreement) is executed and delivered by the parties thereto
within forty-five (45) days after the Closing Date (the "IHS PROSPECTIVE
FACILITIES"); (4) each Provider Contract with any of the facilities identified
on Schedule 2.5(d)-2 hereto with respect to which a binding written agreement
(or a written letter of intent to enter into a binding written agreement) is
executed and delivered by the parties thereto within forty-five (45) days after
the Closing Date (the "RDI PROSPECTIVE FACILITIES"); (5) each Provider Contract
that is acquired after the Closing Date pursuant to an acquisition of the
capital stock or assets of any business, or pursuant to any similar transaction
(including acquisitions by way of mergers or employment agreement purchases);
and (6) any renewal, modification, restatement, amendment or replacement of any
of such foregoing excluded Provider Contracts. Sellers may include prospective
Provider Contracts with Good Samaritan or Walker Facilities for Services not
located in Minnesota or North Dakota on Schedule 2.5(d)-2 on the additional
condition that such Provider Contracts will become Existing Contracts only if
Buyer will provide all of the Services under such Provider Contracts for such
facilities. Upon Closing, Buyer shall deliver to Sellers a list, including the
names and addresses of the other parties thereto, of each Provider Contract for
Services in the States of Minnesota or North Dakota to which IHS or any of its
subsidiaries is a party immediately prior to the Closing.
(II) For purposes of this Agreement, the
term "EXISTING CONTRACT EBITDA" for the Determination Period shall mean the
result (without duplication) of the following items that are attributable for
the Determination Period: (u) the Net Existing Contract Revenues (hereinafter
defined), minus (v) all Direct Existing Contract Expenses attributable to the
Existing Contracts, minus (w) a reserve for doubtful accounts (including
Post-closing Reimbursement Liabilities) with respect to the Net Existing
Contract Revenues, minus (x) all indirect expenses of Buyer, minus (y) fifty
percent (50%) of all Synergy Savings (defined below), plus (z) fifty percent
(50%) the amount of all Buyer Synergy Savings (as defined below). "NET EXISTING
CONTRACT REVENUES" shall mean all amounts billed (as adjusted for rate changes,
discounts given and contractual allowances with respect to the Services
provided) with respect to bona fide Services provided pursuant to Existing
Contracts during the Determination Period. "DIRECT EXISTING CONTRACT EXPENSES"
means expenses that can be identified specifically with, or traced to delivery
of, Services provided pursuant to Existing Contracts during such Determination
Period, including without limitation, compensation of supervisory and management
personnel to the extent revenues attributable to an Existing Contract are
generated as a result of the presence of such supervisory or management
personnel. Direct Existing Contract Expenses and indirect expenses of Buyer do
not include any allocation of expenses pertaining to the operation of IHS or any
of its subsidiaries as a whole (other than allocations of Buyer expenses),
including without limitation, Symphony Rehab, except to the extent created by
Synergy Savings. "SYNERGY SAVINGS" shall mean the amount by which any expense,
including indirect expenses of Buyer, reflected in the Existing Contract EBITDA
for the Determination Period shall be reduced by reason of any services, assets
or resources
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provided to the Business by IHS or any of its subsidiaries or affiliates (other
than Buyer). Except as otherwise expressly set forth in this clause (ii),
Existing Contract EBITDA, Net Existing Contract Revenues, Direct Existing
Contract Expenses and Synergy Savings shall be determined in accordance with
GAAP. For purposes of this Agreement, the term "EXISTING CONTRACT" means each
Designated Provider Contract (other than the HDI Joint Contracts), each Provider
Contract with any RDI Prospective Facility (subject to the time limits and, in
the case of applicable Good Samaritan and Walker Facilities, the other
conditions, set forth in clause (i) above), and any renewal, modification,
restatement, amendment or replacement of any of such Existing Contracts by
Buyer, IHS or any of its other subsidiaries.
(III) To the extent after determination of
the One Year EBITDA it shall be discovered that the reserve for any
Reimbursement Liability used in determining Aggregate Joint Contract EBITDA or
Existing Contract EBITDA shall have been greater or lesser than the amount of
the actual Post-closing Reimbursement Liability, then the amount of the
reduction of the Purchase Price required by this Section 2.5 shall be
recalculated using the correct amount of the Post-closing Reimbursement
Liability, and promptly thereafter Sellers on the one hand, or Buyer on the
other hand, shall make to the other any payment required by such adjustment;
subject, however, to the limitations on the Purchase Price and Purchase Price
reductions set forth in subsection (a) above If there shall be any claim for any
such Post-closing Reimbursement Liability, Buyer will 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
the procedures set forth in Buyer's manual; provided, however, that if there
shall be no procedure set forth in Buyer's manual with respect to any type of
Post-closing Reimbursement Liability, then Buyer shall diligently pursue such
appeal in good faith. Buyer may, in its sole and absolute discretion, at any
time discontinue any such contest or appeal prior to the final determination
thereof after all administrative appeals shall have been taken (a "FINAL
DETERMINATION"); provided, however, that if Buyer intends to discontinue any
such appeal or contest prior to Final Determination, then Buyer must provide
Sellers with reasonably prior written notice of such intent and of the current
status of the appeal or contest, and upon request of Sellers, Buyer shall assign
to Sellers all of its right, title and interest to contest and appeal such
Post-Closing Reimbursement Liability on behalf of and in the name of Buyer; it
being understood, however, that any recovery with respect to any such
Post-closing Reimbursement Liability shall belong to Buyer (other than Sellers'
pro rata share of any attorney fees and costs recovered in connection with such
appeal). Buyer may, in its sole discretion, elect not to so assign any of its
right, title and interest to contest and appeal any such Post-closing
Reimbursement Liability, in which case, the otherwise appealable or contestable
portion thereof shall not reduce the One Year EBITDA.
(IV) If there shall be a proposal by
Symphony Rehab, Buyer or any Shareholder or Favilla to use any services, assets
or resources of Buyer for the benefit of Symphony Rehab, then the person or
entity making such proposal shall notify the President of Symphony Rehab, on the
one hand, or one of the Shareholders or Favilla, on the other hand, of such
proposal. The parties shall, prior to any implementation of such proposal,
promptly meet in good faith to determine if and how any savings to Symphony
Rehab arising out of such use ("BUYER SYNERGY SAVINGS") will be included in the
calculation of One Year EBITDA.
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(V) During the Determination Period and
until final determination of the EBITDA Calculation, after all objection,
resolution or Settlement Accountant determination periods have elapsed, IHS and
its subsidiaries shall permit Sellers and their authorized representatives
(including legal counsel and accountants) to have access (upon reasonable notice
and during normal business hours) to their books and records to the extent
reasonably necessary to arrive at the final determination of the EBITDA
Calculation. Such access shall be subject to restrictions substantially similar
to those set forth in Section 10.3 hereof. Such books and records shall contain
full and correct entries in all material respects of all dealings and
transactions affecting the One Year EBITDA. In addition, Symphony Rehab and
Buyer shall furnish to Sellers copies of: (A) a profit and loss statement with
respect to the
Existing Contracts and the Joint Contracts (individually and in the aggregate)
for each calendar month and for the portion of the Determination Period ending
on the last date of calendar month then ended (as soon as available and in any
event within 30 days after the end of each calendar month during the
Determination Period); (B) an accounts receivable aging report (showing billing
and cash receipts) with respect to each account receivable arising out of any
Existing Contract or Joint Contract (as soon as available and in any event
within 30 days after the end of each calendar month during the Determination
Period); and (C) a preliminary statement of Net Joint Contract Revenues, Direct
Joint Contract Expenses, reserve accruals for Joint Contracts, and Synergy
Savings (if any) and Buyer Synergy Savings (if any), in the aggregate and by
Joint Contract for the quarterly fiscal period then ended (as soon as available
and in any event within 30 days after the end of each of the quarterly periods
(ending on successive three month periods) during the Determination Period). All
of the foregoing reports shall be in reasonable detail and shall be certified by
Symphony Rehab to be its best good faith estimate thereof.
(VI) During the Determination Period, Buyer
and the Joint Contracts shall be reasonably operated by Symphony Rehab so as not
to divert earnings to periods after the Determination Period or to incur
expenses during the Determination Period in an effort to reduce the One Year
EBITDA, and such business shall be operated in the ordinary course not
inconsistent with past practice, except as may be necessary to address clinical
or ethical requirements or as required by prudent business practice. Moreover,
the President of Symphony Rehab shall regularly consult with and seek the input
of, and shall be reasonably accessible to, the Shareholders and Favilla with
respect to the operation of Buyer and the Joint Contracts. Without limiting the
foregoing, the Shareholders and Favilla shall be notified a reasonable amount of
time in advance of any material planned action by Buyer or Symphony Rehab in
connection with the operation of Buyer or the Joint Contracts that is not in the
ordinary course of business not inconsistent with past practice, and if such
action is then taken over the written objection of any two of the following
individuals: (x) either or both Shareholders and/or (y) Favilla on the basis
that such action is not in the ordinary course of business and may have a
material adverse effect on the One Year EBITDA (such writing to set forth in
reasonable detail the basis of such objection), then the parties shall negotiate
in good faith to appropriately adjust the determination of the One Year EBITDA
to take into account the merits of such objection, and if the parties are unable
to arrive at such an adjustment, then the adjustment, if any, shall be
determined by the Settlement Accountants in accordance with Section 2.5(b)
above; it being understood that the Settlement Accountants shall be directed to
determine the amount of the adjustment based on what the One Year EBITDA likely
would have been had such action not been taken.
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ARTICLE III:THE CLOSING
3.1 TIME AND PLACE OF CLOSING.
(A) The closing (the "CLOSING") of the transactions
contemplated by this Agreement shall take place by mail through escrow
arrangements satisfactory to the parties hereto on the day that is one business
day after all of the conditions to closing set forth in this Agreement shall
have been satisfied or waived, but, subject to Sections 8.14 and 9.9 below, in
no event later than June 20, 1997, or at such other time and place upon which
the parties may agree. The date on which the Closing is held is hereinafter
referred to as the "CLOSING DATE."
