AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1998
REGISTRATION NO. 333-48947
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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10065 Red Run Boulevard, Owings Mills, Maryland 21117, (410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Marshall A. Elkins, Esq., Executive Vice President and General Counsel
Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, (410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies of all communications, including all communications sent to the agent
for service, should be sent to:
<TABLE>
<S> <C>
Carl E. Kaplan, Esq. Leslie A. Glew, Esq.
Fulbright & Jaworski L.L.P. Senior Vice President and Associate General Counsel
666 Fifth Avenue Integrated Health Services, Inc.
New York, New York 10103 10065 Red Run Boulevard
(212) 318-3000 Owings Mills, Maryland 21117
(212) 752-5958(FAX) (410) 998-8400
(410) 998-8500(FAX)
</TABLE>
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Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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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(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.001 par value per
share (including the Preferred
Stock Purchase Rights)(3) ....... 467,668 $ 37.97 $ 17,757,353.96 $ 5,238.42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A registration fee in the amount of $5,901.26 relating to 513,753 shares of
Common Stock has previously been paid.
(2) 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 May 7, 1998.
(3) 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, DATED MAY 11, 1998
PROSPECTUS
981,421 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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This Prospectus relates to 981,421 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 May 8, 1998, the closing price of the Common Stock, as
reported in the NYSE consolidated reporting system, was $37.8125 per share.
The Company will not receive any of the proceeds from sales of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by the
Selling Stockholders (and their donees and pledgees) through ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
--------------
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 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 SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the Commission
(File No. 1-12306) pursuant to the Exchange Act is incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) The Company's Current Report on Form 8-K dated October 17, 1996 and
filed October 25, 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;
(c) The Company's Current Report on Form 8-K dated September 25, 1997 and
filed October 10, 1997, reporting the Company's acquisition of Community
Care of America, Inc. and the Lithotripsy Division of Coram Healthcare
Corporation, as amended by Form 8-K/A filed November 25, 1997;
(d) The Company's Current Report on Form 8-K dated October 21, 1997 and
filed November 5, 1997, reporting the Company's acquisition of RoTech
Medical Corporation, as amended by Form 8-K/A filed November 25, 1997;
(e) The Company's Current Report on Form 8-K dated December 31, 1997 and
filed January 14, 1998, reporting the acquisition of 139 owned, leased or
managed long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation, as amended by Form 8-K/A filed
March 16, 1998;
(f) The Company's Current Report on Form 8-K dated March 4, 1998 and
filed March 12, 1998, reporting the Company's revenues and operating
results for the fourth quarter and year ended December 31, 1997;
(g) 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
(h) 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 with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
Shares offered have been sold or which deregisters all Shares then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a previously filed document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be read
together with the information in the documents incorporated by reference.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS MILLS,
MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE PRESIDENT-INVESTOR
RELATIONS, TELEPHONE: (410) 998-8400.
3
<PAGE>
THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care,
skilled nursing facility care, home respiratory care, home health nursing care,
other homecare services and contract rehabilitation, hospice, lithotripsy 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. IHS'
post-acute healthcare system is intended to provide cost-effective continuity of
care for its patients in multiple settings and enable payors to contract with
one provider to provide all of a patient's needs following discharge from acute
care hospitals. The Company believes that its post-acute care network can be
extended beyond post-acute care to also provide "pre-acute" care, i.e., services
to patients which reduce the likelihood of a need for a hospital stay. IHS'
post-acute care network currently consists of approximately 2,000 service
locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, using geriatric care
facilities as platforms to provide a wide variety of subacute medical and
rehabilitative services more typically delivered in the acute care hospital
setting and using home healthcare to provide those medical and rehabilitative
services which do not require 24-hour monitoring. To implement its post-acute
care network strategy, IHS has focused on (i) 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; (ii) expanding the range of home
healthcare and related services it offers to patients directly in order to
provide patients with a continuum of care throughout their recovery, to better
control costs and to meet the growing desire by payors for one-stop shopping;
and (iii) developing subacute care units. Given the increasing importance of
managed care in the healthcare marketplace and the continued cost containment
pressures from Medicare, Medicaid and private payors, the Company has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. IHS' strategy is
to become a preferred or exclusive provider of post-acute care services to
managed care organizations and other payors.
In implementing its post-acute care network strategy, IHS 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, IHS 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 in October 1997 acquired RoTech Medical Corporation
("RoTech"), a provider of home healthcare products and services, with an
emphasis on home respiratory, home medical equipment and infusion therapy,
principally to patients in non-urban areas (the "RoTech Acquisition"). In
October 1997, IHS also acquired (the "Coram Lithotripsy Acquisition") the
lithotripsy division (the "Coram Lithotripsy Division") of Coram Healthcare
Corporation ("Coram"), which provided lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. IHS intends to use the home healthcare setting and
the delivery franchise of the home healthcare branch and agency network to (i)
deliver sophisticated care, such as skilled nursing care, home respiratory
therapy and rehabilitation, outside the hospital or nursing home; (ii) serve as
an entry point for patients into the IHS post-acute care network; and (iii)
provide a cost-effective site for case management and patient direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS acquired
Community Care of America, Inc. ("CCA"), which develops and operates skilled
nursing facilities in medically underserved rural communities (the
4
<PAGE>
"CCA Acquisition"). IHS believes that CCA will broaden its post-acute care
network to include more rural markets and will complement its existing home care
locations in rural markets as well as RoTech's business. In addition, in
December 1997, IHS acquired from HEALTHSOUTH Corporation ("HEALTHSOUTH") 139
owned, leased or managed long-term care facilities and 12 specialty hospitals,
as well as a contract therapy business having over 1,000 contracts and an
institutional pharmacy business serving approximately 38,000 beds (the "Facility
Acquisition").
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
IHS 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.
IHS presently operates 324 geriatric care facilities (267 owned or leased
and 57 managed), excluding 16 facilities acquired in the CCA Acquisition and 21
facilities acquired in the Facility Acquisition which are being held for sale,
and 158 MSUs located within 84 of these facilities. Specialty medical services
revenues, which include all MSU charges, all revenue from providing
rehabilitative therapies, pharmaceuticals, medical supplies and durable medical
equipment to all its patients, all revenue from its Alzheimer's programs and all
revenue from its provision of pharmacy, rehabilitation therapy, home healthcare,
hospice care and similar services to third-parties, constituted approximately
65%, 70% and 79% of net revenues during the years ended December 31, 1995, 1996
and 1997, respectively. IHS 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, 1997, approximately 35% of IHS' revenues were derived from home
health and hospice care, approximately 44% were derived from subacute and other
ancillary services, approximately 19% were derived from traditional basic
nursing home services, and approximately 2% were derived from management and
other services. On a pro forma basis after giving effect to the acquisitions
consummated by IHS in 1997, for the year ended December 31, 1997, approximately
30% of IHS' revenues were derived from home health and hospice care,
approximately 43% were derived from subacute and other ancillary services,
approximately 26% were derived from traditional basic nursing home services and
the remaining approximately 1% were derived from management and other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, the terms "IHS" and the "Company" include
Integrated Health Services, Inc. and its subsidiaries.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus (including the documents
incorporated by reference herein).
Risks Related to Substantial Indebtedness. The Company's indebtedness is
substantial in relation to its stockholders' equity. At December 31, 1997, IHS'
total long-term debt, including current portion, accounted for 74.8% of its
total capitalization. IHS also has significant lease obligations with respect to
the facilities operated pursuant to long-term leases, which aggregated
approximately $704.9 million at December 31, 1997. For the year ended December
31, 1997 the Company's rent expense was $105.1 million ($163.7 million on a pro
forma basis after giving effect to the acquisitions consummated by IHS in 1997).
In addition, IHS is obligated to pay an additional $155 million in respect of
the acquisition of First American during 2000 to 2004, of which $113.0 million
(representing the present value thereof) has been recorded at December 31, 1997.
The Company's strategy of expanding its specialty medical services and growing
through acquisitions may require additional borrowings in order to finance
working capital, capital expenditures and the purchase price of any
acquisitions. The degree to which the Company is leveraged, as well as its rent
expense, could have important consequences to securityholders, including: (i)
IHS' ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of IHS' cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' indebtedness contains financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. In addition, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS were unable to meet
interest, principal or lease payments, or satisfy financial covenants, it could
be required to seek renegotiation of such payments and/or covenants or obtain
additional equity or debt financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent IHS finances its activities with
additional debt, IHS may become subject to certain additional financial and
other covenants that may restrict its ability to pursue its growth strategy and
to pay dividends on the Common Stock. There can be no assurance that any such
efforts would be successful or timely or that the terms of any such financing or
refinancing would be acceptable to IHS. See "-- Risks Related to Capital
Requirements."
In connection with IHS' offering of its 9 1/4% Senior Subordinated Notes
due 2008 in September 1997 (the "9 1/4% Senior Notes"), Standard & Poors ("S&P")
confirmed its B rating of IHS' other subordinated debt obligations, but with a
negative outlook, and assigned the same rating to the 9 1/4% Senior Notes. In
November 1997, S&P placed the Company's senior credit and subordinated debt
ratings on CreditWatch with negative implications due to the proposed Facility
Acquisition and in January 1998 S&P downgraded IHS' corporate credit and bank
loan ratings to B+ and its subordinated debt ratings to B- as a result of the
Facility Acquisition. S&P stated that the speculative grade ratings reflect the
Company's high debt leverage and aggressive acquisition strategy, uncertainties
with respect to future government efforts to control Medicare and Medicaid and
the unknown impact on IHS of recent changes in healthcare regulation providing
for a prospective payment system for both nursing homes and home healthcare. S&P
noted IHS' outlook was stable. In connection with the offering of the 9 1/4%
Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about
6
<PAGE>
the Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the Company's new credit facility and the 9 1/4% Senior
Notes positioned the Company to complete sizable acquisition transactions using
solely debt. Moody's further noted that the rating reflects that there are
significant changes underway in the reimbursement of services rendered by IHS,
and that the exact impact of these changes is uncertain.
Risks Associated with Growth Through Acquisitions and Internal Development.
IHS' growth strategy involves growth through acquisitions and internal
development and, as a result, IHS is subject to various risks associated with
this growth strategy. The Company's planned expansion and growth require that
the Company expand its home healthcare services through the acquisition of
additional home healthcare providers and that the Company acquire, or establish
relationships with, third parties which provide post-acute care services not
currently provided by the Company and that the Company acquire, lease or acquire
the right to manage for others additional facilities. Such expansion and growth
will depend on the Company's ability to create demand for its post-acute care
programs, the availability of suitable acquisition, lease or management
candidates and the Company's ability to finance such acquisitions and growth.
The successful implementation of the Company's post-acute healthcare system,
including the capitation of rates, will depend on the Company's ability to
expand the amount of post-acute care services it offers directly to its patients
rather than through third-party providers. There can be no assurance that
suitable acquisition candidates will be located, that acquisitions can be
consummated, that acquired facilities and companies can be successfully
integrated into the Company's operations, or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "-- Risks Related to Managed Care Strategy" and "-- Competition."
The successful integration of acquired businesses, including First
American, RoTech, CCA, the Coram Lithotripsy Division and the facilities and
other businesses acquired from HEALTHSOUTH, is important to the Company's future
financial performance. The anticipated benefits from any of these acquisitions
may not be achieved unless the operations of the acquired businesses are
successfully combined with those of the Company in a timely manner. The
integration of the Company's recent acquisitions 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. The Company's 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.
7
<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 IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. The Company
believes that its home healthcare capabilities will be an important component of
its ability to provide services under capitated and other alternate fee
arrangements. However, to date there has been limited demand among managed care
organizations for post-acute care network services, and there can be no
assurance that demand for such services will increase. Further, IHS has limited
experience in providing services under capitated and other alternate fee
arrangements and setting the applicable rates. Accordingly, there can be no
assurance that the fees received by IHS will cover the cost of services
provided. If revenue for capitated services is insufficient to cover the
treatment costs, IHS' operating results could be adversely affected. As a
result, the success of IHS' managed care strategy will depend in large part on
its ability to increase demand for post-acute care services among managed care
organizations, to obtain favorable agreements with managed care organizations
and to manage effectively its operating and healthcare delivery costs through
various methods, including utilization management and competitive pricing for
purchased services. Additionally, there can be no assurance that pricing
pressures faced by healthcare providers will not have a material adverse effect
on the Company's business, results of operations and financial condition.
Further, pursuing a strategy focused on risk-sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk-sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the
risk-sharing activities of IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were precluded from providing services under risk-sharing fee
arrangements, its managed care strategy would be adversely affected. See "--
Uncertainty of Government Regulation."
Risks Related to Capital Requirements. IHS' growth strategy requires
substantial capital for the acquisition of additional home healthcare and
related service providers and geriatric care facilities. The effective
integration, operation and expansion of the existing businesses will also
require substantial capital. The Company expects to finance new acquisitions
from a combination of funds from operations, borrowings under its bank credit
facility and the issuance of debt and equity securities. IHS may raise
additional capital through the issuance of long-term or short-term indebtedness
or the issuance of additional equity securities in private or public
transactions, at such times as 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 senior subordinated debt securities were issued
limit the Company's ability to incur additional indebtedness unless certain
financial tests are met. See "-- Risks Related to Substantial Indebtedness."
Risks Related to Recent Acquisitions. IHS has recently completed several
major acquisitions, including the acquisitions of First American, RoTech, CCA
and the Coram Lithotripsy Division and the Facility Acquisition, and is still in
the process of integrating those acquired businesses. The IHS Board of Directors
and senior management of IHS face a significant challenge in their efforts to
integrate the acquired businesses, including First American, RoTech, CCA, the
Coram Lithotripsy Division and the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management re-
8
<PAGE>
sources to such integration may detract attention from the day-to-day business
of IHS. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. There
can be no assurance that there will not be substantial costs associated with
such activities or that there will not be other material adverse effects of
these integration efforts. Further, there can be no assurance that management's
efforts to integrate the operations of IHS and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
IHS has recently expanded significantly its home healthcare operations.
During the years ended December 31, 1996 and 1997, home healthcare accounted for
approximately 16.3% and 35.4%, respectively, of IHS' total revenues. On a pro
forma basis, after giving effect to the acquisitions and divestitures
consummated by IHS in 1996 and 1997, home healthcare accounted for approximately
28.8% and 29.6% of IHS' total revenues in 1996 and 1997, respectively. On a pro
forma basis, approximately 70.7% and 73.0% of IHS' home healthcare revenues were
derived from Medicare in the years ended December 31, 1996 and 1997,
respectively. On a pro forma basis, after giving effect to the acquisitions and
divestitures consummated by IHS in 1996 and 1997, home nursing services
accounted for approximately 64.2% and 56.2%, respectively, of IHS' home
healthcare revenues in these periods. Medicare has developed a national fee
schedule for infusion 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 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 prior to 1998. 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. The Balanced Budget Act of 1997 (the "BBA"), enacted in August 1997,
provides for a reduction in current cost reimbursement for home nursing care
pending implementation of a prospective payment system for home nursing services
for cost reporting periods beginning on or after October 1, 1999, and
implementation of a prospective payment system will be a critical element to the
success of IHS' expansion into home nursing services. Based upon prior
legislative proposals, IHS believes that a prospective payment system would most
likely provide a healthcare provider a predetermined rate for a given service,
with providers that have costs below the predetermined rate being entitled to
keep some or all of this difference. There can be no assurance that Medicare
will implement a prospective payment system for home nursing services in the
next several years or at all. The implementation of a prospective payment system
requires IHS to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. Until a prospective
payment system for home nursing services is introduced, IHS anticipates that
margins for home nursing will remain low and may adversely impact its financial
performance. IHS is currently exploring ways to reduce the impact of its home
nursing business on its financial performance, which may include a "spin-off" of
such operation. In addition, the BBA reduces the Medicare national payment
limits for oxygen and oxygen equipment used in home respiratory therapy by 25%
in 1998 and 30% (from 1997 levels) in 1999 and each subsequent year.
Approximately 50% of RoTech's total revenues for 1997 were derived from the
provision of oxygen services to Medicare patients. The inability of IHS to
realize operating efficiencies and provide home healthcare services at a cost
below the established Medicare fee schedule could have a material adverse effect
on IHS' home healthcare operations and its post-acute care network. See "-- Risk
of Adverse Effect of Healthcare Reform."
Reliance on Reimbursement by Third Party Payors. The Company receives
payment for services rendered to patients from private insurers and patients
themselves, from the Federal government under Medicare, and from the states in
which it operates under Medicaid. The healthcare industry is experiencing a
trend toward cost containment, as government and other third party payors seek
to impose lower reimbursement and utilization rates and negotiate reduced
payment schedules with service providers. These cost containment measures,
combined with the increasing influence of managed care payors and competition
for patients, has resulted in reduced rates of reimbursement for services
provided by IHS, which has adversely affected, and may continue to adversely
affect, IHS' margins, particularly in its skilled nursing and subacute
facilities. Aspects of certain healthcare reform proposals, such as cutbacks
9
<PAGE>
in the Medicare and Medicaid programs, reductions in Medicare reimbursement
rates and/or limitations on reimbursement rate increases, containment of
healthcare costs on an interim basis by means that could include a short-term
freeze on prices charged by healthcare providers, and permitting greater state
flexibility in the administration of Medicaid, could adversely affect the
Company. There can be no assurance that adequate reimbursement levels will
continue to be available for services to be provided by IHS which are currently
being reimbursed by Medicare, Medicaid or private payors. Significant limits on
the scope of services reimbursed and on reimbursement rates and fees could have
a material adverse effect on the Company's results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform." During the
years ended December 31, 1995, 1996 and 1997, the Company derived approximately
55%, 60% and 66%, respectively, of its patient revenues from Medicare and
Medicaid. On a pro forma basis after giving effect to the acquisitions and
divestitures consummated by IHS in 1996 and 1997, approximately 69% of the
Company's patient revenues have been derived from Medicare and Medicaid in each
of the years ended December 31, 1996 and 1997.
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. The BBA provides, among other things, for a prospective
payment system for skilled nursing facilities to be implemented for cost
reporting periods beginning on or after July 1, 1998, a prospective payment
system for home nursing to be implemented for cost reporting periods beginning
on or after October 1, 1999, a reduction in current cost reimbursement for home
nursing care pending implementation of a prospective payment system, reductions
(effective January 1, 1998) in Medicare reimbursement for oxygen and oxygen
equipment for home respiratory therapy and a shift of the bulk of home health
coverage from Part A to Part B of Medicare. The BBA also instituted consolidated
billing for skilled nursing facility services, under which payments for
non-physician Part B services for beneficiaries no longer eligible for Part A
skilled nursing facility care will be made to the facility, regardless of
whether the item or service was furnished by the facility, by others under
arrangement or under any other contracting or consulting arrangement, effective
for items or services furnished on or after July 1, 1997. 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 busi-
10
<PAGE>
ness generally. IHS expects that there will continue to be numerous initiatives
on the federal and state levels for comprehensive reforms affecting the payment
for and availability of healthcare services, including proposals that will
further limit reimbursement under Medicare and Medicaid. It is not clear at this
time what proposals, if any, will be adopted or, if adopted, what effect such
proposals will have on IHS' business. See "-- Risks Related to Recent
Acquisitions" and "-- Reliance on Reimbursement by Third Party Payors." There
can be no assurance that currently proposed or future healthcare legislation or
other changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on the Company or that payments under
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs. Concern about the potential effects of
the proposed reform measures has contributed to the volatility of prices of
securities of companies in healthcare and related industries, including the
Company, and may similarly affect the price of the Company's securities in the
future. See "-- Uncertainty of Government Regulation."
Under the new prospective payment system for Medicare reimbursement to
skilled nursing facilities, facilities will receive a pre-established daily rate
for each individual Medicare beneficiary being cared for, based on the activity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. It is anticipated that this prospective payment
system will be phased in over four years on a blended rate of the
facility-specific costs and the new federal per diem, which has not to date been
established. The blended rate for the first year of transition will take 75% of
the facility-specific per diem rate and 25% of the federal per diem rate. In
each subsequent transition year, the facility-specific per diem rate component
will decrease by 25% and the federal per diem rate component will increase by
25%, ultimately resulting in a rate based 100% upon the federal per diem. The
facility-specific per diem rate is based upon the facility's 1995 cost report
for routine, ancillary and capital services, updated using a skilled nursing
market basket index. The federal per diem is calculated by the weighted average
of each facility's standardized costs, based upon the historical national
average per diem for freestanding facilities. Prospective payment for IHS' owned
and leased skilled nursing facilities will be effective beginning January 1,
1999 for all facilities other than the facilities acquired from HEALTHSOUTH,
which will become subject to prospective payment on June 1, 1999. Prospective
payment for skilled nursing facilities managed by IHS will be effective for each
facility at the beginning of its first cost reporting period beginning on or
after July 1, 1998. The new prospective payment system will also cover ancillary
services provided to patients at skilled nursing facilities.
IHS anticipates that the prospective payment system for home nursing will
provide for prospectively established per visit payments to be made for all
covered services, which will then be 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 requires the Company to make contingent payments related to the
acquisition of First American of $155 million over a period of five years. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post- acute care network
strategy. See "-- Risks Related to Recent Acquisitions."
With respect to Medicaid, the BBA repeals the so-called Boren Amendment,
which required state Medicaid programs to reimburse nursing facilities for the
costs that are incurred by efficiently and economically operated providers in
order to meet quality and safety standards. As a result, states now have
considerable flexibility in establishing payment rates.
Uncertainty of Government Regulation. The Company and the healthcare
industry generally are subject to extensive federal, state and local regulation
governing licensure and conduct of operations at existing facilities,
construction of new facilities, acquisition of existing facilities, additions of
new services, certain capital expenditures, the quality of services provided and
the manner in which such services are provided and reimbursement for services
rendered. Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on licensure,
eligibility for participation, permissible activities, operating costs and the
levels of reimbursement from
11
<PAGE>
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 to assure continued compliance with various standards, their continued
licensing under state law and their certification under the Medicare and
Medicaid programs. In the course of these reviews, problems are from time to
time identified by these agencies. Although the Company has to date been able to
resolve these problems in a manner satisfactory to the regulatory agencies
without a material adverse effect on its business, there can be no assurance
that it will be able to do so in the future.
In 1995 the Health Care Financing Administration ("HCFA") implemented
stricter guidelines for annual state surveys of long-term care facilities and
expanded remedies available to enforce compliance with the detailed regulations
mandating minimum healthcare standards. Remedies include fines, new patient
admission moratoriums, denial of reimbursement, federal or state monitoring of
operations, closure of facilities and termination of provider reimbursement
agreements. These provisions eliminate the ability of operators to appeal the
scope and severity of any deficiencies and grant state regulators the authority
to impose new remedies, including monetary penalties, denial of payments and
termination of the right to participate in the Medicare and/or Medicaid
programs. The Company believes these new guidelines may result in an increase in
the number of facilities that will not be in "substantial compliance" with the
regulations and, as a result, subject to increased disciplinary actions and
remedies, including admission holds and termination of the right to participate
in the Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's
acquisition of poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium expired in January 1998, and implemented rules
requiring home healthcare providers to reapply for Medicare certification every
three years. In addition, HCFA will double the number of detailed audits of home
healthcare providers it completes each year and increase by 25% the number of
home healthcare claims it reviews each year. IHS cannot predict what effect, if
any, these new rules will have on IHS' business and the expansion of its home
healthcare operations.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Bills,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these fraud and abuse provisions liberally and
enforce them aggressively. The BBA contains new civil monetary penalties for
violations of these laws and imposes an affirmative duty on providers to insure
that they do not employ or contract with persons excluded from the Medicare
program. The BBA also provides a minimum 10 year period for exclusion from
participation in Federal healthcare programs of persons convicted of a prior
healthcare violation. 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
12
<PAGE>
arrangements in compliance with these laws and, from time to time, the Company
has sought guidance as to the interpretation of such laws; however, there can be
no assurance that such laws ultimately will be interpreted in a manner
consistent with the practices of the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform."
Competition. The healthcare industry is highly competitive and is subject
to continuing changes in the provision of services and the selection and
compensation of providers. The Company competes on a local and regional basis
with other providers on the basis of the breadth and quality of its services,
the quality of its facilities and, to a more limited extent, price. The Company
also competes with other providers in the acquisition and development of
additional facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could adversely impact the business of IHS. There can be no
assurance that IHS will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on IHS' business, financial condition and results of operations.
IHS also competes with various healthcare providers with respect to attracting
and retaining qualified management and other personnel. Any significant failure
by IHS to attract and retain qualified employees could have a material adverse
effect on its business, results of operations and financial condition.
Effect of Certain Anti-Takeover Provisions. IHS' Third Restated Certificate
of Incorporation and By-laws, as well as the Delaware General Corporation Law
(the "DGCL"), contain certain provisions that could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of IHS. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of
Common Stock. Certain of these provisions allow IHS to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of
13
<PAGE>
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.
RECENT DEVELOPMENTS
In March 1998 the Company sold five long-term care facilities to Omega
Healthcare Investors, Inc. ("Omega"), a publicly-traded real estate investment
trust, for approximately $50.5 million. Omega immediately leased these
facilities to Lyric Health Care LLC ("Lyric") at an annual rent of approximately
$4.95 million. Lyric is a newly-formed company 50% owned by IHS and 50% owned by
TFN Healthcare Investors, Inc., an entity controlled by Timothy Nicholson, a
director of the Company. The Company manages these facilities as well as five
other long-term care facilities which the Company sold to Omega and Omega leased
to Lyric in January 1998. The Company receives a base management fee of 3% of
gross revenues, subject to increase if gross revenues exceed $350 million, and a
franchise fee of 1% of gross revenues. The management agreement with Lyric
provides for an incentive management fee equal to 70% of annual net cash flow
(as defined in the management agreement).
In April 1998 the Company reached an agreement in principle to sell 44
facilities to Monarch Properties, Inc., a newly-formed real estate investment
trust ("Monarch"), for an aggregate purchase price of approximately $371
million. It is currently contemplated that Monarch will lease 42 of these 44
facilities to Lyric, and that Lyric will engage the Company to manage the
facilities pursuant to the arrangements described above. The transactions with
Monarch and Lyric are subject to completion of definitive documentation and
completion of Monarch's initial public offering, and there can be no assurance
that the transaction will be completed on these terms, on different terms or at
all. Dr. Robert N. Elkins, the Company's Chairman of the Board, Chief Executive
Officer and President, is Chairman of the Board of Directors of Monarch, and it
is currently contemplated that he will beneficially own between five and ten
percent of Monarch following completion of Monarch's public offering.
In April 1998 IHS acquired a company that operates 13 skilled nursing
facilities for approximately $15.9 million. The stockholder of this company is a
Selling Stockholder hereunder. The Company also purchased, for approximately
$5.5 million, seven companies which provide respiratory therapy services in
April 1998.
The Company has reached agreements in principle to purchase a company which
operates 31 skilled nursing facilities for approximately $53.2 million, two
lithotripsy operations for approximately $20.4 million and six respiratory
companies for approximately $19.5 million. There can be no assurance that any of
these acquisitions will be consummated on these terms, on different terms or at
all.
14
<PAGE>
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 February 1, 1998
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
ARCADIA SERVICES, INC.(1)
Dale G. Rands ................................................. 390 34 356
Joseph F. Galvin .............................................. 390 34 356
Stuart Sinai .................................................. 390 34 356
Ronald H. Riback .............................................. 390 34 356
James C. Foresman ............................................. 390 34 356
Lawrence N. Dudek ............................................. 195 17 178
Phillip J. Shefferly .......................................... 195 17 178
David B. Gunsberg ............................................. 195 17 178
David J. Gould and Laura M. Gould, joint tenants with rights
of survivorship ............................................. 195 17 178
Howard Zoller and Beth Zoller, joint tenants with rights of
survivorship ................................................ 195 17 178
Michael J. Eizelman and Shelley E. Eizelman, joint tenants with
rights of survivorship ...................................... 195 17 178
Robert J. Sandler ............................................. 780 67 713
Herbert J. Graebner ........................................... 70,767 13,203 57,564
Barbara Brewer ................................................ 6,899 596 6,303
Leonard E. Bellinson, Trustee for Leonard E. Bellinson Trust
Dated 3/1/82 ................................................ 45,806 13,742 32,064
Lawrence S. Jackier Irrevocable Trust U/A/D 9/1/94 ............ 390 34 356
Conbet Associates ............................................. 18,397 1,590 16,807
Beth Elaine Lowenstein Trust U/A/D 7/30/92 .................... 9,198 795 8,403
Rita M. Lord .................................................. 6,899 596 6,303
Jill Bader .................................................... 13,797 1,192 12,605
Charles Bader ................................................. 13,797 1,192 12,605
James C. Foresman and Cheryl A. Busbey, Co-Trustees of the
Douglas E. Busbey Trust ..................................... 390 34 356
Robert M. Egren ............................................... 531 46 485
Morris Rochlin ................................................ 13,266 1,146 12,120
Nicholas J. Pyett ............................................. 1,062 92 970
Lawrence S. Jackier, Trustee for Schlussel, Lifton, Simon,
Rands, Galvin & Jackier ..................................... 391 34 357
Cameron D. Hosner ............................................. 11,728 1,014 10,714
James L. Bellinson ............................................ 14,951 3,267 11,684
Gregory G. Glaesmer ........................................... 4,776 413 4,363
Gerald Vargo .................................................. 1,062 92 970
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
Arcadia Bidco Corporation ......................... 30,760 3,912 26,848
Mark E. Schlussel ................................. 390 34 356
Donald B. Lifton .................................. 390 34 356
Joel M. Shere ..................................... 195 17 178
Daniel D. Swanson ................................. 195 17 178
Carol Simon ....................................... 390 34 356
CoreStates Bank, N.A., as Escrow Agent(2) ......... 78,568 6,791 71,777
PARAGON REHABILITIVE SERVICES, INC.(3)
Philip Slive ...................................... 345,032 345,032 0
CoreStates Bank, N.A. as Escrow Agent(2) .......... 16,819 16,819 0
Blass & Driggs(4) .................................. 64,490 64,490 0
Calo Agostino(5) ................................... 10,428 10,428 0
Terry L. Cash(6) ................................... 435,886 435,886 0
Harbor Side Real Estate Consultants(7) ............. 1,098 1,098 0
Maher & Kallas, P.C.(4) ............................ 4,803 4,803 0
Panza, Maurer, Maynard & Neel, P.A.(4) ............. 5,296 5,296 0
Pamela J. Reichart(8) .............................. 12,082 12,082 0
Uro-Tech, Ltd.(9) .................................. 19,700 19,700 0
Vinick & Docherty(4) ............................... 16,629 16,629 0
</TABLE>
- ----------
(1) The shares offered hereby represent additional shares of Common Stock (the
"Additional Shares") received in exchange for the stock of Arcadia Services,
Inc. ("Arcadia") pursuant to the Agreement and Plan of Reorganization dated
as of July 24, 1997 because the average price of the 531,198 shares of
Common Stock issued to the Arcadia stockholders at the time of closing of
the acquisition (the "Original Shares") was higher than the average price of
the Common Stock at the time such shares were registered for resale under
the Securities Act. The number of Additional Shares is equal to the
difference between (i) the number of shares determined by dividing the
merger consideration of $18.7 million by the average closing price of the
Common Stock on the NYSE for the 30 trading days ending on the date
immediately preceding the date the registration statement covering the
resale of the Original Shares was declared effective and (ii) the number of
shares determined by dividing the merger consideration of $18.7 million by
the average closing price of the Common Stock on the NYSE for the 30 trading
day period immediately preceding the date which was two trading days prior
to the closing date of the acquisition. The column "Shares of Common Stock
Beneficially Owned Prior to Offering" includes, and the column "Shares of
Common Stock Beneficially Owned After Offering" consists of, shares of
Common Stock received at the closing of the acquisition. Of the shares of
Common Stock being registered hereunder, 6,791 shares are currently being
held in escrow, together with shares issued at the closing, to secure
indemnification obligations, accounts receivable with respect to a litigated
matter and merger consideration adjustments pursuant to the Agreement and
Plan of Reorganization. Merger consideration adjustments may be based on a
review of the working capital and long-term liabilities of Arcadia as of the
closing date, all on the terms set forth in the Agreement and Plan of
Reorganization.
(2) Does not include shares of Common Stock held in escrow for other
acquisitions.
(3) The shares offered hereby were received in exchange for the stock of Paragon
Rehabilitative Services, Inc. ("Paragon") pursuant to the Agreement and Plan
of Merger dated as of January 9, 1998. Of the shares of Common Stock being
registered hereunder, 16,819 shares are currently being held in escrow to
secure indemnification obligations and post-closing adjustments to the
merger consideration based on the levels of Paragon's working capital and
long-term liabilities on the closing date.
(4) The shares offered hereby were received in payment for legal services
rendered to the Company.
(5) The shares offered hereby were received in payment for legal services
rendered to the Company. Includes shares owned and being offered by Harbor
Side Real Estate Consultants, a wholly-owned subsidiary of Calo Agostino.
See Note 7 below.
(6) The shares offered hereby were received in exchange for the stock of The
Magnolia Group, Inc. ("Magnolia") and Medi-Serve, Inc. ("Medi-Serve")
pursuant to an Agreement and Plan of Merger dated as of February 28, 1998.
Of the 435,886 shares being registered hereunder, 14,416 shares are being
held in escrow to secure indemnification obligations and post-closing
adjustments to the merger consideration based on the levels of Magnolia's
and Medi-Serve's working capital and long-term liabilities. Under the
agreement, IHS is obligated to issue additional shares of Common Stock if
the working capital exceeds, and/or long-term liabilities are less than,
specified levels.
(7) The shares offered hereby were received in payment for real estate
consulting services rendered to the Company. This Selling Stockholder is
owned by Calo Agostino. See Note 5 above.
(8) The shares offered hereby were received in exchange for the assets of Jersey
Shore Portable X-Ray, Inc. pursuant to an Asset Purchase Agreement dated as
of March 16, 1998.
(9) The shares offered hereby were received in exchange for an 18% partnership
interest in Southwest Lithotripter Partners, Ltd. pursuant to a Limited
Partnership Interest Purchase Agreement dated as of February 28, 1998.
16
<PAGE>
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On August 29, 1997, the Company acquired through merger all of the
outstanding stock of Arcadia Services, Inc., which provides home health care
services, medical staffing services and clerical and light industrial staffing
services. The merger consideration was $17.2 million, which was paid though the
issuance of 581,451 shares of the Company's Common Stock. The Additional Shares
are being offered hereby.
On January 31, 1998, the Company acquired all the outstanding capital stock
of Paragon Rehabilitative Services, Inc., which provides contract rehabilitation
services to nursing homes, long-term care facilities and other healthcare
facilities. The merger consideration was $10.8 million, which was paid through
the issuance of 361,851 shares of the Company's Common Stock (the "Paragon
Shares"). The Paragon Shares are being offered hereby.
On February 28, 1998, the Company acquired an 18% limited partnership
interest in Southwest Lithotripter Partners, Ltd. The purchase price for the
interest was $630,000, which was paid through the issuance of 19,700 shares of
the Company's Common Stock (the "Uro-Tech Shares"). The Uro-Tech Shares are
being offered hereby.
On March 16, 1998, the Company acquired all the assets of Jersey Shore
Portable X-Ray, Inc. The purchase price for the assets was $400,000, which was
paid through the issuance of 12,082 shares of the Company's Common Stock (the
"JSP Shares"). The JSP Shares are being offered hereby.
On April 24, 1998, the Company acquired all the outstanding stock of The
Magnolia Group, Inc., which operates 13 skilled nursing facilities, and
Medi-Serve, Inc., which provides pharmaceutical and Medicare Part B services.
The merger consideration was $16.0 million, which was paid through the issuance
of 435,886 shares of Common Stock (the "Magnolia Shares"). The Magnolia Shares
are being offered hereby.
17
<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 Arcadia Group has agreed not to sell in excess of 100,000 shares of
Common Stock during any 30-day period and to effect sales solely through Smith
Barney Inc. The holder of the Paragon Shares has agreed not to sell in excess of
75,000 shares of Common Stock during any 30-day period and to effect sales
solely through Salomon Smith Barney Inc. The holder of the Magnolia Shares has
agreed not to sell in excess of 130,000 shares in any 30-day period during the
first 120 days after the date of this Prospectus and thereafter not more than
100,000 shares in any 30-day period, and in each case to effect sales solely
through Salomon Smith Barney Inc. The holder of the JSP Shares has agreed to
effect sales solely through Salomon Smith Barney Inc.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the Shares, such Selling
Stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Securities Exchange Act of 1934, as amended,
which Regulation would prohibit, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such distribution
until his participation in that distribution is completed. In addition,
Regulation M under the Exchange Act prohibits, with certain exceptions, any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into with
the Company to indemnification against liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Fulbright & Jaworski
L.L.P., New York, New York. At April 30, 1998, partners of Fulbright & Jaworski
L.L.P. owned an aggregate of 300 shares of Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1996 and 1997 and for each of the years in
the three-year period ended December 31, 1997 have been incorporated by
reference in this Prospectus and elsewhere in the Registration State-
18
<PAGE>
ment in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP refers to changes in accounting methods, in 1995, to adopt Statement of
Financial Accounting Standards No. 121 related to impairment of long-lived
assets and, in 1996, from deferring and amortizing pre-opening costs of Medical
Specialty Units to recording them as expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference in
this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 1996), in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP contains an explanatory
paragraph regarding the uncertainty with respect to certain contingent payments
which may be payable under a settlement agreement with the Health Care Financing
Administration.
The consolidated financial statements of Community Care of America, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated by reference in this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the change in accounting method in 1
996 to adopt Statement of Financial Accounting Standards No. 121 relating to the
impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
an d 1997 and for each of the years in the three year period ended July 31, 1997
inc orporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of selected facilities operated by Horizon/CMS
Healthcare Corporation to be sold to Integrated Health Services, Inc. as of May
31, 1997 and 1996 and for each of the years in the three year period ended May
31, 1997 incorporated in this Prospectus and in the Registration Statement by
reference from IHS' Current Report on Form 8-K (dated December 31, 1997) have
been audited by Arthur Andersen LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
19
<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 REPRESENTATION MUST NOT BE RELIED
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 SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information ............... 2
Incorporation of Certain Documents by
Reference ........................ 3
The Company ......................... 4
Risk Factors ........................ 6
Recent Developments ................. 14
Use of Proceeds ..................... 15
Selling Stockholders ................ 15
Plan of Distribution ................ 18
Legal Matters ....................... 18
Experts ............................. 18
</TABLE>
================================================================================
================================================================================
981,421
SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH
SERVICES, INC.
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Shares:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Registration Fee - Securities and Exchange Commission .......... $ 11,139.68
Legal, accounting and printing fees and expenses ............... 35,000.00*
Miscellaneous .................................................. 3,860.32*
------------
Total ....................................................... $ 50,000.00*
============
</TABLE>
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may include provisions in its certificate of
incorporation that will relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including a breach of the director's duty of loyalty, acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, the approval of an improper payment of a dividend or an
improper purchase by the corporation of stock or any transaction from which the
director derived an improper personal benefit. The Company's Third Restated
Certificate of Incorporation, as amended, provides that the Company's directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duty, subject to the described exceptions specified by
the DGCL.
Section 145 of the DGCL grants to the Company the power to indemnify each
officer and director of the Company against liabilities and expenses incurred by
reason of the fact that he is or was an officer or director of the Company if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company's Third Restated Certificate of Incorporation, as amended,
and By-laws, as amended, provide for indemnification of each officer and
director of the Company to the fullest extent permitted by the DGCL. In
addition, IHS has entered into indemnity agreements with its directors and
executive officers, a form of which is included as Exhibit 10.72 to IHS's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
The Company has purchased and maintains a directors' and officers' liability
policy for such purposes.
The agreements pursuant to which the Arcadia Shares and the Paragon Shares
were issued (Exhibits 2.1 and 2.2, respectively) provide for indemnification by
the sellers thereunder of the Company and its controlling persons, directors and
officers for certain liabilities, including liabilities arising under the
Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of July 24, 1997,
among the Company, Integrated AG Acquisition, Inc., Arcadia
Services, Inc. and the other parties thereto.(1)
2.2 -- Agreement and Plan of Merger dated as of January 9, 1998, among
Integrated Health Ser- vices, Inc., IHS Acquisition XXXIV, Inc.
and Paragon Rehabilitative Services, Inc. and Phillip Slive.*
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
2.3 -- Amended and Restated Agreement and Plan of Merger dated as of
February 27, 1998 among Integrated Health Services, Inc., IHS
Acquisition No. 35, Inc., IHS Acquisition No. 36, Inc., and The
Magnolia Group, Inc. and Medi-Serve, Inc. and Terry L. Cash.
2.4 -- Limited Partnership Interest Purchase Agreement dated as of
February 28, 1998, among Cambridge Health Services of Texas, Inc.,
Integrated Health Services, Inc. and Uro-Tech, Ltd.+
2.5 -- Asset Purchase Agreement dated as of March 16, 1998 among Symphony
Diagnostic Services No. 1, Inc. and Pamela Reichart and Jersey
Shore Portable X-Ray, Inc.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation,
dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.+
23.2 -- Consent of Deloitte & Touche LLP.+
23.2 -- Consent of Arthur Andersen LLP+
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.+
</TABLE>
- ----------
+ To be filed by Amendment
* Previously filed.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
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.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Owings Mills, State of Maryland on May 8, 1998.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins*
------------------------------------
Robert N. Elkins, Chairman of the
Board,
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert N. Elkins* Chairman of the Board, President May 8, 1998
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ Edwin M. Crawford* Director May 8, 1998
- -----------------------------
(Edwin M. Crawford )
/s/ Kenneth M. Mazik* Director May 8, 1998
- -----------------------------
(Kenneth M. Mazik)
/s/ Robert A. Mitchell* Director May 8, 1998
- -----------------------------
(Robert A. Mitchell)
/s/ Charles W. Newhall, III* Director May 8, 1998
- -----------------------------
(Charles W. Newhall, III)
/s/ Timothy F. Nicholson* Director May 8, 1998
- -----------------------------
(Timothy F. Nicholson)
/s/ John L. Silverman* Director May 8, 1998
- -----------------------------
(John L. Silverman)
/s/ George H. Strong* Director May 8, 1998
- -----------------------------
(George H. Strong)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. Taylor Pickett Executive Vice President- May 8, 1998
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. Bradley Bennett* Executive Vice President- May 8, 1998
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
</TABLE>
*By: /s/ C. Taylor Pickett
-------------------------
(C. Taylor Pickett)
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
--- ----------- --------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of July 24, 1997,
among the Company, Integrated AG Acquisition, Inc., Arcadia
Services, Inc. and the other parties thereto.(1)
2.2 -- Agreement and Plan of Merger dated as of January 9, 1998, among
Integrated Health Services, Inc., IHS Acquisition XXXIV, Inc.
and Paragon Rehabilitative Services, Inc. and Phillip Slive.*
2.3 -- Amended and Restated Agreement and Plan of Merger dated as of
February 27, 1998 among Integrated Health Services, Inc., IHS
Acquisition No. 35, Inc., IHS Acquisition No. 36, Inc., and The
Magnolia Group, Inc. and Medi-Serve, Inc. and Terry L. Cash.
2.4 -- Limited Partnership Interest Purchase Agreement dated as of
February 28, 1998, among Cambridge Health Services of Texas,
Inc., Integrated Health Services, Inc. and Uro-Tech, Ltd.+
2.5 -- Asset Purchase Agreement dated as of March 16, 1998 among
Symphony Diag- nostic Services No. 1, Inc. and Pamela Reichart
and Jersey Shore Portable X-Ray, Inc.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation,
dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.+
23.2 -- Consent of Deloitte & Touche LLP.+
23.2 -- Consent of Arthur Andersen LLP+
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.+
</TABLE>
- ----------
+ To be filed by Amendment.
* Previously filed.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
EXHIBIT 2.3
-----------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 27, 1998
AMONG
INTEGRATED HEALTH SERVICES, INC.,
IHS ACQUISITION NO. 35, INC.,
IHS ACQUISITION NO. 36, INC.,
AND
THE MAGNOLIA GROUP, INC.
AND
MEDI-SERVE, INC.
AND
TERRY L. CASH
-----------------------------
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TABLE OF CONTENTS
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ARTICLE I: MERGERS..................................................................2
1.1 Mergers..................................................................2
1.2 Merger Time..............................................................3
1.3 Payment of Merger Consideration..........................................3
1.4 Surviving Corporation....................................................3
ARTICLE II: CONVERSION..............................................................4
2.1 Consideration............................................................4
2.2 Adjustments to the Purchase Price........................................6
2.3 Assets and Liabilities...................................................8
2.4 Designated Contracts....................................................10
2.5 Escrow Indemnification..................................................10
2.6 New Greenville Lease....................................................11
2.7 Golden Age and Inman Health Care Facilities.............................11
2.8 Taylor Litigation.......................................................11
2.9 Employment Undertaking..................................................12
2.10 Medi-Serve Dividend.....................................................12
ARTICLE III: IHS STOCK.............................................................12
3.1 IHS Stock...............................................................12
4.1 Time and Place of Closing...............................................18
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER,
MEDI-SERVE AND COMPANY........................................................18
5.1 Organization and Standing of the Company and Medi-Serve;
Subsidiaries............................................................18
5.2 Authority...............................................................19
5.3 Binding Effect..........................................................19
5.4 Absence of Conflicting Agreements.......................................19
5.5 Consents................................................................20
5.6 Schedule of Assets and Properties.......................................20
5.7 Contracts...............................................................22
5.8 Financial Statements....................................................24
5.9 Material Changes........................................................25
5.10 Licenses; Permits; Certificates of Need.................................26
5.11 The Magnolia Facilities and Medi-Serve Facilities.......................26
5.12 Legal Proceedings.......................................................28
5.13 Employees...............................................................28
5.14 Collective Bargaining, Labor Contracts, Employment Practices, etc.......28
5.15 ERISA...................................................................29
5.16 Questionnaire...........................................................29
5.17 Insurance and Surety Agreements.........................................29
5.18 Relationships...........................................................30
5.19 Assets Comprising the Business..........................................30
5.20 Absence of Certain Events...............................................30
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5.21 Compliance with Laws....................................................31
5.22 Taxes...................................................................32
5.23 Encumbrances Created by this Agreement..................................33
5.24 Questionable Payments...................................................33
5.25 Reimbursement Matters...................................................33
5.26 Capital Stock of the Company and Medi-Serve.............................34
5.27 Finders.................................................................35
5.28 Shareholder Untrue Statement............................................35
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER, NEWCO 1
AND NEWCO 2....................................................................35
6.1 Organization and Standing...............................................35
6.2 Power and Authority.....................................................35
6.3 Binding Agreement.......................................................35
6.4 SEC Documents...........................................................35
6.5 Absence of Conflicting Agreements.......................................36
6.6 Capital Stock...........................................................36
6.7 Material Changes........................................................36
6.8 Buyer Untrue Statement..................................................36
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANY
AND MEDI-SERVE.................................................................36
7.1 Access to Information and Records before Closing........................36
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.............................37
8.1 Conduct of Business Pending Closing.....................................37
8.2 Negative Covenants of the Company and Medi-Serve........................38
8.3 Affirmative Covenants...................................................38
8.4 Pursuit of Consents and Approvals.......................................40
8.5 Pursuit of Nondisturbance Agreements and Estoppel Certificates..........40
8.6 Supplementary Financial Information.....................................40
8.7 Exclusivity.............................................................40
8.8 Surveys.................................................................41
8.9 Zoning Report...........................................................41
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS............................41
9.1 Representations and Warranties..........................................41
9.2 Performance of Covenants................................................41
9.3 Delivery of Closing Certificate.........................................42
9.4 Opinions of Counsel.....................................................42
9.5 Legal Matters...........................................................42
9.6 Authorization Documents.................................................42
9.7 Material Change.........................................................42
9.8 Required Approvals......................................................42
9.9 Hart-Scott Rodino Act...................................................42
9.10 Non-competition Agreement...............................................43
9.11 Cost and Expenses.......................................................43
9.12 Consents................................................................43
9.13 Closing Date Balance Sheet..............................................43
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9.14 Resignation of Company and Medi-Serve Boards of Directors and
Officers................................................................43
9.15 Estimated Closing Date Long Term Liabilities............................43
9.16 INTENTIONALLY DELETED...................................................43
9.17 Woodruff Facility.......................................................44
9.18 Shareholder Settlements.................................................44
9.19 Escrow Agreement........................................................44
9.20 IHS Stock Price.........................................................44
9.21 Section 338(h)(10) Election.............................................44
9.22 Articles of Merger......................................................44
9.23 Other Documents.........................................................44
ARTICLE X: CONDITIONS PRECEDENT TO SHAREHOLDER'S
OBLIGATIONS....................................................................44
10.1 Representations and Warranties..........................................44
10.2 Performance of Covenants................................................45
10.3 Delivery of Closing Certificate.........................................45
10.4 Opinion of Counsel......................................................45
10.5 Legal Matters...........................................................45
10.6 Authorization Documents.................................................45
10.7 Hart-Scott Rodino Act...................................................45
10.8 INTENTIONALLY DELETED...................................................45
10.9 Escrow Agreement........................................................45
10.10 IHS Stock Price.........................................................45
10.11 Other Documents.........................................................45
ARTICLE XI: SURVIVAL AND INDEMNIFICATION...........................................46
11.1 Survival of Representations and Warranties..............................46
11.2 Indemnification by Shareholder..........................................46
11.3 Indemnification by Buyer................................................46
11.4 Assertion of Claims.....................................................47
11.5 Control of Defense of Indemnificable Claims.............................47
11.6 Limitations on Indemnification Obligations..............................48
11.7 WARN Act Liability......................................................49
11.8 Certain Waivers.........................................................49
ARTICLE XII: TERMINATION............................................................49
12.1 Termination.............................................................49
12.2 Effect of Termination...................................................50
ARTICLE XIII: CASUALTY, RISK OF LOSS................................................50
13.1 Casualty, Risk of Loss..................................................50
ARTICLE XIV: MISCELLANEOUS.........................................................50
14.1 Performance.............................................................50
14.2 Benefit and Assignment..................................................50
14.3 Effect and Construction of this Agreement...............................51
14.4 Cooperation - Further Assistance........................................51
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14.5 Notices.................................................................51
14.6 Waiver, Discharge, Etc..................................................52
14.7 Rights of Persons Not Parties...........................................52
14.8 Governing Law...........................................................52
14.9 Amendments, Supplements, Etc............................................52
14.10 Severability............................................................52
14.11 Joint and Several.......................................................53
14.12 Records.................................................................53
14.13 Certain Costs...........................................................53
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SCHEDULES & EXHIBITS
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Schedule 2.4 - Designated Contracts
Schedule 5.1(a) - Organization and Standing of the Company, Medi-Serve;
Subsidiaries
Schedule 5.1(b) - Organization and Standing of the Company, Medi-Serve;
Subsidiaries
Schedule 5.5 - Consents
Schedule 5.6(a)-1
and 2 - Schedule of Assets and Properties
Schedule 5.6(a)(ii) - Proprietary Rights
Schedule 5.6(a)(iii) - Personal Effects
Schedule 5.6(b) - Liens
Schedule 5.6(c) - Permitted Liens
Schedule 5.6(d) - Personal Property Leases
Schedule 5.7(b) - Contracts
Schedule 5.8(a)-1 - Magnolia Financial Statements
Schedule 5.8(a)-2 - Medi-Serve Financial Statements
Schedule 5.8(b) - Balance Sheet Liabilities
Schedule 5.9 - Material Changes
Schedule 5.10 - Licenses, Permits, Certificates of Need
Schedule 5.11(a) - Magnolia Facilities; Medi-Serve Facilities
Schedule 5.11(c) - Facility Leases
Schedule 5.11(e) - Zoning, etc.
Schedule 5.11(f) - Engineering Reports
Schedule 5.12 - Legal Proceedings
Schedule 5.13 - Employee Information
Schedule 5.14 - Collective Bargaining, Labor, Contracts, Employment
Practices, etc.
Schedule 5.15 - ERISA
Schedule 5.17 - Insurance and Surety Agreements
Schedule 5.18 - Relationships
Schedule 5.20 - Absence of Certain Events
Schedule 5.22 - Taxes
Schedule 5.25 - Reimbursement Matters
Schedule 5.26 - Capital Stock
Schedule 6.7 - Material Changes
Exhibit 2.1(f)-1 - Cash Note
Exhibit 2.1(f)-2 - Cash Stock Pledge Agreement
Exhibit 2.3(b) - Undertaking
Exhibit 2.5(a) - Escrow Agreement
Exhibit 5.11(f) - Engineering Reports
Exhibit 5.16 - Questionnaire
Exhibit 5.21(b) - Environmental Reports
Exhibit 9.4 - Shareholder's Opinion
Exhibit 9.10 - Non-competition Agreement
Exhibit 10.4 - Buyer's Opinion
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--------------------------
AGREEMENT AND PLAN OF MERGER
--------------------------
This Agreement and Plan of Merger (this "AGREEMENT") is made as of the
27th day of February, 1998, among INTEGRATED HEALTH SERVICES, INC., a Delaware
corporation ("BUYER"), IHS ACQUISITION NO. 35, INC., a South Carolina
corporation ("NEWCO 1"), IHS ACQUISITION NO. 36, INC., a South Carolina
corporation ("NEWCO 2"), and THE MAGNOLIA GROUP, INC., a South Carolina
corporation ("MAGNOLIA", or the "COMPANY"), TERRY L. CASH, an individual with an
address at 630 Henderson Road, Chesnee, SC 29323 ("SHAREHOLDER") and MEDI-
SERVE, INC., a South Carolina corporation ("MEDI-SERVE"). The Shareholder, the
Company and Medi-Serve are sometimes herein referred to collectively as the
"GROUP", and each individually as a "GROUP PARTICIPANT" or "GROUP MEMBER".
PREMISES
--------
WHEREAS, the Shareholder is the owner of all of the issued and
outstanding shares of capital stock of Magnolia (the "MAGNOLIA SHARES"), a
corporation that[, through its subsidiaries,] is the operator in South Carolina
of 12 skilled nursing facilities (all of which are leased by it) (the "MAGNOLIA
FACILITIES"); and
WHEREAS, Shareholder is also the owner of all of the issued and
outstanding shares of capital stock of Medi-Serve (the "MEDI-SERVE SHARES", and
together with the Magnolia Shares, the "SUBJECT SHARES"), a corporation that is
the operator in South Carolina of one (1) pharmacy (the "MEDI-SERVE FACILITIES")
which provides pharmaceutical and Medicare Part B services, and Shareholder is
unwilling to merge Magnolia with Buyer unless Buyer also effects a merger with
Medi-Serve; and
WHEREAS, concurrently herewith Buyer is entering into an Agreement and
Plan of Merger (the "PREMIERE MERGER AGREEMENT") with the owners (the "PREMIERE
SHAREHOLDERS") of all of the issued and outstanding shares of capital stock of
Premiere Associates, Inc., a North Carolina corporation ("PREMIERE") that
through its subsidiaries, is the owner in fee simple in the State of Florida of
1 skilled nursing facility, the operator in Georgia and Florida of skilled
nursing facilities (all of which are leased by it), and the manager of skilled
nursing facilities in the States of South Carolina, Georgia and Florida,
including all of the Magnolia Facilities; and
WHEREAS, the Shareholder also owns all of the issued and outstanding
shares of capital stock (the "CATHCART SHARES") of Cathcart & Associates, Inc.
("CATHCART"), which in turn owns an 88-bed skilled nursing facility known as the
"Woodruff Skilled Nursing Facility" (the "WOODRUFF FACILITY"); although the
Cathcart Shares shall not be purchased by Buyer pursuant to this Agreement or
the Premiere Merger Agreement, it shall be a condition to Buyer's obligations
hereunder that the Woodruff Facility shall be leased to a subsidiary of Magnolia
pursuant to a "triple-net" lease with a term of at
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least 25 years, with annual base rent (subject to due diligence) of $330,000 per
year (subject to annual 2% escalations), and otherwise with terms and conditions
satisfactory to Buyer; and
WHEREAS, it is understood that Magnolia is a party to a lease (the "NEW
GREENVILLE LEASE") with respect to a 120- bed skilled nursing facility under
construction in Greenville, South Carolina (the "NEW GREENVILLE FACILITY"); and
WHEREAS, each of Newco 1 and Newco 2 is an indirectly wholly owned
subsidiary of Buyer;
WHEREAS, the Boards of Directors of Buyer, Newco 1, Newco 2, and the
Company deem it advisable to merge Newco 1 with and into Magnolia and Newco 2
with and into Medi-Serve pursuant to this Agreement (the "MERGERS");
WHEREAS, pursuant to the Mergers each outstanding share of capital
stock of Magnolia shall be converted into the right to receive the Magnolia
Merger Consideration (as hereinafter defined) and each outstanding share of
capital stock of Medi-Serve shall be converted into the right to receive the
Medi-Serve Merger Consideration (as hereinafter defined); and
WHEREAS, to effectuate the foregoing, the parties desire to adopt plans
of merger and reorganization; and
WHEREAS, all of the holders of capital stock in Magnolia and Medi-Serve
have approved this Agreement and the plans of merger described herein and the
transactions contemplated hereby in accordance with all applicable laws, and the
Certificates of Incorporation and By-laws of each of Magnolia and Medi-Serve;
and
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Shareholder, Buyer, the Shareholder, Newco
1, Newco 2, Buyer, Magnolia and Medi-Serve, intending to be legally bound, agree
as follows:
ARTICLE I: MERGERS
------------------
1.1 MERGERS. Upon the terms and subject to the conditions set forth in
this Plan of Merger (as defined herein) and in accordance with the General
Corporation Law of the State of South Carolina (the "SCGCL"), at the Merger Time
(as defined herein), Newco 1 shall be merged with and into Magnolia and Newco 2
shall be merged with and into Medi-Serve in accordance with the provisions of
Section 33-11-101, et al of the SCGCL. In furtherance thereof, on the Closing
Date Magnolia and Newco 1, on the one hand, and Medi-Serve and Newco 2, on the
other hand, shall each execute, deliver, and cause to be filed with the
Secretary of State of the State of South Carolina, the Articles and Plan of
Merger in the forms respectively of Exhibit 1.1-A and 1.1-B hereto (each, a
"PLAN OF MERGER" or "ARTICLES OF MERGER"). Following the applicable
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Merger Time, the separate existence of Newco 1, on the one hand, and Newco 2, on
the other hand, shall cease, and Magnolia, on the one hand, and Medi-Serve, on
the other hand, shall continue as the surviving corporations in the Mergers
(hereinafter each sometimes referred to as the "SURVIVING CORPORATION") as
business corporations incorporated under the laws of the State of South
Carolina, and shall succeed to and assume all the rights and obligations of
Magnolia and Newco 1, on the one hand, and Medi-Serve and Newco 2, on the other
hand, in accordance with the SCGCL.
1.2 MERGER TIME. Each Merger shall become effective at such time (the
applicable "MERGER TIME") as the duly applicable executed Articles of Merger is
filed with the Secretary of State of the State of South Carolina.
1.3 PAYMENT OF MERGER CONSIDERATION. Buyer agrees that in connection
with and as part of the Closing (as hereinafter defined), it will make payment
of the Magnolia Merger Consideration and the Medi-Serve Merger Consideration to
the extent set forth in, and in accordance with the terms of, this Agreement.
1.4 SURVIVING CORPORATION.
(A) CERTIFICATE OF INCORPORATION. The respective Certificates of
Incorporation of Newco 1 and Newco 2 as in effect immediately prior to the
applicable Merger Time shall be the Certificate of Incorporation of the
respective Surviving Corporation until duly amended in accordance with the terms
thereof and of the SCGCL.
(B) BY-LAWS. The respective By-laws of Newco 1 and Newco 2 as in
effect immediately prior to the applicable Merger Time shall be the By-laws of
the respective Surviving Corporation until duly amended in accordance with their
terms and as provided by the applicable Certificate of Incorporation of the
respective Surviving Corporation and the SCGCL.
(C) DIRECTORS. The respective directors of Newco 1 and Newco 2 at
the applicable Merger Time shall, from and after the applicable Merger Time, be
the directors of the respective Surviving Corporation until their respective
successors have been duly elected or appointed and qualified or until their
earlier death, resignation, or removal in accordance with the respective
Surviving Corporation's Certificate of Incorporation and By-laws.
(D) OFFICERS. The respective officers of Newco 1 and Newco 2 at the
applicable Merger Time shall, from and after the applicable Merger Time, be the
officers of the respective Surviving Corporation until their respective
successors have been duly elected or appointed and qualified or until their
earlier death, resignation, or removal in accordance with the respective
Surviving Corporation's Certificate of Incorporation and By-laws.
(E) FURTHER ACTION. If at any time after the applicable Merger
Time, Buyer shall consider that any further deeds, assignments, conveyances,
4
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agreements, documents, instruments, or assurances in law or any other things are
necessary or desirable to vest, perfect, confirm, or record in either Surviving
Corporation the title to any property, rights, privileges, powers, and
franchises of Newco 1 and Magnolia, on the one hand, or Newco 2 and Medi-Serve,
on the other hand, by reason of, or as a result of, either of the Mergers, or
otherwise to carry out the provisions of this Agreement and the Plan of Merger,
the officers of Newco 1 and Magnolia, on the one hand, or Newco 2 and
Medi-Serve, on the other hand, shall execute and deliver, upon Buyer's request,
any instruments or assurances, and do all other things necessary or proper to
vest, perfect, confirm, or record title to such property, rights, privileges,
powers, and franchises in the applicable Surviving Corporation, and otherwise to
carry out the provisions of this Agreement and the Plans of Merger.
(F) APPROVAL. The Shareholder represents, warrants and agrees that
he has reviewed the Plan of Merger for each Merger, and he hereby approves each
Plan of Merger.
ARTICLE II: CONVERSION
----------------------
2.1 CONSIDERATION. For purposes of this Agreement the terms:
(A) (I) "MERGER CONSIDERATION" shall mean $16,000,000.
(II) "MAGNOLIA BASE AMOUNT" shall mean $12,000,000.
(III) "MAGNOLIA MERGER CONSIDERATION" shall mean the Magnolia
Base Amount, as adjusted pursuant to this Agreement; and the "MAGNOLIA
MERGER CONSIDERATION PER SHARE" shall mean the Magnolia Merger
Consideration divided by the number of issued and outstanding shares of
Magnolia Shares at the applicable Merger Time.
(IV) "MEDI-SERVE MERGER CONSIDERATION" shall mean $4,000,000;
and the "MEDI-SERVE MERGER CONSIDERATION PER SHARE" shall mean the
Medi-Serve Merger Consideration divided by the number of issued and
outstanding shares of Medi-Serve Shares at the applicable Merger Time.
(B) CONVERSION OF SHARES. At the applicable Merger Time:
(I) each Magnolia Share which is issued and outstanding at the
applicable Merger Time shall by reason of the applicable Merger, without
any action by the holder thereof, be converted into the right to receive,
in accordance with the procedures hereinafter described, the Magnolia
Merger Consideration Per Share;
(II) each Medi-Serve Share which is issued and outstanding at
the applicable Merger Time shall by reason of the applicable
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Merger, without any action by the holder thereof, be converted into the
right to receive, in accordance with the procedures hereinafter described,
the Medi-Serve Merger Consideration Per Share; and
(III) each share of Newco 1 common stock and each share of
Newco 2 common stock outstanding immediately prior to the applicable Merger
Time shall, by reason of the applicable Merger, without any action on the
part of Buyer, be converted into one share of common stock of the
applicable surviving corporation.
(C) MANNER OF EXCHANGE. The Magnolia Merger Consideration and
Medi-Serve Merger Consideration shall be paid as follows:
(I) Buyer shall deliver to the Escrowee (as defined in Section
2.5, below) newly issued shares of IHS Stock having an aggregate value
(using the Closing Date as the date of determination in accordance with
Section 3.1(a) below) equal to FIVE HUNDRED THOUSAND DOLLARS ($500,000)
(the "ESCROW DEPOSIT") which payment will be credited against the Magnolia
Merger Consideration payable to the Shareholder; and
(II) the balance of the Magnolia Merger Consideration and Medi-
Serve Merger Consideration shall be paid by the delivery by Buyer to the
Shareholder of IHS Stock having a value (determined using the Closing Date
as the date of determination in accordance with Section 3.1(a), below)
equal to the amount of such balance, and registered in the name of the
Shareholder.