(B) If prior to or on the Closing Date, Buyer shall
have the right to terminate this Agreement by reason of the occurrence of any of
the events specified in Section 1.3(b), then Buyer and Sellers may, but shall
not be required to, extend the Closing Date for up to an additional sixty (60)
days to provide time to obtain the consents or approvals contemplated thereby.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE SHAREHOLDERS
For purposes of any representation, warranty or certification
made in or pursuant to this Agreement, the Group's knowledge shall be deemed to
include the knowledge of Favilla. Sellers and the Shareholders hereby jointly
and severally represent and warrant as follows:
4.1 ORGANIZATION AND STANDING; SUBSIDIARIES.
(A) Each Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
Copies of each such corporation's Certificate of Incorporation and By-laws and
all amendments thereof to date, have been delivered to Buyer, and are complete
and correct. Each such corporation 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. Each such corporation is qualified (or is in the process of
qualifying to, and prior to the Closing, will be qualified) to do business as a
foreign corporation in each state where the ownership of its assets or the
conduct of its business makes such qualification necessary.
(B) Except as set forth on Schedule 4.1(b), no Seller
has any equity interest or investment in any other corporation, limited
liability company, partnership, joint venture or other entity or association.
Schedule 4.1(b) sets forth a complete list of all subsidiaries, joint ventures
and partnerships in which any Seller is the record or beneficial owner of five
(5%) percent or more of the equity interest. All of the issued and outstanding
capital stock or other equity interest of the entities, if any, listed on
Schedule 4.1(b) hereto is owned of record and beneficially by the listed Seller
or by one of the listed wholly-owned subsidiaries except as listed on Schedule
4.1(b).
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4.2 AUTHORITY.
(A) Each Seller has the full corporate power and
authority to make, execute, deliver and perform this Agreement including all
Schedules and Exhibits hereto, and the other agreements, instruments,
certificates and documents required or contemplated hereby or thereby to be
executed or delivered by it, (collectively the "SELLER TRANSACTION DOCUMENTS")
and all of the transactions contemplated hereby and thereby. Such execution,
delivery, performance and consummation have been duly authorized by all
necessary action, corporate or otherwise, on the part of each Seller, its
shareholders and all necessary consents of holders of indebtedness of each
Seller have been obtained or will be obtained on or prior to Closing.
(B) Each Shareholder has the full legal power and
capacity to make, execute, deliver and perform this Agreement including all
applicable Schedules and Exhibits hereto, and the other agreements, instruments,
certificates and documents required or contemplated hereby or thereby to be
executed or delivered by him or her ("SHAREHOLDER TRANSACTION DOCUMENTS", and
collectively with the Seller Transaction Documents, the "GROUP TRANSACTION
DOCUMENTS"), and all of the transactions contemplated hereby and thereby. Such
execution, delivery, performance and consummation have been or will be made in
the exercise of each such Shareholder's free will and volition, and any
necessary consents of holders of indebtedness of such Shareholders have been
obtained or will be obtained on or prior to Closing.
4.3 BINDING EFFECT. This Agreement and the Group Transaction
Documents executed by any Seller or Shareholder constitute the legal, valid and
binding obligations of such Seller or such Shareholder, as the case may be,
enforceable against it, him or her, as the case may be, in accordance with their
respective terms.
4.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution
or delivery of this Agreement or any of the Group Transaction Documents by any
Group Participant nor the performance by any Group Participant of the
transactions contemplated hereby and thereby, conflicts with, or constitutes a
breach of or a default under or the termination of (a) in the case of each
Seller, its Articles of Incorporation or By-laws; or (b) any judgment, order,
writ, injunction, or decree of any court applicable to any Group Participant; or
(c) any applicable laws, ordinances, orders, rules or regulations ("GOVERNMENTAL
REQUIREMENTS") of any Federal, state, local or other governmental or
quasi-governmental agency, bureau, board, administrator, court, commission,
department, instrumentality, body or other authority having jurisdiction over
it, him or her ("GOVERNMENTAL AUTHORITIES"); or (d) any agreement, indenture,
contract or instrument to which any Group Participant is now a party or by which
any of them or any of the Assets is bound.
4.5 CONSENTS. Except as set forth on Schedule 4.5 and Schedule
4.10, no authorization, consent, approval, license, exemption by filing or
registration with any Governmental Authority, is or will be necessary in
connection with any Group Participant's entry into, execution, delivery and
performance of this Agreement or any of the Group Transaction Documents, or for
the consummation of the transactions contemplated hereby and thereby.
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4.6 SCHEDULE OF ASSETS AND PROPERTIES. Set forth on Schedule
4.6 are complete and accurate lists of all of the following items of Assets to
the extent material as of the date of this Agreement as follows:
(A) all machinery, vehicles and equipment, office
equipment, furniture and supplies owned or leased by either Seller and any other
items of personal property (not otherwise set forth on a schedule hereto) that
comprise or are otherwise used by either Seller in connection with any part of
the Business; and
(B) all patents, trademarks, service marks,
copyrights, or applications for any of the same, franchises, rights and other
authorizations (other than consents as set forth on Schedule 4.5 and Licenses as
set forth on Schedule 4.10 hereof), if any, and any other item of intellectual
property owned, possessed or used by either Seller or any other person in the
operation of any of the Business, other than Bethoughtful Assets and the assets
of Dynamic (the "PROPRIETARY RIGHTS"). Schedule 4.6 sets forth any of the
foregoing items which have been registered under any state or federal statute.
All of the Proprietary Rights of Seller are fully and freely assignable by it,
and are free and clear of all Liens.
4.7 CONTRACTS.
(A) Schedule 4.7(b) sets forth a complete and correct
list of all material agreements, leases, contracts and commitments whether
written or oral, relating to the Business or to which either Seller is a party
or by which any Seller or any of the Assets are bound (the "CONTRACTS"). For
purposes of this Agreement, unwritten "at will" employment agreements with
individual employees shall not be deemed to be Contracts. The Group has
delivered, or prior to Closing will deliver, to Buyer true, complete and correct
copies of each written Contract and a written description of each oral Contract.
The Contracts were entered into and require performance in the ordinary course
of business and are in full force and effect. Except as set forth on Schedule
4.7(b), no Seller is in default under any Contract, and, except as set forth on
Schedule 4.7(b), there has not been asserted, either by or against any Seller
under any Contract, any notice (written or oral) of default, set-off or claim of
default. Except as set forth on Schedule 4.7(b), to the knowledge of the Group,
the parties to the Contracts other than Sellers are not in default of any of
their respective obligations under any of the Contracts, and there has not
occurred any event which with the passage of time or the giving of notice (or
both) would constitute a default or breach under any Contract except for past
due accounts receivable due to Sellers as set forth on the aged accounts
receivables listing attached hereto as Schedule 4.7(b), which listing is true
and complete as of the date that is ten (10) days prior to the date hereof.
Schedule 4.7(b) lists all amounts payable or receivable under each of the
Contracts as of the date hereof, and such Schedule 4.7(b) will at the Closing
Date, be revised to be true as of such Closing Date. Except as set forth in
Schedule 4.7(b), the Contracts are freely and fully assignable to Buyer without
the consent of the remaining parties thereto. Except as set forth on Schedule
4.7(b), no Group Participant has received notice (oral or written) or has
knowledge that any of the Contracts will be terminated within ninety (90) days
from the Closing Date by any party thereto pursuant to any provision thereof
permitting any such party to terminate such Contract with or without cause.
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(B) Except as listed in Schedule 4.7(b), no Seller is
a party to or liable in connection with and no Seller has granted any written or
express, oral or implied:
(I) contract, agreement or commitment for
the employment or retention of, or collective bargaining, severance or
termination of or with, any director, officer, employee, consultant or agent or
group of employees or any non-competition, confidentiality or similar agreement
with any such person or persons;
(II) agreement or arrangement for the sale
of any of its assets, property or rights outside the ordinary course of business
or requiring the consent of any party to the transfer and assignment of any such
assets, property or rights (by sale of assets, sale of stock, merger or
otherwise);
(III) contract which contains any provisions
requiring either Seller to indemnify or act for any other person or entity or to
guaranty or act as surety for any other person or entity or that requires any
person or entity to indemnify any other person or entity for any obligation of
any Seller or to guaranty or act as a surety for any other person or entity;
(IV) agreement restricting any Seller or any
other person or entity from conducting business anywhere in the world for any
period of time or restricting its, his or her use or disclosure of any
confidential or proprietary information;
(V) partnership, joint venture or management
contract or similar arrangement or agreement which involves a right to share
profits or future payments with respect to the business of either Seller or any
portion thereof or the business of any other person or entity;
(VI) agreement with any nursing home, day
activity center, assisted living unit, hospital, home care or outpatient clinic,
or other facility with respect to the provision of Rehab Services or Restorative
Services to patients or residents ("PROVIDER CONTRACTS");
(VII) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or other similar
contract, arrangement or commitment; or
(VIII) agreement, other than a lease set
forth in a Provider Contract, granting a leasehold or other interest in real
property (the "LEASES");
(IX) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock purchase, severance pay,
pension, retirement hospitalization, insurance or other similar plan, agreement
or arrangement applicable to any employee, consultant or agent to Seller not
covered by clause (i) above;
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(X) contract, agreement, lease, license,
understanding or arrangement with the Bethoughtful Division or Dynamic; or
(XI) except as set forth in clauses (i)
through and including (x) above, agreement not made in the ordinary and normal
course of business and consistent with past practice or involving consideration
in excess of $25,000 except as set forth in Schedule 4.17.
4.8 FINANCIAL STATEMENTS.
(A) (I) Attached hereto as Schedule 4.8(a)(i) are the
unaudited consolidated financial statements of Sellers for the fiscal years
ending December 31, 1994, the audited consolidated financial statements of
Sellers for the fiscal year ending December 31, 1995, and the unaudited
consolidated financial statements of Sellers for the fiscal year ending December
31, 1996, and the unaudited consolidated financial statements of Sellers for
each month, commencing with the month beginning January 1, 1996 and ending on
March 31, 1997 (the "FINANCIAL STATEMENTS"). The Financial Statements (including
any related notes thereto) are true and correct in all material respects and
present fairly the financial condition and results of operations of Sellers on a
consolidated basis as, at and for the periods therein specified and were
prepared in accordance with GAAP except as expressly set forth on Schedule 4.8
(a)(i). The books of account of each Seller from which the Financial Statements
were prepared accurately and in all material respects reflect all of the items
of income and expense, assets, liabilities and accruals of Sellers on a
consolidated basis. The income statements included in the Financial Statements
do not contain any items of special or nonrecurring income or expense or any
other income not earned or expense not incurred in the ordinary course of
business except as expressly specified therein, and such financial statements
include all adjustments, which consist only of normal recurring accruals,
necessary for such fair presentation.