(D) MAGNOLIA OR MEDI-SERVE TRANSMITTAL. Upon delivery to Buyer of
stock certificates representing any Magnolia or Medi-Serve Shares, Buyer shall
promptly deliver to the Shareholder certificates representing the number of
shares to which the Shareholder is entitled, as provided above. No interest will
be paid or accrued on any Merger Consideration payable upon the surrender of any
certificate or certificates or other instruments. Until surrendered in
accordance with the provisions of this subsection (d), the certificate or
certificates or instruments which immediately prior to the applicable Merger
Time represented issued and outstanding Magnolia or Medi-Serve Shares shall
represent for all purposes the right only to receive the applicable Merger
Consideration set forth in this Agreement. After the applicable Merger Time,
there shall be no further registration of transfers on the records of Medi-Serve
or Magnolia of any Medi-Serve or Magnolia Shares.
(E) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of IHS Stock shall be issued upon the surrender for exchange
of certificates representing any Medi-Serve or Magnolia Shares, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of IHS. Notwithstanding any other provision of this
Agreement, each holder of Medi-Serve or Magnolia Shares exchanged pursuant to
the applicable Merger (after taking into account all certificates representing
Magnolia or Medi-Serve Shares delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of IHS Stock multiplied by the value of such share determined in
accordance with Section 3.1(a) below.
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(F) CASH LOAN. Immediately prior to the Closing, the Shareholder
shall make a capital contribution to Magnolia in the amount of $500,000 by
issuing his promissory note in such amount to Magnolia. Such promissory note
issued by Cash shall be in the form of Exhibit 2.1(f)-1 hereto (the "CASH
NOTE"), and shall be secured pursuant to a Stock Pledge Agreement (the "CASH
STOCK PLEDGE AGREEMENT") in the form of Exhibit 2.1(f)-2 hereto by Magnolia
Shares that will be converted pursuant to the Merger into shares of IHS Stock
having a value approximately equal to the amount of the Closing Loan (using the
Closing Date as the date of determination in accordance with Section 3.1(a)
below) (the "T. CASH SECURITY SHARES"). The number of T. Cash Security Shares
shall be subject to adjustment as hereinafter provided in Article III.
2.2 ADJUSTMENTS TO THE PURCHASE PRICE.
(A) WORKING CAPITAL; LONG-TERM LIABILITIES.
(I) (A) At the Closing, the Shareholder shall deliver a
certificate executed by the Shareholder certifying his best good faith estimate
of the amount of the aggregate working capital (as defined in clause (vi) below)
of Magnolia, Medi-Serve and their respective subsidiaries as of the Closing Date
on a combined basis (the "ESTIMATED CLOSING DATE WORKING CAPITAL"). If the
Estimated Closing Date Working Capital is a negative amount, the Magnolia Base
Amount, and the amount of the Magnolia Merger Consideration payable in respect
of the Magnolia Shares, will be reduced by an amount equal to such negative
amount with such reduction to be made by reducing the number of shares of IHS
Stock (valued using the Closing Date as the date of determination in accordance
with Section 3.1(a) below) otherwise deliverable to the Shareholder (as opposed
to the portion deliverable to the Escrowee) at the Closing.
(B) If the Estimated Closing Date Working Capital shall be
a positive amount, the Magnolia Base Amount, and the amount of the Magnolia
Merger Consideration payable in respect of the Magnolia Shares will be increased
by an amount equal to such positive amount, with such increase to be made by
increasing the number of shares of IHS Stock (valued using the Closing Date as
the date of determination in accordance with Section 3.1(a) below) otherwise
deliverable to the Shareholder (as opposed to the portion deliverable to the
Escrowee) at the Closing.
(II) Additionally, at the Closing, Magnolia and Medi-Serve
shall deliver to Buyer the balance sheet of Magnolia, Medi-Serve and their
respective subsidiaries on a combined basis as of the Closing Date, certified by
the Shareholder to be his best good faith estimate thereof (the "ESTIMATED
CLOSING DATE BALANCE SHEET"). The Magnolia Base Amount, and the amount of the
Magnolia Merger Consideration payable in respect of the Magnolia Shares, will be
reduced by an amount equal to the aggregate amount of the long-term liabilities
of the Company, Medi-Serve and their respective subsidiaries on a combined basis
as determined in accordance with generally accepted accounting principles,
applied consistently with past practices of the Company and Medi-Serve ("GAAP")
as set forth on the Estimated Closing Date Balance Sheet (and applied to the
Magnolia Shares). Such reduction shall be made by reducing the amount of the
number of shares of IHS Stock (valued using the Closing Date as the date of
determination in accordance with Section 3.1(a) below) otherwise
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deliverable to the Shareholder (as opposed to the portion deliverable to the
Escrowee) at the Closing.
(III) Within one hundred twenty (120) days following the
Closing Date, Buyer shall use its best efforts to complete a review ("BUYER'S
REVIEW") of the balance sheet of the Company, Medi-Serve and their respective
subsidiaries on a combined basis as of the Closing Date (the "CLOSING DATE
BALANCE SHEET"). If the Magnolia Base Amount, after giving effect to any
adjustments made at the Closing pursuant to Section 2.2(a)(i) and (ii), above,
shall be subject to further adjustment based upon the Buyer's Review indicating
that the aggregate working capital of the Company, Medi-Serve and their
respective subsidiaries on a combined basis as of the Closing Date (the "ACTUAL
WORKING CAPITAL") was different from the Estimated Closing Date Working Capital,
then the parties shall make such payments to each other as shall result in the
Magnolia Base Amount (and correspondingly the amount of the Magnolia Merger
Consideration) being the amount that it would have been had the Actual Working
Capital been used at Closing in lieu of the Estimated Closing Date Working
Capital. Any increase to the Magnolia Base Amount (and correspondingly the
amount of the Magnolia Merger Consideration) shall be in IHS Stock having a
value, determined in accordance with Section 3.1(a), below, by Buyer to
Shareholder, and if the Magnolia Base Amount (and correspondingly the amount of
the Magnolia Merger Consideration) is reduced, then the Escrowee (as defined
below) shall deliver over to Buyer shares of IHS Stock having a value determined
in accordance with Section 3.1(a), below, equal to such deficiency. In the event
the deficiency exceeds the Escrow Deposit (as defined above) held by Escrowee,
the Shareholder shall be obligated to refund to Buyer the amount of such
deficiency in IHS Stock valued in accordance with Section 3.1(a), below.
Furthermore, if the Buyer's Review reveals that the aggregate amount of the
Company's, Medi-Serve's and their respective subsidiaries' long-term liabilities
(on a combined basis) as of the Closing Date (the "ACTUAL LONG-TERM
LIABILITIES") exceeded the amount of the Company's, Medi-Serve's and their
subsidiaries' long-term liabilities (on a combined basis) as indicated on the
Estimated Closing Date Balance Sheet, the Magnolia Base Amount (and
correspondingly the amount of the Magnolia Merger Consideration) shall be deemed
to have been reduced by the amount of such excess, and the Escrowee shall
deliver over to Buyer IHS Stock having a value equal to such excess. In the
event the amount of such excess is greater than the Escrow Deposit held by
Escrowee, the Shareholder shall be obligated to refund to Buyer the amount of
such excess in IHS Stock. The value of any IHS Stock to be distributed to the
Buyer from the Escrowee will be as set forth in Section 3.1(a), below. If the
Buyer's review reveals that the aggregate amount of the Company's, Medi-Serve's,
and their respective Subsidiaries' Actual Long- term Liabilities was less than
the amount of the Company's, Medi-Serve's, and their Subsidiaries' long-term
liabilities (on a combined basis) as indicated on the Estimated Closing Date
Balance Sheet, the Magnolia Base Amount (and correspondingly the amount of the
Magnolia Merger Consideration) shall be deemed to have been increased by the
amount of such excess, and the Buyer shall deliver over to the Shareholder IHS
Stock having a value, determined in accordance with Section 3.1(a), below, equal
to the amount of such excess. Unless a Delay Payment Notice (as defined in
clause (iv) below) shall have been given, any such
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payment shall be made within two (2) business days after demand by the party
entitled to the adjustment.
(IV) If the Shareholder shall in good faith dispute the amount
of working capital or long-term liabilities of the Company, Medi-Serve and their
respective subsidiaries on a combined basis as of the Closing Date as set forth
in Buyer's Review, he shall give notice to Buyer (a "DELAY PAYMENT NOTICE")
within thirty (30) days after delivery to him of Buyer's Review that all or any
portion of the payment specified should not then be made and setting forth in
reasonable detail his objections and the basis therefor, in which case, the
disputed portion of any payment otherwise required to be made pursuant to clause
(iii) above shall be delayed, and Buyer and the Shareholder 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 Shareholder shall fail to
timely deliver a Delay Payment Notice, the working capital and long-term
liabilities amounts set forth in Buyer's Review shall be deemed accepted by the
Shareholder and shall be conclusive and binding on all parties hereto, absent
fraud. If a Delay Payment Notice is timely delivered and the parties are unable
to resolve such disagreements within such time period, the disagreements shall
be referred to a "Big 4" accounting firm independent of the Buyer and the
Shareholder selected by agreement between the Buyer and the Shareholder, or, if
the Buyer and the Shareholder cannot so agree within the 30 day period referred
to above, by lot (the "ARBITRATING ACCOUNTANTS"), and the determination of the
Arbitrating Accountants shall be final, conclusive and binding on the parties
hereto. The Arbitrating Accountants shall be directed to use their best efforts
to reach a determination not more than thirty (30) days after such referral. The
costs and expenses of the services of the Arbitrating Accountants shall be borne
by the party whose proposal is further (by dollar amount) from the amount
finally determined by the Arbitrating Accountants. Within two (2) business days
after the final resolution of any matter covered by a Delay Payment Notice, any
delayed payment shall be made to the extent determined to be due in accordance
with such resolution.
(V) 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 include such liability as a Permitted 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 the Actual Working Capital Amount or
long-term liabilities, as the case may be, or to exclude such liability
therefrom, in which case such liability shall be a Prohibited Liability and
shall not be included as a current liability in the determination of the Actual
Working Capital Amount, or in the Actual Long-term Liabilities.
(VI) For the purposes hereof, "WORKING CAPITAL" means the
excess of current assets over current liabilities, as determined in accordance
with GAAP, applied consistently with the past application of GAAP by the Company
and Medi-Serve; and "LONG-TERM LIABILITY" means any liability that would be set
forth as a long-term liability on a balance sheet in accordance with GAAP,
applied consistently
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with the past application of GAAP by the Company and Medi-Serve, except all
inter-company assets and liabilities among the Company and Medi-Serve and among
their respective subsidiaries shall be excluded. At or prior to Closing, either
or both of Magnolia and Medi-Serve may assume the obligation to pay closing
costs of the Shareholder in an amount not to exceed $150,000, in which case such
assumed obligation shall constitute current liabilities for purposes hereof.
2.3 ASSETS AND LIABILITIES.
(A) As of the Closing Date, the owned, leased and managed assets
(the "ASSETS") of the Company, Medi-Serve and their Subsidiaries (as hereinafter
defined in Section 5.1 (a)) will include all of the tangible and intangible
assets which comprise or are utilized or are held for use in connection with the
business of the Company, Medi-Serve or any of the Subsidiaries or are necessary
to the operation of the business of the Company, Medi-Serve or any of the
Subsidiaries as presently constituted (collectively, the "BUSINESS"), including,
without limitation, all property, plant, and equipment, contract rights,
leasehold interests, fixed and moveable equipment, vehicles, furnishings,
tangible personal property, inventory, supplies, cash, cash equivalents, prepaid
expenses and accounts receivable (other than accounts receivable collected, cash
expended and inventory, supplies, and other assets consumed, used or disposed
of, in each case, in the ordinary course of business, consistent with prior
practice and otherwise in conformance with the requirements of this Agreement),
goodwill, tradenames, trademarks, all patient records and files, Certificates of
Need, Medicare and Medicaid provider agreements and numbers, provider agreements
with third party payors, telephone numbers, capital stock in subsidiaries, and
to the extent permitted by law, all permits, licenses and other governmental
approvals. As of the Closing, all of the Assets shall be free and clear of all
Liens other than Permitted Liens (as such term is defined in Section 5.6(c)
below).
(B) As of the Closing, there will not be outstanding against the
Company, Medi-Serve or any of the Subsidiaries any claim, lawsuit, liability,
obligation or debt of any kind or nature whatsoever (regardless of whether the
same would constitute a liability to be set forth on a balance sheet in
accordance with GAAP), 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 ("PROHIBITED LIABILITIES"), other than
(w) such liabilities as are taken into account in the determination of the
Actual Working Capital Amount or the Actual Long-term Liabilities under Section
2.2(a),(x) liabilities covered by insurance to the extent of insurance proceeds
collected (or reasonably expected to be collected) with respect thereto, (y)
obligations arising out of services or products or other benefits to be provided
to the Company, Medi-Serve or the Subsidiaries after Closing under Contracts (as
hereinafter defined in Section 5.7(a)) that are not to be terminated in
accordance with Section 2.4 below, and (z) liabilities listed in Schedule 5.12
to the extent that reserves therefor are included in the determination of the
working capital as of the Closing Date of the Company, Medi-Serve and the
Subsidiaries on a combined basis and to the extent that such liabilities are
covered by insurance proceeds collected (or reasonably expected to be collected)
by the Company, Medi-Serve or their Subsidiaries
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("PERMITTED LIABILITIES"). It is expressly agreed that the Shareholder shall be
responsible for all Prohibited Liabilities of the Company, Medi-Serve or any of
the Subsidiaries, including, without limitation, all (i) liabilities of the
Company, Medi-Serve or any of the Subsidiaries arising out of participation in
the Medicare or Medicaid programs, or arrangements with any other third party
payor, or arrangements with any person or entity that participates in the
Medicare or Medicaid programs or any other third party payor program, including
without limitation, with respect to any excess reimbursement, recapture,
adjustment or overpayment whatsoever, in each case, attributable to any period
on or prior to the Closing Date ("REIMBURSEMENT LIABILITIES"), (ii) 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 (except to the extent of insurance proceeds collected
(or reasonably expected to be collected) with respect thereto), (iii) any
accounts payable or employment or other taxes (except to the extent of the
amount thereof, if any, included in the calculation of the Actual Working
Capital Amount or Actual Long-term Liabilities), and (iv) accrued but unpaid
compensation or other benefits to any of the employees, agents, consultants or
advisers of the Company, Medi-Serve or any of the Subsidiaries, including
accrued vacation (except to the extent of the amount thereof, if any, included
in the calculation of the Actual Working Capital Amount or Actual Long-term
Liabilities). At Closing, the Shareholder shall assume and undertake in a
writing in the form and substance of Exhibit 2.3(b) (the "UNDERTAKING") to
perform all Prohibited Liabilities when and as the same become due in accordance
with their terms. The Company, Medi-Serve, the Subsidiaries and Buyer will not
assume any liabilities of Shareholder or provide any guaranty therefor or obtain
any release of any of the same except as provided in Section 10.10, below.
2.4 DESIGNATED CONTRACTS. Within ten (10) business days after the date
hereof, Buyer shall deliver to the Shareholder Schedule 2.4 setting forth each
of the Contracts identified on Schedule 5.7(b) that the Company, Medi-Serve or
any of the Subsidiaries shall not retain as of the Closing (the "DESIGNATED
CONTRACTS"). Within five (5) days after Buyer shall have delivered Schedule 2.4
to Shareholder, the Shareholder may terminate this Agreement in accordance with
Section 12.1 by giving notice thereof during such five (5) day period if any
Contracts shall be listed on Schedule 2.4. If Shareholder shall not so notify
Buyer within such time period, then such right to terminate this Agreement shall
expire. Prior to the Closing (unless the Shareholder shall have terminated this
Agreement as provided above), each Designated Contract set forth on Schedule 2.4
shall be terminated (or the Company, Medi-Serve and the Subsidiaries shall
otherwise be released from all liability with respect thereto) at the sole cost
and expense of the Shareholder (or at the cost of the Company, Medi-Serve or the
Subsidiaries to the extent such cost is expressly included in the calculation of
the Actual Working Capital Amount or Actual Long-term Liabilities). It shall be
a condition precedent of Buyer to the Closing that all required consents shall
have been obtained from each party to each Contract (that is not a Designated
Contract) with respect to which the change in control contemplated by this
Agreement requires such consent ("CONSENT CONTRACTS"), except to the extent that
the failure to obtain such consents with respect to Consent Contracts is not
reasonably likely to have a material adverse effect on the Company, Medi-Serve
or the operation of the Business. If the
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Company, Medi-Serve or any of the Subsidiaries shall enter into any agreement,
lease, contract, instrument or commitment after the date hereof and prior to
Closing that would be deemed to be "material" as defined in Section 5.7 below if
it were in existence on the date hereof, or if there shall be disclosed any
agreement, lease, contract, instrument or commitment that should have been
disclosed on Schedule 5.7(b) hereto but that was not so disclosed, then Buyer
shall have five (5) business days from the date on which so disclosed to Buyer
to notify the Shareholder as to whether such agreement, lease, contract,
instrument or commitment shall be a Designated Contract. If Buyer fails to so
notify the Shareholder then such agreement, lease, contract, instrument or
commitment shall not be deemed to be a Designated Contract.
2.5 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 2.5(a) hereto,
the Escrow Deposit shall be deposited with CoreStates Bank, N.A. or another
escrow agent acceptable to Buyer and Shareholder (the "ESCROWEE") and shall be
held by the Escrowee, together with all interest or income, if any, earned
thereon in accordance with the Escrow Agreement, as a non-exclusive source of
indemnification from the Shareholder for any amount due to any Buyer Indemnitee
(as such term is hereinafter defined in Section 11.2) pursuant to Articles II,
XI, or otherwise. The Escrow Deposit (plus all interest or income earned thereon
in accordance with the Escrow Agreement) less any claims made in good faith for
Losses (as such term is defined in Section 11.2) and any amounts paid to Buyer
or the Shareholder in accordance with Section 2.2(b) above shall be released to
Shareholder on the second anniversary of the Closing Date (the "ESCROW RELEASE
DATE").
(B) Subject to the limitations set forth in Article III below
(including without limitation, with respect to the sale of shares of IHS Stock
issued pursuant to this Agreement), if Shareholder shall so request, the shares
of IHS Stock constituting all or part of the Escrow Deposit, shall be sold in a
bona fide third party transaction for the account 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 Escrowee and held pursuant to the Escrow Agreement,
and Buyer shall have reasonably 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 Escrowee pursuant to
the terms of the Escrow Agreement, and shall be, free and clear of all Liens of
third parties (other than Liens in favor of the Escrowee to the extent, if any,
provided in the Escrow Agreement).
(C) 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 Escrowee
pursuant to the terms of the Escrow Agreement, and shall be invested in
accordance with the instructions of Shareholder (subject to the reasonable
approval of Buyer) as provided in the Escrow Agreement. Any interest or income
or dividends paid on or in
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respect of all or any part of the Escrow Deposit ("ESCROW INCOME") shall be
added to, and shall thereafter constitute part of the Escrow Deposit.
(D) The costs, fees and expenses of the Escrowee shall be borne
equally by Buyer, on the one hand, and Shareholder, on the other hand.
2.6 NEW GREENVILLE LEASE. Upon the Commencement (as defined below)
of the New Greenville Lease, the Magnolia Base Amount (and correspondingly, the
Magnolia Merger Consideration,) shall be increased by $400,000, and Buyer shall
pay to the Shareholder such $400,000 amount by delivery of shares of IHS Stock
(valued using the Closing Date as the date of determination in accordance with
Section 3.1(a), below). "Commencement" of the New Greenville Lease shall be
deemed to have occurred upon the last to occur of the following: (x) the
completion of construction of the New Greenville Facility, (y) the granting of a
certificate of need by the State of South Carolina to the New Greenville
Facility, and (z) the granting of all other licensure necessary to permit the
opening of the New Greenville Facility to patients.
2.7 GOLDEN AGE AND INMAN HEALTH CARE FACILITIES. The Shareholder
represents and warrants that on January 30, 1998, Magnolia purchased the stock
of each of C.W. Johnson, Inc. and Inman Nursing Facilities, Inc., lessors of
facilities leased by Magnolia subsidiaries, Golden Age Inman, Inc. and Inman
Healthcare, Inc., respectively pursuant to certain leases (the "GOLDEN AGE/INMAN
LEASES"), copies of which have been delivered to Buyer. The Shareholder
represents and warrants that Magnolia incurred long-term liabilities in the
amount of $1,840,000 (the "GOLDEN AGE/INMAN DEBT") in connection with such
acquisition. Buyer agrees that such Golden Age/Inman Debt shall not be included
as long-term liabilities for purposes of Section 2.2, above. In addition, based
on the foregoing, Buyer agrees that the Magnolia Base Amount (and
correspondingly, the Magnolia Merger Consideration) shall be increased by an
amount equal to $150,000.
2.8 TAYLOR LITIGATION. H. Thomas Taylor ("TAYLOR") is the landlord of
five properties that are currently leased by Magnolia from Taylor and so
identified on Schedule 5.7(b)(ix), below (the "TAYLOR LEASES"). Each Taylor
Lease contains a provision that rent will be equal to the cost of capital as of
the date thereof, which is the subject of current litigation between Taylor and
Magnolia among other issues (the "TAYLOR LITIGATION"). Consequently, Magnolia
agrees to reserve $1,100,613 on its Estimated Closing Date Balance Sheet or to
resolve the Taylor Litigation prior to Closing. Furthermore, Magnolia and
Shareholder represent and warrant that the base rent for all of the Taylor
Leases shall be not more than $1,333,155 commencing on April 1, 1998 (absent any
changes made pursuant to any settlement agreement approved by Buyer). Magnolia
and the Shareholder also represent and warrant that in connection with the
Taylor Litigation, Taylor's counsel, Nelson Mullins Riley & Scarborough, L.L.P.
is holding $383,785 and Magnolia's counsel, Quinn, Patterson & Willard is
holding $247,948 in escrow of Magnolia (collectively. the "TAYLOR ESCROW
AMOUNT"), which amounts shall be applied against amounts due to Taylor under the
Taylor Leases or returned to the Company. Regardless of GAAP, the Taylor Escrow
Amount will be treated as current assets for working capital purposes. Magnolia
and
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Shareholder represent and warrant that, notwithstanding the Taylor Litigation or
any disclosure made pursuant to Section 5.7(a) below, the Taylor Litigation will
not result in the termination of any of the Taylor Leases.
2.9 EMPLOYMENT UNDERTAKING. Buyer hereby undertakes to interview Ralph
Wessinger, Magnolia's reimbursement specialist, and to give good faith
consideration to the prospect of continuing Mr. Wessinger's employment with
Magnolia in such capacity.
2.10 MEDI-SERVE DIVIDEND. The parties acknowledge that, on or prior to
the Closing Date, Medi-Serve may pay a cash dividend to the Shareholder in the
amount not to exceed $950,000. In connection therewith, Medi-Serve shall be
entitled to extend its line of credit, on terms and conditions reasonably
satisfactory to Buyer, with NationsBank, N.A. to borrow sufficient cash to pay
such dividend. Any amounts so borrowed and outstanding on the Closing Date shall
constitute current liabilities for purposes of Section 2.2(a) above, and any
guaranty by Shareholder of the repayment of such amounts shall be subject to
Section 11.3(d) hereof.
ARTICLE III: IHS STOCK
----------------------
3.1 IHS STOCK. As set forth in this Agreement, the Merger Consideration
and various adjustments to the Merger Consideration shall be payable by means of
the delivery of shares of IHS Stock. Such deliveries shall be made in accordance
with the following:
(A) SHARE VALUE. Notwithstanding anything to the contrary contained
in this Agreement, any reference in this Agreement or in any Transaction
Document to use of the Closing Date as the date of determination to value shares
of IHS Stock to be delivered in accordance with this Agreement shall be deemed
to mean that the number of shares of IHS Stock to be delivered shall be valued
by using the average closing New York Stock Exchange ("NYSE") price of IHS Stock
for the sixty (60) trading day period ending on (and including) April 14, 1998.
In all other cases, whenever shares of IHS Stock are to be delivered pursuant to
this Agreement, the number of shares of IHS Stock shall be valued as of the
Applicable Valuation Date (defined below) by using the average closing NYSE
price of IHS Stock for the sixty (60) trading day period ending on (and
including) the date which is two (2) trading days prior to the Applicable
Valuation Date. Unless otherwise expressly provided elsewhere in this Agreement,
the applicable valuation date (the "APPLICABLE VALUATION DATE") shall mean the
date on which the dollar amount to be paid (whether by reason of an
indemnification claim or Merger Consideration adjustment or otherwise) is
finally determined.
(B) REGISTRATION RIGHTS. Buyer will use its best efforts to cause
to be filed with the Securities and Exchange Commission (the "COMMISSION"),
within forty-five (45) days following the Closing Date, a registration statement
(a "SHELF REGISTRATION STATEMENT") for the registration of the IHS Stock issued
to Shareholder, under the Securities Act of 1933, as amended (the "SECURITIES
ACT") and Buyer shall use its best efforts to cause such registration statement
to be declared effective by the Commission within ninety (90) days following the
Closing Date, and Buyer shall
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maintain the effectiveness of such registration statement for a period of one
(1) year following the Closing Date, or until Shareholder shall not own any of
the shares of IHS Stock issued pursuant to this Agreement, whichever shall occur
first, in each case except to the extent that an exemption from registration may
be available.
(C) REGISTRATION EXPENSES. Shareholder shall not be responsible
for, and Buyer shall bear, all of the reasonable expenses of the Buyer related
to such registration including, without limitation, the fees and expenses of its
counsel and accountants, all of its other costs, fees and expenses incident to
the preparation, printing, registration and filing under the Securities Act of
the Shelf 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 shares of IHS Stock and the costs and expenses (including fees and
disbursements of its counsel) incurred in connection with the qualification of
the shares of IHS Stock under the Blue Sky laws of various jurisdictions. Buyer,
however, shall not be required to pay or incur underwriter's or brokerage
discounts, commissions or expenses, or to pay or incur any costs or expenses
arising out of Shareholder's failure to comply with its obligations under this
Article III, or to pay or incur any costs or expenses arising out of the
inclusion of any transferee of Shareholder in the Shelf Registration Statement.
(D) RESALE LIMITATIONS. The Shareholder hereby covenants with Buyer
that all resales by the Shareholder and, if any, his transferees of such shares
(other than transferees acquiring shares pursuant to a sale pursuant to an
effective registration statement or Rule 144 promulgated pursuant to the
Securities Act ("RULE 144") and in accordance with subsection (d)) of shares of
IHS Stock issued pursuant to this Agreement shall be effected solely through
Salomon Smith Barney, Inc., as broker, and resales by the Shareholder and, if
any, his transferees of such shares (other than transferees acquiring shares
pursuant to a sale pursuant to an effective registration statement or Rule 144
and in accordance with this subsection (d)), shall not at any time, in the
aggregate, during the period commencing on the Closing Date and ending 120 days
after the Effective Date (as defined in Section 3.1(l), below), exceed one
hundred and thirty thousand (130,000) shares (plus, if any shares of IHS Stock
are issued to the Shareholder pursuant to subsection (l) below, twenty-five
percent (25%) of the number of such additionally issued shares) during any
thirty (30) day period, or thereafter exceed One Hundred Thousand (100,000)
shares during any thirty (30) day period. For purposes of this subsection (d),
the term Shareholder shall include W. Stewart Swain and L.P. Herzog with respect
to any shares of IHS Stock received by them pursuant to the Premiere Merger
Agreement. Notwithstanding the foregoing, Buyer agrees that the foregoing volume
restrictions shall not apply to sales, until 150 days after the Shelf
Registration Statement is declared effective, of (i) shares of IHS Stock held in
escrow and made pursuant to Section 2.5(b) above to satisfy indemnification, or
(ii) Merger Consideration reduction obligations of the Shareholder.
(E) REGISTRATION PROCEDURES, ETC. In connection with the
registration rights granted to the Shareholder with respect to the shares of IHS
Stock as provided in this Section 3.1, after the Closing Buyer covenants and
agrees as follows:
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(I) Buyer will promptly notify the Shareholder, at any time
when a prospectus relating to the Shelf Registration Statement 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 the Shelf 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 Shareholder with such number of
prospectuses as shall reasonably be requested by Shareholder in connection with
any actual or contemplated resales.
(III) Subject to the ultimate sentence in Section 3.1(c) above,
Buyer shall take all necessary action which may be required in qualifying or
registering the shares of IHS Stock included in a Shelf Registration Statement
for offering and resale under the securities or Blue Sky laws of such states as
reasonably are requested by the Shareholder, 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 Shelf Registration Statement will not, at the time such Shelf 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 as necessary to correct any statement in any
earlier filing of such Shelf Registration Statement or any amendments thereto.
The Shelf 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 Shareholder and each person, if any, who controls such
Shareholder 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, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such Shelf Registration Statement executed by Buyer or based upon written
information furnished by Buyer filed in any jurisdiction in order to qualify
shares of IHS Stock under the securities laws thereof or filed with the
Commission, any state securities commission or agency, NYSE or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to Buyer by the
Shareholder specifically for use in such Shelf Registration Statement (it being
understood that Buyer may rely on the representations and warranties of
Shareholder made pursuant to this Agreement in preparing the Shelf Registration
Statement), any amendment or supplement thereto or any application, as
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the case may be. If any action is brought against the Shareholder or any
controlling person of the Shareholder in respect of which indemnity may be
sought against Buyer pursuant to this subsection 3.1(e)(iv), such 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 action, including the employment and payment of reasonable
fees and expenses of counsel (reasonably satisfactory to the Shareholder or such
controlling person). Shareholder or such controlling person shall have the right
to employ her, his, its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of Shareholder or 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
within twenty (20) days of the request therefor, or (C) such indemnified party
or parties shall have reasonably concluded and notified Buyer that there may be
defenses available to her, him, 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 Shareholder and such controlling persons
shall be borne by Buyer.
(V) The Shareholder, and his successors and assigns, shall
severally, and not jointly, indemnify Buyer, its officers and directors and each
person, if any, who controls Buyer within the meaning of ss.15 of the Securities
Act or ss.20(a) of the Exchange Act against all loss, claim, damage, expense and
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 (Federal, State, local or otherwise), arising from
inaccuracies in or omissions from information furnished in writing by or on
behalf of Shareholder, or any of his successors or assigns specifically for
inclusion in the Shelf Registration Statement, any Exchange Act filing or any
State Blue Sky Law filing.
(F) NOTICE OF SALE. Shareholder shall not resell or otherwise
transfer any interest in any of the shares of IHS Stock issued to Shareholder
pursuant to this Agreement unless Shareholder shall have complied in all
material respects, with all of his obligations under this Agreement, and unless
Shareholder shall have given prior notice to Buyer, describing in reasonable
detail Shareholder's intention to effect the transfer and the manner of the
proposed transfer. If the transfer is to be pursuant to an effective Shelf
Registration Statement as provided herein, Shareholder will resell only in
compliance with the disclosure therein and discontinue any offers and sales
thereunder upon notice from Buyer to the Shareholder that the Shelf Registration
Statement relating to the shares of 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 such Shelf Registration Statement as may be necessary to bring it
current during the period specified in this Section 3.1 and to give prompt
notice to Shareholder when the Shelf Registration Statement has again become
current. If the Shareholder delivers to Buyer an opinion of counsel reasonably
acceptable to Buyer and its counsel in form and substance reasonably acceptable
to them and to the effect that the proposed transfer
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of shares of IHS Stock may be made without registration under the Securities Act
and all applicable state securities laws, Shareholder will, subject to Section
3.1(d) above, be entitled to transfer said shares of IHS Stock in accordance
with the terms of the notice and opinion of his counsel.