(II) Attached hereto as Schedule 4.8(a)(ii)
are the unaudited consolidated financial statements of Sellers for each fiscal
month beginning June 1, 1996 and ending on March 31, 1997, in each case,
adjusted to exclude therefrom the results of operations and the effect of the
Bethoughtful Division and Dynamic Interest (the "ADJUSTED FINANCIAL
STATEMENTS"). The Adjusted Financial Statements (including any related notes
thereto) are true and correct in all material respects and present fairly the
financial condition and results of operations of Sellers on a consolidated basis
after adjustment to exclude the results of operations and the effect of the
Bethoughtful Division and Dynamic Interest as, at and for the periods therein
specified and were prepared in accordance with GAAP except as expressly set
forth on Schedule 4.8(a)(ii).
(B) The unaudited consolidated balance sheet
contained in the Financial Statements as at December 31, 1996 (the "BALANCE
SHEET") reflects all liabilities as of the date thereof, and no Seller has any
Liabilities that are not reflected thereon, except for such current Liabilities
as have been incurred since the date of the Balance Sheet in the ordinary course
of business consistent with past practice and Liabilities listed on Schedule
4.8(b). To the best
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knowledge of the Group, except as disclosed on Schedule 4.8(b), there is no
basis for the assertion against either Seller of any Liability of any nature or
in any amount (other than current or scheduled Liabilities as aforesaid) not
fully reflected or reserved against in the Balance Sheet.
4.9 MATERIAL CHANGES. Except as noted on Schedule 4.9 or as
expressly noted as such on Schedule 4.19 hereto, between the date of the Balance
Sheet and the date hereof there has not been any material adverse change in the
condition (financial or otherwise), of the assets (taken as a whole), properties
or operations of either Seller, and each Seller has conducted its business only
in the normal course, consistent with past practice.
4.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 4.10
sets forth a description of (a) each license and all other permits and approvals
of Governmental Authorities relating to the operation of any part of the
Business heretofore obtained and that is now in effect, including, without
limitation, certifications for participation or enrollment in, and all provider
contracts and numbers with respect to, all Medicare and Medicaid programs and
other third party reimbursement sources, and all other approvals required for
capital reimbursement; and (b) each other license, permit, easement, right or
other authorization that is necessary for the operation of any part of the
Business (collectively, the "LICENSES"). Seller has delivered to Buyer true,
correct and complete copies of all of the Licenses and the applications
therefor. Schedule 4.10 also sets forth a description of each accreditation of
the Business, copies of which Sellers have delivered to Buyer. Sellers or, to
the extent described on Schedule 4.10, Sellers' employees, own, possess or have
the legal right to use the Licenses, free and clear of all Liens other than as
set forth on Schedule 4.10. No Seller, and no licensed employee of any Seller,
is in default under, and no Seller has received any notice of any claim or
default or any other claim or proceeding relating to, any such License. The
Sellers are fully and completely licensed by all appropriate Governmental
Authorities to carry on all aspects of the Business. Except to the extent
described on Schedule 4.10, no shareholder, director or officer, employee or
former employee of either Seller, or any other person, firm or entity owns or
has any proprietary, financial or other interest, direct or indirect, in whole
or in part in any such License owned, possessed or used in the operation of any
aspect of the Business.
4.11 TITLE, CONDITION TO PERSONAL PROPERTY.
(A) Except as otherwise specifically set forth
herein, each Seller has good and marketable title to all of the personal
property comprising the Assets, subject to no liens, claims, security interests,
mortgages, pledges, charges, easements, rights of setoff, restraints on
transfers, restrictions on use, options, conditional sale agreements, subleases,
sublicenses and encumbrances of any kind or nature whatsoever, other than
Permitted Liens ("LIENS"). Except for Permitted Liens, no person other than the
applicable Seller has any right to the use or possession of any of such
property, and, except as set forth on Schedule 4.11(a), no currently effective
financing statement with respect to such personal property has been filed in any
jurisdiction, and, except as set forth on Schedule 4.11(a), no Seller has signed
any such financing statement or any security agreement authorizing any secured
party thereunder to file any such
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financing statement. Except with respect to Permitted Liens, all such financing
statements will be removed at or prior to Closing. Since its formation, each
Seller has conducted its business activities only under the corporation and/or
trade names set forth in Section 1.1 hereto. All of such personal property
comprising equipment, improvements, furniture and other tangible personal
property, whether owned or leased, is in good operating condition and repair
except for normal wear and tear in the ordinary course of business, and is
functioning in the manner and for the purpose for which it was intended and is
in compliance with (and the operation thereof is in compliance with) all
applicable Governmental Requirements. The Assets, including without limitation,
the personal property referred to above, the inventory included therein, and the
Leased Properties, Contracts, Proprietary Rights and Sellers' Medicare and
Medicaid certification and provider numbers are sufficient and suitable to
enable Buyer to operate the Business in the ordinary and usual manner as
conducted by Sellers.
(B) "PERMITTED LIENS" means:
(I) each lien or encumbrance set forth on
Schedule 4.11(b) hereto;
(II) carriers', warehouseman's, mechanics,
materialmen's, repairmen's or other like liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days;
(III) 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, provided that each such
deposit shall be included in the Assets and shall not exceed $15,000 in any one
case, or $75,000 in the aggregate; and
(IV) pledges or deposits in connection with
worker's compensation, unemployment insurance, and other social security
legislation.
(C) Except as set forth on Schedule 4.11(c), no
tangible personal property used by any Seller in connection with the operation
of the Business is subject to a lease, conditional sale, or similar arrangement.
Schedule 4.11(c) sets forth a true, complete and correct copy of each of the
personal property leases relating to the Business as to which any Seller is a
party (together with all modifications or amendments thereto), the annual rental
and unexpired lease term thereby and all the information set forth thereon is
true, complete and correct.
4.12 TITLE, CONDITION OF THE LEASED PROPERTIES.
(A) No Seller owns any real property or, other than
the Leases, has a leasehold or other interest in any real property. The
applicable Seller has a valid leasehold interest, free and clear of all Liens,
in each of the properties covered by the Leases (the "LEASED PROPERTIES").
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(B) Except as set forth on Schedule 4.12(b), there
are no leases, subleases or other agreements of any Seller as lessor or
sublessor, granting any third party the right to use or occupy any of the Leased
Properties and, except as set forth on Schedule 4.12(b), to the knowledge of the
Group, no person, firm or entity has any ownership interest (other than the
landlord thereunder) or option or right of first refusal to acquire any
ownership interest in any of the Leased Properties.
(C) The operations and use by each Seller of the
buildings and other improvements comprising any of the Leased Properties (the
"IMPROVEMENTS") comply with and do not violate in any material respect the
applicable lease or any zoning, building or similar law, ordinance, order or
regulation or any statement of occupancy issued for or in respect of the
Business. There has been no violation by either Seller or, to the Group's
knowledge, any of their predessors-in-interest, of any Governmental Requirement
affecting any of the Leased Properties and no written notice of any such
violation has been issued by any Governmental Authority. To the Group's
knowledge, the Improvements and all of their systems, including without
limitation, the heating, ventilating and air condition systems, and the
plumbing, electrical, mechanical and drainage systems, and roofs are in good
operating condition, repair and working order (except for normal wear and tear
which has not had a material adverse effect on the condition thereof), and have
passed all previous safety and/or licensing inspections.
4.13 LEGAL PROCEEDINGS. Other than as set forth on Schedule
4.13, there are no disputes, claims, actions, suits or proceedings, arbitrations
or investigations, either administrative or judicial, pending, or, to the
Group's knowledge, threatened or contemplated, nor, to the Group's knowledge, is
there any basis therefor, against or affecting either Seller or any of the
Assets or either Seller's rights therein or the ability of any Group Participant
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, including, without limitation, any
of the foregoing relating to the infringement of proprietary rights. No
Participant of the Group has received any requests for information with respect
to the transactions contemplated hereby from any Governmental Authority.
4.14 EMPLOYEES. Schedule 4.7(b) and Schedule 4.14 together
contain a true, complete and correct list of the name, position, current rate of
compensation and any vacation or holiday pay, sick pay, personal leave and any
other compensation arrangements or fringe benefits, of each current employee,
consultant and agent of Seller (together with a description of any specific
arrangements or rights concerning such persons that are not reflected in any
agreement or document referred to in Schedule 4.7(b). Each Seller is in
compliance with all Governmental Requirements applicable to any of the employee
benefit plans, agreements and arrangements identified on Schedule 4.7(b),
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). No such employee, consultant or commission agent has
any vested or unvested retirement benefits or other termination benefits, except
as described on Schedule 4.7(b). The Balance Sheet contains an adequate reserve
for vacation, sick leave, severance and all other employee-related accruals.
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4.15 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT
PRACTICES, ETC. During the two (2) years prior to the Closing Date, there has
been, to the knowledge of the Group, no material adverse change in the
relationship between either Seller and any two or more employees acting together
materially affecting either Seller, nor has there been any strike or labor
disturbance by any of such employees affecting the Business and there is no
indication that such a change, strike or labor disturbance is likely. No
employees of either Seller are represented by any labor union or similar
organization in connection with their employment by or relationship with, any
Seller, and to the Group's knowledge there are no pending or threatened
activities the purpose of which is to achieve such representation of all or some
of such employees. To the Group's knowledge there are no threats of strikes,
work stoppages or pending grievances by any past or present employees of either
Seller that could have a material adverse effect on the operations of the
Business or the financial condition of either Seller. Except as set forth on
Schedule 4.15, no Seller has any collective bargaining or other labor contracts.
4.16 ERISA. No Seller maintains or makes contributions to and
no Seller has 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. No Seller maintains or makes contributions to or has 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").
4.17 INSURANCE AND SURETY AGREEMENTS. Schedule 4.17 contains a
true and correct list of: (a) all policies of fire, liability and other forms of
insurance held or owned by any Seller or otherwise in force and providing
coverage for the Business or any of the Leased Properties or Assets (including
but not limited to medical malpractice insurance, and any state sponsored plan
or program for worker's compensation); (b) all bonds, indemnity agreements and
other agreements of suretyship made for or held by any Seller or otherwise in
force and relating to the Business or any of the Leased Properties or Assets,
including a brief description of the character of the bond or agreement, the
name of the surety or the indemnifying party. Schedule 4.17 sets forth a
certificate of insurance for each such insurance policy, and true and complete
copies of each such insurance policy have been delivered to Buyer. Schedule 4.17
also sets forth a description of any claims made thereunder during the past two
years. Such policies are owned by Sellers, 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 4.17 are, and through the Closing Date
shall remain, in full force and effect. No Seller has been advised by any of its
insurance carriers of an intention to terminate or modify any such policies or
materially increase the premiums under any such policies.
4.18 RELATIONSHIPS. Except as disclosed on Schedule 4.18, no
officer, director or employee of either Seller, no Shareholder, no member of any
Shareholder's immediate family, and no person or entity which is controlled by,
under common control with or controlling any of them (each, an "AFFILIATE") has,
and at no time within the last two (2) years, while having such status as an
Affiliate, 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 Business.
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4.19 ABSENCE OF CERTAIN EVENTS. Except as set forth on
Schedule 4.9 or Schedule 4.19, since the date of the Balance Sheet, no Seller
has:
(A) sold, assigned, transferred or disposed of any of
its assets or properties, except in the ordinary course of business consistent
with past practice and replaced with Assets (other than Contracts) of at least
the same quality, type and quantity having an aggregate value at least equal to
the aggregate value of the items sold or otherwise disposed of;
(B) mortgaged, pledged or subjected to any Lien of
any nature whatsoever any of the other than Permitted Liens;
(C) sold or assigned, or made or suffered any
termination of, any Contract, or made or suffered any amendment of any Contract
except for amendments of Contracts made in the ordinary course of business
consistent with past practice and which would not affect earnings in excess of
five percent (5%) of the revenues under such Contract or otherwise be material,
and no Seller has received notice (written or oral) or has knowledge that any
Contract has been terminated or will be terminated or modified or amended (as
aforesaid);
(D) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees, or made any increase in, or any additions to, other benefits to which
any of such employees may be entitled;
(E) discharged or satisfied any Lien or encumbrance,
or paid any material Liabilities, other than in the ordinary course of business
consistent with past practice, or failed to pay or discharge when due any
Liabilities, the failure to pay or discharge of which has caused or may cause
any actual damage or risk of loss to any Seller or its Business or the Assets;
(F) incurred any Liabilities other than trade
payables and other operating liabilities which would be reflected on the date
incurred as current liabilities on a balance sheet of the applicable Seller in
accordance with GAAP, in each case in the ordinary course of business consistent
with past practice;
(G) changed any of the accounting principles followed
by it or the methods of applying such principles;
(H) canceled, modified or waived any debts or claims
held by it, other than in the ordinary course of business consistent with past
practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
(I) except as disclosed in a written notice to Buyers
as of the date hereof, declared or paid or set aside or reserved any amounts for
payment of any dividend or other distribution in respect of any shareholder
interest or other securities, or redeemed or
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repurchased or agreed to redeem or repurchase any shareholder interest or other
securities, or made any payment to any Affiliate except for payments of
compensation in the ordinary course of business consistent with past practice
and disclosed to Buyer as such;
(J) failed to collect, withhold and/or pay to any
proper governmental agency or authority, any federal, state or local income,
franchise, sales, use, withholding or similar tax required by applicable law to
be so collected, withheld and/or paid;
(K) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental body relating
to it or its property or received any threat thereof which could have or has had
a materially adverse effect on either Seller's condition (financial or
otherwise), properties, assets, liabilities, operations, business or prospects;
or
(L) entered into any material transaction other than
in the ordinary course of business consistent with past practice.
4.20 COMPLIANCE WITH LAWS.
(A) Except as set forth on Schedule 4.20, each Seller
is in compliance with all Governmental Requirements applicable to any or all of
it, its Assets and the operation of the Business. No Seller has received any
claim or notice that any of the Leased Properties or Assets is not in compliance
with any applicable Governmental Requirements. The Group shall report to Buyer,
within five (5) days after its receipt thereof, any written or oral claims or
notices that any of the Leased Properties or Assets are not in compliance with
any of the foregoing. The Business does not in any aspect constitute the
practice of medicine or any other regulated industry that a corporation may not
conduct in any state in which any Seller conducts business.
(B) At all times, each Seller has complied, and is
complying in all respects with all environmental and related Governmental
Requirements applicable to it, its Leased Properties, all other real properties
used by it in the operation of the Business, and its Assets, including, but not
limited to, the Resource Conservation and Recovery Act of 1976, as amended, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Federal Water Pollution Control Act, as amended by the Clean Water
Act, and subsequent amendments, the Federal Toxic Substances Control Act, as
amended, with respect to the environmental or healthful state, condition or
quality of any property (collectively "ENVIRONMENTAL LAWS"). The foregoing
representation and warranty applies to all aspects of the operation of the
Business and the use and ownership of the Assets including, but not limited to,
the use, handling, treatment, storage, transportation and disposal of any
hazardous, toxic or infectious waste, material or substance or (including
Medical Waste) and petroleum products, material or waste whether performed on
any of the Leased Properties or at any other location. No notice from any
Governmental Authority has ever been served upon either Seller, or any of its
agents or representatives claiming any violation of any Environmental Law, or
requiring or calling attention to the need for any work, repairs, or demolition,
on or in connection with any of such properties in order to comply with any
Environmental Law.
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4.21 TAX RETURNS.
(A) Except as set forth in Schedule 4.21(a), (i) all
Tax (as defined below) returns, statements, reports and forms required to be
filed with any Governmental Authority on or before the Closing Date by or on
behalf of each Seller (collectively, the "RETURNS"), have been or will be filed
on or before the Closing Date in accordance with all applicable Government
Requirements, and true and complete copies of all Returns with respect to income
or sales or use for any period during the three-year period ending on the date
hereof have been delivered to Buyer; (ii) as of the time of filing, the Returns
correctly reflected or will correctly reflect the material facts regarding the
income, business, assets, operations, activities and status of each Seller and
any other information required to be shown therein; and (iii) each Seller has
timely paid all Taxes other than as are being protested by Sellers in good faith
and as are described on Schedule 4.21(a).
(B) "TAX" (including, with correlative meaning, the
terms "TAXES" and "TAXABLE") means any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits tax, alternative or add-on minimum tax, customs duty or other
tax, fee assessment or charge of any kind whatsoever, together with any interest
and any penalty, addition to tax or additional amount imposed by any
Governmental Authority.
4.22 ENCUMBRANCES CREATED BY THIS AGREEMENT. Except as set
forth on Schedule 4.22, neither the execution and delivery of this Agreement nor
the execution and delivery of any of the Group Transaction Documents creates,
and the consummation of the transactions contemplated hereby or thereby will not
create, any Liens on any of the Assets in favor of third parties.
4.23 QUESTIONABLE PAYMENTS. No Seller, no shareholder,
director, officer, controlling person or employee of either Seller, and no
Affiliate of any Seller, (a) has used any corporate funds of either Seller 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
payment in consideration for or to induce any referrals or recommendations.
4.24 REIMBURSEMENT MATTERS. Except as disclosed on Schedule
4.24, (a) no Seller and, to the Group's knowledge, no nursing home, hospital or
other facility with respect to which either Seller provides services has
received any notice of denial or recoupment from the Medicare or Medicaid
programs, or any other third party reimbursement source (inclusive of managed
care organizations) with respect to products or services provided by either
Seller, (b) to the Group's knowledge, there is no valid basis for any such
denial or recoupment claim, and (c) no Seller and, to the Group's knowledge, no
nursing home, hospital or other facility with respect to which either Seller
provides services has received notice from any Medicare or Medicaid
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program or any other third party reimbursement source (inclusive of managed care
organizations) of any pending or threatened investigations or surveys
specifically with respect to, or arising out of, products or services provided
by either Seller, and to the Group's knowledge, no such investigation or survey
is pending, threatened or imminent. Attached hereto as Schedule 4.24 are true,
correct and complete copies of all Medicare cost reports relating to the
Business submitted for the last three (3) full reporting periods ending on
December 31, 1993, 1994 and 1995, and a copy of the estimated annual cost report
for the cost report period ending December 31, 1996, and if one has been
prepared, the estimated interim quarterly cost report prepared internally for
the first fiscal quarter of 1997. The information contained in such reports is
true, correct and complete in all respects, and with respect to the report for
the period ending December 31, 1996 and, if applicable, the first fiscal quarter
of 1997 is true, correct and complete to the best knowledge of the Group
Participants and is subject to further adjustments before final submission.
Except as described on Schedule 4.24, each such Medicare cost report was timely
filed with the appropriate Governmental Authority.
4.25 QUESTIONNAIRE. The healthcare law questionnaire
heretofore delivered to Sellers by Buyer (the "QUESTIONNAIRE") and attached
hereto as Exhibit 4.25 has been fully and accurately completed and will not
contain any material misstatement of any fact and does not omit any fact that
would have to be stated in order not to render any response to such
Questionnaire materially misleading.
4.26 RSI AGREEMENT. Sellers have satisfied (and as of the
Closing Date will have satisfied) in full all of their obligations to the other
parties to the RSI Documents (the "RSI SELLERS") arising out of the RSI
Documents that are due or are to be performed on or prior to the date hereof (or
the Closing Date, as the case may be) other than as set forth on Schedule 4.26
hereto, Sellers have not breached any of their representations or warranties or
covenants arising out of any of the RSI Documents, and the RSI Sellers have not,
to the Group's knowledge breached any of their representations, warranties or
covenants under any RSI Document. Attached hereto as Exhibit 4.26 is a true and
complete copy of the RSI Agreement and each other RSI Document. The transactions
contemplated by the RSI Documents are in compliance with all applicable
Governmental Requirements.