(G) CONDITIONS. It shall be a condition precedent to the
obligations of the Buyer to take any action pursuant to this Article III that
the Shareholder shall furnish to the Buyer such information regarding
themselves, the shares of IHS Stock held by them, the intended method of
disposition of such securities, and such other information as shall reasonably
be requested by Buyer to the extent necessary to effect the registration of
their shares of IHS Stock. In that connection, Shareholder shall be required to
represent and warrant to the Buyer that all such information which is given is
both complete and accurate in all material respects. It also shall be a
condition precedent to the obligations of the Buyer to take any action pursuant
to this Article III that the Shareholder shall deliver to the Buyer a statement
in writing that they bona fide intend to resell, transfer or otherwise dispose
of the shares of IHS Stock. Shareholder will, severally, promptly notify Buyer
at any time when a prospectus relating to a Shelf Registration Statement
covering Shareholder's shares under this Section 3.1 is required to be delivered
under the Securities Act, of the happening of any event known to Shareholder as
a result of which the prospectus included in such Shelf 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 under which such
statements are made.
(H) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be
issued hereunder will be newly issued shares of Buyer. Shareholder represents
and warrants to Buyer that the shares of IHS Stock being issued hereunder are
acquired, and will be acquired, by the Shareholder for investment for his 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 any applicable state
securities law other than pursuant to an effective registration statement or
Rule 144; the Shareholder acknowledges that the shares of IHS Stock issued to
them pursuant to this Agreement constitute restricted securities under Rule 144,
and may have to be held indefinitely, and the Shareholder agrees that no shares
of IHS Stock issued to him pursuant to this Agreement 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 Shareholder represents and warrants that he has the
knowledge and experience in financial and business matters, is capable of
evaluating the merits and risks of the investment, is able to bear the economic
risk of such investment, and is an accredited investor within the meaning of
Regulation D promulgated pursuant to the Securities Act. The Shareholder
represents and warrants that he has had the opportunity to make inquiries of and
obtain from representatives and employees of Buyer such other information about
Buyer as he deems necessary in connection with such investment.
(I) LEGEND. It is understood that, prior to resale of any shares of
IHS Stock pursuant to an effective Shelf Registration Statement pursuant to
subsection (e) above, the certificates evidencing such shares of IHS Stock shall
bear the following (or a similar) legend (in addition to any legends which may
be reasonably
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required in the opinion of Buyer's counsel by the applicable securities laws of
any state), and upon resale of such shares pursuant to such an effective
registration, new certificates shall be issued for the shares sold without such
legends except as otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(J) CERTAIN TRANSFEREES. Except in the case of any transfer of any
shares of IHS Stock issued pursuant to this Agreement to a person pursuant to
the laws of intestacy and succession upon the death of Shareholder or in an open
market transaction subsequent to the effective date of, and pursuant to, the
Shelf Registration Statement covering such shares of IHS Stock or in accordance
with Rule 144 promulgated under the Securities Act, Shareholder shall not
transfer any such shares of IHS Stock to any person or entity unless such
transferee shall have agreed in a writing, in form and substance satisfactory to
Buyer, to be bound by the provisions applicable to the Shareholder under this
Article III and such transfer shall be made in accordance with all applicable
Federal and state securities laws as set forth in subsection (g) above and
otherwise in accordance with this Article III.
(K) RULE 144 REPORTING. With a view to making available the
benefits of the certain rules and regulations of the Commission which may permit
the resale of restricted securities to the public without registration under
certain circumstances, the Buyer agrees, so long as there shall be outstanding
in the hands of the Shareholder 100,000 shares of IHS Stock issued pursuant to
this Agreement, to furnish to Shareholder who so reasonably requests in writing,
a written statement by the Buyer as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Buyer, and such other
reports and documents with the Commission so filed as Shareholder may reasonably
request from time to time in availing himself of any rule or regulation of the
Commission allowing such holder to sell any such shares without registration.
(L) If, notwithstanding the use of its best efforts as provided in
subsection (b) above, Buyer does not cause the Shelf Registration Statement to
be declared effective within one hundred and fifty (150) days after the Closing
Date, then as of the date that such Shelf Registration Statement shall become
effective (the "EFFECTIVE DATE"), the number of Additional Cash IHS Cash Shares
shall be adjusted so that the number of T. Cash Security Shares issued to the
Shareholder pursuant to this Agreement shall have an aggregate fair market value
equal to the original principal amount of the Closing Loan based upon a price
per share of such stock equal to the
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average closing NYSE price of such stock for the sixty (60) trading day period
ending on the date which is two (2) trading days prior to such effective date
(the "ADJUSTED MARKET VALUE PER ADDITIONAL IHS SHARE"). Within five (5) business
days after such effective date Buyer shall deliver notice (the "ADJUSTMENT
NOTICE") to the Shareholder of the Adjusted Market Value Per Additional IHS
Share and the number of shares to be delivered by Buyer to Shareholder (if the
Adjusted Market Value Per Additional IHS Share shall be less than the average
market value per share used on the Closing Date (the "INITIAL MARKET VALUE PER
SHARE") or by the Shareholder to Buyer (if the Adjusted Market Value Per
Additional IHS Share shall be greater than the Initial Market Value Per Share)
so as to effect the adjustment described in this subsection 3.l(l). 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.
ARTICLE IV: THE CLOSING
-----------------------
4.1 TIME AND PLACE OF CLOSING. 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
(1) business day after satisfaction of all of the conditions to closing set
forth in this Agreement, shall have been tendered, made or expressly waived, but
in no event later than April 21, 1998, unless all necessary regulatory approvals
have not been obtained. In such event, the Closing shall take place at such
other time and place upon which the parties may agree. The date on which the
Closing is held is referred to in this Agreement as the "CLOSING DATE".
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE
------------------------------------------------
SHAREHOLDER, MEDI-SERVE AND COMPANY
-----------------------------------
The Company (prior to the Closing only) and Medi-Serve (prior to the
Closing only) and Shareholder hereby jointly and severally represent and warrant
to Buyer as follows:
5.1 ORGANIZATION AND STANDING OF THE COMPANY AND MEDI-SERVE;
SUBSIDIARIES.
(A) Except as set forth on Schedule 5.1(a), neither the Company nor
Medi- Serve has any equity interest or investment, directly or indirectly, in
any other corporation, limited liability company or partnership, limited or
general partnership, joint venture, or other entity, organization or
association. Schedule 5.1(a) also sets forth the percentage equity interest and
percentage voting interest held directly or indirectly (in which case the nature
of such indirect interest also is set forth on Schedule 5.1(a)) in the entities,
if any, listed on Schedule 5.1(a) and whether or not such equity interest or
voting interest is held beneficially and of record. The parties agree that each
entity in which the Company or Medi-Serve holds an equity interest and that is
identified as a "Subsidiary" on Schedule 5.1(a) is sometimes referred to in
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this Agreement as a "SUBSIDIARY". Except as set forth on Schedule 5.1(a), the
financial results of each Subsidiary are included in the Financial Statements
(as such term is hereinafter defined in Section 5.8) on a combined basis in
accordance with GAAP.
(B) Except as set forth on Schedule 5.1(b), each of the Company,
Medi- Serve and each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
Copies of the Articles of Incorporation and By-Laws of the Company and
Medi-Serve and copies of the Articles of Incorporation and By-Laws or other
governance documents of the Subsidiaries (such as certificates of limited
partnerships and limited partnership agreements in the case of limited
partnerships or articles of organization and operating agreements in the case of
limited liability companies) ("GOVERNING DOCUMENTS"), and all amendments thereof
to date, have been delivered to Buyer and are complete and correct. Each of the
Company, Medi-Serve and each Subsidiary 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 and to enter into this Agreement and each of the Transaction
Documents (as defined below in Section 5.2) to which it is a party and to
perform its obligations hereunder and thereunder. Each of the Company, Medi-
Serve and each Subsidiary is qualified to do business as a foreign corporation
in each state where the ownership of its assets or the conduct of its business
would make such qualification necessary.
5.2 AUTHORITY. The Company and Medi-Serve have the full corporate power
and authority to make, execute, deliver and perform this Agreement (including
all Schedules and Exhibits hereto), and all other agreements, instruments,
certificates and documents required or contemplated hereby or thereby
(collectively "TRANSACTION DOCUMENTS") to be executed or delivered by it, and to
consummate 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 the Company and
Medi-Serve. Any rights of appraisal or dissenter's rights with respect to the
transactions contemplated by this Agreement have been waived.
(B) Shareholder has the full legal power and capacity to make,
execute, deliver and perform this Agreement (including all Schedules and
Exhibits hereto), and all Transaction Documents to be executed or delivered by
him, and to consummate all of the transactions contemplated hereby and thereby.
Such execution, delivery, performance and consummation have been made in the
exercise of Shareholder's free will and volition, and any necessary consents of
holders of indebtedness of Shareholder to the transactions contemplated by this
Agreement have been obtained.
5.3 BINDING EFFECT. This Agreement constitutes, and when delivered at
or prior to the Closing, each Transaction Document executed by Shareholder,
Medi-Serve or the Company will constitute, the legal, valid and binding
obligations of such Shareholder, Medi-Serve or the Company, as the case may be,
enforceable against it or him or, as the case may be, in accordance with their
respective terms.
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5.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery of this Agreement or any of the Transaction Documents by Shareholder,
Medi-Serve or the Company nor the performance by Shareholder, Medi-Serve or the
Company of the transactions contemplated hereby and thereby, conflicts with, or
constitutes a breach of or a default under or will cause the termination of (A)
in the case of the Company, Medi-Serve, any Subsidiary or Shareholder that is
not an individual person, its Certificate of Incorporation or other Governing
Document; or (B) any judgment, order, writ, injunction, decree, statute, law,
rule, regulation, directive, mandate or ordinance ("GOVERNMENTAL REQUIREMENTS")
of any Federal, state, local or other governmental or quasi-governmental agency,
bureau, board, council, administrator, court, arbitrator, commission,
department, instrumentality, body or other authority ("GOVERNMENTAL
AUTHORITIES") applicable to it or him or the operation of the Business or the
ownership of any of the Assets; or (C) any agreement, indenture, contract or
instrument to which Shareholder is now a party or by which he or any of his
assets is bound.
5.5 CONSENTS. Except as set forth on Schedule 5.5, no authorization,
consent, approval, license, filing or registration by the Company, Medi-Serve,
any Subsidiary, Shareholder or, to the best knowledge of the Group, the Buyer,
with any Governmental Authority, is or will be necessary in connection with the
entry into, execution, delivery and performance of this Agreement or any of the
Transaction Documents by the Company, Medi-Serve or Shareholder, or for the
consummation of the transactions contemplated hereby and thereby.
5.6 SCHEDULE OF ASSETS AND PROPERTIES; TITLE; CONDITION.
(A) (I) Set forth on Schedule 5.6(a)(i)-1 is a complete and
accurate list, arranged by Magnolia Facility and Medi-Serve Facility, of all
material items of machinery, and all material items of equipment, office
equipment, and furniture, and any other material items of personal property, in
each case that comprise or are utilized or are held for use in connection with
the Company, Medi-Serve or any of the Subsidiaries or are necessary to the
operation of the Business. For purposes of the foregoing, "material" means an
item having a value in excess of $10,000. Set forth on Schedule 5.6(a)(i)-2 is a
complete and accurate list, arranged by Magnolia Facility and Medi-Serve
Facility (and indicating the interest held therein), of all vehicles used in
connection with the Business or owned or leased by the Company, Medi-Serve or
any Subsidiary. Said Schedules 5.6(a)(i)-1 and 5.6(a)(i)-2 also set forth which
of such assets are owned by the Company, Medi-Serve or any of the Subsidiaries
(the "OWNED ASSETS"), leased by the Company, Medi-Serve or any of the
Subsidiaries (the "LEASED ASSETS"), or managed by the Company, Medi- Serve or
any of the Subsidiaries (the "MANAGED ASSETS").
(II) Set forth on Schedule 5.6(a)(ii) is a complete and
accurate list of all patents, trademarks, service marks, copyrights, or
applications for any of the same, franchises, proprietary rights and other
authorizations (other than Licenses as set forth on Schedule 5.10 hereof), if
any, and any other items of intangible or intellectual property that are owned,
possessed or used by the Company or Medi-
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Serve (owned, managed, leased or licensed) that comprise or are utilized or are
held for use in connection with the Company, Medi-Serve or any of the
Subsidiaries or are necessary to the operation of the Business (the "PROPRIETARY
RIGHTS"). There is no basis for any claim of infringement or misappropriation by
or against the Company, Medi-Serve or any Subsidiary with respect to any of the
Proprietary Rights.
(III) Shareholder represents and warrants that set forth on
Schedule 5.6(a)(iii) is a list of excluded items or personal effects, which will
be removed by him at or about the time of the Closing. Based on the foregoing,
Buyer agrees that such personal effects shall not constitute Assets.
(B) Except as set forth on Schedule 5.6(b), the Company, Medi-Serve
or one of their Subsidiaries has good and marketable title to all of the Owned
Assets or a good and valid leasehold interest in all of the Leased Assets, or
the unrestricted right to use all of the Managed Assets, subject to no liens,
claims, security interests, mortgages, pledges, charges, easements, rights of
set off, restraints on transfers, restrictions on use, options, or encumbrances
of any kind or nature whatsoever ("LIENS"), other than Permitted Liens (as
defined below in subsection (c)). Except as set forth on Schedule 5.6(b), no
person other than the Company, Medi-Serve or one of their Subsidiaries has any
right to the use or possession of any of such property and no currently
effective financing statement (other than financing statements granted by
lessors of any Magnolia Facilities leased to the Company or one of the
Subsidiaries) with respect to any of such personal property has been filed in
any jurisdiction, and none of the Company, Medi-Serve and the Subsidiaries has
signed any such financing statement or any security agreement authorizing any
secured party thereunder to file any such financing statement. Since formation,
each of the Company, Medi-Serve and each Subsidiary has conducted its business
activities only under the corporate and/or trade names set forth in Schedule
5.6(b) hereto. All of such personal property comprising equipment, improvements,
furniture and other tangible personal property, whether owned, leased, managed
or licensed, is in good operating condition and repair except for normal wear
and tear in the ordinary course of business and except for items to be replaced
in the ordinary course of business consistent with past practice, 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 operate
the Business in a normal and efficient manner.
(C) "PERMITTED LIENS" means:
(I) each lien, if any, described on Schedule 5.6(c) 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, that in the aggregate do not
exceed $50,000;
(III) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and
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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;
(V) (A) liens in favor of Premiere or its wholly owned
subsidiaries, or (B) the rights of lessors of Leased Assets under the leases
thereof, or (C) Liens created by the owners of any Leased Facilities (as
hereinafter defined in Section 5.11(b)) to the extent permitted by the
applicable Tenancy Leases (as hereinafter defined in Section 5.11(b)) (but only
to the extent that such Liens will not have a material adverse effect on the
operation of the applicable Leased Facility); and
(VI) easements, rights-of-way, restrictions and other
encumbrances which, in the aggregate, are not substantial in amount with respect
to any Magnolia Facility or Medi- Serve Facility, and which do not in any case
materially interfere with the ordinary conduct of such Magnolia Facility or
Medi-Serve Facility.
(D) Except as set forth on Schedule 5.6(d), none of the personal
property referred to in subsection (a) above is subject to a lease, sublease,
license, sublicense, conditional sale, or similar arrangement. Schedule 5.6(d)
sets forth the annual rental and unexpired lease term of each such item, and all
the information set forth thereon is true, complete and correct.
(E) The accounts receivable of the Company, Medi-Serve and the
Subsidiaries are reflected properly on each of their books and records in
accordance with GAAP, have been billed or invoiced in the ordinary course of
business consistent with past practice, are not in dispute, and are bona fide.
(F) The quantities of inventory and supply items referred to in
subsection (a) above are reasonable in light of the present and anticipated
volume of the business of the Company, Medi-Serve and the Subsidiaries and the
inventory and supplies are good, usable, merchantable, and salable in the
ordinary course of the business of the Company, Medi-Serve and the Subsidiaries,
in each case, as determined by the Company in good faith and consistent with
past practice.
5.7 CONTRACTS.
(A) The Shareholder has made available for review by Buyer true,
complete and correct copies of each agreement, lease, contract, instrument or
commitment relating to the Business or to which the Company, Medi-Serve or any
Subsidiary is a party or by which the Company, Medi-Serve or any Subsidiary or
any of the Assets are bound ("CONTRACTS") that is in writing, and a written
description of each material oral Contract. Each material Contract was entered
into and requires performance in the ordinary course of business and is in full
force and effect. Except as set forth on Schedule 5.7(b), none of the Company,
Medi-Serve and the Subsidiaries
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is in default under any material Contract and there has not been asserted,
either by or, to the knowledge of the Group, against the Company, Medi-Serve or
any Subsidiary under any material Contract, any notice of default, set-off or
claim of default. Except as set forth on Schedule 5.7(b), to the knowledge of
the Group, the parties to the material Contracts, other than the Company,
Medi-Serve and the Subsidiaries, 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 material Contract. Except as set forth
in Schedule 5.7(b), all amounts payable or receivable under each of the
Contracts are, and will at the Closing Date, be on a current basis. Except as
set forth in Schedule 5.7(b), the change of control in the Company, Medi-Serve
or any Subsidiary to Buyer will not be deemed an assignment of, or require
consent under any material Contract. None of the Company, Medi-Serve, the
Subsidiaries and the Shareholder has received notice or has reason to believe
that any of the material Contracts will be terminated by any party thereto
within 90 days after the date hereof pursuant to any provision thereof
permitting any such party to terminate such material Contract with or without
cause. For purposes of this Agreement, a Contract shall not be deemed to be
"material" if: (i) it is not required to be disclosed pursuant to subsection (b)
below, and (ii) (x) it is terminable by the Company, Medi-Serve or Subsidiary
within ninety (90) days at a cost set forth in the contract not to exceed
$10,000 or (y) it involves annualized payments of less than $50,000 and it is
terminable at no cost within ninety (90) days.
(B) Except as listed on Schedule 5.7(b), neither Company nor
Medi-Serve or any Subsidiary has any continuing rights or obligations under 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, sales representative, agent or group of
employees, or any non-competition, non-solicitation, confidentiality or similar
agreement with any such person or persons (provided that the foregoing shall not
require the disclosure of immaterial oral agreements or oral commitments such as
"at will" contracts);
(II) contract, agreement or arrangement for the acquisition or
disposition of any assets, property or rights having a value in excess of
$10,000 or in excess of $25,000 in any series of related transactions or
requiring the consent of any party to the transfer and assignment of any such
assets, property or rights (by purchase or sale of assets, purchase or sale of
stock, merger or otherwise), including without limitation, option agreements;
(III) contract, agreement, instrument or commitment involving
annual payments in excess of $10,000 which contains any provisions requiring the
Company, Medi- Serve or any Subsidiary to indemnify or act for any other person
or entity or contract, agreement, instrument or commitment which contains any
provisions requiring the Company, Medi-Serve or any Subsidiary to guaranty or
act as surety for any other person or entity;
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(IV) contract, agreement or commitment restricting the Company,
Medi-Serve or any Subsidiary from, or in favor of the Company, Medi-Serve or any
Subsidiary and restricting any other person or entity from, conducting business
anywhere in the world for any period of time or restricting the use or
disclosure of any confidential or proprietary information or prohibiting the
solicitation of business or of employees, agents or others;
(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 or any portion thereof or the
business of any other person or entity;
(VI) licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency or other similar contract, arrangement or
commitment that involves annual payments in excess of $10,000;
(VII) contract, agreement or arrangement granting a leasehold
or other interest in personal property to the Company, Medi-Serve or any
Subsidiary, including without limitation, subleases, licenses and sublicenses
that involves annual payments in excess of $10,000;
(VIII) contract, agreement or arrangement granting a leasehold
or other interest in real property by Company, Medi-Serve or any Subsidiary,
including without limitation, subleases, licenses and sublicenses, other than
ordinary and customary rights of residents and patients of the Magnolia
Facilities;
(IX) contract, agreement or arrangement granting a leasehold or
other interest in real property to Company, Medi-Serve or any Subsidiary,
including without limitation, Tenancy Leases (the "LEASES");
(X) management agreement with respect to any Magnolia Facility
or Medi-Serve Facility (the "MANAGEMENT AGREEMENTS");
(XI) 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 of the Company, Medi-Serve or
any Subsidiary not covered by clause (i) above;
(XII) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority;
(XIII) agreement with respect to the settlement of any
litigation or other proceeding with any third person or entity;
(XIV) agreement relating to the ownership, transfer, voting or
exercise of other rights with respect to any equity in the Company, Medi-Serve,
any
<PAGE>
Subsidiary or any other entity, including without limitation, registration
rights agreements, voting trust agreements and shareholder and proxy agreements;
or
(XV) agreement not set forth in subsections (i) through (xiv)
above which (x) was not made in the ordinary and normal course of business and
consistent with past practice, or (y) not terminable by the Company, Medi-Serve
or the applicable subsidiary at any time within ninety (90) days at a cost of
not more than $10,000 or (z) involves annualized payments of in excess of
$50,000 and is not terminable within ninety (90) days.
5.8 FINANCIAL STATEMENTS.
(A) Attached hereto as Schedule 5.8(a)-1 are the unaudited
financial statements of the Company and its Subsidiaries on a consolidated basis
for the fiscal quarters ended March 31, 1997, June 30, 1997, and September 30,
1997, and for the three-month period ended December 31, 1997, the audited
financial statements of the Company and its Subsidiaries on a consolidated basis
for the fiscal year ended September 30, 1997, and the audited financial
statements of the Company, and its Subsidiaries on a consolidated basis for the
fiscal year ended September 30, 1996. Also attached hereto as Schedule 5.8(a)-2
are the unaudited financial statements of Medi- Serve for the fiscal quarters
ended March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997,
the audited financial statements of Medi-Serve for the fiscal year ended
December 31, 1997, and the unaudited financial statements of Medi-Serve for the
fiscal year ended December 31, 1996. The foregoing described financial
statements of the Company, Medi-Serve and the Subsidiaries are referred to
hereinafter, collectively, as 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 the Company and Medi-Serve as, at and for the periods therein
specified and were prepared in accordance with GAAP except as expressly set
forth on Schedules 5.8(a)-1 and 5.8(a)-2. Each of the Financial Statements has
been accompanied by the written certification of the Chief Financial Officer of
the Company and Medi- Serve, the Shareholder, to be true and correct in all
material respects, to present fairly the financial condition and results of
operations of the Company, Medi-Serve and the Subsidiaries, as the case may be,
at and for the periods therein specified, and to have been prepared in
accordance with GAAP except as expressly set forth on Schedules 5.8(a)-1 and
5.8(a)-2. The books of account of the Company, Medi-Serve and the Subsidiaries
from which the Financial Statements were prepared accurately reflect all of the
items of income and expense, assets, liabilities and accruals of the Company,
Medi-Serve and the Subsidiaries. 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.
(B) The audited balance sheet of the Company and its Subsidiaries
contained in the Financial Statements as of September 30, 1997 reflects
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all liabilities as of the date thereof, and none of the Company and its
Subsidiaries has any liabilities that are not reflected thereon, whether or not
in accordance with GAAP, except for such current liabilities as have been
incurred since the date of such balance sheet in the ordinary course of business
consistent with past practice, and liabilities for the items and in the amounts
listed on Schedule 5.8(b). The unaudited balance sheet of Medi-Serve contained
in the Financial Statements as of September 30, 1997 reflects all liabilities of
Medi-Serve as of the date thereof, and Medi-Serve has no liabilities that are
not reflected thereon, whether or not in accordance with GAAP, except for such
current liabilities as have been incurred since the date of such balance sheet
in the ordinary course of business consistent with past practice, and
liabilities for the items and in the amounts listed on Schedule 5.8(b). Such
balance sheets of the Company and its Subsidiaries, and of Medi-Serve, are
referred to herein, collectively, as the "BALANCE SHEET" and the dates of such
balance sheets, respectively, are referred to herein, collectively, as the
"BALANCE SHEET DATE". Except to the extent set forth or reserved against on the
Balance Sheet there is no basis for the assertion against the Company,
Medi-Serve or any Subsidiaries of any liability of any nature or in any amount
(other than current or scheduled liabilities as aforesaid).
5.9 MATERIAL CHANGES. Except as specifically described on Schedule 5.9
hereto, since the Balance Sheet Date, there has not been any material adverse
change in the condition or prospects (financial or otherwise), of the assets,
properties or operations of the Company, Medi- Serve or any of the Subsidiaries,
and each of the Company and Medi-Serve and each of the Subsidiaries has
conducted its business only in the ordinary course, consistent with past
practice. The Company and Medi-Serve have identified and communicated to Buyer
all material information that is peculiar or unique to the Business (but not
applicable generally to all persons or entities in such business) with respect
to any fact or condition that, to the knowledge of the Group, might adversely
affect the future prospects (financial or otherwise) of any of the Business.
5.10 LICENSES; PERMITS; CERTIFICATES OF NEED. Schedule 5.10 sets forth
a description of each license, approval, permit, right or other authorization,
other than immaterial local business licenses, that is necessary for the
operation of any part of the Business (collectively, the "LICENSES"). The
Company and Medi-Serve have delivered to Buyer true, correct and complete copies
of all of the Licenses and the applications therefor. Schedule 5.10 also sets
forth a description of each accreditation of the Business, copies of which the
Shareholder has delivered to Buyer. The Company, Medi-Serve or one of the
Subsidiaries, as applicable, owns, possesses or has the legal right to use the
Licenses, free and clear of all Liens. None of the Company, Medi-Serve and the
Subsidiaries is in default under, and none of the Company, Medi-Serve and the
Subsidiaries has received any notice of any claim or default or any other claim
or proceeding relating to, any such License. Except as set forth on Schedule
5.10, none of the Licenses will expire prior to the first anniversary of the
Closing Date or which may not be renewed in the ordinary course of business. The
Business is, as it is currently conducted, licensed by all Governmental
Authorities from which Licences are required to carry on the Business. No
stockholder, director or officer, employee or
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former employee of the Company, Medi-Serve or any Subsidiary, 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 License, except for the licensors
to the Company, Medi-Serve or each Subsidiary, and except for licenses of
employees described on Schedule 5.10 as such.
5.11 THE MAGNOLIA FACILITIES AND MEDI-SERVE FACILITIES.
(A) Schedule 5.11(a) is a list of all of the Magnolia Facilities
and Medi-Serve Facilities, and sets forth for each Magnolia Facility and
Medi-Serve Facility all of the following information:
(I) the name of such Magnolia Facility and Medi-Serve Facility;
(II) the owner of the fee simple title to such Magnolia
Facility and Medi-Serve Facility, the lessee of such Magnolia Facility (if
applicable) and Medi-Serve Facility (if applicable), and the manager of such
Magnolia Facility (if applicable) and Medi-Serve Facility (if applicable);
(III) (A) the number of licensed long-term care beds at such
Magnolia Facility, (B) the current rates charged by such Magnolia Facility to
its patients or residents, (C) the number of beds or units presently occupied
in, and the occupancy percentage at, such Magnolia Facility, (D) the number of
patients or residents at such Magnolia Facility: (x) who receive reimbursement
from, or are participants in, any federal or state Medicare or Medicaid program
or (y) for whom payment is not made by Medicare of Medicaid; and
(IV) whether said Magnolia Facility is subject to the New
Greenville Lease, any Taylor Lease or the lease related to the Woodruff
Facility.
(B) The Company or one or more of the Subsidiaries has good and
marketable title to the Magnolia Facility and Medi-Serve Facilities that it
listed as owned by it on Schedule 5.11(a) (each an "OWNED FACILITY"), and has a
good and valid leasehold interest for the term specified in the applicable lease
(each a "TENANCY LEASE") for each Magnolia Facility and Medi-Serve Facility that
it listed as leased by it on Schedule 5.11(a) (each a "LEASED FACILITY"), the
Company and Medi-Serve do not have knowledge that any person or entity listed as
the owner of any Leased Facility does not have good and marketable title to such
Leased Facility, in each case, subject to no Liens other than Permitted Liens;
(C) Except as set forth on Schedule 5.11(c), there are no leases or
other agreements of the Company or Medi-Serve as lessor or operator, granting to
any third party the right to use, occupy or manage any Magnolia Facility or
Medi-Serve Facility (except the ordinary and customary rights of the patients
and residents of the
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Magnolia Facilities), and no person has any ownership interest or option or
right of first refusal to acquire any ownership interest in any Magnolia
Facility or Medi-Serve Facility or any building or improvements thereon;
(D) No written notices of violation have been received by the
Company, Medi-Serve or any Subsidiary, or to the best knowledge of the Company
and Medi-Serve (but without independent investigation), by any owner of any
Leased Facility, from any Governmental Authority that remains in effect which
prohibits or restricts the existing use of the structures presently comprising
the Magnolia Facilities and Medi-Serve Facilities;
(E) Except as set forth on Schedule 5.11(e), to the best knowledge
of the Company and Medi-Serve, there is no plan, study or effort by any
Governmental Authority that would in any material way affect the present use or
zoning of any Magnolia Facility or Medi-Serve Facility or any part thereof, and
to the best knowledge of the Company and Medi-Serve, there are no assessments or
proposed assessments and there is no existing, proposed or contemplated plan to
widen, modify or realign any street or highway or any existing, proposed or
contemplated eminent domain proceedings that would in any material way affect
any Magnolia Facility or Medi-Serve Facility;
(F) Except as set forth on Schedule 5.11(f), and except to the
extent set forth on the engineering reports attached hereto as Exhibit 5.11(f),
the buildings and other improvements comprising each Magnolia Facility and
Medi-Serve Facility and all of their systems, including without limitation, the
heating, ventilating and air conditioning systems, and the plumbing, electrical,
mechanical and drainage systems, and roofs are in good operating condition,
repair and working order, normal wear and tear excepted;
(G) No assessment for public improvements has been made against any
Magnolia Facility or Medi-Serve Facility that remains unpaid and for which the
Company, Medi- Serve or any Subsidiary is liable, and all public improvements
ordered, commenced or completed with respect to any Magnolia Facility or
Medi-Serve Facility prior to the date of this Agreement and for which the
Company, Medi-Serve or any Subsidiary is liable, shall be paid for in full by
the Company or Medi-Serve prior to the Closing; and
(H) None of the Company, Medi-Serve, and the Subsidiaries has
received any written notice of material noncompliance from any Governmental
Authority regarding any of the improvements constructed at any Magnolia Facility
or Medi-Serve Facility or the use or occupancy thereof which remains uncured.
5.12 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.12, there
are no disputes, claims, actions, suits or proceedings, arbitrations or
investigations, either administrative or judicial, pending, or, to the knowledge
of the Company or Medi-Serve, threatened or contemplated, nor, to the knowledge
of the Company or Medi-Serve, is there any basis therefor, against or affecting
the Company, Medi-Serve, any
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Subsidiary or any of the Assets, or the rights of the Company, Medi-Serve or any
Subsidiary therein or the ability of Shareholder, Medi-Serve or the Company to
consummate the transactions contemplated herein, at law or in equity or
otherwise, before or by any Governmental Authority, including, without
limitation, any of the foregoing relating to the infringement of Proprietary
Rights. None of the Company, Medi-Serve and the Subsidiaries has received any
requests for information with respect to the transactions contemplated hereby
from any Governmental Authority.
5.13 EMPLOYEES. With respect to any employee of the Company, Medi-Serve
or any Subsidiary receiving an annual salary of $75,000 or more, Schedule
5.7(b)(i), Schedule 5.7(b)(xi) and Schedule 5.13 together contain a true,
complete and correct list of the name, position, current rate of compensation
(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 5.7). Each of the Company, Medi-Serve and each Subsidiary is in
compliance with all Governmental Requirements applicable to any and all of the
employee benefit plans, agreements and arrangements referred to on Schedule
5.7(b)(i) or 5.7(b)(xi), including, without limitation, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). No such employee, consultant
or agent has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 5.7(b)(i) or 5.7(b)(xi). The Balance
Sheet contains an adequate reserve for vacation accruals and paid time off
accruals. There are no severance obligations of Company, Medi- Serve or any
Subsidiary. Each employee, agent and consultant of the Company, Medi-Serve or
any Subsidiary has all licenses necessary to carry on his or her obligations as
an employee of the Company, Medi-Serve or any Subsidiary and to the knowledge of
the Company or Medi-Serve (but without independent investigation), each such
licensee is in compliance with all of the terms of all such licenses held by him
or her. Except as set forth on Schedule 5.13, none of the Company, Medi- Serve
and the Subsidiaries has received notice that any senior executive, facility
administrator or director of nursing will terminate his or her employment within
180 days after the Closing Date, and none of the Company, Medi-Serve and the
Shareholder has reason to believe that any such termination will be likely by
reason of any change of control in the Company or Medi-Serve (or any Subsidiary)
contemplated by this Agreement.
5.14 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PRACTICES, ETC.
Since the date that is two (2) years prior to the date hereof, there has been no
material adverse change in the relationship between the Company, Medi-Serve or
any Subsidiary and their employees 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. Except as set forth on Schedule
5.14, no employees of the Company, Medi-Serve or any Subsidiary are represented
by any labor union or similar organization in connection with their employment
by or relationship with, the Company, Medi-Serve or any Subsidiary, and to the
knowledge of the Company or Medi-Serve, 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 5.14, there are no pending
suits, actions or proceedings against the Company, Medi-Serve or any Subsidiary
relating to any of its past or present employees, and there
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are no threats of strikes, work stoppages or pending filed grievances by any
such employees. Except as set forth on Schedule 5.14, none of the Company,
Medi-Serve and the Subsidiaries has any collective bargaining or other labor
contracts.
5.15 ERISA. Except as set forth on Schedule 5.15, none of the Company,
Medi-Serve and the Subsidiaries maintains or make contributions to and none of
the Company, Medi-Serve and the Subsidiaries 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. Each plan identified on Schedule 5.15
is in compliance with ERISA and is fully funded. None of the Company, Medi-Serve
and the Subsidiaries maintains or makes contributions to and none of them 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").
5.16 QUESTIONNAIRE. The healthcare law questionnaire heretofore
delivered to the Company and Medi-Serve by Buyer (the "QUESTIONNAIRE") and
attached hereto as Exhibit 5.16 has been fully and accurately completed and does
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.
5.17 INSURANCE AND SURETY AGREEMENTS. Schedule 5.17 contains a true and
correct list of: (A) all policies of fire, liability and other forms of
insurance held or owned by the Company, Medi-Serve or any Subsidiary or
otherwise in force and providing coverage for the Business or any of the
Magnolia Facilities 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 the Company or Medi-Serve or otherwise in force and relating to the
Business or any of the Magnolia Facilities and Medi-Serve Facilities or Assets,
including a brief description of the character of the bond or agreement, the
name of the surety or the indemnifying party. Schedule 5.17 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 or increases in premiums therefore during the past two years. Such
policies are owned by and payable solely to the Company, Medi-Serve or one of
the Subsidiaries, 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 5.17 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, none of
the Company, Medi-Serve and the Subsidiaries has been advised by any of its
insurance carriers of an intention to terminate or modify or materially raise
the premiums for any such policies, nor have any of them failed to comply with
any of the material conditions contained in any such policies.
5.18 RELATIONSHIPS. Except as disclosed on Schedule 5.18, no officer,
director or employee of the Company, Medi-Serve or of any Subsidiary, and
neither Shareholder, nor any member of Shareholder's immediate
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family or of the immediate family of any principal or partner of Shareholder,
and no person or entity which is controlled by, under common control with, or
controlling any of them (each, an "AFFILIATE") 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 Business. Except as set forth on Schedule 5.18, no Shareholder
or Affiliate is guaranteeing any obligations of the Company, Medi-Serve or of
any Subsidiary.
5.19 ASSETS COMPRISING THE BUSINESS. The Assets, including without
limitation, all Owned Assets, Leased Assets and Managed Assets (including
without limitation, all inventory included therein), Magnolia Facilities,
Medi-Serve Facilities, Contracts, Proprietary Rights and Licenses listed on the
Schedules to this Agreement, are all of the tangible and intangible properties
(real, personal and mixed), including, without limitation, all 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.
5.20 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.20,
since the Balance Sheet Date, none of the Company, Medi-Serve and the
Subsidiaries has:
(A) sold, assigned, transferred or disposed of any Assets, except
in the ordinary course of business consistent with past practice;
(B) mortgaged, pledged or subjected to any Lien of any nature
whatsoever any of the Assets, other than Permitted Liens;
(C) entered into any Contract, or made or suffered any termination
of any Contract, or made or suffered any modification or amendment of any
Contract except for terminations, modifications and amendments of Contracts made
in the ordinary course of business consistent with past practice and which would
not adversely affect earnings or otherwise be material, and none of the Company,
Medi-Serve and the Subsidiaries has received notice 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 satisfied,
paid or prepaid 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 the Company or Medi-Serve or any
Subsidiary or the Business or the Assets;
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(F) incurred any liabilities, other than trade payables and other
operating liabilities that would be reflected on the date incurred as current
liabilities on a balance sheet of the Company, Medi-Serve and the Subsidiaries,
on a combined basis, in accordance with GAAP, and in the ordinary course of
business consistent with past practice;
(G) failed to collect accounts receivable in the ordinary course of
business consistent with past practice;
(H) changed any of the accounting principles followed by it or the
methods of applying such principles;
(I) 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
(J) issued any capital stock, or declared or paid or set aside or
reserved any amounts for payment of any dividend or other distribution in
respect of any equity interest or other securities, or redeemed or repurchased
any of its capital stock 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;
(K) failed to collect, withhold and/or pay to any proper
Governmental Authority, any Taxes (as hereinafter defined in Section 5.22)
required by applicable Governmental Requirement to be so collected, withheld
and/or paid;
(L) instituted, settled or agreed to settle any litigation, action
or proceeding before any Governmental Authority relating to it or its property
or received any threat thereof, except for settlements of cost report claims in
the ordinary course of business consistent with past practice and that have not
had a material adverse effect on the Company, Medi-Serve or the Business;
(M) entered into any material transaction other than in the
ordinary course of business consistent with past practice; or
(N) agreed or otherwise become committed to do any thing described
in any of subsections (a) through and including (m) above.
5.21 COMPLIANCE WITH LAWS.
(A) The Company, Medi-Serve, each Subsidiary and to the Group's
knowledge, each of their respective licensed employees are in compliance with
all Governmental Requirements applicable to them, the Assets or the operation of
the Business. None of the Company, Medi-Serve and the Subsidiaries has received
any claim or notice that any of the Magnolia Facilities, Medi-Serve Facilities
or Assets is not in compliance with any applicable Governmental Requirement. The
Company and Medi-Serve shall report to Buyer, within five (5) days after its
receipt thereof, any written or oral claims or notices that any of the licensed
employees of either of them
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or any Subsidiary, any of the Magnolia Facilities or Medi-Serve Facilities, or
any of the Assets is not in compliance with any of the foregoing.
(B) Except as set forth on the environmental reports relating to
the Magnolia Facilities and Medi-Serve Facilities as identified on as Exhibit
5.21(b), at all times, each of the Company and Medi-Serve and each Subsidiary
has complied, and is complying in all respects with all environmental and
related Governmental Requirements applicable to it, the Magnolia Facilities and
Medi-Serve Facilities, 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 (including medical waste), and to
petroleum products, material or waste whether performed on any of the Leased
Properties, at any Magnolia Facility and Medi-Serve Facility, or at any other
location. No uncured notice from any Governmental Authority has been served upon
the Company, Medi-Serve or any Subsidiary, 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.
5.22 TAXES. Except for Taxes that have accrued in the ordinary course
of business since the Balance Sheet Date, the Balance Sheet sufficiently
provides for all accrued, deferred and unpaid federal, state, local and foreign
net or gross income, profits, property, sales, use, excise, license, franchise,
severance, stamp, occupation, premium, windfall profits tax, alternative and
add-on minimum taxes, customs duty, added value, payroll, employer's income,
withholding and social security taxes, excise or other taxes ("TAXES") and any
penalties, interest, governmental charges, assessments and deficiencies related
thereto, payable by the Company, Medi-Serve or any Subsidiary. All Taxes payable
by the Company, Medi-Serve or any Subsidiary, and all interest and penalties
thereon, whether disputed or not, have been paid in full when due, all tax
returns, declarations of estimated tax and other reports required to be filed in
connection therewith ("TAX RETURNS") have been accurately prepared and completed
on an appropriate basis and duly and timely filed in accordance with all
Governmental Requirements, all computations and taxable income correctly and
accurately made and reported in accordance with all Government Requirements, and
all withholdings and deposits required by Governmental Requirements to be made
by the Company, Medi-Serve or any Subsidiary with respect to employee's
withholding taxes have been duly made. Except as set forth on Schedule 5.22,
neither the Company, Medi-Serve nor any of the Subsidiaries has any tax
deficiency or claim outstanding, proposed or assessed against it, and there is
no basis for any such deficiency or claim. There is not now in force any
extension of time with respect to the date on which any Tax Return was or is due
to be filed by or with respect to the Company, Medi-Serve or any Subsidiary or
any waiver or agreement by the Company, Medi-Serve or any Subsidiary for the
extension of time for assessment of any Tax. None of the Company, Medi-Serve and
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the Subsidiaries is a party to any pending action or proceeding, and, to the
knowledge of the Company or Medi-Serve, no action or proceeding has been
threatened by any Governmental Authority for assessment or collection of any
Taxes, nor has any claim for assessment or collection of Taxes been asserted
against the Company, Medi-Serve or any Subsidiary. None of the Company,
Medi-Serve and the Subsidiaries is a party to any tax sharing agreement or
arrangement. True and complete copies of all Federal and State Tax Returns of
the Company, Medi-Serve and the Subsidiaries for the tax years ending December
31, 1996 and 1995 have been delivered to Buyer.
5.23 ENCUMBRANCES CREATED BY THIS AGREEMENT. Neither the execution and
delivery of this Agreement nor the execution and delivery of any of the
Transaction Documents by the Company, Medi-Serve or the Shareholder 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.
5.24 QUESTIONABLE PAYMENTS. None of the Company, Medi-Serve,
Subsidiaries and Shareholder has, and to the knowledge of the Company or
Medi-Serve, no director, officer, agent or employee of the Company, Medi-Serve
or any Subsidiary has made or received any illegal or unlawful payment, bribe,
kickback, political contribution or other similar questionable payment for any
referrals or otherwise in connection with the ownership or operation of the
Business, including, without limitation, any of the same that would constitute a
violation of the Foreign Corrupt Practices Act of 1977, as amended.
5.25 REIMBURSEMENT MATTERS. Except as set forth on Schedule 5.25, each
of the Company, Medi-Serve, each Subsidiary, to the extent necessary to conduct
its business in a manner consistent with past practice, is qualified for
participation in the Medicare and Medicaid programs, and each other third party
reimbursement source in which it participates. Except as set forth on Schedule
5.25, none of the Company, Medi-Serve, and any Subsidiary has any liability with
respect to recoupment from the Medicare or Medicaid programs or any other third
party reimbursement source (inclusive of managed care organizations) that would
exceed the reserves or allowances made therefor as set forth on the Balance
Sheet, and there is no basis for the assertion of any such recoupment claim, and
none of the Company, Medi-Serve, and any Subsidiary has received any notice of
any such assertion, including without limitation, any notice of denial or
recoupment from the Medicare or Medicaid programs, or any other third party
reimbursement source that arose out of any transactions completed prior to the
date hereof, and no Medicare or Medicaid investigation, survey, or audit is
pending or, to the knowledge of the Company or Medi-Serve, threatened with
respect to the operation of the business of any Facility. None of the Company,
Medi-Serve, and any Subsidiary nor, to the knowledge of the Company or
Medi-Serve, any of their respective licensed employees has been convicted of, or
pled guilty or nolo contendere to any criminal offense related to any Medicare
or Medicaid program while such person was an employee of any of them or after
the termination of such person's employment by any of them for acts committed
while employed by any of them, and, to the knowledge of the Company or
Medi-Serve, none of such employees has committed any offense which may serve as
the basis for suspension, restriction, or exclusion of the Company, Medi-Serve,
or any Subsidiary from the Medicare and Medicaid programs, or any other third
party reimbursement source. Since January 1, 1996, none of the Company,
Medi-Serve and any Subsidiary has received any notice from the Medicare or
Medicaid programs or any other third party reimbursement source to the effect
that
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the basis on which it receives reimbursement for its services is to be changed.
The Company and Medi-Serve have made available to Buyer true, complete and
correct copies of the most recent surveys and inspection reports from, and plans
of correction provided by, the Company, Medi-Serve, or any Subsidiary to, any
governmental health care regulatory agency, intermediary or authority or any
other licensing organization and any and all correspondence between or on behalf
of any such regulatory agency, intermediary or authority or licensing
organization concerning any and all deficiencies, inadequacies or non-compliance
with regulations or standards applicable to any Magnolia Facility or Medi-Serve
Facility. Except as set forth on Schedule 5.25, there are no violations, orders
or deficiencies issued or recommended by any such Governmental Authority
(including, without limitation, licensing organizations), and except as set
forth on Schedule 5.25, there are (and within the past three (3) years there has
been) no inspections, license reviews, investigations or proceedings of any sort
pending by or before any such Governmental Authority that relate to any Magnolia
Facility or Medi-Serve Facility. All such violations and deficiencies have been
fully remedied by the applicable Company, Medi-Serve, or Subsidiary or withdrawn
by the applicable Governmental Authority. During the twelve-month period
immediately preceding the date hereof, no Magnolia Facility or Medi-Serve
Facility has been placed on "Vendor Hold" or similar status or become subject to
any other disciplinary or punitive action, or been cited for any violations that
are likely to lead to the Magnolia Facility or Medi-Serve Facility being placed
on "Vendor Hold" or similar status or subject to any other disciplinary or
punitive action. Except as set forth on Schedule 5.25, none of the Company,
Medi-Serve, and any Subsidiary has been served with any notice which (x)
requires the performance of any work or alterations on any Magnolia Facility or
Medi-Serve Facility, or in the streets bounding thereon, or (y) orders the
installation, repair or alteration of any public improvements on or about any
Magnolia Facility or Medi-Serve Facility or the streets bounding thereon. Each
Magnolia Facility and Medi-Serve Facility is in material compliance with all
"Conditions and Standards of Participation" in the Medicare or Medicaid
Programs. Each of the Company, Medi-Serve, and the Subsidiaries has timely filed
all required cost reports with respect to Medicare and Medicaid, and has
provided to Buyer its audited and unaudited cost reports for Medicare and
Medicaid and all other rate compensation and reimbursement reports, audits and
schedules prepared or issued by, or filed with, any Governmental Authority with
respect to the operations of any Magnolia Facility or Medi-Serve Facility for
the last three (3) years, and each such report is complete and accurate in all
material respects.
5.26 CAPITAL STOCK OF THE COMPANY AND MEDI-SERVE. Schedule 5.26 sets
forth a complete list and description of all of the authorized capital stock of
the Company and Medi-Serve, the number of shares issued and outstanding of such
capital stock of each of them and the identity of each holder thereof, in each
case indicating the number of shares held. No shares of the Company's or
Medi-Serve's capital stock are held in the treasury of the Company or
Medi-Serve, respectively. The Company and Medi-Serve each have only one class of
capital stock. The Shareholder is the lawful record and beneficial owner of all
of the Subject Shares as indicated on Schedule 5.26, free and clear of all
Liens, and all of such stock is duly authorized, validly issued, and fully paid
and non-assessable. Shareholder has the full legal power to transfer and
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deliver the Subject Shares listed as owned by him on Schedule 5.26 in accordance
with this Agreement, and delivery of such Subject Shares to Buyer pursuant
hereto will convey good and marketable title thereto, free and clear of all
Liens. Except for the stock options granted as set forth on Schedule 5.26, there
are not now any and, on the Closing Date there will be no, subscription,
participation, preemptive or first refusal rights to purchase or otherwise
acquire shares of capital stock of the Company or Medi-Serve from the Company or
Medi-Serve or Shareholder or any one else pursuant to any provision of law or
the Articles of Incorporation or By-Laws of the Company or Medi-Serve or by
agreement or otherwise. There are not now any and, on the Closing Date there
shall not be any, outstanding warrants, options, or other rights to subscribe
for or purchase from the Company or Medi-Serve any shares of capital stock of
the Company or Medi-Serve or Shareholder or any one else, nor are there and
there shall not be outstanding on the Closing Date, any securities convertible
into or exchangeable for any such shares. Except as described on Schedule 5.26,
there are no voting agreements, arrangements, trusts or restrictions relating to
any of the Subject Shares.
5.27 FINDERS. No broker or finder has acted for Shareholder, the
Company or Medi-Serve in connection with the transactions contemplated by this
Agreement other than Robinson-Humphrey Company, Inc. (the "BROKER"), and other
than the Broker, 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 Shareholder, Medi-Serve or the
Company.
5.28 SHAREHOLDER UNTRUE STATEMENT. None of the representations and
warranties of the Company, Medi-Serve or Shareholder made in or pursuant to this
Agreement contains any untrue statement of material fact or omits to state a
material fact necessary, in light of the circumstance under which it was made,
in order to make any such representation not misleading in any material respect.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER, NEWCO 1
------------------------------------------------------------
AND NEWCO 2
-----------
Buyer, Newco 1, and Newco 2 represent and warrant to the Company,
Medi-Serve and the Shareholder 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.
Newco 1 and Newco 2 are each corporations duly organized, validly existing and
in good standing under the laws of the State of South Carolina.
6.2 POWER AND AUTHORITY. Each of Buyer, Newco 1 and Newco 2 has the
corporate power and authority to execute, deliver and perform this Agreement,
and as of the Closing, each of Buyer, Newco 1 and Newco 2 will have the
corporate power and authority to execute and deliver the Transaction Documents
required to be executed and delivered by it to the Shareholder at the Closing.
6.3 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,
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valid and binding obligation of Buyer, enforceable against Buyer in accordance
with their respective terms.
6.4 SEC DOCUMENTS. Buyer has furnished the Company, Medi-Serve and the
Shareholder 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 June 20, 1997, and its special meeting held on
October 21, 1997, 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. Buyer has been notified that the most
recent registration statement on Form S-3 filed by it with the SEC is under
review and the SEC anticipates providing preliminary comments to Buyer by
approximately May 2, 1998.
6.5 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery of this Agreement and, as of the Closing Date, the execution and
delivery of the Transaction Documents, by Buyer, Newco 1 and Newco 2 nor the
performance by Buyer, Newco 1 and Newco 2 of the transactions contemplated
hereby and thereby conflicts with, or constitutes a breach of or a default under
(A) the Certificate of Incorporation or By-laws of Buyer, Newco 1 or Newco 2, or
(B) any law, rule, judgment, order, writ, injunction, or decree of any court
currently in effect applicable to Buyer, Newco 1 or Newco 2, or (C) any
Governmental Requirement applicable to Buyer, Newco 1 or Newco 2, or (d) any
agreement, indenture, contract or instrument to which the Buyer is now a party
or by which any of the assets of Buyer, Newco 1 or Newco 2 is bound.
6.6 CAPITAL STOCK. Buyer has duly authorized and reserved for issuance
the shares of IHS Stock to be issued in connection herewith, and, when issued in
accordance with the terms of Article III, such shares of IHS Stock will be
validly issued, fully paid, and nonassessable and free of preemptive rights.
6.7 MATERIAL CHANGES. Except as set forth in SEC Documents delivered to
the Shareholder, or as set forth on Schedule 6.7 hereto, since September 30,
1997, there has not been any material adverse change in the condition or
prospects (financial or otherwise), of the assets, properties or operations of
the Buyer and its subsidiaries. Each Group Member acknowledges that the
information set forth on Schedule 6.7 is not public information and is
confidential. Accordingly, the Group Members jointly and severally agree to hold
such information confidential, and to refrain from making any purchases or sales
of any shares of IHS Stock until such time as Buyer notifies the Shareholder
that such information has become publicly available.
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6.8 BUYER UNTRUE STATEMENT. None of the representations and warranties
of the Buyer made in or pursuant to this Agreement contains any untrue statement
of material fact or omits to state a material fact necessary, in light of the
circumstance under which it was made, in order to make any such representation
not misleading in any material respect.
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANY
-----------------------------------------------------------
AND MEDI-SERVE
--------------
7.1 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 financial and legal condition of the Company,
Medi-Serve, the Subsidiaries, the Magnolia Facilities and Medi-Serve Facilities
as Buyer deems necessary or advisable to familiarize itself therewith and/or
with matters relating to their history or operation. The Company and Medi- Serve
shall permit Buyer and its authorized representatives (including legal counsel
and accountants), to have full access to the books and records of the Company,
Medi-Serve, the Subsidiaries, the Magnolia Facilities and Medi-Serve Facilities
upon reasonable notice and during normal business hours, and the Company and
Medi-Serve 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
products, services, operations and assets of the Company, Medi-Serve and the
Subsidiaries 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 Tax
Returns and related work papers since inception of the Company, Medi-Serve and
the Subsidiaries; and the Company and Medi-Serve 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, Medi-Serve and the Subsidiaries and the accuracy of the representations
and warranties made in this Agreement. The Company and Medi-Serve shall cause
its accountants to cooperate with Buyer and to disclose the results of audits
relating to the Company, Medi-Serve and the Subsidiaries and to produce the
working papers relating thereto. Without limiting any of the foregoing, it is
agreed that Buyer will have full access to any and all agreements between and
among the previous and current Shareholder regarding their ownership of shares
or the management or operation of the Company, Medi-Serve and the Subsidiaries.
The Company and Medi-Serve will, subject to mutually acceptable conditions and
schedules, permit Buyer (or its representatives) to meet with and interview the
employees and representatives of the Company, Medi-Serve and the Subsidiaries
that are responsible for the responses to, or have information with respect to,
the questions set forth on the Questionnaire. Notwithstanding anything to the
contrary contained in this Section 7.1(a), none of the Company, Medi-Serve and
the Subsidiaries shall be required to disclose or make available to Buyer prior
to Closing any information if it reasonably believes, based on the opinion of
its legal counsel, that the disclosure thereof can not be made without waiving
the attorney/client privilege with respect thereto; provided, however, that the
failure to disclose such information
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by reason of this sentence shall not be deemed to limit or modify any
representations or warranties of the Company, Medi-Serve, any Subsidiary or
Shareholder.
(B) In the event that this Agreement is terminated as provided in
Article XII. or otherwise, the Buyer shall return to the Shareholder any and all
copies of financial and operating data and other information and documents and
any and all other papers, instruments and things that have been provided by or
taken from the Company, Medi-Serve and/or any of the Subsidiaries, or,
alternatively, at the Shareholder's direction, such materials shall be destroyed
and the Buyer shall certify to the Shareholder that such destruction has been
effected; provided, however, Buyer shall be entitled to retain any such
information in connection with any claims that have been asserted by or against
it in writing.
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 and Medi-Serve shall, and shall cause
each Subsidiary to, maintain their existence and conduct their business in good
faith and in the customary and ordinary course of business consistent with past
practice.
8.2 NEGATIVE COVENANTS OF THE COMPANY AND MEDI-SERVE. Without the prior
written approval of Buyer, the Company and Medi-Serve shall not (and the Company
and Medi- Serve shall cause each Subsidiary not to), 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 5.20 (Absence of Certain Events) of this Agreement;
(B) dissolve, reorganize, merge, consolidate 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 (provided that
the foregoing shall not prohibit the Company, Medi-Serve or any Subsidiary from
negotiating in good faith with any union to the extent required by applicable
Governmental Requirements and Buyer shall not unreasonably withhold its consent
to any such contract or agreement);
(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; the Company, Medi-Serve or such
Subsidiary 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;
(E) make any change to its by-laws or articles of incorporation;
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(F) 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; provided
however, that the foregoing shall not prohibit the Company, Medi-Serve or any
Subsidiary from acquiring or disposing of assets, or incurring trade payables,
or entering into contracts or taking any other action that is in the ordinary
course of business and consistent with past practice and all Governmental
Requirements, in each case, to the extent not otherwise prohibited by this
Agreement;
(G) enter into any agreement, contract, commitment, lease or
instrument, 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
(H) except as permitted pursuant to Section 12.1(b) below, take any
action that would prevent consummation of the transactions contemplated by this
Agreement.
8.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, the
Company and Medi-Serve shall (and shall cause each Subsidiary to):
(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
casualty excepted;
(B) maintain in full force and effect all Licenses currently in
effect with respect to its business;
(C) maintain in full force and effect the insurance policies and
binders currently in effect, or the replacements thereof;
(D) use its reasonable efforts to preserve intact the present
business organization of the Company, Medi-Serve and the Subsidiaries; keep
available the services of the present employees and agents of the Company,
Medi-Serve and the Subsidiaries; and maintain the relations and goodwill with
suppliers, landlords, lessors, managed facility operators, employees, affiliated
medical personnel and any others having business relating to the Company,
Medi-Serve or any Subsidiary;
(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 and with any other material agreements that the Company, Medi-Serve or
any Subsidiary enters into in the ordinary course of business after the date of
this Agreement, and comply in all material respects with the provisions of all
Governmental Requirements applicable to the business of the Company, Medi-Serve
or any Subsidiary;
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(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;
(H) promptly advise Buyer in writing of the threat or commencement
against the Company, Medi-Serve or any Subsidiary of any claim, action, suit or
proceeding, arbitration or investigation or any other event that could
materially adversely affect the operations, properties, assets or prospects of
the Company, Medi-Serve or any Subsidiary;
(I) promptly notify the Buyer in writing of the termination of any
material Contract; and
(J) promptly notify the Buyer in writing of any act, event or
occurrence that constitutes, or that will constitute on the Closing Date, a
breach by the Company or Medi-Serve of Shareholder of any representation,
warranty or covenant made pursuant to this Agreement; and
(K) promptly notify the Buyer in writing of any event involving the
Company, Medi-Serve or any Subsidiary which has had or may be reasonably
expected to have a material adverse effect on the business or financial
condition of the Company, Medi-Serve or any Subsidiary or may involve the loss
of relationships with any of the customers of the Company, Medi- Serve or any
Subsidiary.
8.4 PURSUIT OF CONSENTS AND APPROVALS.
(A) Prior to the Closing, the Company and Medi-Serve shall use
their best efforts to obtain all consents and approvals of all parties other
than Governmental Authorities, including without limitation, any landlords and
mortgagees, necessary for the lawful consummation of the transactions
contemplated hereby and the lawful use, occupancy and enjoyment of the business
of the Company, Medi-Serve and the Subsidiaries by Buyer in accordance herewith
("REQUIRED NON-GOVERNMENTAL APPROVALS"). Buyer shall cooperate with and use its
commercially reasonable efforts to assist the Company in obtaining all such
approvals.
(B) Prior to the Closing, the Buyer shall use its best efforts to
obtain all consents and approvals of Governmental Authorities necessary for the
lawful consummation of the transactions contemplated hereby and the lawful use,
occupancy and enjoyment of the business of the Company, Medi-Serve and the
Subsidiaries by Buyer in accordance herewith ("REQUIRED GOVERNMENTAL APPROVALS",
and together with the Required Non-Governmental Approvals, the "REQUIRED
APPROVALS"). The Company, Medi-Serve and Shareholder shall cooperate with and
use its or his commercially reasonable efforts to assist the Buyer in obtaining
all such approvals.
(C) The Buyer, on the one hand, and the Company on the other hand,
each shall bear fifty percent (50%) of the filing fees required pursuant to the
H-S-R Act (as defined in Section 9.9).
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8.5 PURSUIT OF NONDISTURBANCE AGREEMENTS AND ESTOPPEL CERTIFICATES.
Prior to the Closing, the Company and Medi-Serve shall use their best efforts to
obtain nondisturbance agreements (the "NONDISTURBANCE AGREEMENTS") (on terms and
conditions reasonably satisfactory to Buyer) from all applicable mortgagees with
respect to all Leased Facilities that will be subject to mortgages after the
Closing, and to obtain estoppel certificates (the "ESTOPPEL CERTIFICATES") from
all applicable landlords, and mortgagees with respect to all Leased Facilities
to the effect that there are no breaches of any representations, warranties or
covenants under any of the Tenancy Leases, Management Agreements or mortgages
affecting any of the Leased Facilities. Buyer shall cooperate to assist the
Company and Medi-Serve in obtaining all such approvals.
8.6 SUPPLEMENTARY FINANCIAL INFORMATION. Within forty-five (45)
days after the end of each calendar month between the date of this Agreement and
the Closing Date, the Company and Medi-Serve shall provide to Buyer unaudited
financial statements (including at a minimum, income statements and a balance
sheet for such month then ended that shall present fairly the results of the
operations of the Company, Medi-Serve and the Subsidiaries, on a combined basis,
at such date and for the period covered thereby, all in accordance with GAAP, in
each case, certified as true and correct by the Company's and Medi-Serve's chief
financial officers and the Shareholder.
8.7 EXCLUSIVITY. Until the earlier of the Closing Date or the
termination of this Agreement pursuant to Section 11.1, neither Shareholder nor
the Company or Medi-Serve, nor any of their respective Affiliates, shall solicit
or entertain any offers or engage in any discussions or negotiations or enter
into any agreement or letter of intent directly or indirectly with any other
party in respect of the sale of any capital stock of the Company, Medi-Serve or
any Subsidiary or of substantially all of the assets of the Company, Medi-Serve
or any Subsidiary, or in respect of any merger, consolidation or other sale of
the Company, Medi-Serve (any of said transactions being referred to herein as a
"PROHIBITED TRANSACTION"). The Company or Medi-Serve shall promptly advise Buyer
of any offer or solicitation that it receives for a Prohibited Transaction,
including, without limitation, the name of the person making such offer or
solicitation and the terms of such offer or solicitation.
8.8 SURVEYS. If Buyer shall have received a standard real estate
boundary and as built survey of any Magnolia Facility or Medi-Serve Facility,
prepared by a land surveyor licensed in the State in which such Magnolia
Facility or Medi-Serve Facility is located that constitutes a breach of a
representation or warranty, then such breach will not be subject to the
indemnification deductible described in Section 11.6(b). Nothing contained in
this Section 8.8 will be deemed to limit Buyer's right to terminate this
Agreement for any reason including, without limitation, the condition set forth
in Section 9.1 hereof.
8.9 ZONING REPORT. If Buyer shall have received reports from
qualified zoning inspectors approved by Buyer with respect to the compliance of
any Medi-Serve Facility with all applicable zoning requirements that constitutes
a breach of a representation or warranty, then such breach will not be subject
to the indemnification
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deductible described in Section 11.6(b). Nothing contained in this Section 8.10
will be deemed to limit Buyer's right to terminate this Agreement for any reason
including, without limitation, the condition set forth in Section 9.1 hereof.
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------------------
Buyer's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction, prior to or at the Closing, of each of
the following conditions, any one or more of which may be waived by Buyer, with
any such waiver to be effective only if in writing. Upon failure of any of the
following conditions, Buyer may terminate this Agreement pursuant to and in
accordance with Article XI herein.
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Company, Medi-Serve and Shareholder made pursuant to this Agreement shall be
true and correct in all material respects (except those representations and
warranties that are qualified by materiality, which shall be true and correct in
all 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 the Shareholder, Medi-Serve 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 them prior to or at the Closing.
9.3 DELIVERY OF CLOSING CERTIFICATE. Each of the Shareholder,
Medi-Serve's President and the Company's President 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 them have been satisfied.
9.4 OPINIONS OF COUNSEL. The Shareholder shall have delivered to Buyer
an opinion, dated the Closing Date, of its counsel, in the form and substance of
Exhibit 9.4. Said opinion shall be addressed to and may be relied upon by Buyer.
9.5 LEGAL MATTERS. No preliminary or permanent injunction or other
order (including a temporary restraining order) of any Governmental Authority
which prohibits or 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 certificates of
the Secretary or other officer of the Company and Medi-Serve certifying as of
the Closing Date a copy of resolutions of each of their Boards of Directors
authorizing the
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execution and full performance of this Agreement and the Transaction Documents
and the incumbency of each of their officers.
9.7 MATERIAL CHANGE. Since the date hereof, there shall not have been
any material adverse change in the condition (financial or otherwise) of the
assets, properties, operations or prospects of the Company, Medi-Serve and the
Subsidiaries, taken as a whole.