4.27 FINDERS. No broker or finder has acted for any Group
Participant in connection with the transactions contemplated by this Agreement
other than RDI Group (the "Broker"), and other than the Broker, no 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 any Participant of the Group.
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ARTICLE V: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS
Buyer and IHS, jointly and severally, represent and warrant to
the Group as follows:
5.1 ORGANIZATION AND STANDING. Each of Buyer and IHS has been
duly incorporated and is validly existing in good standing under the laws of the
State of Delaware. Each such corporation 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. Each such corporation is qualified (or is in the process of
qualifying to, and prior to the Closing will be qualified) to do business as a
foreign corporation in each state where the ownership of its assets or the
conduct of its business makes such qualification necessary.
5.2 POWER AND AUTHORITY. Each of IHS and Buyer has the
corporate power and authority to make, execute, deliver and perform this
Agreement including all Schedules and Exhibits hereto and all of the
transactions contemplated hereby and thereby and all of the instruments and
agreements required to be delivered by it to the Group at the Closing
(collectively the "BUYER/IHS TRANSACTION DOCUMENTS") and all of the transactions
contemplated hereby and thereby. Such execution, delivery, performance and
consummation have been duly authorized by all necessary action, corporate or
otherwise, on the part of each such corporation, its shareholders and all
necessary consents of holders of indebtedness of each such corporation have been
obtained.
5.3 BINDING AGREEMENT. This Agreement has been duly executed
and delivered by each of IHS and Buyer. This Agreement is, and when executed and
delivered by Buyer or IHS, as the case may be, at the Closing, each of the
Buyer/IHS Transaction Documents executed by Buyer or IHS, as the case may be,
will be, the legal, valid and binding obligation of Buyer or IHS, as the case
may be, enforceable against Buyer or IHS, as the case may be, in accordance with
their respective terms.
5.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution
or delivery of this Agreement or any of the Buyer/IHS Transaction Documents by
Buyer or IHS, as the case may be, nor the performance by Buyer or IHS, as the
case may be, of the transactions contemplated hereby and thereby, conflicts
with, or constitutes a breach of or a default under or the termination of (a)
the Articles of Incorporation or By-Laws of Buyer or IHS, as the case may be; or
(b) any applicable judgment, order, writ, injunction, or decree of any court; or
(c) any applicable Governmental Requirement of any Governmental Authorities; or
(d) except as set forth on Schedule 5.4 hereto, any agreement, indenture,
contract or instrument to which Buyer or IHS, as the case may be, is now a party
or by which any of them or any of their respective assets are bound.
5.5 CONSENTS. Except as set forth on Schedule 4.5 or Schedule
5.5, no authorization, consent, approval, license, exemption by filing or
registration with any Governmental Authority, is or will be necessary in
connection with the entry by Buyer or IHS into, execution, delivery and
performance of this Agreement or any of their respective Buyer/IHS Transaction
Documents, or for the consummation of the transactions contemplated hereby and
thereby.
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5.6 SEC DOCUMENTS. IHS has furnished Sellers and the
Shareholders with a correct and complete copy of its report on Form 10-K for its
fiscal years ended December 31, 1996, its proxy statement prepared in connection
with its annual meeting held on May 23, 1996, and each press release or other
schedule or report required by it to be publicly disclosed or filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act
since January 1, 1997 (the "SEC DOCUMENTS"). As of their respective dates, none
of the SEC Documents contained any untrue statements, or omitted to make any
disclosures, which, in light of the circumstances would render any of such
documents materially misleading, and the SEC Documents complied when filed in
all material respects with the then applicable requirements of the Exchange Act,
and the rules and regulations promulgated by the Commission thereunder. Since
January 1, 1997, IHS has made all filings with the SEC and all public
disclosures required to be made by it in accordance with the Exchange Act.
5.7 MATERIAL CHANGES. Except as noted on Schedule 5.7 hereto,
between the date of the balance sheet included in the Form 10-K for the fiscal
year ended December 31, 1996 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 IHS.
5.8 IHS STOCK. Upon delivery to Sellers in accordance with the
terms of this Agreement, each share of IHS Stock shall be duly authorized,
validly issued, and nonassessable.
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE SELLERS
6.1 ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to
the Closing Date, Buyer may make, or cause to be made, such investigation of
each Seller's financial and legal condition as Buyer deems necessary or
advisable to familiarize itself with such Seller and/or matters relating to its
history or operation. Each Seller shall permit Buyer and its authorized
representatives (including legal counsel and accountants), to have full access
to each Seller's books and records in the possession or under the effective
control of any Group Participant upon reasonable notice and during normal
business hours, and Seller will furnish, or cause to be furnished, to Buyer such
financial and operating data and other information and copies of documents with
respect to such Seller'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, each Seller's tax returns and
related work papers since its inception (to the extent in the possession or
control of any Group Participant on or after the date hereof) and each Seller
shall make, or cause to be made, extracts thereof as Buyer or its
representatives may request from time to time to enable Buyer and its
representatives to investigate the affairs of each Seller and the accuracy of
the representations and warranties made in this Agreement. Each Seller shall use
its best efforts to cause Seller's accountants to cooperate with Buyer and to
disclose and make available to Buyer all books and records and the results of
audits relating to such Seller and to produce the working papers relating
thereto. Sellers will, subject to mutually acceptable conditions and schedules,
permit Buyer (or its representatives) to meet with and interview Seller's
employees and representatives that are responsible for the responses to, or have
information with respect to, the questions set forth on the Questionnaire.
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ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
7.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of
this Agreement and the Closing, each Seller shall maintain its existence and
shall conduct its business in good faith and in the ordinary course consistent
with past practice.
7.2 NEGATIVE COVENANTS OF SELLERS. Without the prior written
approval of Buyer, which approval shall not be unreasonably withheld, no Seller
shall between the date hereof and the Closing (or the earlier termination of
this Agreement):
(A) cause or permit to occur any of the events or
occurrences described in Section 4.19 (Absence of Certain Events) of this
Agreement; or
(B) dissolve or reorganize, or merge or consolidate
or enter into a share membership interest exchange with or into any other
entity; or
(C) make any change to its by-laws or articles of
incorporation; or
(D) sell or dispose of any Assets other than
supplies, inventory and obsolete equipment sold, consumed or used in the usual
and ordinary course of business and consistent with past practice; such Seller
shall replace all items thus disposed of with Assets of at least the same
quality, type and quantity having an aggregate value at least equal to the
aggregate value of the items sold or otherwise disposed of; or
(E) perform, take or fail to take any action or incur
or permit to exist any of the acts, transactions, events or occurrences of a
type which would have been inconsistent with the representations, warranties and
covenants set forth in this Agreement had the same occurred prior to the date
hereof; or
(F) enter into any agreement, contract, commitment,
lease or instrument including, without limitation, agreements with nursing
homes, hospitals and other facilities for the provision of Rehab Services or
Restorative Services, except for agreements, in each case which are entered into
in the ordinary and customary course of business with unrelated third parties on
customary terms and conditions and for customary prices as disclosed to Buyer;
or
(G) take any action that would prevent any Group
Participant from consummating the transactions contemplated by this Agreement.
7.3 AFFIRMATIVE COVENANTS OF SELLERS. Between the date hereof
and the Closing, each Seller shall:
(A) maintain the Assets in substantially the state of
repair, order and condition as on the date hereof, reasonable wear and tear or
loss by insured casualty excepted;
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(B) maintain in full force and effect all Licenses
currently in effect with respect to either Seller or the Business;
(C) maintain in full force and effect the insurance
policies and binders currently in effect with respect to each Seller, or
replacements thereof approved by Buyer (such approval not to be unreasonably
withheld);
(D) use its reasonable efforts to preserve intact its
present business operations and organization; keep available the services of its
present employees and agents; and maintain its relations and good will with
patients, suppliers, vendors, employees, and any others having business relating
to it;
(E) maintain all of the books and records relating to
each Seller in accordance with its past practices;
(F) comply in all material respects with all
provisions of all Contracts and with any other material agreements that either
Seller has entered into after the date hereof, and comply in all material
respects with the provisions of all Governmental Requirements applicable to
either Seller, the Assets or the Business;
(G) cause to be paid when due, all Taxes imposed upon
it or on any of its properties or which it is required to withhold and pay over;
and
(H) promptly advise Buyer in writing of: (i) the
threat (oral or written) or commencement against or by either Seller of any
claim, action, suit or proceeding, arbitration or investigation that could
materially adversely effect Seller's operations, properties, assets or
prospects; or (ii) any actual or threatened (oral or written) termination of any
Contract.
7.4 PURSUIT OF CONSENTS AND APPROVALS. Promptly upon execution
of this Agreement, Buyer shall diligently proceed to use all reasonable efforts
to obtain, at its own cost and expense, all Required Approvals (as hereinafter
defined). Sellers shall diligently cooperate with and use their reasonable
efforts to assist Buyer in obtaining all such approvals.
7.5 SUPPLEMENTARY FINANCIAL INFORMATION. Within twenty (20)
days after the end of each calendar month between the date of this Agreement and
the Closing Date, each Seller shall provide to Buyer unaudited financial
statements (including at a minimum income statements, a balance sheet and a
statement of cash flows) for such month then ended that shall present fairly the
results of the operations of such Seller (exclusive of the Bethoughtful Division
and Dynamic operations) at such date and for the period covered thereby, all in
accordance with GAAP (except as otherwise expressly stated therein), in each
case, certified as true and correct by such Seller.
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7.6 EXCLUSIVITY. Until the earlier of Closing or the
termination of this Agreement pursuant to Section 11.1, no Seller 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 of the
Assets, or in respect of the sale of any shares of capital stock in either
Seller.