9.8 REQUIRED APPROVALS.
(A) Subject to Section 2.4 hereof, all Required Approvals 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 any business of Buyer (or any of
its subsidiaries or affiliates), or (ii) shall impose on Buyer (or any
subsidiary or affiliate of Buyer) any material condition or provision or
requirement with respect to the Business or any business of Buyer or the
respective operation thereof that is more restrictive than or different from the
conditions imposed upon such operation prior to Closing.
9.9 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 or the Federal Trade
Commission 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 Buyer to divest any material portion of its business
or to restrict any of its business conduct by reason of the transactions
contemplated by this Agreement.
9.10 NON-COMPETITION AGREEMENT. Shareholder shall have entered into a
Non- competition Agreement in the form and substance of Exhibit 9.10 (each a
"NON-COMPETITION AGREEMENT"), for no further consideration, with Buyer, pursuant
to which Shareholder shall agree that after the Closing Date for the period set
forth below (the "NON-COMPETE PERIOD"), Shareholder will not, directly or
indirectly, for himself, 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, limited liability company, association,
corporation, joint venture or other entity which is directly or indirectly in
the business of owning, operating or managing any skilled nursing facility
business or institutional pharmacy business located in the State of South
Carolina; provided, the provisions of this Section 9.10 shall not apply to the
Woodruff Facility; and provided further, the Shareholder shall be permitted to
(i) be an officer, director, committee member or member of Spartanburg Regional
Medical Foundation from which the Shareholder receives no pecuniary benefit
(other than
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reimbursement of expenses), (ii) be an officer, director, committee member or
member of the South Carolina Health Care Association from which the Shareholder
receives no pecuniary benefit (other than reimbursement of expenses), and (iii)
be an officer, director, committee member or member of the American Health Care
Association from which the Shareholder receives no pecuniary benefit (other than
reimbursement of expenses). The Non-Competition Agreement 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. The Non-Competition Agreement also shall
contain confidentiality and non-solicitation provisions reasonably acceptable to
Buyer. The Non-Compete Period for Shareholder shall commence on the Closing Date
and end five (5) years from the Closing Date.
9.11 COST AND EXPENSES. The Shareholder, the Company and Medi-Serve
shall have paid (or assumed the liability with respect to) all of their
respective costs, fees and expenses (including without limitation, filing fees,
transfer taxes, stamp taxes, legal fees and broker, audit and appraisal fees) in
connection with the transactions contemplated by this Agreement.
9.12 CONSENTS. The condition set forth in Section 2.4 shall have been
satisfied.
9.13 CLOSING DATE BALANCE SHEET. The Shareholder, Medi-Serve and
Company shall have furnished the Estimated Closing Date Balance Sheet to Buyer
certified as required by Section 2.2(a) hereof.
9.14 RESIGNATION OF COMPANY AND MEDI-SERVE BOARDS OF DIRECTORS AND
OFFICERS. Each director and officer of the Company, Medi-Serve and each
Subsidiary shall have submitted his or her resignation to be effective no later
than the Closing Date.
9.15 ESTIMATED CLOSING DATE LONG TERM LIABILITIES. The long-term
liabilities of the Company, Medi-Serve and the Subsidiaries on a combined basis
as set forth on the Estimated Closing Date Balance Sheet shall not exceed
$2,400,000.
9.16 INTENTIONALLY DELETED.
9.17 WOODRUFF FACILITY. The Woodruff Facility shall be leased to a
subsidiary of Magnolia pursuant to a "triple-net" lease with a term of at least
25 years, with annual base rent of $330,000 per year (subject to annual 2%
escalations), and otherwise with terms and conditions reasonably satisfactory to
Buyer.
9.18 SHAREHOLDER SETTLEMENTS. All accounts receivable or other amounts
due from, and all current or other liabilities due to, Shareholder or any
Affiliate of Shareholder shall be settled immediately prior to Closing.
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9.19 ESCROW AGREEMENT. The Escrow Agreement shall have been executed
and delivered by each party thereto other than the Buyer.
9.20 IHS STOCK PRICE. The closing NYSE price of IHS Stock on the last
trading day prior to the Closing Date shall not be less than $10.
9.21 SECTION 338(H)(10) ELECTION. All of the parties shall cooperate to
cause Medi- Serve to elect under Section 338(h)(10) of the Internal Revenue Code
of 1986 (as amended) (and any comparable election under state or local tax law)
with respect to the Medi-Serve Merger.
9.22 ARTICLES OF MERGER. Each of the Articles of Merger shall have been
filed under, and accepted by the South Carolina Secretary of State.
9.23 OTHER DOCUMENTS.
(A) The Shareholder, Medi-Serve and Company shall have furnished
Buyer with all other documents, certificates and other instruments required to
be furnished to Buyer by the Shareholder, Medi-Serve and Company pursuant to the
terms hereof, including, without limitation, the Undertaking and all stock
certificates evidencing the Subject Shares.
(B) The Shareholder shall also have delivered to Buyer the stock
certificates representing all of the issued and outstanding shares of capital
stock of each Subsidiary, which stock certificates need not be endorsed in blank
or accompanied by stock powers.
ARTICLE X: CONDITIONS PRECEDENT TO SHAREHOLDER'S OBLIGATIONS
------------------------------------------------------------
The obligation of the Shareholder to consummate the transactions
contemplated by this Agreement is subject to the satisfaction, prior to or at
the Closing, of each of the following conditions, any one or more of which may
be waived by Shareholder, with any such waiver to be effective only if in
writing. Upon failure of any of the following conditions, Shareholder may
terminate this Agreement pursuant to and in accordance with Article XII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer made pursuant to this Agreement shall be true and correct in all
material respects (except those representations and warranties that are
qualified by materiality, which shall be true and correct in all respects) at
and as of the Closing Date as though such representations and warranties were
made at and as of such time.
10.2 PERFORMANCE OF COVENANTS. Buyer shall have performed or complied
in all material respects with each of its 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. Buyer shall have delivered to
Shareholder a certificate of an officer of Buyer dated the Closing Date upon
which
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Shareholder may 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 Shareholder an
opinion, dated the Closing Date, of its counsel, in the form and substance 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. Shareholder 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, Newco 1 and Newco 2 authorizing
Buyer's, Newco 1's and Newco 2's execution and full performance of this
Agreement and the Transaction Documents and the incumbency of the officers of
Buyer, Newco 1 and Newco 2.
10.7 HART-SCOTT RODINO ACT. All applicable 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 United States Department of Justice or the Federal
Trade Commission or any other person or entity to prohibit the transactions
contemplated by this Agreement by reason of a claimed violation of any antitrust
laws.
10.8 INTENTIONALLY DELETED.
10.9 ESCROW AGREEMENT. The Escrow Agreement shall have been executed
and delivered by each party thereto other than the Shareholder.
10.10 IHS STOCK PRICE. The closing NYSE price of IHS Stock on the last
trading day prior to the Closing Date shall not be less than $10.
10.11 OTHER DOCUMENTS. Buyer shall have furnished Shareholder with all
documents, certificates and other instruments required to be furnished to
Shareholder by Buyer pursuant to the terms hereof.
ARTICLE XI: SURVIVAL AND INDEMNIFICATION
----------------------------------------
11.1 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 two (2)
years 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
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Sections 5.22 (relating to Tax matters), 5.24 (relating to Questionable
Payments), and 5.25 (relating to Medicare, Medicaid and other reimbursement
matters), shall survive until thirty (30) days after the end of the applicable
period of limitations for audits by the applicable Governmental Authority shall
have expired, the representations and warranties contained in Sections 5.26
(relating to capitalization) shall have no expiration date, and the
representation and warranty contained in Section 5.3 insofar as it relates to
the legality, validity, binding effect and enforceability of the Non-Competition
Agreement shall survive for the term of the Non-Competition Agreement. 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.
11.2 INDEMNIFICATION BY SHAREHOLDER. The Shareholder, Medi-Serve and
the Company (subject to the limitations set forth in Section 14.11 hereof)
jointly and severally, shall indemnify and defend Buyer and each of its
officers, directors, agents, employees and advisors, and their respective
successors and assigns ("BUYER INDEMNITEES") and hold each of them 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 or arising out of the following:
(A) any inaccuracy in any representation, or breach of any warranty
or certification, made by Shareholder, Medi-Serve or the Company pursuant to
this Agreement;
(B) the breach of any covenant or undertaking by Shareholder,
Medi-Serve or the Company made pursuant to this Agreement;
(C) any Prohibited Liability, including, without limitation, any
Reimbursement Liabilities;
(D) the termination of any Taylor Lease pursuant to the Taylor
Litigation;
(E) any action, suit, proceeding, demand, claim, assessment,
judgment, settlement (to the extent approved by the Shareholder, such approval
not to be unreasonably withheld, delayed or conditioned), cost or legal or other
expense incident to any of the foregoing.
11.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend
Shareholder and, if there shall not be a Closing, Company and Medi-Serve, and
hold them and their respective advisors and their respective successors and
assigns harmless against and with respect to any and all Loss resulting from or
arising out of:
(A) any inaccuracy in any representation, or breach of any warranty
or certification, made by Buyer pursuant to this Agreement;
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(B) the breach of any covenant or undertaking by Buyer made
pursuant to this Agreement;
(C) any Loss resulting solely from Buyer's operation of the
Business after the Closing Date and not arising out of any breach of any
representation or warranty or covenant of Shareholder, Medi-Serve or the
Company;
(D) any amount paid after the Closing or payable, in each case, by
reason of any obligation of the Company, Medi-Serve or any of the Subsidiaries
that is guaranteed by the Shareholder or for which the Shareholder is otherwise
responsible, which guarantee or other obligation causing the Shareholder to be
responsible has not been terminated at or prior to the Closing Date, but in each
case only to the extent such amount paid or payable constitutes Permitted
Liabilities; and
(E) any action, suit, proceeding, demand, claim, assessment,
judgment, settlement (to the extent approved by Buyer, such approval not to be
unreasonably withheld, delayed or conditioned), cost or legal or other expenses
incident to any of the foregoing.
11.4 ASSERTION OF CLAIMS. Any claims for indemnification under Section
11.2(a) or 11.3(a) must be asserted by written notice on or prior to the date on
which such representation or warranty expires.
11.5 CONTROL OF DEFENSE OF INDEMNIFICABLE CLAIMS.
(A) (I) Buyer shall give Shareholder prompt notice of each claim
for which it seeks indemnification. Failure to give such prompt notice shall not
relieve the Shareholder of his indemnification obligation, provided that such
indemnification obligation shall be reduced by any damages Shareholder
demonstrates he has suffered resulting from a failure to give prompt notice
hereunder. The Shareholder shall be entitled to participate in the defense of
such claim. If at any time the Shareholder acknowledges in writing that the
claim is fully indemnifiable by him under this Agreement, and, if requested by
Buyer, post adequate bond or security (as to the foregoing, the Buyer shall be
entitled to make such request only if Buyer reasonably believes that Shareholder
will not have funds available to pay any such claim, after taking into
consideration any amounts held in escrow), he shall have the right to assume
control of the defense of such claim at his own expense. If the Shareholder does
assume control of the defense of any such claim, the Buyer agrees not to settle
such claim without the written consent of the Shareholder, which consent shall
not be unreasonably withheld, delayed or conditioned. Nothing contained in this
Section 11.5 shall prevent either party from assuming control of the defense
and/or settling any claim against it for which indemnification is not sought
under this Agreement.
(II) Notwithstanding the foregoing in clause (i), if there
shall be any claim for any Reimbursement Liability or tax liability, Buyer will
diligently
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and in good faith 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 or tax liabilities in general. 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 Shareholder with reasonable prior written notice of such intent and
of the current status of the appeal or contest, and upon request of Shareholder,
Buyer shall assign to the Shareholder all of its right, title and interest to
contest and appeal such Reimbursement Liability or tax liability on behalf of
and in the name of Buyer; it being understood, however, that any recovery with
respect to any such Reimbursement Liability or tax liability shall belong to
Buyer. Buyer may, in its sole discretion, elect not to so assign any of its
right, title and interest to contest and appeal any such Reimbursement Liability
or tax liability, in which case, Buyer shall not be entitled to be indemnified
by the Shareholder with respect to the otherwise appealable or contestable
portion thereof.
(B) The Shareholder shall give Buyer prompt written notice of each
claim for which Shareholder seeks indemnification. Failure 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 Buyer
demonstrates it has suffered 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 Buyer acknowledges in writing that the claim is fully
indemnifiable by it under this Agreement, and, if requested by Shareholder, post
adequate bond of security (as to the foregoing, the Shareholder shall be
entitled to make such request only if Shareholder reasonably believes that Buyer
will not have funds available to pay any such claim), it shall have the right to
assume control of the defense of such claim at its own expense. If the Buyer
assumes control of the defense of any such claim, the Shareholder shall not
settle such claim without the written consent of the Buyer, which consent shall
not be unreasonably withheld, delayed or conditioned. Nothing contained in this
Section 11.5 shall prevent either party from assuming total control of the
defense and/or settling any claim against it for which indemnification is not
sought under this Agreement.
11.6 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(A) Notwithstanding any other provision of this Agreement, the
aggregate indemnification obligations of the Shareholder, on the one hand, and
Buyer, on the other hand, shall not exceed $16,000,000.
(B) Notwithstanding any other provision of this Agreement, after
the Closing, the Shareholder, on the one hand, 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 $250,000; provided, however, that the foregoing
shall not apply to: (i) any obligations with respect to payments of, or
adjustments to, the Magnolia Base Amount (and, correspondingly, the Magnolia
Merger Consideration) under Article II above, (ii)
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claims made by Buyer pursuant to Sections 11.2(b) or (c) above, or claims made
by Shareholder under Section 11.3 (d), above, or (iii) claims arising out of any
breach of the representations and warranties contained in Section 5.26, Section
5.11(f) or Section 5.21(b) or described in Sections 8.8 and 8.9.
(C) Upon payment in full by an indemnifying party of any
indemnification claim, whether such payment is effected by setoff or otherwise,
or upon the payment in full by an indemnifying party of any judgment with
respect to a third-party claim, the indemnifying party shall be subrogated to
the extent of such payment to the rights of the indemnified party against any
insurance carrier, workmens' compensation fund, title insurance carrier,
engineers, surveyors, environmental inspectors, and zoning experts.
11.7 WARN ACT LIABILITY. In reliance on the representations and
warranties of the Company, Medi-Serve and the Shareholder made pursuant to this
Agreement, Buyer agrees to assume any liability arising under the Worker
Adjustment and Retraining Notification Act (the "WARN ACT") 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 the termination by Buyer of the
employment of any employees of the Company, Medi-Serve or any of the
Subsidiaries following the Closing Date, except to the extent that any
notifications are required by reason of actions taken by the Company, Medi-Serve
or any Subsidiary prior to the Closing Date.
11.8 CERTAIN WAIVERS. Effective as of the Closing, Shareholder hereby
knowingly waives any claims that he may have against Premiere or any of its
subsidiaries on or prior to Closing arising out of the transactions contemplated
by this Agreement or the Premiere Stock Purchase Agreement.
ARTICLE XII: TERMINATION
------------------------
12.1 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
under this Agreement, including without limitation those conditions set forth in
Article IX hereof, have not been satisfied by the Closing Date or pursuant to
Section 13.1, or otherwise as expressly provided in this Agreement;
(B) Shareholder, if any condition precedent to the obligations of
the Shareholder hereunder, including without limitation those conditions set
forth in Article X hereof, have not been satisfied by the Closing Date, or
otherwise as expressly provided in this Agreement;
(C) the mutual consent of Buyer and Shareholder;
(D) Shareholder, as provided in Section 2.4, hereof.
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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; 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 11.2 or 11.3, as the case may be, hereof (and
for such purposes such Section 11.2 or 11.3, as the case may be, shall survive
the termination of this Agreement). Furthermore, nothing in this Section 12.2
shall affect Buyer's right to specific performance of the obligations of the
Shareholder at Closing hereunder.
ARTICLE XIII: CASUALTY, RISK OF LOSS
------------------------------------
13.1 CASUALTY, RISK OF LOSS. Shareholder 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 of the Assets are damaged or
destroyed as a result of fire, other casualty or for any reason whatsoever and
such will likely have a material adverse effect on the operation or financial
condition of the Company and Medi-Serve, taken as a whole, Shareholder 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 the Company,
Medi-Serve, any Subsidiary or Shareholder on account of any such casualty (and
such insurance proceeds shall not be included as current assets for purposes of
determining Closing Date Working Capital). Nothing contained in this Section
13.1 shall limit or adversely affect the right of Buyer to receive
indemnification for any Losses incurred by it by reason of any breach by
Shareholder, Medi-Serve or the Company of any representation, warranty or
obligation under this Agreement in accordance with Section 11.2 hereof (and for
such purposes such Section 11.2 shall survive the termination of this
Agreement).
ARTICLE XIV: MISCELLANEOUS
--------------------------
14.1 PERFORMANCE. In the event of a breach by Shareholder, Medi-Serve
or the Company of its obligations hereunder, the Buyer 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.
14.2 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to the
benefit of each party hereto and its successors and proper assigns. Prior to
Closing, Shareholder, the Company, Medi-Serve and Buyer may not assign their
respective
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interests under this Agreement to any other person or entity without the prior
written consent of the other parties hereto; provided, however, that Buyer may
assign its rights, duties and obligations hereunder to one or more subsidiaries
or affiliates of Buyer; and further provided that in the instance of such
assignment Buyer shall remain responsible for consummating the Closing as
provided in this Agreement and shall remain liable as to any and all of its
duties and obligations under this Agreement (such responsibility to include,
without limitation, delivery of IHS Stock (and not the stock of any other
entity) as provided herein). Buyer shall be entitled to assign its rights under
this Agreement after the Closing.
14.3 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 that
any confidentiality agreements among the parties shall survive until the
Closing, at which time they shall terminate except to the extent provided in
this Agreement. 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 agreement.
14.4 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 necessary to
carry out the intent and purposes of this Agreement.
14.5 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 three (3) business days
after sent by certified or registered mail, postage prepaid, or on the business
day after sent by nationally recognized overnight courier, in each case,
properly addressed to the party or parties entitled to receive such notice at
the address stated below:
If to the Company, Medi-Serve
or Shareholder at: Terry L. Cash
630 Henderson Road
Chesnee, SC 29323
with a copy to: Jonathan Lowe, Esq.
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
If to the Buyer, Newco 1
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or Newco 2: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Elizabeth B. Kelly,
Executive Vice President
and
with a copy to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, General Counsel
and
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
Attention: Andrew S. Bogen
14.6 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.
14.7 RIGHTS OF PERSONS NOT PARTIES. Except as expressly provided with
respect to indemnification rights, 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.
14.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of South Carolina, disregarding any
contrary rules relating to the choice or conflict of laws.
14.9 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
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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.
14.10 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 only, 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.
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.
14.11 JOINT AND SEVERAL. The Shareholder, Medi-Serve and Company shall
be jointly and severally (unless there shall be a Closing, in which case the
Company and Medi-Serve shall have no liability under this Agreement) liable for
all representations, warranties and covenants made by any of them pursuant to
this Agreement. After the Closing, Shareholder shall not have any right of
contribution or indemnity from the Company or Medi-Serve or any Subsidiary and
no right of subrogation to proceed against the Company or Medi-Serve or any
Subsidiary with respect to any of the foregoing or otherwise. For all purposes
of this Agreement, any reference to the "knowledge" of the Company or Medi-Serve
or to Company or Medi-Serve having received "notice" of any matter or any
similar qualification shall be deemed to include the knowledge of the
Shareholder, directors, facility administrators, directors of nursing, the
director of legal affairs, pharmacists and the executive officers of the
Company, Medi-Serve or any Subsidiary or notices to any of them, as the case may
be.
14.12 RECORDS. On the Closing Date, Shareholder 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 Medi-Serve; provided, however,
that the Shareholder's accountants and attorneys may retain duplicate copies of
the same; provided, further that such retention shall not relieve Shareholder of
any of his obligations under the Non-Competition Agreement.
14.13 CERTAIN COSTS. The parties agree that the Buyer shall bear any
corporate (Medi-Serve) level cost relating to or arising out of the 338(h)(10)
election. The parties agree that the Medi-Serve Merger Consideration shall be
allocated to Medi-Serve's assets on the Closing Date Balance Sheet in accordance
with the Federal income tax basis of such assets, and any excess shall be
allocated to goodwill.
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IN WITNESS WHEREOF, each of the parties hereto and in the capacity
indicated below has executed this Agreement as of the day and year first above
written.
COMPANY:
THE MAGNOLIA GROUP, INC.
By:
----------------------------------------
Its:
---------------------------------------
SHAREHOLDER:
-------------------------------------------
Terry L. Cash
MEDI-SERVE:
MEDI-SERVE, INC.
By:
----------------------------------------
Its:
---------------------------------------
BUYER:
INTEGRATED HEALTH SERVICES, INC.
By:
----------------------------------------
------------------------------------------,
Executive Vice President
IHS ACQUISITION NO. 35, INC.
By:
----------------------------------------
------------------------------------------,
Executive Vice President
IHS ACQUISITION NO. 36, INC.
By:
----------------------------------------
------------------------------------------,
Executive Vice President
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
"ACTUAL LONG-TERM LIABILITIES" ..................................... shall have the meaning as set forth in Section 2.2(a)(iii).
"ACTUAL WORKING CAPITAL".............................................shall have the meaning as set forth in Section 2.2(a)(iii).
"ADJUSTED MARKET VALUE PER ADDITIONAL IHS SHARE".....................shall have the meaning as set forth in Section 3.1(l).
"ADJUSTED NOTICE" .................................................. shall have the meaning as set forth in Section 3.1(l).
"AFFILIATE"..........................................................shall have the meaning as set forth in Section 5.18.
"ANGELL".............................................................shall have the meaning as set forth in the Introduction hereto.
"AGREEMENT"..........................................................shall have the meaning as set forth in the Introduction hereto.
"ANGELL".............................................................shall have the meaning as set forth in the Introduction hereto.
"ANGELL GROUP".......................................................shall have the meaning as set forth in the Introduction hereto.
"ANGELL GROUP NOTES".................................................shall have the meaning as set forth in the Introduction hereto.
"ANGELL OPTIONS".....................................................shall have the meaning as set forth in the Introduction hereto.
"ANGELL SHARES"......................................................shall have the meaning as set forth in the Introduction hereto.
"ARBITRATING ACCOUNTANTS" .......................................... shall have the meaning as set forth in Section 2.2(iv).
"ARTICLES OF MERGER".................................................shall have the meaning as set forth in Section 1.1.
"ASSETS".............................................................shall have the meaning as set forth in Section 2.3(a).
"APPLICABLE VALUATION DATE" ........................................ shall have the meaning as set forth in Section 3.1(a).
"BALANCE SHEET" .................................................... shall have the meaning as set forth in Section 5.8(b).
"BALANCE SHEET DATE" ............................................... shall have the meaning as set forth in Section 5.8(b).
"BISHOP LEASES" .................................................... shall have the meaning as set forth in Section 2.2(c).
"BROKER" ........................................................... shall have the meaning as set forth in Section 5.27.
"BUSINESS" ......................................................... shall have the meaning as set forth in Section 2.3(a).
"BUYER"..............................................................shall have the meaning as set forth in the Introduction hereto.
"BUYER'S INDEMNITEES" .............................................. shall have the meaning as set forth in Section 11.2.
"BUYER'S REVIEW" ................................................... shall have the meaning as set forth in Section 2.2(a)(iii).
"CARR FACILITIES"....................................................shall have the meaning as set forth in the Section 2.2(b).
"CARR/FOSTER LEASE" ................................................ shall have the meaning as set forth in Section 2.2(b).
"CASH NOTE" ........................................................ shall have the meaning as set forth in Section 2.1(e).
"CASH STOCK PLEDGE AGREEMENT" ...................................... shall have the meaning as set forth in Section 2.1(e).
"CATHCART"...........................................................shall have the meaning as set forth in the Introduction hereto.
"CATHCART SHARES"....................................................shall have the meaning as set forth in the Introduction hereto.
"CLOSING"............................................................shall have the meaning as set forth in Section 4.1.
"CLOSING DATE".......................................................shall have the meaning as set forth in Section 4.1.
"CLOSING DATE BALANCE SHEET" ....................................... shall have the meaning as set forth in Section 2.2(iii).
"COMPANY"............................................................shall have the meaning as set forth in the Introduction hereto.
"COMMISSION".........................................................shall have the meaning as set forth in Section 3.1(b).
"CONSENT CONTRACTS" ................................................ shall have the meaning as set forth in Section 2.4.
"CONTRACTS" ........................................................ shall have the meaning as set forth in Section 5.7.
"DADE COUNTY FACILITIES".............................................shall have the meaning as set forth in Section 2.2(e).
"DELAY PAYMENT NOTICE" ............................................. shall have the meaning as set forth in Section 2.2(iv).
"DESIGNATED CONTRACTS" ............................................. shall have the meaning as set forth in Section 2.4.
"EFFECTIVE DATE" ................................................... shall have the meaning as set forth in Section 3.1(l).
"EMPLOYMENT AGREEMENTS" ............................................ shall have the meaning as set forth in Section 9.16.
"ENVIRONMENTAL LAWS".................................................shall have the meaning as set forth in Section 5.21(b).
"ERISA"..............................................................shall have the meaning as set forth in Section 5.13.
"ESCROW DEPOSIT" ................................................... shall have the meaning as set forth in Section 2.1(c)(i).
"ESCROW INCOME" .................................................... shall have the meaning as set forth in Section 2.5(c).
"ESCROW INCOME"......................................................shall have the meaning as set forth in Section 2.5(c).
</TABLE>
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"ESCROWEE" ..........................................................shall have the meaning as set forth in Section 2.1(a).
"ESTIMATED CLOSING DATE BALANCE SHEET"...............................shall have the meaning as set forth in Section 2.2(a)(ii).
"ESTIMATED CLOSING DATE WORKING CAPITAL".............................shall have the meaning as set forth in Section 2.2(a)(i)(A).
"ESTOPPEL CERTIFICATES"..............................................shall have the meaning as set forth in Section 8.5.
"EXCHANGE ACT".......................................................shall have the meaning as set forth in Section 3.1(e)(iv).
"FACILITIES".........................................................shall have the meaning as set forth in the Introduction hereto.
"FINAL DETERMINATION"................................................shall have the meaning as set forth in Section 11.5(a)(ii).
"FINANCIAL STATEMENTS"...............................................shall have the meaning as set forth in Section 5.8(a).
"FOSTER FACILITIES"..................................................shall have the meaning as set forth in Section 2.2(b).
"GAAP" ............................................................. shall have the meaning as set forth in Section 2.2(a)(ii).
"GOLDEN AGE/INMAN LEASES"............................................shall have the meaning as set forth in Section 2.7.
"GOVERNMENTAL AUTHORITIES" ..........................................shall have the meaning as set forth in Section 5.4.
"GOVERNING DOCUMENTS" ...............................................shall have the meaning as set forth in Section 5.1(b).
"GOVERNMENTAL REQUIREMENTS" .........................................shall have the meaning as set forth in Section 5.4.
"GROUP"..............................................................shall have the meaning as set forth in the Introduction hereto.
"GROUP MEMBER".......................................................shall have the meaning as set forth in the Introduction hereto.
"GROUP PARTICIPANT"..................................................shall have the meaning as set forth in the Introduction hereto.
"H-S-R ACT" .........................................................shall have the meaning as set forth in Section 9.9.
"INITIAL MARKET VALUE PER SHARE" ....................................shall have the meaning as set forth in Section 3.1(l).
"LEASES".............................................................shall have the meaning as set forth in Section 5.7(b)(ix)
"LEASED ASSETS" .....................................................shall have the meaning as set forth in Section 5.6.
"LICENSES" ..........................................................shall have the meaning as set forth in Section 5.10.
"LIENS" .............................................................shall have the meaning as set forth in Section 5.6(b).
"LOSS" ..............................................................shall have the meaning as set forth in Section 11.2.
"MAGNOLIA BASE AMOUNT"...............................................shall have the meaning as set forth in Section 2.1(a)(i).
"MAGNOLIA MERGER CONSIDERATION"......................................shall have the meaning as set forth in Section 2.1(a)(ii).
"MAGNOLIA MERGER CONSIDERATION PER SHARE"............................shall have the meaning as set forth in Section 2.1(a)(ii).
"MAGNOLIA FACILITIES"................................................shall have the meaning as set forth in the Introduction hereto.
"MAGNOLIA FACILITIES"................................................shall have the meaning as set forth in the Introduction hereto.
"MAGNOLIA MERGER CONSIDERATION PER SHARE"............................shall have the meaning as set forth in Section 2.1(ii).
"MAGNOLIA SHARES"....................................................shall have the meaning as set forth in the Introduction hereto.
"MAGNOLIA SHAREHOLDER"...............................................shall have the meaning as set forth in the Introduction hereto.
"MAJORITY PREMIERE SHARES"...........................................shall have the meaning as set forth in the Introduction hereto.
"MANAGED ASSETS" ....................................................shall have the meaning as set forth in Section 5.6.
"MANAGEMENT AGREEMENTS" .............................................shall have the meaning as set forth in Section 5.7(x).
"MEDI-SERVE".........................................................shall have the meaning as set forth in the Introduction hereto.
"MEDI-SERVE MERGER CONSIDERATION"....................................shall have the meaning as set forth in Section 2.1(a)(iii).
"MEDI-SERVE MERGER CONSIDERATION PER SHARE"..........................shall have the meaning as set forth in Section 2.1(a)(iii).
"MEDI-SERVE FACILITIES"..............................................shall have the meaning as set forth in the Introduction hereto
"MEDI-SERVE SHARES"..................................................shall have the meaning as set forth in the Introduction hereto.
"MERGERS"............................................................shall have the meaning as set forth in the Introduction hereto.
"MERGER CONSIDERATION"...............................................shall have the meaning as set forth in Section 2.1(a)(i).
"MERGER TIME"........................................................shall have the meaning as set forth in Section 1.2.
"MINORITY SHAREHOLDER"...............................................shall have the meaning as set forth in the Introduction hereto.
"MULTI-EMPLOYER ACT" ................................................shall have the meaning as set forth in Section 5.15.
</TABLE>
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"NEW CASH MAGNOLIA/MEDI-SERVE SHARES" ...............................shall have the meaning as set forth in Section 2.1(e).
"NEWCO 1"............................................................shall have the meaning as set forth in the Introduction hereto.
"NEWCO 2"............................................................shall have the meaning as set forth in the Introduction hereto.
"NEW GREENVILLE FACILITY"............................................shall have the meaning as set forth in the Introduction hereto.
"NEW GREENVILLE LEASE"...............................................shall have the meaning as set forth in the Introduction hereto.
"NON-COMPETITION AGREEMENT" .........................................shall have the meaning as set forth in Section 9.10.
"NON-COMPETE PERIOD" ................................................shall have the meaning as set forth in Section 9.10.
"NON-DISTURBANCE AGREEMENTS".........................................shall have the meaning as set forth in Section 8.5.
"NYSE"...............................................................shall have the meaning as set forth in Section 3.1(a).
"OPERATIONS TRANSFER AGREEMENT" .....................................shall have the meaning as set forth in Section 2.2(e).
"OWNED ASSETS" ......................................................shall have the meaning as set forth in Section 5.6.
"OWNED FACILITY".....................................................shall have the meaning as set forth in Section 5.11(b).
"PERMITTED LIABILITIES" .............................................shall have the meaning as set forth in Section 2.3(b).
"PLAN OF MERGER".....................................................shall have the meaning as set forth in Section 1.1.
"PLEDGED SHARES".....................................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE"...........................................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE MANAGED FACILITIES"........................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE OWNED FACILITY"............................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE OPERATED FACILITIES".......................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE SHARES"....................................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE SHAREHOLDERS"..............................................shall have the meaning as set forth in the Introduction hereto.
"PREMIERE MERGER AGREEMENT"..........................................shall have the meaning as set forth in the Introduction hereto.
"PRINCIPAL SHAREHOLDERS".............................................shall have the meaning as set forth in the Introduction hereto.
"PROHIBITED LIABILITIES" ............................................shall have the meaning as set forth in Section 2.3(b).
"PROHIBITED TRANSACTION" ............................................shall have the meaning as set forth in Section 8.7.