7.7 CERTAIN PERMITTED TRANSACTIONS. Notwithstanding anything
to the contrary contained in Sections 7.1, 7.2 or 7.3, Sellers shall be
permitted to pay cash bonuses to employees, make cash distributions to
stockholders of Sellers, make intercompany transfers of assets and liabilities
between Sellers, and to renegotiate (and make up-front cash payments to the
employees under) the Employment Agreements identified pursuant to Section
4.7(b)(i), in each case, subject to the following: the individual or aggregate
affect of the foregoing transactions shall not: (a) reduce Estimated Closing
Date Working Capital or the Closing Date Working Capital below the Required
Working Capital and shall not increase the Estimated Long-term Liabilities or
the Closing Date Long-term Liabilities above the Maximum Long-term Liabilities;
(b) shall not reduce the amount of cash included in the Current Assets below
$75,000; and (c) shall not have a material adverse affect on the Business or the
Assets (in the aggregate). Sellers shall give Buyer reasonable prior notice of
any such intended transaction. The non-competition and confidentiality
provisions set forth in the Employment Agreements referred to above shall not be
waived without the prior consent of Buyer, which consent shall not unreasonably
be withheld, delayed or conditioned.
ARTICLE VIII: CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND IHS
The obligations of Buyer and IHS to consummate the
transactions contemplated by this Agreement to occur at the Closing 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 IHS in writing.
Upon failure of any of the following conditions, Buyer or IHS may terminate this
Agreement prior to Closing pursuant to and in accordance with Article XI herein.
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Seller and each Shareholder made under this Agreement and
under each Group Transaction Document 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; provided, however, that the
representation and warranty contained in Section 4.9 and any other
representation or warranty that is modified by a "materiality" exception, shall
be true in all respects.
8.2 PERFORMANCE OF COVENANTS. Each Seller and each Shareholder
shall have performed or complied in all material respects with their respective
agreements and covenants required by this Agreement and each Group Transaction
Document to be performed or complied with by it, her or him prior to or at the
Closing; provided, however, that to the extent compliance with any covenant is
modified by a "materiality" exception, such covenant shall have been complied
with in all respects.
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8.3 DELIVERY OF CLOSING CERTIFICATE. The President of each
Seller and each Shareholder shall have executed and delivered to Buyer and IHS a
certificate, dated the Closing Date, upon which Buyer and IHS may rely,
certifying that the conditions set forth in Sections 8.1 and 8.2 have been
satisfied.
8.4 OPINIONS OF COUNSEL. The Group shall have delivered to
Buyer and IHS an opinion, dated the Closing Date, of its counsel, in such form
and substance as attached hereto as Exhibit 8.4, provided that as to any factual
matters such counsel may rely on its actual knowledge and the truth and accuracy
of the representations and warranties made by the Group contained in this
Agreement, the Group Transaction Documents and certificates supplied to such
counsel by the Group and Governmental Authorities.
8.5 LEGAL MATTERS. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person or Governmental Authority that questions the enforceability,
validity or legality of this Agreement or the transactions contemplated hereby,
including, without limitation, Buyer's proposed use of the Assets.
8.6 AUTHORIZATION DOCUMENTS. Buyer and IHS shall have received
a certificate of the Secretary or other authorized officer of each Seller
certifying a copy of resolutions of its Board of Directors and shareholders
authorizing such Seller's execution and full performance of this Agreement and
the Group Transaction Documents to which such Seller is a party and the
incumbency of its officers.
8.7 APPROVALS.
(A) With the exception of required consents from
parties to Designated Contracts, the consent or approval of all persons and
Governmental Authorities necessary for the consummation of the transactions
contemplated hereby shall have been granted, and each license, permit and
approval of each Governmental Authority having jurisdiction thereof necessary
for Buyer to operate the Business shall have been issued or granted to Buyer
(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 Business, or (ii) shall impose on
Buyer or IHS any condition or provision or requirement with respect to Buyer,
IHS or the Business that is more restrictive than or different from that imposed
by such Governmental Authority prior to Closing.
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8.8 BILL OF SALE AND ASSIGNMENT. Each Seller shall have
executed and delivered to Buyer a Bill of Sale (each, a "BILL OF SALE") and an
Assignment and Assumption Agreement (each, an "ASSIGNMENT AND ASSUMPTION")
respectively in the forms of Exhibits 8.8-1 and 8.8-2.
8.9 NON-COMPETITION AGREEMENTS. Each Seller, each Shareholder
and Favilla shall have entered into a Non-competition, Non-solicitation and
Confidentiality Agreement in the respective forms of Exhibits 8.9-1, 8.9-2,
8.9-3 and 8.9.4 (each a "NON- COMPETITION AGREEMENT"), for no further
consideration, with Buyer, pursuant to which it, he or she shall agree that
after the Closing Date for the period set forth below (the "NON-COMPETE
PERIOD"), it, he or she will not, directly or indirectly, for itself, himself,
or herself, or on behalf of any other person, firm, entity or other enterprise,
be employed by, be an officer, director or manager of, act as a consultant for,
be a partner in, have a proprietary interest in, or loan money to any person,
enterprise, partnership, association, corporation, joint venture or other entity
which is directly or indirectly in the business of owning, operating or managing
any contract rehabilitation business, licensed or unlicensed, competitive with
any of those of Buyer, or any of its Affiliates, located in the States of
Minnesota or North Dakota. The Non-Competition Agreements shall not prohibit the
ownership of less than 2% of the issued and outstanding stock of any competitive
business whose stock is listed on a national securities exchange or traded on
the NASDAQ national market system. Each Non-Competition Agreement also shall
contain confidentiality and non-solicitation provisions. The Non-Compete Period
shall be five (5) years from the Closing Date in the case of Sellers, and in the
case of each Shareholder, shall terminate five (5) years from the date that his
or her employment or consulting agreement with Buyer shall terminate, and in the
case of Favilla, shall terminate three (3) years from the date that his
employment agreement with Buyer shall terminate.
8.10 EMPLOYMENT AND CONSULTING AGREEMENTS. Buyer shall have
entered into an employment agreement and/or consulting agreement with each of
the Shareholders and Favilla in the respective forms of Exhibits 8.10-1, 8.10-2
and 8.10-3 respectively, and with such other employees as identified by Buyer on
Schedule 8.10 hereto in form and substance satisfactory to Buyer and each such
person. Such employment and consulting agreements shall contain confidentiality,
non-competition and non-solicitation provisions reasonably satisfactory to
Buyer. It is expressly agreed that Buyer shall not assume or be liable for any
"phantom stock" or similar obligation in favor of Favilla; it being understood
and agreed that Sellers shall pay any such amounts to him when and as the same
become due.
8.11 COBRA. Each Seller shall have given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
Closing under this Agreement.
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8.12 ASSETS TRANSFERRED AT CLOSING. Except as otherwise
provided concerning Designated Contracts, each Seller shall have delivered or
caused to be delivered to Buyer possession of the Assets (or the right to obtain
possession on demand). Each Seller shall also execute and deliver to Buyer at
Closing such UCC financing statements as shall be necessary or appropriate to
record the assignment to Buyer of all recorded security interests held by either
Seller as secured party. All Assets shall be free and clear of all Liens, other
than Permitted Liens. Without limiting the generality of the foregoing, UCC-3
termination statements or releases shall have been executed and delivered by RSI
to Buyer covering all effective financing statements in favor of RSI (or its
successors or assigns) covering any of the Assets, and all funds, if any, held
by RSI (or its successors or assigns) pursuant to any escrow arrangements, but
only to the extent payable to Sellers and included as Current Assets for
purposes of Section 2.3(c) with respect to the transactions contemplated by the
RSI Purchase Agreement shall have been released from such escrow arrangements
and delivered to Buyer.
8.13 CHANGE OF NAME. Each Seller shall have taken such
reasonable steps as Buyer shall have requested to change its name so as not to
include any tradenames or service names included in the Assets.
8.14 HART-SCOTT-RODINO ACT. All applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R ACT")
shall have expired or been terminated, and no action shall have been taken or
formal protest made by the United States Department of Justice (the "DOJ") or
the Federal Trade Commission (the "FTC") or any other person or entity to
prohibit the transactions contemplated by this Agreement by reason of a claimed
violation of any antitrust laws. Without limiting the foregoing, no obligation
arising out of the H-S-R Act shall have been imposed on Symphony Rehab or
Sellers to divest any material portion of its business by reason of the
transactions contemplated by this Agreement. The parties shall have until June
20, 1997, to satisfy the foregoing condition, and if the foregoing condition
shall not have been satisfied by such date, either party may elect to terminate
this Agreement for failure to satisfy this condition in accordance with Article
XI hereof; provided, however, that if, on or prior to June 20, 1997, the DOJ or
the FTC shall have made a second request for additional information or if any
other action shall have been taken or formal protest made by the DOJ, the FTC or
any other person to prohibit the transactions contemplated by this Agreement (or
to require the divestiture of any material portion of the business of Symphony
Rehab or Sellers), in each case by reason of any antitrust law, with respect to
the transactions contemplated hereby, the parties' respective rights to
terminate as provided above shall not be exercisable until August 4, 1997.
8.15 DOCUMENTS. Each Seller and each Shareholder shall have
furnished Buyer and IHS with all other documents, certificates and other
instruments required to be furnished to Buyer or IHS by such Group Participant
pursuant to the terms hereof.
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ARTICLE IX: CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
AND THE SHAREHOLDERS
The obligations of Sellers and the Shareholders to consummate
the transactions contemplated hereby to occur at the Closing 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 Sellers in writing. Upon failure of
any of the following conditions, Sellers may terminate this Agreement prior to
Closing pursuant to and in accordance with Article XI herein.
9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer and IHS made under this Agreement and under each Buyer/IHS
Transaction Document 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; provided, however, that to the extent any representation
or warranty is modified by a "materiality" exception such representation or
warranty shall be true in all respects.
9.2 PERFORMANCE OF COVENANTS. Each of Buyer and IHS shall have
performed or complied in all material respects with their respective agreements
and covenants required by this Agreement and each Buyer/IHS Transaction Document
to be performed or complied with by it prior to or at the Closing; provided,
however, that to the extent compliance with any covenant is modified by a
"materiality" exception, such covenant shall have been complied with in all
respects.
9.3 DELIVERY OF CLOSING CERTIFICATE. An authorized officer of
each of Buyer and IHS shall have executed and delivered to Sellers and the
Shareholders a certificate, dated the Closing Date, upon which Sellers and
Shareholders may rely, certifying that the conditions set forth in Sections 9.1
and 9.2 have been satisfied.