"PROPRIETARY RIGHTS" ................................................shall have the meaning as set forth in Section 5.6(a)(ii).
"PURCHASE PRICE" ....................................................shall have the meaning as set forth in Section 2.1(a).
"QUESTIONNAIRE" .....................................................shall have the meaning as set forth in Section 5.16.
"REIMBURSEMENT LIABILITIES" .........................................shall have the meaning as set forth in Section 2.3(b).
"REQUIRED APPROVALS".................................................shall have the meaning as set forth in Section 8.4(b).
"REQUIRED NON-GOVERNMENTAL APPROVALS"................................shall have the meaning as set forth in Section 8.4(a).
"REQUIRED GOVERNMENTAL APPROVALS"....................................shall have the meaning as set forth in Section 8.4(b).
"RULE 144"...........................................................shall have the meaning as set forth in Section 3.1(d).
"SCHM AGREEMENTS"....................................................shall have the meaning as set forth in Section 2.2(d).
"SEC" ...............................................................shall have the meaning as set forth in Section 6.4.
"SEC DOCUMENTS" .....................................................shall have the meaning as set forth in Section 6.4.
"SECURITIES ACT".....................................................shall have the meaning as set forth in Section 3.1(b).
"SHAREHOLDER"........................................................shall have the meaning as set forth in the Introduction hereto.
"SHAREHOLDER'S REPRESENTATIVE" ..................................... shall have the meaning as set forth in Section 2.2(g).
"SHELF REGISTRATION STATEMENT".......................................shall have the meaning as set forth in Section 3.1(b).
"SUBSIDIARY".........................................................shall have the meaning as set forth in Section 5.1(a).
"SUBJECT SHARES".....................................................shall have the meaning as set forth in the Introduction hereto.
"SURVIVING CORPORATION"..............................................shall have the meaning as set forth in Section 1.1.
"T. CASH SECURITY SHARES" ...........................................shall have the meaning as set forth in Section 2.2(e).
"TAXES" .............................................................shall have the meaning as set forth in Section 5.22.
"TAX RETURN".........................................................shall have the meaning as set forth in Section 5.22.
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"TAYLOR".............................................................shall have the meaning as set forth in Section 2.8.
"TAYLOR ESCROW AMOUNT"...............................................shall have the meaning as set forth in Section 2.8.
"TAYLOR LEASES"......................................................shall have the meaning as set forth in Section 2.8.
"TAYLOR LITIGATION"..................................................shall have the meaning as set forth in Section 2.8.
"TENANCY LEASES".....................................................shall have the meaning as set forth in Section 5.11(b).
"TITLE COMPANY"......................................................shall have the meaning as set forth in Section 8.11.
"TRANSACTION DOCUMENTS" .............................................shall have the meaning as set forth in Section 5.2.
"UNDERTAKING"........................................................shall have the meaning as set forth in Section 2.3(b).
"WARN ACT"...........................................................shall have the meaning as set forth in Section 11.7.
"WOODRUFF FACILITY"..................................................shall have the meaning as set forth in the Introduction hereto.
</TABLE>
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EXHIBIT 2.5
-----------------------------
ASSETS PURCHASE AGREEMENT
DATED AS OF MARCH 16, 1998
AMONG
SYMPHONY DIAGNOSTIC SERVICES NO.1, INC.
AND
PAMELA REICHART
AND
JERSEY SHORE PORTABLE X-RAY, INC.
-----------------------------
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TABLE OF CONTENTS
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ARTICLE I: SALE AND PURCHASE OF ASSETS...........................................1
1.1 Sale and Purchase of Assets..........................................1
1.2 Liabilities..........................................................2
1.3 Designated Contracts.................................................2
1.4 Accounts Receivable..................................................3
1.5 Employees and Consultants............................................3
ARTICLE II: PURCHASE PRICE.......................................................3
2.1 Determination and Payment of Purchase Price..........................3
2.2 Allocation...........................................................3
ARTICLE III: IHS STOCK............................................................4
3.1 IHS Stock............................................................4
ARTICLE IV: THE CLOSING..........................................................7
4.1 Time and Place of Closing............................................7
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SHAREHOLDER..................................................................7
5.1 Organization and Standing of the Company.............................7
5.2 Absence of Conflicting Agreements....................................7
5.3 Consents.............................................................8
5.4 Capital Stock........................................................8
5.5 Assets...............................................................8
5.6 Trademarks...........................................................8
5.7 Contracts............................................................8
5.8 Customers...........................................................10
5.9 Financial Statements................................................10
5.10 Fee Schedules and Reimbursement.....................................10
5.11 Material Changes....................................................10
5.12 Licenses and Permits................................................10
5.13 Title, Condition of Personal Property...............................11
5.14 Legal Proceedings...................................................11
5.15 Employees...........................................................11
5.16 Collective Bargaining, Labor Contracts, Employment Practices, Etc...12
5.17 ERISA...............................................................12
5.18 Insurance and Surety Agreements.....................................13
5.19 Relationships.......................................................13
5.20 Absence of Certain Events...........................................13
5.21 Compliance with Laws................................................14
5.22 Finders.............................................................14
5.23 Tax Returns.........................................................15
5.24 Encumbrances Created by this Agreement..............................15
5.25 Subsidiaries and Joint Ventures.....................................15
5.26 Complete Disclosure.................................................15
5.27 Books of Account; Records...........................................15
5.28 Questionable Payments...............................................15
5.29 Environmental Compliance............................................16
5.30 Reimbursement Matters...............................................16
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(i)
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5.31 Medicare/Medicaid Participation.....................................16
5.32 Power and Authority.................................................16
5.33 Capacity............................................................16
5.34 Binding Effect......................................................16
5.35 Questionnaires......................................................16
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLER............................17
6.1 Authority...........................................................17
6.2 Binding Effect......................................................17
6.3 Absence of Conflicting Agreements...................................17
6.4 Consents............................................................17
6.5 Ownership of Company Stock..........................................17
ARTICLE VII: REPRESENTATIONS AND WARRANTIES OF BUYER............................17
7.1 Organization and Standing...........................................17
7.2 Power and Authority.................................................17
7.3 Binding Agreement...................................................18
7.4 Absence of Conflicting Agreements...................................18
7.5 Consents............................................................18
7.6 Finders.............................................................18
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE COMPANY....................18
8.1 Access to Information and Records before Closing....................18
ARTICLE IX: OBLIGATIONS OF THE PARTIES UNTIL CLOSING............................19
9.1 Conduct of Business Pending Closing.................................19
9.2 Negative Covenants of the Company and its Subsidiaries..............19
9.3 Affirmative Covenants...............................................19
9.4 Pursuit of Consents and Approvals...................................20
9.5 Exclusivity.........................................................20
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS..........................20
10.1 Representations and Warranties......................................20
10.2 Performance of Covenants............................................20
10.3 Delivery of Closing Certificate.....................................20
10.4 Opinion of Counsel..................................................21
10.5 Legal Matters.......................................................21
10.6 Authorization Documents.............................................21
10.7 Material Change.....................................................21
10.8 Approvals...........................................................21
10.9 IRS Form 8594.......................................................21
10.10 Insurance...........................................................21
10.11 Good Standing Certificate...........................................21
10.12 Bill of Sale and Assignment.........................................21
10.13 Regulatory Matters...................................................21
10.14 Title Matters........................................................22
10.15 Leased Property......................................................22
10.16 Sales Tax............................................................22
10.17 Change of Name.......................................................22
10.18 Consents.............................................................22
10.19 Real Property Consents...............................................22
10.20 Nursing Home Meetings................................................22
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(ii)
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10.21 Patient Volume Summary..............................................22
10.22 Board Approval......................................................22
10.23 Other Documents.....................................................22
ARTICLE XI: CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS.......................22
11.1 Representations and Warranties......................................23
11.2 Performance of Covenants............................................23
11.3 Delivery of Closing Certificate.....................................23
11.4 Opinion of Counsel..................................................23
11.5 Legal Matters.......................................................23
11.6 Other Documents.....................................................23
ARTICLE XII: OBLIGATIONS OF THE PARTIES AFTER CLOSING...........................23
12.1 Survival of Representations and Warranties..........................23
12.2 Indemnification by Shareholder and the Company......................23
12.3 Indemnification by Buyer............................................24
12.4 Control of Defense of Indemnifiable Claims..........................24
12.5 Restrictions........................................................25
12.6 Records.............................................................26
12.7 Customer Transition.................................................26
12.8 Exclusive Use.......................................................26
ARTICLE XIII: TERMINATION.......................................................26
13.1 Termination.........................................................26
13.2 Effect of Termination...............................................26
ARTICLE XIV: CASUALTY, RISK OF LOSS..............................................27
14.1 Casualty, Risk of Loss..............................................27
ARTICLE XV: MISCELLANEOUS.......................................................27
15.1 Costs and Expenses..................................................27
15.2 Performance.........................................................27
15.3 Binding Effect......................................................27
15.4 Effect and Construction of this Agreement...........................27
15.5 Cooperation - Further Assistance....................................27
15.6 Notices.............................................................27
15.7 Waiver, Discharge, Etc..............................................28
15.8 Rights of Persons Not Parties.......................................28
15.9 Governing Law.......................................................28
15.10 Amendments, Supplements, Etc........................................28
15.11 Severability........................................................29
15.12 Counterparts........................................................29
15.13 Arbitration.........................................................29
15.14 Public Announcements................................................29
</TABLE>
(iii)
<PAGE>
SCHEDULES & EXHIBITS
--------------------
Schedule 1.3 - Designated Contracts
Schedule 5.3 - Consent List of Company
Schedule 5.4 - Capital Stock
Schedule 5.5 - Fixed Assets
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8 - Customers
Schedule 5.9 - Unaudited Financial Statements
Schedule 5.10 - Fee Schedules
Schedule 5.11 - Material Changes
Schedule 5.12 - Licenses, Permits, Certificates of Need
Schedule 5.13(b) - Leases of Personal Property
Schedule 5.14 - Legal Proceedings
Schedule 5.15 - Employees
Schedule 5.17 - Employment Benefit Plans; COBRA Benefits
Schedule 5.18 - Insurance and Surety Agreements
Schedule 5.19 - Relationships
Schedule 5.20 - Absence of Certain Events
Schedule 5.21 - Compliance with Laws
Schedule 5.23 - Tax Returns
Schedule 5.25 - Subsidiaries, Joint Ventures, etc.
Schedule 5.30 - Reimbursement Matters
Schedule 6.5 - Ownership of Company Stock
Exhibit 5.35 - Questionnaire
Exhibit 10.3 - Closing Certificate of Seller and the Company
Exhibit 10.4 - Opinion of Seller's Counsel
Exhibit 10.12A - Bill of Sale
Exhibit 10.12B - Assignment and Assumption Agreement
Exhibit 11.3 - Closing Certificate of Buyer
Exhibit 11.4 - Opinion of Buyer's Counsel
(iv)
<PAGE>
--------------------------
ASSETS PURCHASE AGREEMENT
--------------------------
This Assets Purchase Agreement (the "Agreement") is made as of the 16th
day of March, 1998, among SYMPHONY DIAGNOSTIC SERVICES NO.1, INC., a California
corporation ("Buyer"), PAMELA REICHART (the "Shareholder" or "Seller"), and
JERSEY SHORE PORTABLE X-RAY, INC., a New Jersey corporation (the "Company").
WHEREAS, Buyer wishes to purchase certain of the Company's assets, and
the Company wishes to sell such assets to Buyer, in accordance with the terms
and conditions hereinafter set forth.
WHEREAS, Shareholder is the sole owner of all of the issued and
outstanding shares of the common stock of the Company and is willing to be bound
by the non-competition provisions of this Agreement and to join in the
representations and warranties of the Company hereunder; and
NOW, THEREFORE, for and in consideration of the foregoing premises and
the covenants and agreements contained in this Agreement, Shareholder, Buyer,
and the Company, intending to be legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF ASSETS
--------------------------------------
1.1 SALE AND PURCHASE OF ASSETS. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined), Buyer shall acquire
from the Company, and the Company shall sell, assign, transfer and convey to
Buyer, free and clear of all liens, claims and encumbrances, all of the assets
of the Company, including, without limitation, all contract rights, leasehold
interests, fixed and moveable equipment, furnishings, tangible personal
property, inventory and supplies, goodwill, trade names (including the name
"Jersey Shore Portable X-Ray" and any variations thereof), trademarks, patient
records and files, telephone numbers, all customer contracts between the Company
and any other name under which the business of the Company is conducted,
including any affiliate, if any, and the health care facilities that it
services, all of the Company's right, title and interest in and to the business
name "Jersey Shore Portable X-Ray" and any other name under which the business
of the Company is conducted, and, to the extent permitted by law, all permits,
licenses and other governmental approvals, as presently constituted and utilized
in the business of the Company (collectively, the "Assets"), but excluding (i)
all cash, whether on hand or in marketable securities, and accounts receivable
of the Company which specifically exist prior to the Closing Date, (ii)
inventory and supplies disposed of in the ordinary course of business from the
date hereof until Closing, and (iii) all provider agreements and provider
numbers with Medicare, Medicaid, and third party payors. Buyer shall not accept
any assignment of the Company's or Seller's provider agreements, provider
numbers or any assignment of any type or relationship with Medicare, Medicaid or
a third party payor. Seller will change the Company's name to a name other than
Jersey Shore Portable X-Ray and Seller will not change such name to a confusing
similar name. Notwithstanding the foregoing, for a period of up to six (6)
months following the Closing, Seller shall be permitted to utilize the computer
included in the assets in connection with the billing and collection of Seller's
pre-Closing receivables.
<PAGE>
1.2 LIABILITIES.
(A) Buyer shall not assume any liabilities or obligations of the
Company. 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 (including, without limitation, federal, state and local
taxes of any nature) in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), including without limitation (i) the
full dollar amount of all of Company's commitments and contingencies over the
remaining life of any leases, contracts or other obligations to which Company is
a party or subject as of the Closing Date; (ii) 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 of
Company or any other party that are based on acts or omissions occurring on or
before the Closing Date; (iii) amounts due or that may become due to Medicare or
Medicaid or any other health care reimbursement or payment intermediary or any
carrier, nursing home or other facility, or other third party payor on account
of any health care reimbursement recapture, adjustment or overpayment whatsoever
with respect to any period on or prior to the Closing Date ("Excess
Reimbursement Liabilities"); (iv) any accounts payable, or employment or other
taxes and any other obligation or liability of Company to pay money whatsoever;
and (v) accrued but unpaid compensation or other benefits to any of the
Company's employees, agents, consultants or advisers, including accrued
vacation. Following the Closing Date, the Purchase Price (as defined below) will
be subject to reduction to any extent that the Buyer becomes liable for the
payment of any Liability which arises from operation of the Company prior to the
Closing Date.
(B) Notwithstanding the provisions of the immediately preceding
paragraph, on the Closing Date, contingent upon the consummation of the
transactions contemplated hereby, Buyer shall assume those obligations arising
under the Designated Contracts specified pursuant to Section 1.3, below, and
assigned by Company 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 and obligations under such
Designated Contracts that have accrued, or the performance of which is due, on
or prior to the Closing Date, and all liabilities and obligations under all
other Contracts or which are in payment or consideration for any excluded
assets, shall remain the sole responsibility of Company and shall be paid or
performed on or prior to the Closing Date.
1.3 DESIGNATED CONTRACTS.
(A) As soon as practicable after the date hereof but in no event
later than the day immediately preceding the Closing Date, Buyer shall deliver
notice in writing to Company designating which, if any, of the Contracts
(defined herein) set forth on Schedule 5.7 will be assigned to and assumed by
Buyer (the "Designated Contracts"). Such notice of designation will be set forth
on Schedule 1.3 to be attached hereto. If within said period of time Buyer fails
to so deliver notice to Company, Buyer will be deemed to have designated none of
the Contracts and Company will remain fully liable thereunder. To the extent
Buyer makes any such designation and subject to the rights of third parties to
any assignment, Company shall at Closing be obligated to assign all of its
right, title and interest under such Contracts to Buyer and Buyer shall assume
the obligations accruing after Closing under such Designated Contracts. The
Company shall bring current, as of the Closing Date, all amounts due under the
Designated Contracts. At the Closing, the Purchase Price shall be reduced by an
amount equal to the aggregate amount due as of the Closing under all of the
Designated Contracts which are assumed by Buyer, and such aggregate withheld
amount shall be divided among and paid directly to the such Designated Contract
vendors in accordance with the amounts owed to each of them.
2
<PAGE>
(B) Notwithstanding anything to the contrary contained herein,
Buyer is not assuming and will not be responsible for any liabilities or
obligations under the Designated Contracts incurred on or occurring before the
Closing Date; all such liabilities and obligations remaining the sole and
exclusive responsibility of Company pursuant to Section 1.2 herein and shall be
paid or performed on or prior to the Closing Date.
(C) Immediately after notice of the designation by Buyer of the
Designated Contracts to be assigned by Company, Company 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. In the event
that any of the Designated Contracts are not assignable, or the parties to such
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
Contracts.
1.4 ACCOUNTS RECEIVABLE. The Assets to be purchased by Buyer shall not
include any accounts receivable of the Company as in existence on the Closing
Date (the "Closing Date Receivables"). The Company and the Shareholder will
retain full responsibility and expense for the collection and administration of
the Closing Date Receivables. In the event that the Buyer should receive payment
of any Closing Date Receivables, the proceeds thereof will be paid over to the
Company within fifteen (15) days after receipt of same by Buyer. Likewise, if
the Company or the Shareholder should receive payment of any accounts receivable
of Buyer which arise out of the operation of the Assets after the Closing Date,
the proceeds thereof will be paid over to Buyer within fifteen (15) days after
receipt of same by the Company or the Shareholder.
1.5 EMPLOYEES AND CONSULTANTS. It is expressly understood and agreed
that Buyer's purchase of the Assets does not involve any undertaking on the part
of Buyer to retain any of the employees or consultants of the Company, although
the Buyer shall have the right to offer employment or engagement to any such
employees or consultants. The Company and Seller shall remain fully responsible
for any severance, benefits, costs or liabilities arising out of the termination
by the Company of any of its employees or consultants. The Company and Seller
shall also remain fully responsible for any benefits, costs or liabilities
incurred or accrued prior to Closing with respect to each employee or consultant
retained by Buyer.
ARTICLE II: PURCHASE PRICE
--------------------------
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE. Subject to adjustment
pursuant to Section 2.2 hereof, the aggregate purchase price to be paid by Buyer
to the Company for the Assets (the "Purchase Price") and the aforementioned
non-competition agreement of the Company and Shareholder, shall be FOUR HUNDRED
THOUSAND AND 00/100 DOLLARS ($400,000.00), payable to the Company by delivery of
newly issued shares of the Common Stock, par value $.001, of Integrated Health
Services, Inc. ("IHS"), the parent company of Buyer (the "IHS Stock").
2.2 ALLOCATION. The Purchase Price shall be allocated among the Assets
and non-competition agreement for all accounting, reimbursement, and tax
reporting purposes as follows:
(A) $363,000 - customer lists, contracts, goodwill, trademarks and
tradenames;
(B) $10,000 - non-competition covenants set forth in Article XII;
(C) $23,000 - equipment, materials, furnishings, and inventory; and
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(D) $4,000 - motor vehicles.
ARTICLE III: IHS STOCK
----------------------
3.1 IHS STOCK. The entire Purchase Price shall be payable by means of
the delivery to the Company 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 shall be calculated based upon a price per share
of such stock equal to the average closing NYSE price of such stock for the
thirty (30) trading day period immediately preceding the date which is two (2)
trading days before the Closing Date.
(B) REGISTRATION RIGHTS. Buyer will use its best efforts to cause
to be prepared, filed and declared effective by the Securities and Exchange
Commission (the "Commission") within ninety (90) days following the Closing
Date, a registration statement for the registration under the Securities Act of
1933 (the "Securities Act") of the IHS Stock issued to Company pursuant to this
Agreement, and Buyer shall maintain the effectiveness of such registration
statement for a period of one (1) year following the date on which it becomes
effective (the "Registration Date"), or until Company shall not own any of the
IHS Stock issued pursuant to this Agreement, whichever shall occur first, in
each case except to the extent that an exemption from registration may be
available.
(C) REGISTRATION EXPENSES. Company shall not be responsible for,
and Buyer shall bear, all of the reasonable expenses of Buyer related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. Buyer, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs and expenses in excess in the aggregate of $20,000 for Blue Sky
qualifications of the Company's (and any transferee's) IHS Stock, or to pay any
costs or expenses arising out of the Company's or any transferee's failure to
comply with its obligations under this Article III.
(D) RESALE LIMITATIONS. All resales of IHS Stock issued pursuant to
this Agreement shall be effected solely through Smith Barney Inc., as broker.
(E) REGISTRATION PROCEDURES, ETC. In connection with the
registration rights granted to the Company 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 one (1) year following the date on which the registration becomes effective,
except to the extent that an exemption from registration may be available. Buyer
will immediately notify the Company, 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.
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(II) Buyer shall furnish the Company 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 Company, 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 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, who controls such holders within the meaning of ss.15 of the Securities Act
or ss.20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), against all
loss, claim, damage expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Securities Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by Buyer or based upon written information
furnished by Buyer filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to Buyer by the Company 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 Company or any
controlling person of the Company in respect of which indemnity may be sought
against Buyer pursuant to this subsection 3.1(e)(iv), the Company 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 Company or such controlling person). The Company 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 Company 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 Company and/or such
controlling person shall be borne by Buyer. Except as expressly provided in the
previous sentence, in the event that Buyer shall not previously have assumed the
defenses of any such action or claim, Buyer shall not thereafter be liable to
the Company or such controlling person in investigating, preparing or defending
any such action or claim. Buyer agrees promptly to notify the Company of the
commencement of any litigation or proceedings against Buyer or any of its
officers, directors or controlling persons in connection with the resale of IHS
Stock or in connection with such registration statement.
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(V) The 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 ss.15 of the Securities Act or
ss.20(a) of the Exchange Act against all loss, claim, damage, or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or any other statute, common
law or otherwise, arising from information furnished by or on behalf of such
holder, or its successors or assigns for specific inclusion in such registration
statement.
(F) NOTICE OF SALE. If the Company desires to transfer all or any
portion of IHS Stock, the Company 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 Company 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 Company when
the registration statement has again become current. If the Company delivers to
Buyer an opinion of counsel reasonably acceptable to Buyer and its counsel and
to the effect that the proposed transfer of IHS Stock may be made without
registration under the Securities Act, the Company 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 Company shall furnish to the Buyer such information regarding themselves,
the IHS Stock held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of their IHS Stock.
In that connection, each transferee of the Company shall be required to
represent to the Buyer that all such information which is given is both complete
and accurate in all material respects. The Company shall deliver to the Buyer a
statement in writing from the beneficial owners of such securities that they
bona fide intend to sell, transfer or otherwise dispose of such securities. Each
transferee will, severally, promptly notify Buyer at any time when a prospectus
relating to a registration statement covering such transferee's shares under
this Section 3.1 is required to be delivered under the Securities Act, of the
happening of any event known to such transferee as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the statements as then existing.
(H) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be
issued hereunder will be newly issued shares of Buyer. The Company represents
and warrants to Buyer that the IHS Stock being issued hereunder is being
acquired, and will be acquired, by the Company for investment for its own
account and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act or the applicable state
securities law; the Company acknowledges that the IHS Stock constitutes
restricted securities under Rule 144 promulgated by the Commission pursuant to
the Securities Act, and may have to be held indefinitely, and the Company agrees
that no shares of IHS Stock may be sold, transferred, assigned, pledged or
otherwise disposed of except pursuant to an effective registration statement or
an exemption from registration under the Securities Act, the rules and
regulations thereunder, and under all applicable state securities laws. The
Company has the knowledge and experience in financial and business matters, is
capable of evaluating the merits and risks of the investment, and is able to
bear the economic risk of such investment. The Company has 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, prior to sale of any shares of
IHS Stock pursuant to an effective registration pursuant to subsection (b)
above, the certificates evidencing such shares of IHS Stock shall bear the
following (or a similar) legend (in addition to any legends which may be
required in the opinion of Buyer's counsel by the applicable securities laws of
any state), and upon sale of such shares pursuant to such an effective
registration, new certificates shall be issued for the shares sold without such
legends except as otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(J) CERTAIN TRANSFEREES. Prior to the effective date of
registration of the IHS Stock, no transferee shall transfer any shares of IHS
Stock to any person or entity unless such transferee shall have agreed in
writing to be bound by the provisions applicable to the Company under this
Article III.
ARTICLE IV: THE CLOSING
-----------------------
4.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place as of 12:00 a.m. on
March 16, 1998, at the offices of Seller's counsel or by facsimile and mail, 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 COMPANY AND
------------------------------------------------------------
SHAREHOLDER
-----------
The Company and the Shareholder hereby represent and warrant with
respect to the Company 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 5.25, unless the context
requires otherwise):
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 New Jersey. 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. The Company is qualified to do business as a foreign
corporation in each state where the ownership of its assets or the conduct of
its business makes such qualification necessary.
5.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution nor
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 Shareholder and the Company nor the
performance by Shareholder and the Company of the transactions contemplated
hereby and thereby,
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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 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 the Shareholder 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 "Company
Stock"), the number of shares issued and outstanding of each class or series of
such capital stock, and the identity of each shareholder of the Company, in each
case indicating the class and number of shares held. No shares of the Company
Stock are held in the treasury of the Company. The Shareholder is the record
owner of all of the Company Stock and all of such stock is duly authorized,
validly issued, and fully paid and non-assessable. On the Closing Date, there
will be no preemptive or first refusal rights to purchase or otherwise acquire
shares of capital stock of the Company pursuant to any provision of law or the
Articles of Incorporation or By-Laws of the Company or by agreement or
otherwise. On the Closing Date, there shall not be outstanding any warrants,
options, or other rights to subscribe for or purchase from the Company any
shares of capital stock of the Company, nor shall there be outstanding any
securities convertible into or exchangeable for such shares.
5.5 ASSETS. As of the Closing, the Assets of the Company will include
all of the tangible and intangible assets of the Company as presently
constituted; other than cash, whether on hand or in any deposit accounts or
certificates of deposit, the Closing Date Receivables, provider agreements and
provider numbers with Medicare, Medicaid and third party payors, and inventory,
supplies and other assets disposed of in the ordinary course of business,
consistent with the prior practice of the business of the Company. Schedule 5.5
sets forth a complete list and description of all fixed assets of the Company,
including but not limited to furniture, fixtures, equipment and motor vehicles.
The Assets are not subject to any liens, claims or encumbrances, except as
identified to 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. There is nothing which
would prohibit the transaction of business by Buyer or any company designated by
Buyer in the State of New Jersey under the trade name "Jersey Shore Portable
X-Ray".
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 assets are
bound and as to which the Company has any outstanding material obligations as of
the date hereof (the "Contracts"):
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(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;
(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 $5,000;
(H) each contract under which the Company performs radiological,
EKG or ultrasound services for any nursing home, healthcare or other facility;
(I) each lease of real property;
(J) each agreement with a nursing home, health care facility or any
other customer with special pricing arrangements;
(K) any other radiologist, cardiologist or other physician's
agreements;
(L) each agreement, consent order, settlement or similar
arrangement with any party, including any Governmental Authority (as defined in
Section 5.23); or
(M) any other agreement not made in the ordinary and normal course
of business which involves consideration of more than $5,000.
Except as indicated on Schedule 5.7, each of the Contracts was entered
into and requires performance in the ordinary course of business and is in full
force and effect. The Company is not in material default under any Contract and
there has not been asserted, either by or against the Company under any
Contract, any written notice of default, set-off or claim of default. To the
knowledge of the Company, the parties to the Contracts other than the Company
are not in material default of any of their respective obligations under the
Contracts, and there has not occurred any event which with the passage of time
or the giving of notice (or both) would constitute a material default or
material breach under any Contract. All
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amounts payable under the Contracts are, or will at the Closing Date, be on a
current basis. Each Contract with respect to which consent is required by reason
of the transactions contemplated by this Agreement is identified on Schedule
5.7. Neither the Company nor the Shareholder has received notice or has reason
to believe that any of the Contracts will be terminated by any party thereto
after the date hereof.
5.8 CUSTOMERS. Schedule 5.8 sets forth: (i) a complete and correct list
of the name and address of all current customers of the Company; (ii) a complete
and correct list of all contracts that the Company has with each customer; and
(iii) a summary of the patient volume and examinations by customer by month for
the three (3) years ended December 31, 1997. As of the date hereof, the Company
and Shareholder have received no notice that any customer will cancel a contract
or request a change of service.
5.9 FINANCIAL STATEMENTS. The unaudited balance sheets of the Company
for the fiscal years ended December 31, 1996 and December 31, 1997, and the
related statements of operations and stockholders' equity and statements of cash
flows for the years then ended (the "Unaudited Financial Statements"), annexed
hereto as Schedule 5.9, present fairly in all material respects the financial
condition and results of operations of the Company at and for the periods
therein specified.
5.10 FEE SCHEDULES AND REIMBURSEMENT. Schedule 5.10 sets forth (i) a
complete and correct list of the 1997 and 1998 fee schedules of the Company,
including the amounts charged and the Medicare and Medicaid allowable rates;
(ii) a complete and correct list of any and all Medicaid and Medicare refunds
paid by the Company or pending payment by the Company during the last three (3)
fiscal years; and (iii) a complete list of any customers having special rates or
fee arrangements with the Company, together with a list of such rates or
description of such arrangements.
5.11 MATERIAL CHANGES. Except as noted on Schedule 5.11, 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, operations, operating
results, Medicare and Medicaid reimbursement, third party billing and/or direct
billing, customer and employee relations or business prospects 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. Shareholder has 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, other than information concerning the industry
generally in which the Company conducts its business.
5.12 LICENSES AND PERMITS. Schedule 5.12 sets forth a description of
(a) all licenses and other governmental or other regulatory permits 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 (collectively, the
"Licenses"). Shareholder has delivered to Buyer copies of all of the Licenses.
The Company owns, possesses or has the legal right to use the Licenses, free and
clear of all liens, pledges, claims or other encumbrances of any nature
whatsoever. To the knowledge of the Company, the Company is not in default under
any such License, and the Company has not received any notice of any default or
any other claim or proceeding relating to, any such License. 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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5.13 TITLE, CONDITION OF PERSONAL PROPERTY.
(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) or liens or security interests to be paid or satisfied before
Closing. 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. 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 5.13(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
except security interests to be paid before Closing. The Company does not lease
any of the Assets.
(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 (A) not overdue for a period of more than
30 days or (B) 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
5.13(b);
(IV) pledges or deposits in connection with worker's
compensation, unemployment insurance, and other social security legislation; and
(V) liens for taxes not yet due and payable.
5.14 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.14,
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.
5.15 EMPLOYEES. Schedule 5.15 contains a complete and correct list
of the name, position, and current rate of compensation and any other
compensation arrangements or fringe benefits, and Federal W-2 Forms for the 1997
calendar year, of (i) each employee of the Company, and (ii) any consultant
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or agent of the Company that are not reflected in any agreement or document
referred to in Schedule 5.7. Except as set forth on Schedule 5.15, the Company
currently does not have any pension, profit sharing, or welfare benefit plan
applicable to any of the employees of the Company. No such employee, consultant
or agent has any vested or unvested retirement benefits or other termination
benefits, except as described on Schedule 5.15.
5.16 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 5.15, 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 applicable to any of the employee benefit
plans, agreements and arrangements identified on Schedule 5.7 and Schedule 5.15,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Immigration Reform and Control Act, the Worker
Adjustment and Retraining Notification Act of 1988, any such Government
Requirements respecting employment determination, equal opportunity, affirmative
action, employee privacy, wrongful or unlawful termination, workers'
compensation, occupational safety and health requirements, labor management
relations and unemployment insurance, or related matters and there are no
threatened or pending claims relating thereto, in each case. In the event of
termination of employment of an employee of the Company, Buyer will not,
pursuant to any agreement with the Shareholder or the Company or by reason of
any representation made or plan adopted by the Shareholder or the Company prior
to the Closing, be liable to any employee of the Company for so-called
"severance pay", parachute payments or any other similar payments or benefits,
including, without limitation, post-employment healthcare, insurance benefits,
accrued vacation and sick days.