9.4 OPINIONS OF COUNSEL. Buyer and IHS shall have delivered to
Sellers and the Shareholders an opinion, dated the Closing Date, of its counsel,
in such form and substance (as attached hereto as Exhibit 9.4, provided that as
to any factual matters such counsel may rely on its actual knowledge and the
truth and accuracy of the representations and warranties made by Buyer and IHS
contained in this Agreement, the Buyer/IHS Transaction Documents and
certificates supplied to such counsel by representatives of IHS and Buyer and of
Governmental Authorities.
9.5 LEGAL MATTERS. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person or Governmental Authority that questions the enforceability,
validity or legality of this Agreement or the transactions contemplated hereby.
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9.6 AUTHORIZATION DOCUMENTS. Each Seller and Shareholder shall
have received a certificate of the Secretary or other authorized officer of
Buyer and of IHS certifying a copy of resolutions of its Board of Directors
authorizing its execution and full performance of this Agreement and the
Buyer/IHS Transaction Documents to which it is a party and the incumbency of its
officers.
9.7 NECESSARY CONSENTS. The consent or approval of all
Governmental Authorities necessary for the consummation of the transactions
contemplated hereby shall have been granted.
9.8 ASSIGNMENT AND ASSUMPTION. Buyer shall have executed and
delivered to each Seller an Assignment and Assumption Agreement.
9.9 HART-SCOTT-RODINO ACT. All applicable waiting periods
under the H-S- R Act shall have expired or been terminated, and no action shall
have been taken or formal protest made by the DOJ or FTC or any other person or
entity to prohibit the transactions contemplated by this Agreement by reason of
a claimed violation of any antitrust laws. Without limiting the foregoing, no
obligation arising out of the H-S-R Act shall have been imposed on Sellers to
divest any material portion of their business by reason of the transactions
contemplated by this Agreement. The parties shall have until June 20, 1997, to
satisfy the foregoing condition, and if the foregoing conditions shall not have
been satisfied by such date, either party may elect to terminate this Agreement
for failure to satisfy this condition in accordance with Article XI hereof;
provided, however that if, on or prior to June 20, 1997, the DOJ or the FTC
shall have made a second request for additional information or if any other
action shall have been taken or formal protest made by the DOJ, FTC or any other
person to prohibit the transactions contemplated by this Agreement (or to
require the divestiture of any material portion of the business of Sellers) in
each case, by reason of any antitrust law, with respect to the transactions
contemplated hereby, the parties' respective rights to terminate as provided
above shall not be exercisable until August 4, 1997.
9.10 EMPLOYMENT AND CONSULTING AGREEMENTS. Buyer shall have
executed and delivered employment agreements and/or consulting agreements with
each Shareholder and Favilla in the forms of Exhibits 8.10-1, 8.10-2 and 8.10-3,
respectively.
9.11 PURCHASE PRICE. Buyer and IHS shall have tendered payment
in full of the Purchase Price to Sellers according to the terms of this
Agreement.
9.12 OFFICE LEASE GUARANTY RELEASES. Each Shareholder shall
have been released from his or her personal guaranty of any obligations under
the Office Lease that Buyer assumes pursuant to this Agreement, or IHS and Buyer
shall have agreed to indemnify such Shareholders from any such Liability assumed
by Buyer under such Office Lease.
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9.13 OTHER DOCUMENTS. Buyer and IHS shall have furnished each
Seller and Shareholder with all documents, certificates and other instruments
required to be furnished to any of them by Buyer or IHS pursuant to the terms
hereof.
ARTICLE X: OBLIGATIONS OF THE PARTIES AFTER CLOSING
10.1 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. Notwithstanding any
investigation conducted before or after the Closing or the decision of any party
to consummate the Closing, each party hereto shall be entitled to rely and is
hereby declared to have reasonably relied upon the representations and
warranties of the other party.
10.2 INDEMNIFICATION.
(A) Each Seller and each Shareholder jointly and
severally shall indemnify and defend Buyer and IHS and each of their respective
shareholders, directors, officers, employees, agents and advisors, and each of
their respective successors and assigns ("BUYER INDEMNITEES") against and with
respect to any and all damages, losses, claims, liabilities, deficiencies, costs
and expenses (including, without limitation, reasonable attorney's fees and
expenses) (all of the foregoing hereinafter collectively referred to as "LOSS")
resulting from (i) any misrepresentation, breach of warranty, or failure to
fulfill any agreement or covenant on the part of any Group Participant under
this Agreement or any Group Transaction Document; (ii) any Taxes resulting from
the operation of the Business or ownership of any of the Assets for any period
ending on or before the Closing Date; (iii) all Reimbursement Liabilities; (iv)
any Loss relating to any Unassumed Liability of Seller or other Group
Participant; (v) any Loss arising out of any bulk transfer act (whether relating
to liabilities in general or taxes or otherwise); (vi) any Loss arising out of
the noncompliance of either Seller with COBRA or any like statute; and (vii) any
and all actions, suits, proceedings, demands, assessments, judgments,
settlements (to the extent approved by Sellers, such approval not to be
unreasonably withheld, delayed or conditioned) costs and legal and other
expenses incident to any of the foregoing.
Without limiting the foregoing, the Group hereby represents
and warrants to Buyer and IHS that it has complied with any and all bulk
transfer act or similar procedures applicable to the transactions herein
contemplated to the extent they exist and are applicable.
(B) Buyer and IHS jointly and severally covenant and
shall defend, hold harmless and indemnify each Group Participant and each of
their respective shareholders, directors, officers, employees, agents and
advisors, and each of their respective successors and assigns ("GROUP
INDEMNITEES") against and with respect to any and all Losses resulting from: (i)
any misrepresentation, breach of warranty, or failure to fulfill any agreement
or covenant on the part of Buyer or IHS under this Agreement or any Buyer/IHS
Transaction Document, (ii) any Assumed Obligation, (iii) any Loss resulting from
Buyer's operation of the Business after the
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Closing Date and not arising out of any breach of any representation or warranty
or covenant of any Group Participant, and (iv) any and all actions, suits,
proceedings, demands, assessments, judgments, settlements (to the extent
approved by IHS, such approval not to be unreasonably withheld, delayed or
conditioned) costs and legal and other expenses incident to any of the
foregoing.
(C) Any claim under this Section 10.2 for
indemnification for any breach of a representation or warranty or of any
covenant required to be satisfied on or prior to Closing must be asserted by
written notice by the first anniversary of the Closing Date, except that any
claim by any Buyer Indemnitee for indemnification arising out of a breach of any
of the representations and warranties of any of the Group Participants for any
tax matter may be asserted any time prior to expiration of the applicable
statute of limitations for the assertion of the related tax claim by the
government, and any such claim based on Reimbursement Liability may be brought
any time prior to a date which is thirty (30) days following expiration of the
applicable audit period for such liability. The foregoing time limitations shall
not apply to any indemnification obligation of any person or entity pursuant to
Section 2.4 (g) (v) hereof or with respect to any representation or warranty as
to the legal, valid, binding effect of, and enforceability of, any
Non-competition Agreement.
(D) Any Buyer Indemnitee shall be entitled (but shall
not be obligated) to offset against the Contingent Payment in accordance with
Section 2.1(c), any amount due to it by reason of any Group Participant's
obligations under this Section 10.2 hereof, including, without limitation, their
obligations to indemnify Buyer and IHS for any failure to make any payments
arising out of Purchase Price adjustments.
(E) If and to the extent that Buyer or IHS is
actually compensated by any Group Participant by reason of indemnification or
Purchase Price adjustment pursuant to this Agreement for any Loss incurred by it
arising out of any breach of any representation, warranty or covenant by RSI, or
if and to the extent Sellers or any Shareholder suffer any Loss with respect to
which there is a right to indemnification, under any RSI Document, at the
request of such Group Participant, Buyer shall in its sole discretion, either
seek, on behalf of such Group Participant, to enforce its rights to collect the
amount of such damages under such RSI Document with respect to such breach, or
assign to such Group Participant, Buyer's right to seek such enforcement of such
rights.
(F) Notwithstanding any other provision of this
Agreement, the aggregate indemnification obligations of the Group Participants,
on the one hand, and IHS and Buyer, on the other hand, shall not exceed an
amount equal to the Purchase Price (after all adjustments actually made), and no
Shareholder shall be required to indemnify any individual or combination of
Buyer Indemnitees for Losses in excess, in the aggregate, of an amount equal to
such Shareholder's percentage interest in the Purchase Price as set forth on
Schedule 10.2(e) hereto.
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(G) Notwithstanding any other provision of this
Agreement, the Group Participants on the one hand, and IHS and Buyer, on the
other hand, shall not have any obligation to indemnify the other party hereto
for any Losses incurred by it or them unless, until and to the extent the
aggregate amount of such Losses equals or exceeds $50,000; provided, however,
that the foregoing shall not apply to any obligations with respect to payments
of, or adjustments to, the Purchase Price, including without limitation,
adjustments under Sections 2.5 or 10.7 hereto.
(H) Absent actual fraud, the indemnification rights
and remedies of the parties as set forth in this Agreement shall be the sole
remedy for compensation for Losses of the parties after the Closing. The
foregoing shall not apply to remedies for breaches of covenants after the
Closing.
10.3 RESTRICTIONS.
(A) From and after the Closing Date, no Group
Participant shall disclose, directly or indirectly, to any person or entity, or
make use of, without the express authorization of IHS and Buyer, any non-public
pricing strategies or records of either Seller, any proprietary data or trade
secrets owned by either Seller, Buyer or IHS or any financial or other
information about any of them ("CONFIDENTIAL INFORMATION"); provided that the
foregoing restrictions shall not apply to any information which:
(I) is or becomes generally known to the
public through no wrongful act on the part of any Seller or Shareholder; or
(II) is or becomes known to the disclosing
party on a non- confidential basis from a third party without restriction and
without breach of this Agreement; or
(III) is approved for release by written
authorization signed by Buyer; or
(IV) is required to be disclosed in
accordance with applicable law; provided, however, prior to making any such
disclosure the party required to make such disclosure shall provide Buyer with
prompt notice of such requirement to enable Buyer to seek an appropriate
protective order and such party will use its best efforts to preserve the
confidentiality of such information and will disclose only that portion of the
information as is required to be disclosed.