5.17 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 5.17 sets forth each severance agreement, and each
plan, agreement or arrangement, bonus plan, deferred compensation agreement,
employee pension, profit sharing, savings or retirement plan, group life,
health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, any commitment arising
under severance, holiday, vacation, Christmas or other bonus plans (including,
but not limited to, "employee benefit plans", as defined in Section 3(3) of
ERISA maintained by the Company for any employees of the Company, or with
respect to which the Company has liability with respect to any employees of the
Company, or makes or has an obligation to make contributions on behalf of
employees of the Company ("Plans").
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(C) Schedule 5.17 identifies all employees of the Company on leave
of absence eligible to receive health benefits, as required by 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"). 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.
5.18 INSURANCE AND SURETY AGREEMENTS. Schedule 5.18 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 5.18 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 5.18 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 a
replacement policy, nor has the Company failed to comply with any of the
material conditions contained in any such policies.
5.19 RELATIONSHIPS. Except as disclosed on Schedule 5.19 hereto,
neither the Company nor Shareholder nor any principal, officer, director,
employee, partner or affiliate of the Company or any controlling shareholder
has, nor 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.
5.20 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.20,
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 termination of any radiological or EKG
services contract other than in the ordinary course of business;
(D) made or suffered any amendment or termination of any other
contract, commitment, instrument or agreement involving consideration or
liability in excess of $10,000, 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;
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(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 $10,000;
(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 Authority, any Taxes (as defined in Section 5.23) required by
applicable law to be so collected, withheld and/or paid;
(I) instituted, settled or agreed to settle any litigation, action
or proceeding before any Governmental Authority relating to it or its property
or received any threat thereof; and
(J) entered into any transaction other than in the ordinary course
of business involving consideration in excess of $10,000.
5.21 COMPLIANCE WITH LAWS.
(A) 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 5.21, the Company has not, within the
period of twelve months preceding the date of this Agreement, received any
written notice that it fails to comply in any material respect with any
applicable Federal, state, local, Medicare, Medicaid or other governmental laws
or ordinances, or any applicable order, rule or regulation of any Federal,
state, local, Medicare, Medicaid 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.
(B) Without limiting the generality of subsection (a) above, the
Company has at all times complied, and is complying in all respects, with all
federal, state and local environmental laws, rules or regulations applicable to
it, its leased properties, and all other real properties used by it in the
operation of its business, 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 Company's operations 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 (including medical waste), and to
petroleum products, material or waste, at any other location. No notice from any
Governmental Authority has ever been served upon the Company claiming any
violation of, or addressing any possible non-compliance with respect to, any
Environmental Law.
5.22 FINDERS. No broker or finder has acted for the Shareholder 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 Shareholder or the Company.
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5.23 TAX RETURNS.
(A) Except as set forth in Schedule 5.23, (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, 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.
5.24 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.
5.25 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.25 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 5.25 hereto is owned of record or beneficially
by the Company or by one of the listed subsidiaries except as listed on Schedule
5.25.
5.26 COMPLETE DISCLOSURE. No representation or warranty by the Company
or the Shareholder in this Agreement or any Exhibit or Schedule referred to
herein and no written statement, certificate or other writing furnished to the
Buyer by or on behalf of the Company or the Shareholder pursuant to this
Agreement, when considered in conjunction with all other such representations,
warranties, schedules, written statements, certificates or other writings
furnished to Buyer by or on behalf of the Company or the Shareholder pursuant to
this Agreement, contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. To the best of the Company's and the Shareholder's knowledge, there
is no fact which materially and adversely affects or may materially and
adversely affect the business, operations, affairs, condition, properties or
assets of the Company which has not been set forth in this Agreement or the
Schedules or other documents delivered by the Company or the Shareholder in
connection with the transactions contemplated hereby.
5.27 BOOKS OF ACCOUNT; RECORDS. The Company's general ledgers, stock
record books, minute books and other material records relating to the assets,
properties, contracts and outstanding legal obligations of the Company are, in
all material respects, complete and correct, and have been maintained in
accordance with good business practices. All documents furnished to Buyer will
be correct and complete copies.
5.28 QUESTIONABLE PAYMENTS. Neither the Shareholder nor the Company, or
any director, officer, controlling person or employee of the Company, and no
affiliate of Company, (a) has used any corporate funds of the Company to make
any payment to any officer, employee, representative, agent of any government,
or to any political party or official thereof, where such payment either (i) is
unlawful under laws applicable thereto; or (ii) would be 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 payment for any referrals or recommendations or otherwise in
connection with the operation of the Company's business.
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5.29 ENVIRONMENTAL COMPLIANCE. The Company is in material compliance
with all applicable environmental and related laws, ordinances and governmental
rules and regulations applicable to it, including, but not limited to, the
Resource Conservation and Recovery Act of 1976, as amended, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, the
Federal Water Pollution Control Act, as amended by the Clean Water Act, the
Federal Toxic Substances Control Act, as amended, and all other Federal, state
and local laws, regulations and ordinances with respect to the protection of the
environment. The foregoing representation and warranty applies to all aspects of
the operation of the Company's business including, but not limited to, the use,
handling, treatment, storage, transportation and disposal of any hazardous,
toxic or infectious waste, material or substance.
5.30 REIMBURSEMENT MATTERS. Except as disclosed on Schedule 5.30, (i)
the Company and Seller have not received any notice of recoupment from the
Medicare or Medicaid programs, or any other third party reimbursement source
(inclusive of managed care organizations), (ii) the Shareholder and the Company
are not aware of any basis for the assertion after the Closing Date of any such
recoupment claim against the Company, and (iii) the Seller has not 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, and neither the Seller, nor the Company
have any reason to believe that any such investigation or survey is pending,
threatened or imminent.
5.31 MEDICARE/MEDICAID PARTICIPATION. All services provided by the
Company are 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 have received all approvals or
qualifications necessary for capital reimbursement.
5.32 POWER AND AUTHORITY. The Company has all requisite corporate power
and authority to execute, deliver and perform this Agreement, and as of the
Closing, the Company will have all requisite corporate power and authority to
execute, deliver and perform the Transaction Documents required to be delivered
by it to the Buyer at the Closing. All action required by Company's Articles of
Incorporation, By-Laws or otherwise, to authorize the execution, delivery and
performance of this Agreement and the Transaction Documents has been taken.
5.33 CAPACITY. As of the Closing, the Shareholder has the full legal
power and capacity to make, execute, deliver and perform this Agreement and the
Transaction Documents required or contemplated hereby or thereby to be executed
or delivered by them at the Closing. Such execution, delivery, performance and
consummation have been made in the exercise of Shareholder's free will and
volition.
5.34 BINDING EFFECT. This Agreement and all Transaction Documents
executed by the Company and Shareholder constitute the legal, valid and binding
obligations of each such party, enforceable against such party in accordance
with their respective terms.
5.35 QUESTIONNAIRES. The healthcare law questionnaire heretofore
delivered to the Company by Buyer (the "Questionnaire") will be attached hereto
as Exhibit 5.35 and will as of the Closing Date have been fully and accurately
completed and will not contain any material misstatement of any fact and will
not omit any fact that would have to be stated in order not to render any
response to such questionnaire materially misleading.
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ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------------------
The Seller hereby represents and warrants to Buyer as follows:
6.1 AUTHORITY. Seller has the full legal power and authority to make,
execute, deliver and perform this Agreement and the Transaction Documents. Such
execution, delivery, performance and consummation has been duly authorized by
all necessary action, corporate or otherwise, on the part of Seller, and any
necessary consents of holders of indebtedness of Seller have been obtained.
6.2 BINDING EFFECT. This Agreement and all Transaction Documents
executed by Seller constitute the valid and binding obligations of such party,
enforceable against Seller in accordance with their respective terms.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery of this Agreement or any of the Transaction Documents by Seller nor the
performance by Seller of the transactions contemplated hereby and thereby
conflicts with, or constitutes a breach of or a default under (i) any law, rule,
judgment, order, writ, injunction, or decree of any court currently in effect
applicable to Seller, or (ii) any rule or regulation of any administrative
agency or other governmental authority currently in effect applicable to Seller,
or (iii) any agreement, indenture, contract or instrument to which such party is
now a party or by which any of the assets of Seller is bound.
6.4 CONSENTS. No authorization, consent, approval, license, exemption
by, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution, delivery and performance of
this Agreement or any of the Transaction Documents by Seller.
6.5 OWNERSHIP OF COMPANY STOCK. Except as disclosed on Schedule 6.5
hereto, Seller is the lawful record and beneficial owner of all of the Company
Stock shown as owned by Seller in Schedule 5.4, with good and marketable title
thereto, free and clear of all liens and encumbrances, claims and other charges
thereon of any kind. The shares of Company Stock indicated on Schedule 5.4 as
being owned by the Seller constitute all of the issued and outstanding shares of
the capital stock of the Company. 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 Shareholder 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 California.
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 Company 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 obligations of Buyer, enforceable against Buyer in
accordance with their respective terms.
7.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery of this Agreement or any of the Transaction Documents by Buyer nor the
performance by the Buyer of the transactions contemplated hereby and thereby
conflicts with, or constitutes a breach of or a default under (i) the formation
documents of the Buyer, or (ii) any law, rule, judgment, order, writ,
injunction, or decree of any court currently in effect applicable to Buyer, or
(iii) any rule or regulation of any administrative agency or other governmental
authority currently in effect applicable to Buyer, or (iv) any agreement,
indenture, contract or instrument to which the Buyer is now a party or by which
any of the assets of the Buyer is bound.
7.5 CONSENTS. No authorization, consent, approval, license, exemption
by, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution, delivery and performance of
this Agreement or any of the Transaction Documents by Buyer.
7.6 FINDERS. No broker or finder has acted for 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.
ARTICLE VIII: INFORMATION AND RECORDS CONCERNING THE COMPANY
------------------------------------------------------------
8.1 ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to the
Closing Date, Buyer may make, or cause to be made, such investigation of 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 5.25) financial and legal condition as Buyer
deems necessary or advisable to familiarize itself with the Company and the
Assets 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,
such 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. Without limiting any of the foregoing, it is
agreed that Buyer will have full access to any and all agreements between and
among the previous and current shareholders regarding their ownership of shares
or the management or operation of the Company.
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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) cause or permit to occur any of the events or occurrences
described in Section 5.20 (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;
(D) sell off any Assets other than in the ordinary course of
business; or
(E) make any change to their by-laws or articles of incorporation.
9.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, the
Company and each of its subsidiaries shall:
(A) maintain their businesses in substantially the state of repair,
order and condition as on the date hereof, reasonable wear and tear or loss by
casualty excepted;
(B) maintain in full force and effect all Licenses currently in
effect with respect to their businesses unless such License is no longer
necessary for the operation of the Company and its subsidiaries;
(C) maintain in full force and effect the insurance policies and
binders currently in effect, or the replacements thereof, including without
limitation those listed on Schedule 5.18;
(D) utilize their reasonable efforts to preserve intact the present
business organization of the Company and its subsidiaries; keep available the
services of the Company's and its subsidiaries' present employees and agents;
and maintain the Company's relations and goodwill with suppliers, employees,
affiliated medical personnel and any others having business relating to the
Company and its subsidiaries;
(E) maintain all of the books and records in accordance with their
past practices;
(F) comply in all material respects with all provisions of the
Contracts listed in Schedule 5.7 and with any other material agreements that the
Company and its subsidiaries have entered into in the ordinary course of
business since the date of this Agreement, and comply in all material respects
with the provisions of all material laws, rules and regulations applicable to
the Company's and its subsidiaries' businesses;
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(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 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, including, but not limited to the threatened
cancellation of any contract to provide radiological or EKG services; and
(I) notify the Buyer in writing of any event involving the Company
and its subsidiaries which has had or may be reasonably expected to have a
material adverse effect on the business or financial condition of the Company
and its subsidiaries or may involve the loss of contracts with any of the
Company's or its subsidiaries' customers.
9.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing, Buyer
shall use its reasonable efforts to obtain all consents and approvals of
governmental agencies and all other parties necessary for the lawful
consummation of the transactions contemplated hereby and the lawful use,
occupancy and enjoyment of the Company's and its subsidiaries' businesses in
accordance herewith ("Required Approvals"). The Company and its subsidiaries
shall cooperate with and use their reasonable efforts to assist Buyer in
obtaining all such approvals.
9.5 EXCLUSIVITY. Until the earlier of Closing or the termination of
this Agreement pursuant to Section 13.1, neither the Company nor 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 the Company.
ARTICLE X: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
------------------------------------------------------
Buyer's obligations to consummate the purchase of the Assets is subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Buyer in writing. Upon
failure of any of the following conditions, Buyer may terminate this Agreement
pursuant to and in accordance with Article XIII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and the Shareholder made pursuant to this Agreement, shall be
true and correct in all material respects at and as of the Closing Date, as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated.
10.2 PERFORMANCE OF COVENANTS. The Shareholder 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. The Shareholder and the Company
shall have executed and delivered to Buyer a certificate of its president, dated
the Closing Date, upon which Buyer may rely, certifying that the conditions
contemplated by Sections 10.1 and 10.2 applicable to it have been satisfied.
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10.4 OPINION OF COUNSEL. The 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. Said opinion shall be addressed to and may be
relied upon by Buyer and its counsel.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or other
order (including a temporary restraining order) of any governmental authority
which prevents the consummation of the transactions contemplated by this
Agreement shall have been issued and remain in effect.
10.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a certificate
of the Secretary or other officer of the Company certifying as of the Closing
Date a copy of Resolutions of the Company's Board of Directors authorizing its
execution and full performance of the Transaction Documents and the incumbency
of its respective officers.
10.7 MATERIAL CHANGE. Since the date of the Unaudited Interim Financial
Statements, there shall not have been any material adverse changes in the
condition (financial or otherwise) of the assets, properties, operations,
operating results, Medicare and Medicaid reimbursement, third party billing
and/or direct billing, customer and employee relations or business prospects of
the Company.
10.8 APPROVALS.
(A) The consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby shall have been granted,
including without limitation, the Required Approvals;
(B) None of the foregoing consents or approvals (i) shall have been
conditioned upon the modification, cancellation or termination of any material
lease, contract, commitment, agreement, license, easement, right or other
authorization with respect to the Company's 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 business or its operation
that is more restrictive than or different from the conditions imposed upon such
operation prior to Closing.
10.9 IRS FORM 8594. The Company shall have executed and delivered to
Buyer IRS Form 8594 reflecting the allocation of the Purchase Price in
accordance with Section 2.2.
10.10 INSURANCE. If the Company's existing general liability coverage
is not on an "occurrence" basis, then the Company shall have paid for and
delivered to Buyer a tail policy with respect to liability insurance coverage
satisfactory to Buyer, which policy shall name Buyer as an additional insured.
10.11 GOOD STANDING CERTIFICATE. The Company shall have delivered to
Buyer a good standing certificate issued by the New Jersey Secretary of State
with respect to the Company, dated not more than thirty (30) days prior to the
Closing Date.
10.12 BILL OF SALE AND ASSIGNMENT. The Company shall have executed and
delivered to Buyer the Bill of Sale and the Assignment and Assumption Agreement
substantially in the form of Exhibit 10.12A and 10.12B, respectively.
10.13 REGULATORY MATTERS. Company shall have provided to Buyer all
licenses, permits, and other regulatory materials pertaining to the Company's
operations as shall have been reasonably requested by Buyer.
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10.14 TITLE MATTERS. Company and Seller shall have furnished all
recorded title documents, mortgages, liens, and other matters affecting title to
the Assets. vehicles previously leased by the Company in connection with the
Company's business.
10.16 SALES TAX. Seller shall have paid all sales tax for motor
vehicles and equipment, if applicable.
10.17 CHANGE OF NAME. The Company shall have taken such reasonable
steps as Buyer shall have requested to change its name so as not to include any
trade names or service names included in the Assets.
10.18 CONSENTS. Buyer shall have received the written consent to
assignment from each of those nursing homes, retirement facilities or other
healthcare facilities with whom the Company or its subsidiaries has a
radiological or EKG services contract as listed on Schedule 5.7(h), where such
consent is required.
10.19 REAL PROPERTY CONSENTS. The Company shall have used its best
efforts to obtain the written consent to assignment of each landlord with whom
the Company or any of its subsidiaries has a lease of real property which, by
its terms, requires consent, and the written consent of such landlords shall
have been received by the Buyer. Alternatively, the Company shall have delivered
a waiver from each such landlord of any provision contained in any of such
leases which would require the landlord's consent upon any assignment of the
lease. Buyer shall have received notice from the Company by the Closing Date,
identifying any landlord that has not given any necessary consent as of such
date.
10.20 NURSING HOME MEETINGS. The Buyer shall have had personal meetings
with the respective Administrators and Directors of Nurses of Bayview
Convalescent Center, Country Manor and John L. Montgomery, accompanied by
Shareholder, at which meetings the said Administrators and Directors of Nurses
shall have confirmed their intention to utilize the Buyer's mobile x-ray and EKG
services as their exclusive mobile x-ray and EKG provider following Closing.
10.21 PATIENT VOLUME SUMMARY. Company shall have provided Buyer a true
and correct summary of the x-ray and EKG patient volume and examinations for
each of its customers by month for the three years ended December 31, 1997.
10.22 BOARD APPROVAL. Buyer will have received all necessary Board of
Director approvals.
10.23 OTHER DOCUMENTS. Shareholder and the Company shall have furnished
Buyer with all other documents, certificates and other instruments required to
be furnished to Buyer by Shareholder and the Company pursuant to the terms
hereof.
ARTICLE XI: CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS
---------------------------------------------------------
The Company's obligation to consummate the sale of the Assets is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Seller in writing. Upon
failure of any of the following conditions, Seller may terminate this Agreement
pursuant to and in accordance with Article XIII herein.
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11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer made pursuant to this Agreement, shall be true 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.
11.2 PERFORMANCE OF COVENANTS. Buyer shall have performed or complied
in all material respects with each of its agreements and covenants 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 the
Company a certificate of a senior vice president of Buyer dated the Closing Date
upon which the Company 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 the Company 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 OTHER DOCUMENTS. Buyer shall have furnished the Company with all
documents, certificates and other instruments required to be furnished to the
Company by Buyer pursuant to the terms hereof.
ARTICLE XII: OBLIGATIONS OF THE PARTIES AFTER CLOSING
-----------------------------------------------------
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and Shareholder set forth in this Agreement or in
any Schedule, certificate, document or list delivered by any such party pursuant
hereto 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.
12.2 INDEMNIFICATION BY SHAREHOLDER AND THE COMPANY. The Shareholder
and the Company shall indemnify jointly and severally and defend Buyer and hold
it harmless against and with respect to any and all damage, loss, liability,
deficiency, cost and expense (including, without limitation, reasonable
attorney's fees and expenses) (all of the foregoing hereinafter collectively
referred to as "Loss") resulting from:
(A) any inaccuracy in any representation or certification, or
breach of any warranty, made by the Shareholder or the Company in this Agreement
or any Transaction Document;
(B) the breach of any covenant or undertaking by the Shareholder or
the Company contained in this Agreement which survives the Closing and is not
waived by Buyer at or prior to the Closing;
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(C) ownership or operation of the Company or its business or assets
prior to the Closing Date, including, without limitation, (i) any Excess
Reimbursement Liabilities (as defined in Section 1.2); (ii) any Loss arising out
of any bulk transfer act (whether relating to liabilities in general or taxes or
otherwise; (iii) any Taxes resulting from the operation of the business of the
Company or ownership of any of the Assets for any period ending on or before the
Closing Date; (iv) any Loss arising out of the noncompliance of the Company with
COBRA or any like statute; (v) any claim of the type that would be covered by a
standard liability insurance policy, including, without limitation, professional
liability, malpractice, general liability, automobile liability, workers'
compensation and/or employer's liability insurance, arising out of the operation
of the Company's business prior to the Closing Date, including payments of any
deductibles applicable to the aforesaid policies; and (vi) any and all actions,
suits, proceedings, demands, assessments, judgments, settlements (to the extent
approved by the Company, such approval not to be unreasonably withheld, delayed
or conditioned), costs and legal expenses incident to any of the foregoing.
Without limiting the foregoing, the Company and Shareholder hereby
represent and warrant to Buyer that they have complied with any and all bulk
transfer act or similar procedures applicable to the transactions herein
contemplated.
12.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend
Shareholder and the Company and hold them harmless against and with respect to
any and all Loss occurring or suffered resulting from:
(A) any inaccuracy in any representation or certification, or
breach of any warranty, made by the Buyer in this Agreement or any Transaction
Document;
(B) the breach of any covenant or undertaking by Buyer which
survives the Closing and is not waived by Shareholder or the Company at or prior
to the Closing;
(C) operation of the business of the Company or Assets on and after
the Closing Date.
12.4 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS.
(A) Buyer shall give Shareholder prompt written notice of the claim
for which it seeks indemnification. Failure of the Buyer to give such prompt
notice shall not relieve the Shareholder of her indemnification obligation,
provided that such indemnification obligation shall be reduced by any damages
suffered by Shareholder resulting from a failure to give prompt notice
hereunder. The Shareholder 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
Shareholder does 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
Shareholder, which consent shall not be unreasonably withheld. Nothing contained
in this Section 12.4 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 Shareholder and the Company shall give Buyer prompt written
notice of the claim for which they seek indemnification. Failure of the
Shareholder and the Company 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
24
<PAGE>
give prompt notice hereunder. The Buyer shall be entitled to participate in the
defense of such claim. If at any time the Shareholder and the Company
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 Buyer does not assume total control of
the defense of any such claim, the Shareholder and the Company 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 12.4 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.
(C) Notwithstanding anything to the contrary contained in this
Agreement, if there shall be any claim for Excess Reimbursement Liabilities with
respect to which Buyer shall be seeking indemnification, Buyer will have the
sole right to contest or appeal such claim, using at least the same standard of
care as it would apply to contests or appeals with respect to reimbursement
liabilities in general. Buyer may, in its sole and absolute discretion, at any
time discontinue any such contest or appeal or enter into a settlement with
respect thereto prior to the final determination thereof (a "Final
Determination"); provided, however, that if it intends to discontinue or settle
any such appeal or contest prior to Final Determination, then it must provide
the Shareholder with reasonable prior written notice of such intent and of the
current status of the appeal or contest or proposed settlement, and upon request
of the Shareholder, Buyer shall permit the Company and the Shareholder, as the
indemnifying parties, to thereafter control (without the right to settle the
same unless Buyer shall consent to such settlement, which consent shall not
unreasonably be withheld) the contest and appeal of such Excess Reimbursement
Liabilities claim on behalf of Buyer; it being understood, however, that the
Company and the Shareholder shall continue to be obligated to indemnify Buyer
for any Excess Reimbursement Liabilities unless the Buyer shall, in its sole
discretion, elect not to permit the Company and the Shareholder to control the
contest and appeal of any such Excess Reimbursement Liabilities for which the
Shareholder has requested control in accordance with the foregoing.
12.5 RESTRICTIONS.
(A) From and after the Closing Date, neither the Company nor the
Shareholder 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, 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 Shareholder shall be permitted to make
such disclosures as may be required by law or by a court or governmental
authority.
(B) After the Closing Date, neither the Company nor the Shareholder
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 to cease doing business, or their association or employment, with the
Company.
(C) For a period of three (3) years following the Closing Date,
neither the Company nor the Shareholder shall, directly or indirectly for, or on
behalf of themselves or any other person, firm, entity or other enterprise, be
employed by, be a director or manager of, act as a consultant for, be a partner
in, have a proprietary interest in, give advice to, loan money to or otherwise
associate with, any person, enterprise, partnership, association, corporation,
joint venture or other entity of any type, licensed or unlicensed, which is
engaged in or provides mobile radiological, EKG or mobile medical diagnostic
services or in any way competes with the Buyer or its subsidiaries or IHS or its
subsidiaries in the State of New Jersey.
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<PAGE>
(D) The Shareholder and the Company acknowledge that the
restrictions contained in this Section 12.5 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,
Shareholder agrees that upon the violation by any of them of any of the
restrictions contained in this Section 12.5, Buyer shall be entitled to obtain
from any court of competent jurisdiction a preliminary and permanent injunction
as well as any other relief provided at law or equity, under this Agreement or
otherwise. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceeding, then the parties agree that the period of time
or the scope of such restrictions (or both) shall be adjusted in such a manner
or for such a time (or both) as is adjudged to be reasonable.
12.6 RECORDS. On the Closing Date, the 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, including without limitation x-ray
films, EKG tracings, radiology and cardiology reports, physician orders,
customer marketing and advertising information and personnel records.
12.7 CUSTOMER TRANSITION. Upon Closing, the Company and the Shareholder
will join in signing a letter to the Company's customers announcing the transfer
of the Company's business to the Buyer, the form of such letter to be mutually
satisfactory to the Shareholder, the Company, and the Buyer. The Shareholder
shall be available to accompany representatives of the Buyer in visiting or
otherwise contacting customers of the Company to discuss the transition of their
existing service agreements to the Buyer. In addition, the Shareholder will be
available for a period of six (6) months following the Closing Date to answer
questions regarding such transaction.
12.8 EXCLUSIVE USE. Following Closing, Bayview Convalescent Center,
Country Manor and John L. Montgomery shall utilize the Buyer's mobile x-ray and
EKG services as their exclusive mobile x-ray and EKG provider.
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 the Closing
Date or pursuant to Section 14.1 if any portion of the Assets is damaged or
destroyed as a result of fire, other casualty or for any reason whatsoever;
(B) the Company, if any condition precedent to Company's
obligations hereunder set forth in Article XI hereof has not been satisfied by
the Closing Date; or
(C) the mutual consent of Buyer and the Company.
13.2 EFFECT OF TERMINATION. If a party terminates this Agreement
because one of its conditions precedent has not been fulfilled, or if this
Agreement is terminated by mutual consent, or if it is terminated pursuant to
Section 14.1, this Agreement shall become null and void without any liability of
any party to the other; provided, however, that if such termination is by reason
of the breach by any party of any of its representations, warranties or
obligations under this Agreement, the other party shall be entitled to be
indemnified for any Losses incurred by it by reason thereof in accordance with
Article XII hereof (and for such purposes such Article XII shall survive the
termination of this Agreement). Further, nothing in this Section 13.2 shall
affect Buyer's right to specific performance of the obligations of the Company
and Shareholder at Closing hereunder.
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ARTICLE XIV: CASUALTY, RISK OF LOSS
-----------------------------------
14.1 CASUALTY, RISK OF LOSS. The Company and Shareholder 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, the Company and Shareholder 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 Shareholder or the Company on
account of any such casualty. Nothing contained in this Section 14.1 shall limit
or adversely affect the right of Buyer to receive indemnification for any Losses
incurred by either of them by reason of any breach by Shareholder or the Company
of any representation, warranty or obligation under this Agreement in accordance
with Section 12.2 hereof (and for such purposes such Section 12.2 shall survive
the termination of this Agreement).
ARTICLE XV: MISCELLANEOUS
-------------------------
15.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Buyer, Shareholder and the Company shall bear their own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby; provided, however, no such costs and expenses shall be charged to the
Assets.
15.2 PERFORMANCE. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and, to the extent allowed or not prohibited by
applicable law, 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.
15.3 BINDING EFFECT. This Agreement binds and inures to the benefit of
each party hereto and its successors and proper assigns.
15.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
Exhibits and Schedules hereto embody the entire agreement and understanding of
the parties and supersede any and all prior agreements, arrangements and
understandings relating to matters provided for herein. The captions used herein
are for convenience only and shall not control or affect the meaning or
construction of the provisions of this Agreement. This Agreement may be executed
in one or more counterparts, and all such counterparts shall constitute one and
the same instrument.
15.5 COOPERATION - FURTHER ASSISTANCE. From time to time, as and when
reasonably requested by any party hereto after the Closing, the other parties
will (at the expense of the requesting party) execute and deliver, or cause to
be executed and delivered, all such documents, instruments and consents and will
use reasonable efforts to take all such action as may be reasonably requested or
necessary to carry out the intent and purposes of this Agreement, and to vest in
Buyer good title to, possession of and control of all of the Assets.
15.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given or made when personally
delivered to the party or parties entitled to receive the notice or within five
(5) days when sent by certified or registered mail, postage prepaid, or on the
next business day if sent for next day delivery by a nationally recognized
overnight courier, in either case, properly addressed to the party or parties
entitled to receive such notice at the address stated below:
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<TABLE>
<CAPTION>
<S> <C>
If to the Company or the Shareholder: Mrs. Pamela Reichart
Jersey Shore Portable X-Ray, Inc.
957 Vaughn Avenue
Toms River, NJ 08753
with a copy to: Robert Santangelo, Esq.
1144 Hooper Avenue
Suite 212
Toms River Corporate Center
Toms River, NJ 08753
If to the Buyer: Symphony Diagnostic Services No.1, Inc.
8181 W. Broward Blvd., Suite 370
Plantation, FL 33324
Attn: Martin Ardman, Senior Vice President
with a copy to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, Esq.
With a copy to: Michael S. Blass, Esq.
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
</TABLE>
15.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
15.8 RIGHTS OF PERSONS NOT PARTIES. Nothing contained in this Agreement
shall be deemed to create rights in persons not parties hereto, other than the
successors and proper assigns of the parties hereto.
15.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, disregarding any rules
relating to the choice or conflict of laws.
15.10 AMENDMENTS, SUPPLEMENTS, ETC. At any time before or after the
execution and delivery of this Agreement by the parties hereto, this Agreement
may be amended or supplemented by additional agreements, articles or
certificates, as may be mutually determined by the parties to be necessary,
appropriate or desirable to further the purposes of this Agreement, to clarify
the intention of the parties, or to add to or to modify the covenants, terms or
conditions hereof or thereof. The parties hereto shall make such technical
changes to this Agreement, not inconsistent with the purposes hereof, as may be
required to effect or facilitate any governmental approval or acceptance of this
Agreement or to effect or facilitate any filing or recording required for the
consummation of any portion of the transactions contemplated hereby. This
Agreement may not be amended except by an instrument in writing signed by each
of the parties.
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<PAGE>
15.11 SEVERABILITY. Any provision, or distinguishable portion of any
provision, of this Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 12.5 shall be
determined to be overly broad in any respect, then it should be enforceable to
the maximum extent permissible under the law. To the extent permitted by
applicable law, the parties waive any provision of law which renders a provision
hereof prohibited or unenforceable in any respect.
15.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15.13 ARBITRATION. Any dispute or controversy between any of the
parties hereto pertaining to the performance or interpretation of this Agreement
shall be settled by binding arbitration pursuant to the rules of the American
Arbitration Association. The cost of such proceeding shall be shared equally by
all parties thereto, and each such party shall bear its own costs incurred as a
result of its participation in any such arbitration.
15.14 PUBLIC ANNOUNCEMENTS. Any general public announcements or similar
media publicity with respect to this Agreement or the transactions contemplated
herein shall be at such time and as such manner as Buyer or 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.
[SIGNATURES ON THE FOLLOWING PAGE]
29
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto and in the capacity
indicated below has executed this Agreement as of the day and year first above
written.
COMPANY:
WITNESS: JERSEY SHORE PORTABLE X-RAY, INC.
By: By:
-------------------------- --------------------------------
Name: Pamela Reichart
Title: President
WITNESS: SHAREHOLDER:
By:
------------------------- ------------------------------------
Pamela Reichart
BUYER:
SYMPHONY DIAGNOSTIC SERVICES
NO.1, INC.
By:
---------------------------------
Martin Ardman
Senior Vice President
EXHIBIT 5
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
May 8, 1998
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), to be filed by Integrated Health Services, Inc. (the "Company") on
behalf of certain selling stockholders (the "Selling Stockholders") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to 981,421 shares of Common Stock, $.001 par value (the "Shares"), to
be sold by the Selling Stockholders named therein.
As counsel for the Company, we have examined such corporate records,
documents and such questions of law as we have considered necessary or
appropriate for purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the Shares to be sold by the Selling
Stockholders have been duly and validly authorized and are legally issued, fully
paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the caption "Legal Matters" in
the prospectus contained therein and elsewhere in the Registration Statement and
prospectus. This consent is not to be construed as an admission that we are a
party whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
Fulbright & Jaworski L.L.P.