(B) Each Group Participant acknowledges that the
restrictions contained in this Section 10.3 are reasonable and necessary to
protect the legitimate business interests of Buyer and IHS, and that any
violation thereof by any of them would result in irreparable harm to Buyer and
IHS. Accordingly, each Group Participant agrees that upon the violation by any
of them of any of the restrictions contained in this Section 10.3, Buyer and IHS
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.
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(C) Until Closing, or earlier termination of this
Agreement, the provisions of Paragraph 12 of the Letter of Intent among the
parties hereto (the "LETTER OF INTENT") dated as of January 9, 1996, and as
extended from time to time, shall survive.
10.4 RECORDS. On the Closing Date, each Seller shall use its
best efforts to deliver, or cause to be delivered, to Buyer all records and
files (other than Excluded Assets) not then in such Seller's possession relating
to the operation of the Business. Following the Closing, Buyer shall provide
either Seller and either Shareholder with access during business hours upon
reasonable prior notice (not less than two (2) business days), to such of its
financial records relating to the operation of the Business prior to the Closing
Date as such Seller or Shareholder shall reasonably request in connection with
the preparation by it, him or her of any tax returns, the collection of any
accounts receivable owned by any Seller, payment, investigation and defense of
Unassumed Liabilities, and as otherwise reasonably consented to by Buyer. Such
records shall be maintained and for the duration as required by applicable law.
Buyer also shall maintain all records relating to the business Sellers acquired
from RSI to the extent such records are delivered by Sellers to Buyer and are
required to be maintained by the RSI Documents as set forth on Schedule 10.4
hereof.
10.5 AUDIT. Following Closing, each Seller will cooperate with
and assist Buyer in a review of the financial statements of such Seller. Buyer
may, at its own expense, have an audit performed of such financial statement,
and each Seller and Shareholder will cooperate in the performance of such audit.
10.6 EMPLOYEES. In reliance on Sellers' representations and
warranties contained in Section 4.14, Buyer agrees (for the benefit of Sellers;
it being expressly understood that no Employees shall be third party
beneficiaries of this Section 10.6) to make offers of employment to
substantially all persons who are employees of Sellers on the date hereof and
who continue to be employees of either Seller immediately prior to the Closing
("EMPLOYEES"). Any Employee on short term disability or long term disability
shall be offered employment by Buyer only when and to the extent that such
Employee would have been entitled to reemployment under Sellers' applicable
written leave of absence or other written employment policies relating to the
Business. Buyer agrees to assume any liability arising out of any failure to
give any required notices to appropriate persons with respect to any employment
loss that may arise as a result of or following the sale contemplated by this
Agreement under the Worker Adjustment and Retraining Notification Act (the "WARN
ACT") and any other applicable similar state notification laws of the State of
Minnesota, except to the extent that any notifications are required by reason of
actions taken by Sellers.
10.7 REIMBURSEMENT PAYBACKS. Each Group Participant shall
reasonably cooperate with Buyer with respect to any action with respect to the
collection of any Reimbursement Payback that could materially interfere with
Buyer's relationship with the person, entity or Governmental Authority from whom
such Reimbursement Payback shall be due; provided, however, that the foregoing
shall not cause any Group Participant to forfeit any Reimbursement Payback.
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10.8 CLOSING COST REPORTS. Promptly following the Closing,
Rehab shall prepare and file a correct and complete Medicare cost report for the
interim period ending on the Closing Date in accordance with all applicable
Governmental Requirements.
ARTICLE XI: TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time
at or prior to the time of Closing by:
(A) Buyer, if any condition precedent to the
obligations of Buyer or IHS hereunder, including without limitation those
conditions set forth in Article VIII hereof, have not been satisfied by the
Closing Date or pursuant to Section 12.1 if any portion of the Assets is damaged
or destroyed as a result of fire, other casualty or from any reason whatsoever
or pursuant to Section 1.3(b) or Section 2.4(a);
(B) Sellers, if any condition precedent to the
obligations of the Group hereunder, including without limitation, those
conditions set forth in Article IX hereof, have not been satisfied by the
Closing Date or pursuant to Section 2.4(a);
(C) the mutual consent of Buyer and Sellers.
11.2 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 1.3(b), Section 2.4(a), or Section 12.1, 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 Section 10.2 hereof (and for such purposes
such Section 10.2 shall survive the termination of this Agreement). Furthermore,
nothing in this Section 11.2 shall affect Buyer's or Sellers' right to specific
performance of the obligations of the Group or of IHS and Buyer at Closing
hereunder.
ARTICLE XII: CASUALTY, RISK OF LOSS
12.1 CASUALTY, RISK OF LOSS. 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, 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 Group Members on account of any such casualty.
Nothing contained in this Section 12.1 shall limit or adversely affect the right
of Buyer and IHS to receive
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indemnification for any Losses incurred by either of them by reason of any
breach by any Group Participant of any representation, warranty or obligation
under this Agreement in accordance with Section 10.2 hereof (and for such
purposes such Section 10.2 shall survive the termination of this Agreement).
ARTICLE XIII: MISCELLANEOUS
13.1 COSTS AND EXPENSES. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby. The Group shall pay all fees and other amounts, if any, due to the
Broker. The Group shall pay all sales, transfer, recording, stamp and like taxes
payable in connection with any of the transactions contemplated by this
Agreement, and shall timely and truthfully complete and file any filings or
returns necessary in connection therewith. Buyer and IHS shall bear the cost of
obtaining the legal opinions referred to in Section 8.4(b) hereto, and the fees
payable in respect of any H-S-R Act filing. All of the Group's obligations under
this Section 13.1 shall constitute Unassumed Liabilities.
13.2 BENEFIT AND ASSIGNMENT. This Agreement binds and inures
to the benefit of each party hereto and its successors and assigns. Prior to
Closing, Buyer may not assign its interest under this Agreement to any other
person or entity without the prior written consent of Sellers; provided,
however, that prior to Closing Buyer may assign together its entire rights,
duties and obligations hereunder to one or more subsidiaries or affiliates of
IHS, except that no such assignment shall operate to relieve IHS of its
obligations hereunder. Sellers and the Shareholders may not assign their rights
or obligation under this Agreement without the prior consent of Buyer, which
consent shall not unreasonably be withheld.
13.3 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement
and the Exhibits, Schedules and the Transaction Documents 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, including, without limitation, the Letter of Intent, except to the
extent set forth in Section 10.3(c) hereto. The captions used herein do not
constitute part of this Agreement, 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.
13.4 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.
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13.5 NOTICES. All notices and demands required or permitted
hereunder shall be in writing and shall be deemed to be properly given or made
when personally delivered to the party or parties entitled to receive the notice
or two (2) business days after being sent by certified or registered mail,
postage prepaid, or the 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 any Group Participant: to or in care of:
Rehab Dynamics, Inc.
4001 Stinson Blvd., N.E.
Apache Medical Suite 100
Minneapolis, Minnesota 55421
Attention: Beth Kessler and David Nechas
With a copy to: Siegel, Brill, Greupner & Duffy, P.A.
1300 Washington Square
100 Washington Avenue South
Minneapolis, Minnesota 55401
Attention: Joel H. Jensen, Esq.
If to Buyer or IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, General Counsel
and
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Brian Davidson, Executive Vice President
With a copy to: Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
Attention: Andrew S. Bogen, Esq.
Such addresses may be changed by providing written notice as provided in this
Section 13.5.
13.6 WAIVER, DISCHARGE, ETC. This Agreement and the
Transaction Documents and the obligations hereunder and thereunder shall not be
released, discharged, abandoned, changed, waived or modified in any manner,
except by an instrument in writing executed by Sellers, if any Group Participant
is to be the party to be charged, and by Buyer, if Buyer or IHS
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is to be the party to be charged. 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.
13.7 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, and other than the
Buyer Indemnitees and Group Indemnitees pursuant to Section 10.2 hereto.
13.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Minnesota
applicable to contracts executed, delivered and to be fully performed in such
State, disregarding any contrary rules relating to the choice or conflict of
laws.
13.9 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
Sellers on behalf of the Group Members and by Buyer on behalf of Buyer and IHS.
13.10 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 10.3 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.
13.11 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 IHS and Sellers
shall jointly determine prior to Closing, or as shall be determined by IHS at or
after the Closing; provided that nothing herein shall prevent
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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.
13.12 JOINT AND SEVERAL. All obligations, representations,
warranties, covenants and agreements of any Group Participant under this
Agreement or any of the Group Transaction Documents shall be the joint and
several obligations, representations, warranties, covenants and agreements of
all of the Group Participants. All obligations, representations, warranties,
covenants and agreements of Rehab Buyer, Restorative Buyer or IHS under this
Agreement or any of the Buyer/IHS Transaction Documents shall be the joint and
several obligations, representations, warranties, covenants and agreements of
Rehab Buyer, Restorative Buyer and IHS.
[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.
INTEGRATED HEALTH SERVICES, INC.
BY:/s/ Elizabeth B. Kelly
----------------------------------
ITS:Executive Vice President-Corporate Development
----------------------------------------------
SYMPHONY REHAB DYNAMICS, INC.
BY:/s/ Elizabeth B. Kelly
----------------------------------
ITS:Executive Vice President-Corporate Development
----------------------------------------------
SYMPHONY RESTORATIVE THERAPY LIMITED
BY:/s/ Elizabeth B. Kelly
----------------------------------
ITS:Executive Vice President-Corporate Development
----------------------------------------------
REHAB DYNAMICS, INC.
BY: /s/ David Nechas
---------------------------------
ITS: President
--------------------------------
RESTORATIVE THERAPY LIMITED
BY:/s/ David Nechas
----------------------------------
ITS:President
---------------------------------
/s/ David Nechas
- -------------------------------------
David Nechas
/s/ Beth Kessler
- -------------------------------------
Beth Kessler
55
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
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 herein by reference, to the incorporation herein by
reference of our report dated October 17, 1996 relating to the consolidated
financial statements of First American Health Care of Georgia, Inc. and
subsidiaries, which report appears in Form 8-K/A of Integrated Health Services,
Inc. filed on November 26, 1996, as amended by Amendment No. 1 to Form 8-K/A
filed on July 11, 1997, and to the reference to our firm under the heading
"Experts" in the registration statement on Form S-3.
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.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
July 11, 1997
